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Firstgroup PLC (FGP)

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Sell: 188.00p|Buy: 188.30p|Change: 1.30 (0.70%)

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FirstGroup buys bus operator RATP Dev Transit London for GBP90 million

(Alliance News) - FirstGroup PLC on Tuesday said it will buy RATP Dev Transit London Ltd and its subsidiaries at an enterprise value of GBP90 million.

The Aberdeen, Scotland-based public transport provider will buy the company from Paris-based RATP Developpement SA. It said the move will allow it to enter the London bus market and further diversify its revenue.

RATP London has around a 12% market share of bus operations in the UK capital, including a fleet of around 1,000 buses and 90 Transport for London route contracts, with a weighted remaining contract life of 3.3 years. It has around 3,700 employees, over 80% of whom are drivers.

FirstGroup said RATP London had revenue of GBP271 million in the 2023 calendar year. It has around GBP100 million of physical assets, including GBP50 million of freehold property.

The acquisition will be financed with GBP45 million from existing cash reserves, FirstGroup said, plus the assumption of RATP London's asset backed vehicle finances leases, worth approximately GBP45 million.

FirstGroup said it expects the acquisition to be broadly earnings neutral in financial 2025 and 2026. It anticipates annual revenue to grow to between GBP300 million and GBP350 million over the next five years.

It said it has also identified potential cost cuts to enhance profitability, and expects the business to be operating cash positive from financial 2027 onwards. The current management team are expected to be retained.

Chief Executive Officer Graham Sutherland said: "This is a significant acquisition for the group that will diversify our portfolio and materially grow our earnings in the medium term. It allows us to enter the London bus market at scale and will also bolster our credentials as we participate in future franchising opportunities across the UK."

The acquisition is subject to French government approval, in its capacity as the ultimate owner of RATP, the operator of the Paris metro and of regional transport in the the Ile-de-France. It also requires TfL consent to the change of control.

FirstGroup said it anticipates completion in the first half of 2025.

Shares in FirstGroup were up 4.9% to 161.70 pence in London on Tuesday morning.

By Michael Hennessey, Alliance News reporter

Comments and questions to newsroom@alliancenews.com

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