FirstGroup profits rise with fuel prices

Published on Thursday 8 November 2007 00:23

FIRSTGROUP said yesterday the rising cost of fuel was driving motorists into public transport, helping push up its first-half profits.

The UK's largest transport group, which is likely to enter the FTSE 100 at the next quarterly review, reported a 24 per cent rise in underlying interim profits to 74.5 million.

Total group sales in the six months to 30 September rose 3 per cent to 1.77 billion, despite a slight fall in north American revenues because of the dollar's fall.

Chief executive Moir Lockhead said the Aberdeen-based group was witnessing a "modal shift", driving millions more people on to trains and buses.

He added: "It is driven by pump prices as much as by congestion."

The company shrugged off the impact of rising oil costs, which it believes are helping passenger numbers, while its costs are almost two-thirds hedged for 2008.

First, already the largest bus operator in the UK, said revenue from the bus division rose 3.5 per cent to 540m, with passenger numbers on the increase.

Its UK rail division also reported strong passenger growth, particularly in the second quarter, with revenues up 5.6 per cent to 863.6m.

In the US, revenues rose 4 per cent in dollar terms to $717m (358.5m) but fell slightly when converted to pounds.

The interim figures do not include the "transformational" acquisition of Laidlaw International, which was completed on 1 October, cementing its number one position in the "fragmented" US market.

The $2.8bn purchase has given First thousands of school bus routes and the iconic Greyhound coaches brand, with more than half of the company now set to come from north America. After an extensive investigation into anti-trust issues was completed, First said the acquisition would be even more earnings accretive than it had initially expected, as it upgraded the expected synergies which could be achieved from $70m to at least $100m a year.

The acquisition has FirstGroup claiming to be the largest private transport group in the world, transporting 2.6 billion passengers a year. However, the company said it had commenced a review on the business which may see Greyhound sold.

Lockhead said whatever the Scots group chose to do with Greyhound it would revolve around maximising its potential. An update on the review is due in April but a decision may not be finalised then, he said.

The shares fell 5.9 per cent, or 46.5p, to 748.5p on the news, as investors locked in profits. However, FirstGroup still looks likely to enter the Footsie with its share cap of about 3.3bn.