FirstGroup on the road to earnings growth despite slumping £62m

Published on Wednesday 12 May 2010 21:01

TRANSPORT giant FirstGroup is forecasting a return to earnings growth after a mixture of poor economic conditions and ineffective fuel hedging hit profits last year.

• US school buses remain part of Sir Moir Lockhead's strategy for FirstGroup.

Chief executive Sir Moir Lockhead, who yesterday unveiled a fall in underlying pre-tax profits to 264 million from 326.4m, also said ScotRail-owning FirstGroup would remain alert for takeover opportunities.

This follows Deutsche Bann's acquisition of UK transport group Arriva last month.

Asked if FirstGroup would also consider divisional sales, including the company's freight arm, Lockhead said: "It depends. It's something that, if someone approaches us, of course we would look at it."

On the slower trading performance in the year to end-March 2010, he said: "It's been a very tough year. Continuing global economic uncertainty has affected us as passenger demand has been impacted."

As the largest provider of student transport in North America with a fleet of about 60,000 yellow school buses, Lockhead said the Aberdeen-based firm had been hit by "unprecedented levels" of pressure on school board budgets as US tax receipts slumped.

The company's Greyhound intercity coach business in North America has also been squeezed by recession, but FirstGroup stressed that UK rail and bus services had been resilient despite the poor winter weather.

Profits at the North American contract business, including the school buses, fell to 234m from 246m, while profit margins in First Student slid to 11 per cent from 12.6 per cent.

About 1,000 jobs went at the US contract arm in a search for efficiencies in response to the tough market conditions.

Profits at the UK rail arm fell slightly to 92.6m (from 94.2m) on revenues up 2.3 per cent. Lockhead said rail revenues accelerated 4 per cent in the fourth trading quarter.

First ScotRail's revenues rose 3.2 per cent on the fifth anniversary of the franchise, as the company put on additional summer services for Fife, the Highlands and on the west coast.

FirstGroup's bus division – the biggest in the UK, carrying some three million passengers a day – posted a "steady" performance with profits slipping to 124.6m (from 134m) as passenger revenues climbed just under 2 per cent.

FirstGroup took an extra 90m on fuel costs due to losing out in its hedge arrangements, but this was offset by 228m of group cost savings taken out of the business.

Lockhead said that despite continuing uncertain economic conditions the group was "confident" it would return to earnings growth in the coming year.

Extra money would go towards further reducing FirstGroup's debt, which came down last year to 2.3bn from 2.5bn, he added.