FirstGroup first half profits slide following franchise misstep
FirstGroup, operator of buses and trains in the UK and the US has said pretax profit dropped by a third in the first half year-on-year, down to £22.4m from £33.3m.
Group revenue for the half was down 17 per cent to £2.44bn, in line with its expectations.
The group’s share price is trading up by 2.5 per cent following the announcement.
The fall has been blamed on the loss of rail franchises in Scotland and south-east England and an unexpected bus driver shortage in the US.
Lower oil prices in North America also mean the group saw fewer people getting on its buses, opting to drive themselves.
Speaking to City PM, FirstGroup chief executive, Tim O’Toole, said that it expects the low oil price to continue for some time but played down the dip: “It is a challenge but in the smallest part of our business.”
Despite the falling profits in the US division, O’Toole said previously calls from US activist investor Sandell Asset Management to sell off the business to grow the UK side of the company had been found to be without merit.
In the UK the company’s revenue and profit took a hit due to missing out on the lucrative East Coast line franchise, taken up by Stagecoach and Virgin.
It also lost its long time contract for ScotRail, but managed to hold onto Great Western.
Firstgroup has been shortlisted for the East Anglia line, as well as the new TransPennine contract, which it currently runs, and will be awarded next month.
O’Toole said: "Growth on the TransPennine line has eclipsed expectations, but that doesn’t count for much in the bidding process. Your record counts when it comes to getting shortlisted but the final decision is on a blank slate.”
“We are happy with out bid but we can’t control how others bid,” he added.
FirstGroup is in the middle of a programme to overhaul its business after being unable to maintain consistent profits and work down its debt pile.
It launched a £615m rights issue in 2013 to fund the turnaround, focusing on revitalizing its bus business in the UK.
The four year programme will enter its final year in six months.
O’Toole said: “Once the programme is completed we’ll be in a position to consider shareholder payout.”
“I don’t forsee the need for another rights issue, the turnaround means the bus business can stand on its own.”
The company said it is expecting a boost of £15m in its full year results due to a change in estimates for pensions in its rail division.
Underlying net cash flow for the year to be broadly flat.