Profit slump on the buses leads First to plan a new route map

By GARETH MACKIE
Published on 25/05/2012 03:31

Scottish transport company FirstGroup is to accelerate the restructuring of its UK bus business after profits at the division fell by almost 10 per cent.

The Aberdeen-based group said conditions for urban services in Scotland and the north of England were particularly tough, and warned that cost-cutting would not be enough to offset the impact of increased fuel bills and reduced government subsidies.

Operating profits at its UK bus division last year fell 9.7 per cent to £134.4 million. Revenues rose 1.7 per cent to £1.2 billion, but operating margins fell to 11.6 per cent, down from 13.1 per cent a year ago, and it expects margins to decline further to 8 per cent this year.

However, a solid performance at its UK rail division, which includes the ScotRail franchise, and good growth at Greyhound coaches in the US, helped the group record an adjusted pre-tax profit of £271.4m for the year to the end of March, down just 1.1 per cent on a year earlier.

Chief executive Tim O’Toole said: “We are accelerating a comprehensive plan that will deliver sustainable growth in revenue and patronage and improved returns. This includes a programme of disposals to focus on those areas where the greatest potential for growth exists.”

Jonathan Jackson, head of equities at Killik & Co, said there was a “marked north-south divide” at FirstGroup, which generates about 60 per cent of its UK bus passenger revenues in Scotland and the north of England.

He said management has admitted that the business had been badly run, adding: “The failure to cover cost increases is an admission that the group pushed too hard in terms of price increases and timetable changes in the past, and alienated the customer base as a result.”

The group has around 8,000 buses in 40 towns and cities across the UK, carrying 2.5 million passengers every day. It said a new management team was working on a plan to stimulate growth in the bus business, including £160m of investment in 1,000 new vehicles and £4m refurbishment of mid-life vehicles.

FirstGroup is aiming to raise about £100m by offloading more than a tenth of its UK bus business, and has already announced plans to sell its north Devon operations to Perth-based rival Stagecoach for £2.8m. Last month it said it would close its Dalkeith bus depot and scale back its operations in Musselburgh.

Investec analyst John Lawson said: “Shareholders in FirstGroup have had a torrid time recently with two major profit warnings in the last 18 months.”

He said the group “had not been as nimble” as rivals such as Stagecoach, which last month said revenues at its UK bus operations had risen 2.7 per cent in the 48 weeks to 1 April.

However, Lawson said today’s results “should come as a relief” to shareholders, as the figures were in line with expectations and the group proposed a final dividend of 16.05p per share, an increase of 7 per cent, giving a total dividend for the year of 23.67p, to be paid on 17 August.

FirstGroup said it was the only operator to have pre-qualified for all four of the British rail franchises that have come to the market and that it believes it is well placed to win some new deals.

Operating profits at its rail business rose 1.7 per cent to £110.5m, on revenues 10.4 per cent higher at £2.5 billion.