FIRSTGROUP PLC
NOTICE OF GENERAL MEETING
On 17 May 2019, the Board of
FirstGroup plc (‘FirstGroup’, the ‘Group’, or the ‘Company’)
received a requisition notice from State Street Nominees Limited
(acting as custodian for a company managed by Coast Capital), a
shareholder holding around 10% of the Company’s shares,
requisitioning a general meeting to consider resolutions to remove
six of the current Directors and replace them with seven of Coast
Capital’s own nominees.
Accordingly, in compliance with Listing Rule 9.6.1R, the Company
will today submit a copy of the documents listed below to the UK
Listing Authority and they will shortly be available for inspection
via the National Storage Mechanism at
http://www.morningstar.co.uk/uk/NSM. These documents will also be
despatched or otherwise made available to shareholders today.
- Notice of General Meeting to be held at 2.00 p.m. on 25 June
2019 at De Vere Grand Connaught Rooms, 61-65 Great Queen
Street, Holborn, London, WC2B 5DA
(the ‘Notice’); and
- Form of Proxy and Notice of Availability.
As required under the Disclosure Guidance and Transparency Rule
(‘DGTR’) 6.3.5R(3), the Notice will also be available shortly on
the Company’s website at
http://www.firstgroupplc.com/general-meeting.
As explained in the Notice, the Directors strongly believe that
the Coast Capital Resolutions are not in the best interests of the
Company, its shareholders as a whole or its wider stakeholders and
recommend unanimously that FirstGroup shareholders vote against all
of the Coast Capital resolutions.
The Notice includes a letter to shareholders from FirstGroup
Chairman, Wolfhart Hauser, which
includes the following information.
As previously planned, on 30 May
2019, FirstGroup set out a clear strategic direction
alongside its results for the financial year to 31 March 2019. The Board believes that this
strategy will deliver best value for the shareholders of the
Company.
FirstGroup:
- has the right strategy to take the business forward
- has the right Board and the right team to execute it at
pace
- has a diverse, independent Board
- has renewed the Board with the right experience for
FirstGroup’s future
- will, alongside delivering our strategy, continue to provide
safe, sustainable and environmentally friendly travel solutions for
the people and communities we serve
Coast Capital:
- proposes to take control of the Board with the removal of six
current Directors and the appointment of seven non-independent
directors
- proposes to appoint directors whose experience is not current
and is not aligned to FirstGroup’s business nor its future
growth
- has put forward plans that are inconsistent, demonstrate a lack
of understanding of FirstGroup and are rooted in the past
- has put forward irresponsible plans that would leave the Group
with higher debt
- has put forward plans that are not in the best interests of
shareholders as a whole or our wider stakeholders
The right strategy to take FirstGroup
forward
On 30 May 2019, after seven months
in the role, FirstGroup Chief Executive Matthew Gregory announced a clear path forward
for the business, which the Board is confident will deliver
enhanced sustainable value for shareholders, having regard to our
responsibilities to our wider stakeholders:
- We plan to rationalise our portfolio with FirstGroup’s future
emphasis on First Student and First Transit, our core North
American contracting businesses, which have the greatest potential
to generate sustainable value and growth over time
- These businesses are already leaders in their markets and share
increasingly similar characteristics and growth opportunities.
Together First Student and First Transit generated over 60% of the
Group’s operating profits in 2018/19 and are already a solid,
profitable platform for growth in the North American mobility
services sector. By focusing on our customers’ needs and leveraging
the latest technology, efficiency and safety practices as well as
partnerships, we see significant potential for long term
sustainable value and growth from the businesses
- Accordingly, a formal process to sell Greyhound has commenced
and we will pursue structural alternatives to separate First Bus
from the Group
- We have an existing portfolio of rail franchises in the UK
which we will operate in accordance with their contractual terms.
Any future commitments to UK rail will need to have an appropriate
balance of potential risks and rewards for our shareholders
A copy of our strategy update is included in Appendix 3 to the
circular, which is available on the Company’s website at
http://www.firstgroupplc.com/general-meeting. An audio file of
Matthew explaining this strategy in more detail is available at
https://www.firstgroupplc.com/results-centre.
The Board firmly believes that this is the right strategy to
deliver the best value to all shareholders, having regard to our
responsibilities to our wider stakeholders. It follows a full and
comprehensive review over the past year of all appropriate means to
mobilise the considerable value inherent in the Group, in a process
which recognised the friction costs, regulatory procedures and
stakeholder consultations which require careful consideration in
the case of some potential options. The best team to navigate these
complex issues is the current management team of the Company, which
has deep experience of the Company and the industry in which it
operates and takes all of its responsibilities with the utmost
seriousness. In parallel with the portfolio rationalisation plans
we will continue to drive forward the clear strategies now
established in each of our divisions to ensure they deliver further
progress and growth in the Company’s existing and adjacent markets,
underpinned by plans to enhance our cost base further.
FirstGroup has the right team to
execute at pace
Matthew Gregory was appointed as
Chief Executive in November 2018
after a thorough external and internal search was conducted.
Matthew’s experience includes 24 years of financial, commercial and
operational experience all within UK-listed PLCs with extensive
international operations. This sector experience includes public
transportation, manufacturing and distribution, including the
largest component distribution division of Essentra plc, where he
had a track record of tripling revenue, quadrupling profit and
increasing margins by over 500 bps through disciplined commercial
and operational management. Matthew also has a wealth of North
American and other international experience. His deep operational
understanding of FirstGroup gained since his appointment as Chief
Financial Officer in 2015 and his drive to unlock shareholder value
makes him exactly the right person to implement the Board’s
strategic plans.
Under Matthew’s leadership, in 2018/2019 FirstGroup has
delivered:
- Underlying revenue growth of +5.7%, adjusted operating profit
growth of 10.5% and EPS growth of 15.2%
- Adjusted operating profit ahead of expectations at £332.9m, led
by growth and margin expansion in First Student and First Bus
- A withdrawal by Greyhound from its loss-making activities in
Western Canada and the formulation
of plans for improved operational and financial performance that
started to show progress in the second half of 2018/19
This operational performance provides the foundation for the
clear strategic direction for the business that is summarised above
and detailed in our announcement of 30 May
2019 (which is included in Appendix 3 to the circular), and
evidences our management team’s drive and focus, under Matthew’s
leadership, to deliver value for shareholders. The Board has also
bolstered the management team with the appointment of Ryan Mangold as Chief Financial Officer in
May 2019 after a thorough process.
Ryan was selected to bring further depth and capability in the
areas required to deliver the Company’s strategic plans.
Replacing this team with one that has no working knowledge of
FirstGroup and very limited experience of the fast changing and
dynamic markets in which the Group operates, in particular the
North American transport contracting markets which form the core of
the Group, would dramatically reduce the ability of the Company to
execute these critical strategic changes.
FirstGroup has a diverse and
independent Board that has been renewed with the right experience
for FirstGroup’s future
- This Board has a clear majority (64%) of independent
non-executive Directors
- This Board has the right blend of skills and experience
- This Board meets all UK Corporate Governance requirements
The Board is focused on delivering shareholder value and is
confident that the Company has the right Board with the right
experience and plans in place to do so.
The composition of the current Board (and Board committees) is
fully compliant with the UK Corporate Governance Code, including
the requirements on independence and length of tenure. This is
reflected in the strong support that shareholders showed for
members of the Board who stood for re-election at the 2018 Annual
General Meeting, who received an average vote FOR of 96.84%.
All but one of the current Directors has been appointed within
the last five years, and six members of the Board have been
appointed within the last two years. The average tenure of the
FirstGroup Non-Executive Directors is three years compared to the
average tenure of four years for a typical UK-listed public
company.
The Board has continued to be renewed with the recent
appointments of Independent Non-Executive Directors Steve Gunning and Julia
Steyn as well as Ryan Mangold
as Chief Financial Officer, all in 2019, following objective and
rigorous selection processes.
The composition of the current Board has the right balance of
skills as it looks to a future which will continue to be defined by
the profound impact of technology on the development of mobility
services, as evidenced by the emergence of ride sharing and
autonomous vehicles.
A majority of the Board have experience in the transport and
travel sectors. This includes Wolfhart
Hauser, Matthew Gregory,
Warwick Brady, Jimmy Groombridge,
Steve Gunning, Martha Poulter, David
Robbie and Julia Steyn.
The independent Directors have been carefully chosen to support
the Company’s management team with the developments in our
strategic direction, bringing experience from across multiple
industries, including adjacent industries competing increasingly
with public transportation, such as technology, airlines, consumer
brands, urban mobility and big data management. For example,
Julia Steyn, who was appointed on
2 May 2019, brings extensive
knowledge of the US transport industry. Together with the existing
US government contracting experience of the Directors (including
Matthew Gregory and Jim Winestock), this skillset will be invaluable
as the Company focuses on First Student and First Transit, our
market leading North American contracting businesses, and builds on
the strong and profitable platform we have established in North
American mobility services.
In addition, a majority of the Board, including in particular
Wolfhart Hauser, Matthew Gregory, Warwick Brady, Steve Gunning, Ryan
Mangold, Martha Poulter,
David Robbie, Julia Steyn and Imelda
Walsh, have extensive corporate finance, M&A or legal
experience. This experience and skillset will be key to overseeing
the execution of our portfolio rationalisation plan and securing
best value for shareholders.
Your Board also has extensive and detailed experience in dealing
with complex UK pension schemes, including the management, funding
and strengthening of such pension schemes.
In summary, your diverse, independent Board has the extensive
experience, skills and expertise for FirstGroup’s future and
delivering shareholder value:
- Transportation/travel
- Strategy
- Turnaround
- Technology
- Governance
- Pensions
- Safety
- Operations
- HR/employee engagement
- Finance/M&A
In addition, the Board has various current and complementary
experience and skills in areas such as audit, data management,
information technology, legal, logistics and marketing and brand
management.
Full details of the current Board’s experience and their
specific skillsets are set out in the Directors’ biographies in
Appendix 1 to the circular.
Who is Coast Capital?
Coast Capital, founded in September
2017, is a small New York
based hedge fund, self-styled as an activist investor. Based on its
many interactions with Coast Capital to date and its claims and
proposals, the Board believes that Coast Capital is an
opportunistic, self-interested player that is only focused on
short-term gains.
Coast Capital purports to be a significant long-term shareholder
in FirstGroup. However, despite various claims made by Coast
Capital, the Company was first formally notified of Coast Capital’s
shareholding only as recently as 12 April
2018 at which point it notified a holding of 1.57 per cent.
of the Company’s issued share capital.
Coast Capital is a fund with no track record or experience
running any business similar to FirstGroup, and it has made a
number of scatter-gun, inconsistent and unusual claims and
proposals to the Company over the past 12 months. For example, in a
letter to the Company in June 2018,
Coast Capital suggested that the Company consider appointing four
individuals to the Board, yet none of those individuals are being
nominated by Coast Capital in this requisition.
A number of Coast Capital’s other proposals are set out in a
letter that your Chairman sent to Coast Capital in November 2018 (a copy of which is included in
Appendix 2 to the circular), patiently and politely addressing a
number of the proposals as being either transactions that simply
reflect a lack of understanding of FirstGroup or are skewed to
benefit only Coast Capital and not all shareholders. For example,
Coast Capital has recently publicly referred to the Company’s
“proposed firesale of otherwise good assets”, yet, as recently as
last October, Coast Capital wanted exclusivity from FirstGroup for
Coast Capital to purchase Greyhound at a purchase price which was
much lower than Coast Capital’s stated valuation of the business.
Coast Capital also proposed that Coast Capital purchase a ‘minority
but controlling’ stake in our First Student business.
Coast Capital’s claims contain numerous factual inaccuracies and
misunderstandings. This is notwithstanding the availability of
information clearly set out in our public disclosures and numerous
communications from the Company to Coast Capital in which we have
given detailed, and clear, explanations of various matters that
Coast Capital has requested. Despite this, Coast Capital’s recent
public statements show that Coast Capital continues to repeatedly
misunderstand, or chooses to misunderstand or misinterpret, a
number of basic points relating to FirstGroup and the markets in
which it operates. For example, notwithstanding our clear
explanations, Coast Capital’s recent statements show a fundamental
misunderstanding of the valuation of UK pension schemes on various
accounting and actuarial bases and, as noted below, Coast Capital
has repeatedly failed to appreciate the capital expenditure profile
and cash generative capability of the Rail division.
Certain other claims made by Coast Capital have been withdrawn
by Coast Capital after the Company reminded it of its legal
obligations.
Coast Capital proposes to take control
of the Board with the removal of six current Directors and the
appointment of seven of its own non-independent nominees
Coast Capital is seeking to appoint its own nominees to the
Board in a manner which circumvents established corporate
governance best practice and the rigorous and transparent
procedures followed by the Company. In particular, the Board is
opposed to appointing any director who may favour one particular
shareholder over and above the interests of shareholders as a
whole. If the Coast Capital Resolutions are passed, only three
directors out of a board of 12 members (25%) would be independent
non-executive directors.
Furthermore, Coast Capital has stated that it and its nominees
have already found a new, unnamed, CEO, who they would appoint if
the Coast Capital Resolutions are passed. This is a further abuse
of good corporate governance practice and due process.
Through its proposals, Coast Capital is seeking to take control
of your Board and the Company. Your independent Directors firmly
believe that this is wholly inappropriate and not in the best
interests of shareholders as a whole, or our wider
stakeholders.
Coast Capital proposes to appoint
directors whose experience is not aligned to FirstGroup’s business
or future growth
The Board has concerns about the lack of recent experience and
the past company involvement of a number of the directors proposed
by Coast Capital. For example, in nominating Steve Norris as a director, Coast Capital has
highlighted his experience as a non-executive director of Capital
CityBus, a small privately-owned local bus operator in London which was sold in 1998, more than 20
years ago, as evidence of his suitability to run our First Bus
division. First Bus has a fleet of around 5,700 buses and 16,500
employees. Therefore the scale of Capital CityBus’s operations
would be equivalent to less than 10% of the current operations of
our First Bus division. Mr Norris was also chairman of Jarvis plc,
a large public company in the rail engineering sector, for the six
years before it went into administration, resulting in pension
schemes being placed into the Pension Protection Fund. This
experience has been omitted from the biographies published by Coast
Capital.
Moreover, the proposed directors have limited recent experience
in the segments within which FirstGroup operates and no experience
in the North American transport contracting market, which will be
our core business going forward.
Further, Coast Capital is proposing to:
- INCREASE the size of the Board
- REDUCE the diversity of the Board.
FirstGroup has been focused on renewing the Board to include
individuals with skills relevant for the future direction of the
Group. Coast Capital seems more focused on rekindling the past than
preparing for the future.
Coast Capital has put forward plans
that are inconsistent, demonstrate a lack of understanding of
FirstGroup and the transport sector today and would leave the Group
with higher debt
As noted above, Coast Capital has made a number of scatter-gun,
inconsistent and unusual proposals to the Company over the past 12
months.
The latest plans put forward by Coast Capital are either based
on financial engineering with no clear benefit to shareholders,
such as its suggested sale and leaseback approach, or are vague
assertions, based on old information and lacking in detail. Coast
Capital’s proposal to reduce the Company’s pension obligations, or
to “exit rail in full” without due regard to the contractual nature
of the business, nor the employees or wider stakeholders within the
business, are alarmingly naïve. These plans continue to demonstrate
Coast Capital’s lack of understanding of the Group and our
businesses, notwithstanding the patient engagement that the
Company’s officers and Board members have undertaken with Coast
Capital.
We have respectfully and constructively engaged with Coast
Capital for over a year. Throughout, we have shown an open mind and
a willingness to consider new ideas and proposals; but only those
that are in the best interests of all shareholders, having regard
to our wider stakeholders. We address a number of Coast Capital’s
plans below:
Financial engineering with no clear
benefit to shareholders:
- A substantial sale and lease back of property would be
irresponsible. It would increase the financial leverage of the
Group at a time when the IFRS accounting rules have only recently
changed to require this to be reflected as indebtedness.
Furthermore, it would limit the strategic flexibility of the Group
to respond to changes in market conditions and does not pay due
regard to the operational nature of a number of these assets which
are inherent in the value of the business.
- Initiating a share buyback programme funded through a
loan from investors procured by Coast Capital would also
irresponsibly increase financial leverage at a time of economic
uncertainty and would reduce the Group’s strategic flexibility to
unlock value for shareholders. This appears to be at the same time
as Coast Capital would propose to reduce gross debt by up to £1
billion, but with no clear explanation of how to achieve this. This
inconsistency is a matter of significant concern.
- Introduction of a dividend at a time when the portfolio
is undergoing transformational change would not be in the best
interests of all shareholders. We believe that the more focused
Group, as envisaged by our portfolio rationalisation plans, will be
well placed to sustain a dividend in future and this will be
considered by the Board at the appropriate time.
Taken together, these short term financial engineering
strategies would increase the leverage of the Company to a point
that the Board believes is reckless and imprudent. This would risk
a downgrade of the Company’s credit rating, which would have
adverse impacts on the Company, including increased financing
costs.
Naïve and vague assertions with no
specific details around execution:
- The Company and the Trustees of the Group’s pension
plans regularly review the plans’ funding requirements,
ensuring flexibility and efficiency for the business while
protecting the retirement security of thousands of current and
former employees. Coast Capital’s proposal to “solve” the plan
funding with an upfront payment of £75m and changes to investment
strategy shows a fundamental misunderstanding of our pension plans
and the role of the Trustees under UK legislation.
- It remains unclear from Coast Capital’s plan why a gross
debt reduction of up to £1 billion is appropriate and Coast
Capital has provided no specific details as to how this would be
achieved. It would also apparently be achieved alongside the
commencement of a share buyback programme and the introduction of a
dividend, which demonstrates alarming inconsistencies in Coast
Capital’s thinking.
- Coast Capital’s demand to exit FirstGroup’s Rail
business pays no regard to the contractual nature of these
arrangements, the dynamic nature of the current environment nor to
our customers, employees and wider stakeholders within this
business.
- Coast Capital continues to show a fundamental lack of
understanding of the capital expenditure profile of the Rail
division, where cash capital expenditure is typically matched
by franchise receipts, capital grants or other funding from third
parties. Our UK Rail franchise portfolio has generated £330.9m in
adjusted profit with net cash and dividends paid to the Group over
the last five years.
In summary the Board believes it has
the right strategy and the right team to deliver the best value to
shareholders and that Coast Capital does not
The Board firmly believes that, based on the progress and
momentum that has been built through the operational progress in
the last 12 months, the clear strategic direction set out in the
Company’s announcement of 30 May 2019
will deliver best value to shareholders, and that the best team to
execute these complex strategic transactions is the current
management team. This is a team that has deep experience of the
Company and the industry in which it operates, and is supported by
a diverse, renewed and independent Board with the right skills and
experience to support the Company’s future direction. Replacing
this team with one which has demonstrably outdated knowledge of
FirstGroup’s market places, and no experience in the increasingly
valuable area of North American mobility services, would
dramatically reduce the ability of the Company to execute these
critical strategic changes.
Contacts at FirstGroup:
Faisal Tabbah, Head of Investor
Relations
Stuart Butchers, Group Head of Media
Silvana Glibota-Vigo, Deputy Company
Secretary
Tel: +44 (0) 20 7725 3354
Contacts at Brunswick PR:
Andrew Porter / Alison Lea, Tel: +44 (0) 20 7404 5959
Legal Entity Identifier
(LEI): 549300DEJZCPWA4HKM93. Classification as per DTR 6 Annex
1R: 3.1.
FirstGroup plc (LSE: FGP.L) is a
leading provider of transport services in the UK and North America. With £7.1 billion in revenue
and around 100,000 employees, we transported 2.2 billion passengers
last year. Whether for business, education, health, social or
recreation – we get our customers where they want to be, when they
want to be there. We create solutions that reduce complexity,
making travel smoother and life easier.
We provide easy and convenient
mobility, improving quality of life by connecting people and
communities.
Each of our five divisions is a
leader in its field: In North America, First Student is the largest
provider of home-to-school student transportation with a fleet of
42,500 yellow school buses, First Transit is one of the largest
providers of outsourced transit management and contracting
services, while Greyhound is the only nationwide operator of
scheduled intercity coaches. In the UK, First Bus is one of
Britain's largest bus companies
with 1.6 million passengers a day, and First Rail is one of the
country's largest and most experienced rail operators, carrying 345
million passengers last year.
Visit our website at
www.firstgroupplc.com and follow us @firstgroupplc on Twitter.