FirstGroup (FGP-LN)

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Firstgroup PLC (LON: FGP) is the largest bus and train company in the U.S. and U.K.[1] The company runs a quarter of the UK rail network, one fifth of UK buses, and the US Greyhound bus line.

Firstgroup acquired Laidlaw in 2007, making it the owner of the Greyhound bus line and $800 million of U.S. dollar denominated debt. As a result of this aquisition (Laidlaw accounted for about 35% of Firstgroup's 2007 revenue), 2007 was a record year for the company in both revenue and net income.[2]

High oil prices are a mixed blessing for FirstGroup and competitors. While they drive up costs of services, high fuel prices prompt consumers to choose mass transit over automobiles. FirstGroup is also vulnerable to increasing labor costs and regulations and variable exchange rates. The company operates in a fragmented transportation market in which competitors range from large airline companies to individual car owners to public school districts.

Corporate Overview

Over the Fiscal Year of 2007, Earnings per Share were 40.9 pounds, a 21% increase since 2006.[2] Moreover, the Laidlaw division performed better than initial expectations, earning 30 million US dollars from the date of acquisition to March 31, 2008.[2] FirstGroup's Net Debt also increased over this time period, largely due to the acquired Laidlaw outstanding debt.

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Business Segments

  • UK Bus (24%): FirstGroups' owns nearly 9,000 buses that carry some 3 million passengers a day in more than 40 major towns and cities throughout Europe, but mainly in the UK.[5] The UK Bus Service runs about one out of every five buses in Britain and concentrates their services in urban areas where bus transit is most efficient.[4] FirstGroup has also implemented a FirstStudent service in the UK and US as a complement to Laidlaw International, providing transportation of students to and from schools. Since 2000, FirstStudent has established 13 Yellow School Bus setups across the UK and now transports over 8000 students daily.[6]
  • UK Rail (41%): FirstGroup runs nearly a quarter of passenger rail in the UK and carries over 275 million passengers annually.[5] The rail segment consists of a handful of smaller train transit companies, including First Great Western and FirstScot Rail, both of which operate in the UK. FirstGroup is expanding their rail systems, especially in the UK, where they have invested over 70 million pounds in FirstScot Rail since April 3, 2008.[7]
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  • Laidlaw (29%, excluding Greyhound): Laidlaw International is a bus and transportation company, formerly traded on the NYSE, that provides school and other public transit services in the United States and Canada. Headquartered in Naperville, IL, the firm also owned Greyhound bus services and the ambulance operation group American Medical Response. In October 2007, First Group PLC acquired Laidlaw International for US$ 3.6 billion along with US$ 800 million in debt.[5] [8] Laidlaw International's education services segment is the largest provider of school bus transportation throughout the United States and Canada, which accounts for half of the segment's revenue.[9]

Laidlaw's Education Services business includes transportation for Home-To-School (87% of revenue), Extracurriculars (5% of revenue), Charter Buses (5% of revenue), and other transit functions (3% of revenue).[9] Note: Laidlaw is classified under "North America" in the revenue breakdown. Laidlaw also owns a Public Transit business and is the largest operator of out-sourced municipal and paratransit bus transportation within the United States.[9]

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  • Greyhound (6%): The Greyhound segment is the largest provider of intercity bus transportation in the United States and Canada, and also provides charter bus services and package delivery services. Greyhound accounted for 40% of Laidlaw's revenue and now 6% of FirstGroup's revenue.[9]

Trends and Forces

Tough competition from fragmented transit industry

The transit business in Britain, the US, and Canada is unstructured. A transport industry study suggests that, as of 1990, personal automobiles account for up to 53% of market share in passenger-kilometers, buses and rails for 9% each, and high-speed transport for the remaining 29%, which includes air travel and high speed trains.[10] A few larger companies combined with many smaller, localized firms makes for tough competition within the industry. Much of the competition to FirstGroup comes from privatized firms throughout the transit industry, and include school districts and municipal transit companies.[11] In the future, the ability--or inability--to successfully compete with such external pressures will determine the success of FirstGroup.

High oil prices gives edge to mass transit

Other forms of competition include air-travel, regional bus companies, trains, and the automobile, which provides the single most competition to Greyhound.[11] Rising oil prices increase the financial benefits of carpooling, and Greyhound can have the edge over automobiles by minimizing individual cost through mass transit. Moreover, Greyhound and Laidlaw benefit by chartering buses; having guaranteed business (for schools, tourists, or other travel groups) in an era of expensive fuel is a competitive advantage. However, high oil prices can also be a liability. In 2006, Laidlaw purchased 109.1 million gallons of fuel at a cost of $250.5 million, and a 10% increase or decrease in the cost of fuel on 2006 fuel usage requirements would have had a $12.5 million effect on their fuel costs.[12]

Rising labor costs and regulations hurt FirstGroup

One of the main advantages Laidlaw/Greyhound/FirstGroup have over its main competitor--the automobile--is that mass transit uses less fuel. However, this comes with the disadvantage of having to hire labor and deal with labor laws and regulations. This market force has little affect on FirstGroup when wages are stable; however, an increase in labor costs or regulations would be detrimental to business.

The declining value of the dollar boosts FirstGroup International Revenues and helps decrease the acquired Laidlaw Debt

The relative position of the US dollar to the Canadian dollar plays a key role in determining Laidlaw's annual revenue and outstanding debt, which was absorbed by FirstGroup in the acquisition. About 16% of Laidlaw's business is in Canada, and[12] a 10% increase in the Canadian foreign currency exchange rate (relative to the US dollar) would increase Laidlaw's operating revenue by $51 million, operating income by $4 million, income before taxes by $16 million and total assets by $38 million (all in US dollars) and vice versa for a decrease in the relative exchange rate.[12] One would think that the US Dollar/British Pound exchange rate would play a key role in determining FirstGroup revenue. However, FirstGroup minimizes the effects this exchange rate by keeping net profits in US dollars, most likely to reduce the Laidlaw debt.[2]

Comparison to Competitors

UK Bus

UK Bus's main train transport competitors include the National Express Group, the StageCoach Group, and Arriva. Below is a comparison of relevant operating metrics for each of these larger UK bus transport businesses.

Company Rev. 2007 ($M)[13] Number of Buses Avg. Revenue/Bus($Thousands) Share of UK Bus Market[14]
UK Bus[15] $2,179 9000 $242.1 20.6%
Arriva[16] $1,607 6,670 $240.9 14.5%
National Express Group[17] $636 2,000 $318.0 5.9%
StageCoach Group[18] $1,199 7,000 $171.3 14.0%

UK Rail

UK Rail's main train transport competitors include the National Express Group, the Go-Ahead Group, and Virgin Trains. Below is a comparison of relevant operating metrics for each of these larger UK train transit businesses.

Company Rev. 2007 ($M)[13] Number of Customers (Millions) Avg. Revenue/Customer (US Dollars) Train Kilometers Market Share[19] Passenger Kilometers Market Share[19]
UK Rail $3,818 275 $13.9 25.4% 23.2%
National Express Group[20] $2,953 (2006) 250 $11.81 22.1% 21.8%
Go-Ahead[21] $2,113 282 $7.49 12.8% 14.6%
Virgin N/A N/A N/A 10.9% 12.2%

Laidlaw & Greyhound

Greyhound and Laidlaw face similar competition from personal automobiles, school districts, and provincial bus/train companies. With rising fuel costs, comprehensive transit businesses have the competitive edge over smaller companies. The US transportation industry, like that of the British market, is fragmented, containing a few big companies and many smaller individual firms, such as individual car owners. Below is a comparison of relevant operating metrics for each of the major companies in the US automobile transit industry.

Company US Rev. 2007 ($M)[13] Domestic Fleet Avg. Revenue/Domestic Vehicle
Greyhound Bus Service[22] [15] $554 2,748 (as of 2004)[23] $201,433
FirstGroup North America (Laidlaw) $2,701 118,000 $22,887
Avis Budget Group (CAR) $5,986 217,500 $12,476
Dollar Thrifty Automotive Group (DTG) $1,660 142,857 $11,620
Hertz Global Holdings (HTZ) $4,385 310,000 $14,145
Enterprise Rent-a-Car $9,000 [24] 630,066 $11,110


  1. FGP 2008 Chief Executive's Review pg. 4-10  
  2. 2.0 2.1 2.2 2.3 FGP 2008 Financial Director's Report pg. 22-23  
  3. 3.0 3.1 FGP 2008 Group Financial Summary pg. 92  
  4. 4.0 4.1 FirstGroup Corporate Overview
  5. 5.0 5.1 5.2 Google Finance: FirstGroup PLC & Laidlaw International
  6. FirstGroup: FirstStudent Information
  7. FirstGroup Statement on Railway Expansion in Scotland
  8. School Transportation News: First Group Purchases Laidlaw
  9. 9.0 9.1 9.2 9.3 LI 2006 10-K pg. 4-5  
  10. World Global Trends Transportation Study
  11. 11.0 11.1 LI 2006 10-K pg. 14  
  12. 12.0 12.1 12.2 LI 2006 10-K pg. 35-36  
  13. 13.0 13.1 13.2 Figures compiled from company annual reports
  14. StageCoach Group: Key Facts
  15. 15.0 15.1 FirstGroup 2008 Annual Report
  16. Arriva 2007 Annual Report
  17. National Express 2007 Annual Report
  18. StageCoach 2007 Annual Report
  19. 19.0 19.1 TAS Publications: Press Release - Rail Market Share
  20. National Express 2006 Corporate Report
  21. Go-Ahead 2007 Annual Report
  22. Greyhound: Facts and Figures
  23. Greyhound 2005 10-K  
  24. Fortune Magazine, "The big surprise is Enterprise", June 2006. Estimate based on fiscal year ending 7/31/06.
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