For sale signs on FirstGroup bus routes as margins are squeezed

Picture: Donald MacLeod
Picture: Donald MacLeod
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FIRSTGROUP, the Scottish transport company, aims to raise about £100 million offloading more than a tenth of its UK bus business over the next 12 months.

Its plans emerged after it revealed that margins in the division are being squeezed by sluggish passenger numbers in Scotland and the north of England.

Word that FirstGroup would accelerate its “comprehensive plan to significantly reposition” the bus business emerged after it warned that margins would fall by more than a third in the coming year to some 8 per cent.

The UK bus division generates 60 per cent of its revenues in Scotland and the north of England, and accounts for about a third of the Aberdeen-based group’s operating profits.

Rachael Borthwick, head of corporate communications at FirstGroup, said the disposals were expected to raise more than £100m. Deals will be done on a case-by-case basis, with the aim of completing the overhaul in the next 12 months.

“It is going to be a transition year for us as we go through this painful process,” she admitted, but added that the remaining operation was expected to quickly recover thereafter.

The group, which has sold smaller parcels of its bus business during the past year, has already drawn up a list of operations to be put up for sale. Borthwick would not comment on the location or types of activities set for disposal, but did say they would not all fall within under-performing regions.

FirstGroup, led by chief executive Tim O’Toole, sold its German bus unit last year in a £4.8m deal with Marwyn European Transport. Its North Devon bus business is set to transfer to Stagecoach for £2.8m, while a London depot was sold earlier this month to rival GoAhead for £14m.

Analysts estimate this new tranche of disposals account for between £130m and £140m of the UK bus division’s £1.2 billion in annual revenues, equal to as much as 11.7 per cent of sales.

FirstGroup runs some 8,000 buses in 40 towns and cities across the UK. While the best-performing regions in the south are recording passenger growth of 3.3 per cent, that figure falls to an average of just 0.4 per cent in the north of England and Scotland.

These areas appear to be suffering from continued economic strain, as shoppers who might otherwise head to the high street opt to stay home instead. Under these circumstances, FirstGroup said neither fare increases nor cost-cutting would be enough to offset the impact of lower government subsidies and higher fuel bills.

Though the company wants to move quickly with its disposal plan, announcements are unlikely before FirstGroup posts its full-year results on 23 May when further details on the recovery programme are expected.

Investors slashed more than 14 per cent off the value of the group’s stock in response to the gloomy news about buses, which overshadowed brighter developments elsewhere.

FirstGroup’s rail division was the only bidder to qualify for all three of the major rail franchise shortlists unveiled yesterday by the Department for Transportation. The franchises include Great Western and Thameslink, where FirstGroup is currently the operator, as well as Essex Thameside, which is currently known as c2c and run by National Express.

Perth-based Stagecoach, whose operations also span bus and rail, has also qualified for the Great Western and Thameslink franchises.

Shares in FirstGroup closed 41.7p lower yesterday at 247.4p, a decline of 14.4 per cent. Stagecoach fell nearly 4 per cent to close the day’s trading at 253p.