FirstGroup Share Price Rallied 4.1% on Hitachi Carbon Partnership

The FirstGroup plc (LON: FGP) share price rallied 4.08% after announcing a strategic partnership with Hitachi as an integral component of the Group’s ambitious program to decarbonise its bus fleet and infrastructure.  

The partnership will encompass the following key elements, including the formation of NextGen AssetCo Limited (NextGen), a newly established 50:50 joint venture. NextGen will procure up to 1,000 electric bus batteries with an approximate value of £100 million. These batteries will play a vital role in First Bus’s expanding electric bus fleet.

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The partnership is expected to contribute around £3 million annually to the Group’s adjusted earnings by the fiscal year 2026 before factoring in any potential operational advantages.

The Group foresees substantial financial benefits, with an approximate £20 million reduction in capital expenditure for the fiscal year 2024 and anticipated future savings of approximately £40 million through to the fiscal year 2027. 

Consequently, the Group expects to achieve an adjusted net cash position of £40-50 million at the end of fiscal year 2024.

The key terms of the strategic partnership with Hitachi ZeroCarbon Limited (Hitachi ZeroCarbon) include the Group will have the opportunity to participate in future value creation through a minor ownership interest in Hitachi ZeroCarbon, facilitating the deployment of Hitachi ZeroCarbon’s decarbonisation solutions for commercial fleet operators worldwide.

The batteries will be leased from NextGen to First Bus over an initial period of eight years, with a financing rate in line with the Group’s borrowing rate. At the culmination of their useful life within the bus fleet, the Group will retain 75% of the residual value of these batteries. 

FirstGroup’s CEO, Graham Sutherland, said: “The pioneering alliance with Hitachi is a major strategic partnership for the Group as we progress towards our ambitious 2035 decarbonisation target for our bus fleet. It will allow us to continue the electrification of our fleet and depots with increased efficiency and greater visibility of our financial commitment, and unlike other possible arrangements, we will retain much of the residual value in the batteries as they are taken off our buses. Looking ahead, we are also excited about the possibilities for future value creation as Hitachi ZeroCarbon delivers market-leading decarbonisation solutions to transport operators worldwide, leveraging our joint experience.”

FirstGroup share price. 

The FirstGroup share price rallied 4.08% to trade at 183.55p from Thursday’s closing price of 176.35p.