Mr O'Toole, who replaced founder Sir Moir Lockhead as chief executive in November 2010, said FirstGroup had lost some of its "entrepreneurial flair" in the last couple of years.
But investors reacted warmly to his revamp plans and sent the company's shares up 7.8%.
FirstGroup was saved from a major drop in underlying pre-tax profit by the falling cost of its US debt. It saw a 1.1% fall in under-lying earnings to £271.4 million following profit falls at three of its five divisions and divergent fortunes for its UK bus and rail arms.
Headline pre-tax profit was up 121.3% from £126.5m to £279.9m after it was hit by £100m of charges, most from its Great Western rail franchise last year.
FirstGroup said revenues rose 4.1% to £6.7 billion.
Operating profit at its UK bus arm plunged 9.7% to £134.4m despite a 1.7% rise in revenues.
However, earnings at its rail operation, which includes ScotRail, edged up 1.7% to £110.5m on revenue growth of 10.4%.
Mr O'Toole, who previously ran London Underground, said: "We have seen a further deterioration of economic conditions, particularly in our urban operations in Scotland and the north of England.
"As result, we do not expect revenue growth and cost efficiencies in 2012/13 to be sufficient to offset the impact of reduced government subsidies and funding to the industry, which are more acute than originally estimated, and increased fuel costs."
Around 60% of FirstGroup's UK bus passenger revenues are generated in the north of England and Scotland, where it operates in Glasgow, Aberdeen, Falkirk, between Edinburgh and the Borders and in and around Galashiels.
Mr O'Toole announced plans to conduct sales of some of its bus businesses, saying: "It is about identifying companies we think would be of much greater value to some other operators."
But he insisted that this did not mean business in the north of the UK would be sold: "We actually think our businesses in the north of England and Scotland are some of our core business and are central to our future," he said.
Asked if the company plans to cut services or increase fares to counter its plans, Mr O'Toole said: "If the Government continues reducing support, these things will naturally happen. We will see services go away."
Asked about job cuts he said: "This is not a component of our recovery plan."
Mr Toole insisted: "We are not hanging this all on economic conditions."
He said that FirstGroup needed to change.
"I do think maybe in the past couple of years it lost some of the entrepreneurial flair that it needs to grow like its competitors," he said.
FirstGroup needed to be better at responding locally to local issues, he said. The firm said it was the only operator to have pre-qualified for all four of the UK rail franchises that had come to the market so far, including the West Coast operation currently run by Stagecoach joint venture Virgin Rail.
FirstGroup booked bid costs of £10.2m during the year.
It also spent £1.9m representing its case to the Competition Commission investigation into the UK bus market, taking the total costs to the company from the case to £7.1m.
FirstGroup recorded a one-off gain of £73.3m from cutting pension increases, capping pensionable pay and introducing lower pension accrual rates at its bus scheme.
FirstGroup announced a 7% rise in its dividend to 16.05p to be paid on August 17. Its shares closed up 15.2p, or 7.4%, at 220.1p.