FirstGroup today withheld its dividend for the second year running, even though improvements in its UK rail business kept profits on track.
The Aberdeen-based transport giant said it needed more time to revive its UK bus operation, while its FirstStudent arm, which transports six million students in North America every day, was performing well short of its potential and delivering lower margins than rivals.
It confirmed a £14 million weather hit to its American operations – which also include Greyhound – but said better trading in the UK rail operations helped group profits to rise 23 per cent in the year to 31 March, to £111.9m.
The dividend was scrapped last year as the botched bidding process surrounding the West Coast mainline franchise put a spoke in the wheels of its turnaround plan. Hopes for a revival of the payout, which the firm had hinted at last year, were dashed by new chairman John McFarlane, pictured, who asked for shareholder patience while the group works to revive UK bus and FirstStudent.
He said: “Although both divisions have faced challenging economic conditions in their respective markets, we cannot escape that we should have managed them better.”
In UK rail, which runs franchises including ScotRail and Trans Pennine Express, passenger growth was 5.9 per cent on a like-for-like basis, and profits soared from £19.3m to £55.2m. Chief executive Tim O’Toole said the firm’s UK bus business had achieved overall passenger volume growth for the first time in several years, as a result of network transformations, fare reviews and significant investments in fleet and service during the year.
He said revenues from full-fare paying passengers had grown for the first time in a decade, and ongoing improvements should see the segment continue to grow.
O’Toole said First’s turnaround plan was unchanged and it intended to pay a growing dividend in the medium term.
But he added: “We’re putting many resources back into the company in terms of our beefed-up capital investment plan, and most of that money goes into the student and UK bus businesses, bringing down the average age of the fleet. There is additional spending in the transit business and we are putting IT resources into Greyhound.
“The plan shows we won’t generate excess cash for a couple of years. That being the case, the board thought that even though we have the capacity to pay the dividend we should maintain flexibility and wait to make that decision. It’s our ambition to get back to being a dividend paying company and have a progressive dividend policy.”
Investec analyst John Lawson said: “An investment in FirstGroup is still not for the faint-hearted, but if the group can deliver on its turnaround plan – which we believe it can – then any share price weakness should be seen as a buying opportunity.”