FirstGroup cheered by recovery in UK bus division

Transport giant FirstGroup has hailed a recent recovery in fortunes at its UK bus business, which suffered a slide in sales during the first six months of its financial year.

FirstGroup's UK bus division showed signs of recovery. Picture: Donald MacLeod

The Aberdeen-based group, under pressure from an activist shareholder to spin off its operations in North America, said all its operations had turned in a good performance during the third quarter, with the exception of its US yellow school bus arm, which was hit by a slowdown in margin growth and the effects of heavy snow.

Like-for-like passenger revenues at its UK bus arm grew 2 per cent in the three months to the end of December, accelerating from the 1.7 per cent increase reported at the half-year stage.

Interim results, released in November, showed overall revenues at the division tumbled 14.3 per cent to £490.7 million, with much of the fall blamed on the sale of its operations in London.

Shore Capital analyst Martin Brown said the performance was “very encouraging”, with passenger growth in helped by lower fares, investments in its fleet and improvements to services.

He added: “If this does turn out to be an inflection point in UK bus, this has major significance to the turnaround story for FirstGroup.”

The firm today unveiled a £70m order for 425 buses, including 274 models to be built by Ballymena-based Wrightbus that use 10 per cent less fuel, while Alexander Dennis of Falkirk will supply 97 vehicles.

FirstGroup plans to invest about £1.6 billion in its bus and rail businesses over the next four years, but this week received a fresh call from Sandell Asset Management to float off its US school bus division and sell the iconic Greyhound coach brand.The New York-based hedge fund, which owns about 3.1 per cent of the company, has written to chairman John McFarlane to press its case after the board rebuffed an initial approach last month, arguing the plans contained “structural flaws and inaccuracies”.

The investor described FirstGroup’s rejection of its proposals was “premature” and chief executive Tom Sandell has said he believes other shareholders “strongly support our ideas”.

Sales at Greyhound nudged up 0.3 per cent as “robust” trading over Thanksgiving and Christmas was offset by poor weather, while the subdued economy put pressure on its “value-focused consumers”.

Chief executive Tim O’Toole said: “I am pleased to report that overall trading in the period is in line with our expectations, with a good performance in four of our divisions offset by slower progress in First Student.

“I am confident we are on the right track to increasing the resilience of the group and improving returns and growth prospects for the benefit of all our stakeholders.”

FirstGroup is due to hold an investor event next week, when O’Toole and McFarlane will give more details about their plans to drive the firm further along the road to recovery.

The dividend was scrapped at the half-year stage, following a deeply-discounted £615m rights issue aimed at defending its rights issue, but shareholders are set to share a final payout of up to £50m for the year to the end of March.