First sees buses stall but trains grow

Published on Thursday 14 January 2010 20:54

SCOTTISH transport giant FirstGroup yesterday said revenue growth at its UK bus business almost ground to a halt before Christmas in the face of tough economic conditions.

The UK's biggest bus firm, which carries around three million passengers a day, said passenger revenue growth eased from 2.3 per cent to 0.7 per cent in the last quarter.

It said this was due to a reluctance to push through big price increases in the current economic environment, as well as lower passenger volumes.

Last week the Office of Fair Trading referred the UK local bus market – excluding the London franchise area – to the Competition Commission to investigate evidence of lack of competition, which may be pushing up fares.

First said the domestic rail market was growing despite the impact of the downturn and that it was on course to meet full-year earnings targets.

First's rail business, which includes ScotRail and the Great Western franchise running into central London, posted like-for-like revenue growth of 1.7 per cent in the three months to 31 December 2009.

Sir Moir Lockhead, chief executive of First, said: "We are encouraged by the performance of our rail division which continued to deliver growth despite the clear effects of the recession on the UK's rail industry.

"Since the half-year our overall performance remains in line with management expectations with the group on course to achieve earnings and cash targets for the year."

In the US, First's iconic Greyhound bus business has also been hit by the downturn and rising unemployment.

But the firm said it had acted rapidly to match supply with demand and noted improving sales trends in its American business. Arbuthnot analyst Gerald Khoo said: "FirstGroup remains attractive due to its firm base of contract-based and inherently defensive earnings coupled with some scope for a cyclical improvement in earnings through Greyhound."

First said that overall market conditions remained "challenging" but results were in line with management expectations. The company added that it was on track to make 200 million in cost savings over the full-year, mitigating the impact of increased fuel costs and the ongoing effects of recession on trading.

It is expected to report an average pre-tax profit of 254m for the year to the end of March.

Jonathan Jackson, head of equities at Killik & Co, said: "Given the continued resilient trading performance, we believe the group deserves to trade at a premium.

"We believe any weakness on the back of its statement provides an attractive opportunity to build a holding."

FirstGroup's share price closed down 4 per cent last night at 398.50p.