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FIRSTGROUP is preparing to pay a dividend after an eight-year hiatus, setting the stage for a clash with transport unions demanding a pay rise for rail and bus staff.
Company insiders said that restarting regular investor payouts is the board's top priority as bosses seek to draw a line under a string of battles, spiralling losses and failed dealmaking. However, the strategy threatens to inflame tensions with union bosses who are angry about a two-year pay freeze for rail workers.
The business last month struck a £3.3bn deal to jettison its North American operations, First Student and First Transit, to infrastructure investor EQT after more than 18 months of talks.
But FirstGroup will hand only £365m of the cash to shareholders. It is using the lion's share of the proceeds to pay down debts and plug a hole in its retirement scheme, with the aim of then restarting payments.
A senior source at the business said: "In the short term, it's important we have a good look at how we grow this business. We have to get back to paying a dividend."
FirstGroup's board, led by transport industry veteran David Martin, believes that cleaning up the company's balance sheet will pave the way to rewarding long-suffering investors.
The US deal will leave FirstGroup with much more robust reserves and no pension deficit, said Alex Paterson, an analyst at stock broker Peel Hunt.
Plans to restart the dividend will set the stage for a clash with the RMT union, which wreaked havoc on First- Group's South Western Railway franchise in a dispute over train guards before Covid hit. The RMT - which is currently in the throes of a leadership battle - has already attacked First -
Group's plans to give some of the North American sale proceeds to shareholders. RMT boss Mick Cash said: "Rather than lining the pockets of its private investors, First Group should recognise the essential role undertaken by its staff and withdraw all attacks on its workers' pay and conditions."
The cancellation of rail franchising means FirstGroup now operates on less profitable but less risky contracts which are more conducive to generating an income stream so it can pay dividends.
It will also be boosted by Boris Johnson's plans to invest £3bn into the bus industry as he seeks to combat fears that Britain could headed for a car-led recovery. This will be particularly helpful for FirstGroup, which has been criticised for failing to upgrade its buses when listed rivals such as National Express, Stagecoach and Go-Ahead have moved to greener technologies.
Gerald Khoo, an analyst at stock broker Liberum, said: "While attractive businesses are being sold, the outlook for the ongoing UK bus and rail busi nesses is improving."
FirstGroup cancelled its dividend in 2013 following a botched bid to run the west coast main line. A joint venture led by Sir Richard Branson's Virgin Group held onto the rail franchise after a review found flaws in the bidding process.
So it's the little retail investors fault is it? Like we have any say.
The Sunday Times had a good article.
"Time's running out for Glaxo boss - Investors voice discontent over FTSE 100 pharma giant's leadership and strategy as aggressive American hedge fund circles"
I too hold these in my isa. I can't imagine that any investors are up on them .For me they have just been a money pit over the years with so many false dawns.
There was the 3 for 2 rights in2013 at which the then CEO of 27 years resigned, but the next lot couldn't do any better. I just don't believe there is any future in transport shares ( I also hold gog) and reckon they will all eventually be nationalised.
I wrote to Geoff Drabble when the shares were less than half today's price about my concerns then. He kindly sent me a lengthy reply saying that he always welcomed feedback from shareholders and explained the company's position as regards capitol allocation priorities. He left the company 6 months later so I'm not sure he was totally convinced . Admittedly the price increase has been astronomical but the company nearly went under before it bought Sunbelt. I really do think they should be paying down debt.
Over the years this has been one of my best shares paying over £1 a share in dividends. However I cannot understand the big rise from their recent low in view of the fact that all the buses I see are empty and a great number of people will continue to work from home.
Johnson 36.
Here is the relevant extract from the annual report.
It continues to be our aim to provide a reliable income stream to our shareholders, throughout the cycle, including during a 'normal downturn'.
Ordinary Dividend Policy
Our Ordinary Dividend Policy is to pay out to shareholders approximately 7.5% of net assets, which will be at least £250 million per annum, paid in two equal instalments in May and November.
We propose to resume ordinary dividend payments in May 2021, starting with the 2020 final dividend payment of 4.14 pence per share equating to c.£151 million, subject to shareholder approval at the AGM.
This means that, in the 2021 calendar year, we intend to return c.£301 million in cash (c.8.28 pence per share) via the payment of the 2020 final dividend in May subject to shareholder approval and the 2021 interim dividend in November.
Approach to return of excess capital
As we look forward, our intention remains to return cash generated by the business in excess of that needed by the Group to fund land investment, all working capital, taxation and other cash requirements of the business, and once the ordinary dividend has been met.
We are not proposing to return excess capital in 2021. We will review the level of excess capital and potential return in respect of 2021 at the time of the 2021 full year results in February 2022, for payment in 2022.
This represents a shorter period between proposing and distributing excess capital returns and we expect to continue with this timing going forward.
The method of returning excess capital, either by way of special dividend or share buyback, will be considered at the appropriate time.
The FT said one person "familiar with the mood of some GSK shareholders" suggested that investors would rather chief executive Emma Walmsley - who has no background in science - ran the consumer health business than the demerged pharma business, as planned.
Walmsley took over as CEO in April 2017, having previously run the consumer healthcare segment, and the shares have fallen 14% since then.