FirstGroup shares rallied yesterday as the transport giant said strength in its UK rail operations was helping to offset the negative effects of cheaper petrol for US motorists.
After a gloomy 2014 which saw the debt-laden group fail in five rail franchise bids, FirstGroup reported growth of 7.3 per cent in like for like passenger revenue in its rail business in the third quarter, up from 6.5 per cent in the first half, and growth of 2.7 per cent across its UK bus operations, up from 2.1 per cent.
That countered a 1.1 per cent fall at Greyhound, its US coach network acquired as part of a £1.9billion deal in 2007. Tim O'Toole, chief executive, said: "Demand for Greyhound services over the important holiday period was adversely affected by the significant and rapid reduction in fuel prices, which makes car travel more affordable and competitive with our services. This was offset by good performances in First Transit and our UK Rail operations, which are both achieving growth towards the top of our expectations with robust margins."
Last month Stagecoach shares fell by 7 per cent as it warned that falling fuel prices in the UK and US had made car travel more competitive with buses. FirstGroup shares, which had eased from 106p last week to 102p on nervousness ahead of the statement, rebounded almost 5per cent to 106.9p.
FirstGroup saw former chairman Martin Gilbert stand down following the 2013 rights issue which asked shareholders for £615m to shore up the balance sheet, while his successor John Macfarlane will depart prematurely next year after being poached by Barclays. Meanwhile FirstGroup has lost its ScotRail and Capital Connect rail franchises and seen the lucrative east coast contract awarded to west coast operator Virgin Rail, 49per cent owned by Stagecoach.
But the group is hoping for a modest cash boost from an extension of its flagship Great Western franchise to 2019, and a renewal of its apparently successful trans-Pennine franchise after an extension to 2016, in its quest to restore the dividend which was suspended last year.
The group said Mr O'Toole's UK Bus transformation programme was on track, "responding to the work we have done to improve our commercial proposition through selected fare rebasing, network redesigns and additional investment in fleet and ticketing". Disciplined operating, further fleet investment, and mobile and smart ticketing initiatives, had continued to progress. "We are on track to deliver the cost efficiencies targeted for the second half, and this, coupled with continued passenger volume and price momentum, will result in margin progress for the financial year as a whole."
First, which aims to match the double-digit margins of Stagecoach over the medium-term, reported them at 3.8per cent in the first half.
Alluding cautiously to Labour's proposals to scrap the present system (outside London) of partnership between local authorities and the bus operators, First said: "We and the industry continue to present the strong evidence for the success of such partnerships when engaging with stakeholders on emerging policy proposals which could impact the current structure of bus service provision."
The US empire, two-thirds of the group, saw margin acceleration to 7 per cent, hitting a medium-term target, at the relatively low capital intensive First Transit, improved pricing and cost efficiencies at First Student where margins are 7.5 per cent, and 2.1 per cent like for like revenue growth at Greyhound Express, where First says it is confident of meeting its 12.5 per cent medium-term margin target across the whole division.
Mr O'Toole said: "Overall we are on course to meet our full year expectations for the group, and we are confident that our multi-year plans will deliver improved cash generation and create sustainable value over the medium term."
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