AN activist investor has forced Scots transport giant FirstGroup to move towards selling off its US Greyhound coach business and spinning off its UK bus arm.

The Aberdeen-based group, which also operates the South Western Railway (SWR) and Great Western Railway lines, confirmed it is considering a sale of the UK bus business as part of a review of “structural alternatives” for the division.

Its concerns over “risk and rewards” in its UK rail business have also cast doubt over its future.

FirstGroup will continue to manage its rail franchises, but said it is waiting for the outcome of the UK Government’s review into the industry, and that “any future commitments to UK rail will need to have an appropriate balance of potential risks and rewards for our shareholders”.

Its break-up plans come as part of a move to focus on its North American businesses, the First Student school bus division and First Transit, which account for nearly two-thirds of annual earnings.

It follows increasing pressure from activist shareholder Coast Capital – which has a 9.8% holding in FirstGroup – which had pressed for the group’s break-up.

Coast Capital had argued that the transport firm’s share price was being held back by less profitable businesses, which was offsetting the stronger First Student unit.

The company had requested an extraordinary general meeting and called for six of FirstGroup’s 11 directors to be replaced. Shares in FirstGroup lifted 5%, after a 13% surge at one stage, as it said the formal sale process for Greyhound was now under way in a move to deliver “best value for shareholders”.

The firm – one of the largest bus operators in the UK, with a fifth of the market outside London – also said it believed “now is the right time” to separate out its bus division, which it added had “limited synergies” with its other operations.

Matthew Gregory, its recently appointed boss, said a sale of its UK bus arm “in whole or in part” was being considered, alongside a possible de-merger of the division, though he added that the group was aware of competition issues with selling to rivals.

He said he aimed to deliver an update on the bus review in six months’ time.

Gregory, who took up the chief executive post last November, said: “We see significant potential to generate long-term, sustainable value and growth from the solid platforms these businesses provide in the North American mobility services sector.

“We are intent on executing this strategy at pace, having full regard to the regulatory and stakeholder procedures and approvals that will be required.”

Details of the overhaul came as FirstGroup posted narrowed pre-tax losses of £97.9 million for the year to March 31, against a £326.9m loss the previous year.

It said underlying pre-tax profits rose 13.1% on a constant currency basis to £226.3m.

The group revealed a £102.1m provision on its strike-hit SWR business amid “high levels of uncertainty around the franchise”.

It is in talks with the Department for Transport to resolve issues around the franchise, which has seen passengers suffer delays and repeated industrial action in recent months.

Despite this, the First Rail division saw earnings rise to £72.3m from £57.8m the previous year, while its regional bus business posted earnings of £65.8m, up from £50.2m.

However, FirstGroup warned that the UK rail business will see underlying profits return to “more normal levels” in the financial year ahead.

The company’s results also showed that the First Student business hiked annual earnings to £173.5m, up from £156.5m.

Russ Mould, investment director at AJ Bell, said: “It remains to be seen if this will be enough to deflect calls from Coast Capital for a change in management.

“Matthew Gregory could at least argue the case for more time, given he has only been in the driver’s seat since November 2018.”