FirstGroup has concluded a reinsurance deal to de-risk around $147m of Greyhound's legacy self-insurance reserves, and sold three Greyhound properties for around $32m.
As part of the Aberdeen-based transport group's sale of the US coach company in October, it retains pensions and insurance legacy liabilities, which are now being de-risked, alongside property holdings which can be monetised over time.
The reinsurance transaction with Randall & Quilter Investment indemnifies the group for these liabilities and any adverse developments on them up to a maximum of $275m. The liabilities covered remain on the balance sheet, but with an offsetting asset reflecting the risk transfer agreement.
The cash cost is "modestly better than budgeted" for in previous guidance for adjusted net debt of between £10m and 20m. As a result, the group's exposure to Greyhound's legacy self-insurance liabilities has reduced to $19m of older claims not covered by the risk transfer agreement or recently settled.
FirstGroup is now ahead of plan to realise the previously guided $155m in net value from the legacy Greyhound assets and liabilities during 2023 and beyond.
Executive chair David Martin said: "We now have a focused and simplified group and continue to enhance our financial strength and resilience by proactively managing the legacy assets and liabilities associated with last year's portfolio rationalisation."
The market update also noted that current trading is in line with management’s expectations as set out in the half-yearly results on 9 December.
"Although the restrictions implemented by government as a response to the Omicron variant temporarily reduced demand levels, we are encouraged by the improving passenger volume trends subsequently," it read.
Across the bus portfolio, passenger volumes have increased to more than 70% of 2020 equivalent levels, with higher volumes of around 75% in operations across England. The reductions in mileage experience in certain areas have begun to ease as the number of employees self-isolating has reduced in recent weeks.
In early February, the Scottish Government announced a new £94m bus grant scheme, which includes an additional £40m to support passenger volume recovery. The scheme starts from 1 April, replacing the existing pandemic support arrangements in Scotland which end on that date.
As for FirstGroup's fee-based rail operations, these are also delivering performance in line with expectations.
All four rail operations moved to reduced timetables for a period following agreement with the Department for Transport in order to better manage staff shortages caused by the Omicron variant.
Martin concluded: "This demonstrates our conviction that there is significant latent demand for travel on our services and we look forward to providing vital connections for our customers as the recovery continues to build.
"Public transport has a key role to play in the UK's economic, decarbonisation and levelling up agendas and I remain confident that FirstGroup is very well placed to capture our many opportunities to create long term, sustainable value."
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