REG-FirstGroup PLC: Notice of GM

FirstgroupAnnouncement

04/06/2019 07:05

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.



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