First denies sinking pound will see its profits slashed

FIRSTGROUP moved last night to quash rumours that its profits would be slashed because of the impact on the firm of the sinking pound, as it faced being thrown out of the FTSE 100 today.

Shares in the Aberdeen-based transport giant have plunged since the beginning of the year on City concerns that its US dollar debt, raised to cover its 1.9 billion acquisition of Laidlaw International, will increase as sterling falls in value.

Concerns were heightened in January after First revealed that Greyhound, the iconic intercity bus network that is part of Laidlaw, had seen a sudden a downturn in trading during the crucial US Thanksgiving and Christmas period.

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In an unusual move, First yesterday issued a statement to the London Stock Exchange insisting that the effect of the movement of the dollar was "broadly neutral" for the company.

Citing "market rumour and press speculation", First said that, while dollar interest costs had increased, this was offset by gains made on its US earnings from Laidlaw.

It added: "When combined with dollar-denominated fuel purchases for the UK businesses, overall dollar costs and earnings are broadly matched at the (earnings per share] level."

First shares opened yesterday at their lowest level since June 2000 and fell a further 2 per cent in early trading, although the statement pushed First up 5 per cent at one point, before they closed up 3.6 per cent at 205p.

The announcement was apparently prompted by a general reference to the debt issue in a market report published yesterday, but a spokeswoman for First said "there has been a building pressure on the share price, particularly in the last week or so".

Typically companies are only required to issue statements in response to press articles which include information that causes significant share movements.

The spokeswoman said the statement was "unusual" and was an attempt to counter a "misunderstanding" in the market about the company's structure, and was not related to the timing of the quarterly FTSE 100 reshuffle, which is based on last night's closing price.

First is operating "comfortably" within its banking covenants, she said, but had agreed to a technical change to its banking terms, under which the value of foreign debt is calculated against a long-term average exchange rate, rather than the rate on a single day.

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The company did not give any information on its current trading, but said it would provide an update on the three months to 31 March, the final quarter of its financial year, before the end of the month.

First was promoted into the FTSE 100 in 2007 on the back of the Laidlaw acquisition and a surge in the use of public transport in Britain, but is now on the verge of being expelled.

The company is now valued at 987m, less than Liberty International, Wolseley and the London Stock Exchange, which, along with 3i, could also face demotion from the Footsie.

They are set to be replaced by miners Fresnillo and Lonmin, oil and gas services firm Petrofac and two Footsie debutants – global testing and inspections firm Intertek and Foreign & Colonial Investment Trust.