FirstGroup hopes to ride out ScotRail loss

Dutch operator Abellio will take over the running of the ScotRail franchise from FirstGroup. Picture: PA
Dutch operator Abellio will take over the running of the ScotRail franchise from FirstGroup. Picture: PA
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Transport giant FirstGroup put a brave face on today’s loss of the ScotRail franchise, insisting that its financial performance would continue to improve in the second half of the year.

Although the firm insisted its medium-term targets would not be derailed by the setback, analysts said the news was a “bitter blow” and shares tumbled as much as 7.6 per cent before ending the session down 5.6p or 4.9 per cent at 109.5p.

“In financial terms, the impact is not too great, but this does not help sentiment,” said Investec analyst John Lawson, who described the loss of the ScotRail franchise as “another disappointing day” for FirstGroup.

Panmure Gordon analyst Gert Zonneveld added: “It’s very disappointing. I think they were probably the favourites to win ScotRail.

“Every franchise is a separate bidding exercise and you can’t draw any conclusions, but having said that, it’s not good if you see a company on a losing streak.”

In recent months, the Aberdeen-based firm has lost its Caledonian Sleeper franchise to Serco, failed in its bid to win the Essex Thameside and seen its Capital Connect contract in London swallowed up as part of the larger Thameslink franchise, which was awarded to rival Govia.

As transport minister Keith Brown announced that Dutch operator Abellio will take over the running of the £2.5 billion ScotRail franchise from April next year, FirstGroup said revenues at its UK rail division were on track to grow 6.5 per cent in the first half. Chief executive Tim O’Toole added: “As usual, the ­second half of our financial year will make a larger contribution to full-year profits than the first half.”

He added: “We shall continue to operate First ScotRail until the new franchise commences on 1 April, 2015.

“Until that time we will deliver further enhancements to trains and stations including further free wi-fi and continue important work to enable the extension of smart ticketing across the whole country and the opening of the Borders Railway next year.”

Greg Johnson, analyst at Shore Capital, said: “The failure to win ScotRail is a bitter blow, however, we now await news on the direct award of First Great Western and the award of the East Coast franchise.”

FirstGroup last year raised £615 million through a rights issue and moved back into the black in the 12 months to March, delivering a pre-tax profit of £58.5m compared with a loss of £28.9m a year earlier.

Passenger revenues and volumes at its UK bus arm are set to rise 2.1 per cent in the first half, although its yellow school bus business in the US will see sales fall about 1.6 per cent because of the timing of the Easter holidays.

Greyhound, its iconic US coach division, is likely to turn in a 2.7 per cent rise in revenues, which O’Toole said was “at the low end of our range of expectations”. He said: “Despite the headline growth in the US economy, Greyhound’s core customers are still not seeing that improvement reflected in their disposable incomes.”

FirstGroup is due to unveil its first-half results on 5 November, and O’Toole said: “We are improving financial performance through our investment and turnaround programmes, which will generate increased sustainable cash flows in the medium term.”