First Group: General Discussion

[winston270twm]

I wonder how much 'goodwill' is valued at in some of their bus operations !

I'm not so sure the goodwill will be worth that much, First hasn't had a very good name & reputation in a number of areas for a long time....

 

[TheGrandWazoo]

I'm not so sure the goodwill will be worth that much, First hasn't had a very good name & reputation in a number of areas for a long time....

Goodwill is the value of the company aside from the physical assets e.g. you pay £10m for a business - £8m for the physical assets and so £2m is the premium that you paid (aka goodwill). If that hasn't been written down on the balance sheet already, you will need to reflect that loss if you close or sell a business.

Therefore, Robert is right to ask the question. After all, much of the write down on Greyhound last year was because they were realigning the goodwill.

 

[winston270twm]

Goodwill is the value of the company aside from the physical assets e.g. you pay £10m for a business - £8m for the physical assets and so £2m is the premium that you paid (aka goodwill). If that hasn't been written down on the balance sheet already, you will need to reflect that loss if you close or sell a business.

Therefore, Robert is right to ask the question. After all, much of the write down on Greyhound last year was because they were realigning the goodwill.

The Goodwill valuation between sellers perception i.e. First and buyers, could be somewhat off.... Not sure where the UK bus ops stand goodwill wise on First's accounts.

 

[TheGrandWazoo]

The Goodwill valuation between sellers perception i.e. First and buyers, could be somewhat off.... Not sure where the UK bus ops stand goodwill wise on First's accounts.

Indeed that can be the case in any purchase....depends how much they want something.

 

[winston270twm]

Indeed that can be the case in any purchase....depends how much they want something.

Similarly as regards assets valuations, any buyer may not see the vehicles being worth what First want for them.

 

[TheGrandWazoo]

Similarly as regards assets valuations, any buyer may not see the vehicles being worth what First want for them.

Well, it's the same for all assets, whether fixed assets or intangible. With vehicles, it's often a difference between the NBV (as it's been depreciated at a fixed rate) and the actual market value at the time. Rotala didn't take some of the Redditch e300s as they didn't agree with the valuation IIRC.

 

[Robertj21a]

Goodwill is the value of the company aside from the physical assets e.g. you pay £10m for a business - £8m for the physical assets and so £2m is the premium that you paid (aka goodwill). If that hasn't been written down on the balance sheet already, you will need to reflect that loss if you close or sell a business.

Therefore, Robert is right to ask the question. After all, much of the write down on Greyhound last year was because they were realigning the goodwill.

Quite. Knowing First, I'm expecting that they have significant 'goodwill' in theiir figures. That might cause them/accountants another few problems when the reality is a lot different. Goodwill may exist for a few - Leeds, Glasgow, Leicester etc but I don't see Essex or Potteries in the same league.

 

[overthewater]

Surly Glasgow and Bristol has alot of Goodwill since its getting alot of new buses etc? Fig No2 made better profits of late.

 

[Robertj21a]

If there was a sell off I think there would be buyers for most parts of the business.

Depends on how realistic it's priced. After all, most ops have been available to other buyers for a couple of years and yet there's been little interest.
Pensions may be part of the problem, but so might well be the price that First has been trying to achieve.
If First want to get rid of the loss makers, like South Yorks and Manchester, they might have to accept a nominal £1. It's interesting that sales of the 2 remaining Manchester garages has stalled.

 

[herb21]

FirstBus as a CGU (Cash Generating Unit) have £78m goodwill per the 2018 financials, I presume that is almost all UK ops.

 

[TheGrandWazoo]

Surly Glasgow and Bristol has alot of Goodwill since its getting alot of new buses etc? Fig No2 made better profits of late.

That ISN'T what goodwill is. As I explained...

Goodwill is the difference between what you pay for a business minus the actual assets (e.g. vehicles, premises, plant and machinery).

Therefore, it doesn't matter what they have spent on new buses recently.

 

[overthewater]

Doesn't that generate good will? if you have good profits and buy new stock?

 

[TheGrandWazoo]

Quite. Knowing First, I'm expecting that they have significant 'goodwill' in theiir figures. That might cause them/accountants another few problems when the reality is a lot different. Goodwill may exist for a few - Leeds, Glasgow, Leicester etc but I don't see Essex or Potteries in the same league.

Goodwill will exist in ALL of the businesses (unless it's been written down). It's whether any subsequent sale price reflects that notional value.

 

[TheGrandWazoo]

Doesn't that generate good will? if you have good profits and buy new stock?

No - I'll explain this again so you're not in any doubt, as you seem to be confusing the accountancy term of goodwill with the everyday definition.

In accounting terms, Goodwill is a difference between what you pay for a business less it's assets. So, let's say when First bought Strathclyde, they paid £100m because they really wanted it. However, the assets were worth £40m. Hence the goodwill figure is £60m and that doesn't change*. It's an intangible asset.

Now let's say National Express come along and say we'll buy First Glasgow for £90m.

First say ok - the assets are now worth £50m because of new buses and the properties (which are on the balance sheet). That means they have received £40m of goodwill but they have £60m on the balance sheet. Because the balance sheet has to balance, they have to write off the difference between what they paid £60m and what they receive = £20m asset write down.

Does this make sense?



* - though, of course, they do have to review annually whether it is still applicable and, in the case of Greyhound, they did have to reduce the value.

 

[winston270twm]

Surly Glasgow and Bristol has alot of Goodwill since its getting alot of new buses etc? Fig No2 made better profits of late.

Goodwill has nothing to do with the allocation of new buses. Glasgow is only getting new buses in quantity because they have to upgrade / invest in new Euro 6 to meet the forthcoming low emission zone rules. Previously Glasgow has only received relatively small batches of new buses and has had to soldier on with ex London Tridents etc.

 

[option]

The value of a company’s brand name, solid customer base, good customer relations, good employee relations, and any patents or proprietary technology represent some examples of goodwill.

brand name won't be worth anything, unless someone buys the entire operation
patents or proprietary technology - doubt there's any of that


I can see a realistic valuation of any of the operations being Assets + cash flow valuation (or profit valuation)

 

[overthewater]

YES! Does inflection count?

Your close to the money as First brought SB Holdings in May 1996 for £110 million. How does Aberdeen work since its tech its never been brought.

No - I'll explain this again so you're not in any doubt, as you seem to be confusing the accountancy term of goodwill with the everyday definition.

In accounting terms, Goodwill is a difference between what you pay for a business less it's assets. So, let's say when First bought Strathclyde, they paid £100m because they really wanted it. However, the assets were worth £40m. Hence the goodwill figure is £60m and that doesn't change*. It's an intangible asset.

Now let's say National Express come along and say we'll buy First Glasgow for £90m.

First say ok - the assets are now worth £50m because of new buses and the properties (which are on the balance sheet). That means they have received £40m of goodwill but they have £60m on the balance sheet. Because the balance sheet has to balance, they have to write off the difference between what they paid £60m and what they receive = £20m asset write down.

Does this make sense?



* - though, of course, they do have to review annually whether it is still applicable and, in the case of Greyhound, they did have to reduce the value.

 

[TheGrandWazoo]

YES! Does inflection count?

Your close to the money as First brought SB Holdings in May 1996 for £110 million. How does Aberdeen work since its tech its never been brought.

No - inflation can’t be applied. The only way that goodwill can increase is for example if you paid your £100m for SB but there was a clause on the future financial performance that said an extra £10m was to be paid in 2001 based on achieving certain targets.

The difference between the purchase price and the asset value at purchase would have increased so the goodwill would also increase.

As I say Goodwill in an accounting term in the price you paid for a business less the actual tangible assets.

As for Aberdeen, it would have been purchased from the government in 1989. If that purchase was £5m and the assets were worth £4m, then that’s £1m of goodwill.

When it was then folded into First, that intangible asset would’ve still been reflected in the balance sheet.

 

[KendalKing]

How much Goodwill was in Northampton?

I was thinking the same!

 

[TheGrandWazoo]

I was thinking the same!

I suspect that they took quite a hit. GRT bought it when a decent firm and that goodwill was written off on closure.

 

[Robertj21a]

Surly Glasgow and Bristol has alot of Goodwill since its getting alot of new buses etc? Fig No2 made better profits of late.

I suspect that they took quite a hit. GRT bought it when a decent firm and that goodwill was written off on closure.

Yes. Something of a record for First Bus - take one of the most profitable municipals and steadily run it down until there's nothing left. At least Stagecoach didn't have to pay anything, just wait !
A perfect case for future historians.

 

[TheGrandWazoo]

Yes. Something of a record for First Bus - take one of the most profitable municipals and steadily run it down until there's nothing left. At least Stagecoach didn't have to pay anything, just wait !
A perfect case for future historians.

Yep - they really did cock it up. Testimony to the folly of Moir. It had an operating profit of c20% but they ruined it.

 

[herb21]

No - I'll explain this again so you're not in any doubt, as you seem to be confusing the accountancy term of goodwill with the everyday definition.

In accounting terms, Goodwill is a difference between what you pay for a business less it's assets. So, let's say when First bought Strathclyde, they paid £100m because they really wanted it. However, the assets were worth £40m. Hence the goodwill figure is £60m and that doesn't change*. It's an intangible asset.

Now let's say National Express come along and say we'll buy First Glasgow for £90m.

First say ok - the assets are now worth £50m because of new buses and the properties (which are on the balance sheet). That means they have received £40m of goodwill but they have £60m on the balance sheet. Because the balance sheet has to balance, they have to write off the difference between what they paid £60m and what they receive = £20m asset write down.

Does this make sense?



* - though, of course, they do have to review annually whether it is still applicable and, in the case of Greyhound, they did have to reduce the value.

Just to point out that goodwill (or a bargain purchase in the case where the identifiable and recognisable acquired assets exceed the purchase price) is measured from the purchasers perspective, so if First sold to National Express for £90m National Express may not acquire £40m of goodwill as National Express would recognise the acquired assets at fair value vs Firsts carrying value and may be able to recognise some internally (from Firsts perspective) generated intangible assets which First couldn't recognise.

To make matters even more confusing if as part of a sale First received £90m for First Glasgow, an investment they were carrying at £110m, (including £60m of goodwill originally acquired) they wouldn't always write-off/Dispose of £60m of goodwill as First Glasgow is not a standalone Cash Generating Unit (it forms part of First Bus) and they maybe able to argue that benefits attributable to the remaining portion of the CGU are still available to First.

Although, I am sure that First Management would like to make the most they can from any sale, I highly doubt they will be hung up over goodwill writedown as part of a First Bus disposal, they will push it through as an exceptional loss on disposal, tell a story that they are focusing on the higher margin assets, to become more cash generative and hope the markets agree. Where they could feel pain, is having to write down the goodwill pre-disposal or as part of a disposal group as that wont help their sales case.

 

[TheGrandWazoo]

Goodwill and asset write down on disposal can be quite expensive as we saw with the 2013 disposals (£19m) and Manchester (£16m).

 

[Volvodart]

Goodwill is the value of the company aside from the physical assets e.g. you pay £10m for a business - £8m for the physical assets and so £2m is the premium that you paid (aka goodwill). If that hasn't been written down on the balance sheet already, you will need to reflect that loss if you close or sell a business.

Therefore, Robert is right to ask the question. After all, much of the write down on Greyhound last year was because they were realigning the goodwill.

Goodwill on the earlier acquisitions was not capitalised until acquisitions during the March 1999 accounts and thereafter. Most of the amounts arising thereafter were under £10 million each company. The only significant amount in goodwill was for Mainline which was £56.1 million. You cannot tell exactly what companies are in there, but it probably includes Aircoach, Hutchisons and Truorian. Maybe also Southern National, if parts of this business are still there.

 

[Big Ralphie]

Looks like interesting development in Aberdeen apparently the city council are interested in running there own bus company and have been at first bus aberdeen base to have a discussion with them although nothing has been decided it's thought they could run it along the lines of lothian buses in Edinburgh thoughts?

 

[Kernow Dave]

Looks like interesting development in Aberdeen apparently the city council are interested in running there own bus company and have been at first bus aberdeen base to have a discussion with them although nothing has been decided it's thought they could run it along the lines of lothian buses in Edinburgh thoughts?

I think that this could be an interesting development, but I do not see how cash strapped councils could find the required funds. That said it would bring local interests and community first, pardon the pun.

I would hope that one council would try it.

 

[carlberry]

Looks like interesting development in Aberdeen apparently the city council are interested in running there own bus company and have been at first bus aberdeen base to have a discussion with them although nothing has been decided it's thought they could run it along the lines of lothian buses in Edinburgh thoughts?

As far as I know it's not possible with the current legislation. I'd have hoped that the council had better things to be look at however if they're short of stuff to do then dealing with traffic congestion and illegal parking would be good first moves both of which they can control already.

 

[DragonEast]

OK my attempt at humour fell flat.

But seriously, what I don't understand is the perceived benefit of keeping FirstBus more or less together as a on-going concern. Making an offer they won't refuse, perhaps restructuring and and breaking it up, fine.

Similarly if First Group want to create a (temporary) holding company to see out the major local authority contracts until they expire. Otherwise I can't see a synergy (to use their buzz word) between Glasgow No.2, Leeds ("the crown jewel") and Bristol. Though perhaps there might be more of a synergy with their American contract operations?

For the rest why should a competitor do any more than register competing routes and wait for First to wither on the vine? There's plenty of precedent, and now we know First are looking for a way out. Subject, of course to anyone daft enough (a Scottish Council perhaps) to make First an offer they can't refuse. (Though I have to say I don't think rationality is First's strong point: when a well-respected competitor launched competition on a little used estate route, the local First OpCo response was to increase frequencies, causing themselves even more difficulties with their lack of resources).

First, obviously, are after the best financial deal they can get. Realistically that is minimising their residual liabilities. What I find it hard to see is the benefit to a trade buyer. What does a Fund Manager want with running buses on an on-going basis? Haven't we learnt anything from First? In the interim what room do First have to make any terms sufficiently attractive? They haven't been able to so far.

But coming back to the present, I assume the First Board have done enough to save their skins this time? They just have to deliver on their promises, or perhaps make their excuses (what, again; are their shareholders idiots?)

 

[carlberry]

OK my attempt at humour fell flat.

But seriously, what I don't understand is the perceived benefit of keeping FirstBus more or less together as a on-going concern. Making an offer they won't refuse and breaking it up, fine.

Similarly if First Group want to create a (temporary) holding company to see out the major local authority contracts until they expire. Otherwise I can't see a synergy (to use their buzz word) between Glasgow No.2, Leeds ("the crown jewel") and Bristol. Though perhaps there might be more of a synergy with their American contract operations?

For the rest why should a competitor do any more than register competing routes and wait for First to wither on the vine? There's plenty of precedent, and now we know First are looking for a way out. Subject, of course to anyone daft enough (a Scottish Council perhaps) to make First an offer they can't refuse.

First, obviously, are after the best financial deal they can get. Realistically that is minimising their residual liabilities. What I find it hard to see is the benefit to a trade buyer. What does a Fund Manager want with running buses on an on-going basis? Haven't we learnt anything from First? In the interim what room do First have to make any terms sufficiently attractive? They haven't been able to so far.

I don't know what you mean by 'major local authority contracts'. For most First companies these are a very small part of the operation and some companies have appeared to actively avoid them over the years.
It terms of competitors even Go Ahead and Stagecoach would struggle to put together a case to directly compete on more than a few routes in a few locations whilst spending lots of cash and using up the local bus driving pool. Arriva have been up for sale for a lot longer and there's little evidence that that's caused any outbreak of competition.
A fund manager will only be interested in what cash the business already produces and what are the future opportunities (even if they come down to planning to sell assets). The day to day operation they'll leave to the people who were there already (other than a few from the top table that they'd dispatch if they felt the need). As others have said First UK bus shouldn't be that bad a businesses on it's own, the group's issues have tended to come from other divisions and bad strategic decisions.