FirstGroup drives ahead with cost savings

FirstGroup, the Aberdeen-based transport heavyweight, is ramping up an efficiency drive in its UK bus business as it hopes the division will shore up overall earnings after losing a raft of rail contracts.

The group has told investors that it was advancing cost efficiency plans across its UK bus business. Picture: Lisa McPhillips

The firm told investors that it was “advancing cost efficiency plans” for the bus operation including “a number of changes to our depot portfolio” as it targets higher profit margins.

It has recently announced plans to shut depots in Bracknell and Hereford, merge depots in the Potteries and is looking to sell one in south Devon.

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The firm said in a trading update for its first quarter that like-for-like bus takings had grown by 1.4 per cent.

Commercial passenger revenue continued to grow by more than 2 per cent, but this had been offset by a fall in turnover related to passengers entitled to reduced fares.

The group is paid by local authorities – under pressure from squeezed government funding – to subsidise these reductions.

First said its UK rail division had delivered like-for-like passenger revenue growth of 6.3 per cent on a “robust” uptick in passenger numbers.

But it reiterated a warning that earnings from this division would be “substantially lower in the first half and for the current year”.

It has been dealt a blow after failing to win new contracts to keep running services on First ScotRail and First Capital Connect, while also missing out on bids for several new deals.

The group is hoping that earnings from its UK and US bus businesses – the latter including Greyhould and First Student – will help make up for the shortfall.

Chief executive Tim O’Toole said: “We anticipate strong progress for the current year in our non-rail businesses, mainly from the First Student and UK Bus turnarounds, to largely offset the reduced size of our UK Rail franchise portfolio compared with the prior year.”

Analysts at Shore Capital, which has a “buy” rating on the stock, noted: “While there is little by the way of comment on specific numbers, FirstGroup’s Q1 trading statement is in line with our and we believe market forecasts and we expect no change to our group forecasts for the year ahead.

“It is in our opinion only a matter of time before the market turns its attention to the repayment of debt and potential transformational impact this could have on cashflow.”