FirstGroup's new chairman has cleared out the board and quashed hopes of a dividend at his first set of results since taking over at the ailing bus and train operator.
John McFarlane has replaced half of FirstGroup's non-executive directors, including John Sievwright, the senior independent director, and David Begg, chairman of the remuneration committee.
McFarlane, who became chairman in January, said it was too early for FirstGroup to restart paying a dividend and warned that it would be some time before the company was financially strong enough to do so.
He said the group's debt was still too high despite it raising £615m in a rights issue last year when it cancelled the dividend. Some of FirstGroup's businesses need extra capital investment after suffering from a lack of spending in the past, he added.
FirstGroup struggled with large debts after 2007 when it bought US-based Laidlaw, the owner of Greyhound coaches and yellow school buses. The First Student business, which runs the school buses, and UK bus arm have struggled and McFarlane said turning them around was the top priority.
"Taking together the current stage of the First Student and UK Bus recovery programmes and our commitment to the capital investment programme, it will take some time before the group is able to deliver a profile of consistent surplus cash that can be distributed to shareholders," he said.
Full year operating profit adjusted for one-off items rose 5.5% to £268m, reflecting solid performance at Greyhound, UK rail and First Transit businesses. Revenue fell 2.7% and was affected by the loss of 4,000 school days for First Student during the exceptionally bad US winter. Debt fell from £2bn to £1.3bn.
McFarlane, a former banker who also chairs Aviva, has brought in Warwick Brady, easyJet's chief operating officer; Drummond Hall, senior independent director at WH Smith; and Imelda Walsh, who chairs the remuneration committees at William Hill, Mitchells & Butlers and Mothercare. They will replace Sievwright, Begg and Colin Hood on the board next month.
The board has been under pressure over FirstGroup's performance, which McFarlane said had disappointed shareholders. Thomas Sandell, a US activist investor, has accused directors of being complacent in rejecting his calls to break up the company. McFarlane said he thought FirstGroup's strategy was broadly correct but that selling businesses was an option to get the group to a stronger financial position.
Chief executive Tim O'Toole said he understood why his chairman, who ousted Andrew Moss as Aviva's chief executive, had criticised FirstGroup's past performance.
"I'm working very well with John. John is very keen to be candid with the market and to set expectations at the right level. I accept his candour. I think it is very helpful and it helps in dealing with the City.
"John is pointing out that we are trying to be prudent in our approach and not let shareholder payouts get out of line with the trajectory of the business. That was his view, that in the past that had been a problem and he isn't going to go there again."
Asked if he thought his job was in jeopardy after nearly four years at the helm, the former boss of London Underground said: "I've been open about the challenges FirstGroup has faced to rebuild First Student and the UK bus operation and I'm anxious to complete the challenge."
FirstGroup's plans were further derailed in 2012 when the UK government revoked a decision to award it the lucrative contract to run the west coast mainline rail franchise between London and Scotland after a botched bidding process. O'Toole said the group was working on an attractive bid for the east coast rail franchise.
FirstGroup shares fell 0.9% to 133.4p.
