FirstGroup, Scotland's biggest bus company, has said its investment in Glasgow is at last delivering results and demonstrating that the group's turnround plan is working.

The transport giant yesterday unveiled a 13.3per cent rise in operating profit for last year and a 46.5per cent uplift in pre-tax profit, and said its UK Bus and US Student divisions were recovering strongly enough to offset its lost rail franchises including Scotrail.

Profit margin across the group was up from four to five per cent thanks partly to a rise at UK Bus from from 4.8 to 5.8 per cent, though the target is to match the double-digit margins achieved by the likes of Stagecoach.

Tim O'Toole, chief executive, said: "We are the biggest bus company in Scotland, we have the most buses in service, and things are really turning around. I think Glasgow is a perfect example of sticking with the plan and your faith in your own operation in the community."

FirstGroup has invested £37m in new buses in the city since 2012 and six months ago opened the £20m Caledonia depot on Cathcart Road, the biggest in the UK, built for 450 buses and 1200 staff and currently housing two-thirds of that.

Mr O'Toole said there had also been a good response to some bus investment in Aberdeen, but admitted that was not the case in eastern Scotland. "It is a much more difficult challenge as it has not responded as well as the others...but we are going to keep at it."

Admitting that losing the ScotRail franchise, one of four failed bids last year, had been a "painful episode", Mr O'Toole said: "We didn't lose any bids because of the quality of our bid, we lost every single one on price." On the East Coast bid by Virgin/Stagecoach he said there was " no way we would ever have done that".

Although shortlisted last week for the East Anglia franchise, FirstGroup faces competition from a consortium of the combined forces of Dutch state railway Abellio, the new operator of ScotRail, and Stagecoach. On the East Coast line, the group is pitching to run a service to rival both Virgin and the airlines - and here it faces a competing bid for a premium service from Grand Central.

Mr O'Toole commented: "As we play through this refranchising calendar, we will find our place."

FirstGroup reported improved cash generation but said it was too early to consider resuming the dividend, which was suspended two years ago as it tapped shareholders for a massive £600m rights issue.

Chairman John MacFarlane, whose appointment at Barclays means he steps down next month, said there had been "important progress in several key areas". But he admitted that the improvements were "partly a reflection of past underperformance, and there remain a number of headwinds to navigate".

Mr MacFarlane said that when he arrived in January 2014 to succeed Aberdeen Asset founder Martin Gilbert, " two divisions in particular, First Student and UK Bus, were delivering margins well short of their competitors, parts of the business had suffered from a lack of appropriate investment, and the group as a whole was not achieving acceptable returns for shareholders".

The group's underlying revenue fell by 4.1per cent due to loss of rail franchises, bus disposals, and the soaring US dollar. It said its medium-term financial targets of a 10 to 12 per cent return on capital remained unchanged, after a year which saw return fall from 8.2per cent to 7.8per cent after exchange rate slippage.

Mr O'Toole said he expected the ongoing turnarounds of First Student and UK Bus to "largely offset the substantially lower contribution from UK Rail" as a result of two lost franchises.

In the US, the Greyhound coach business continued to be impacted by the low oil price and also by weaker demand partly due to a contraction in Canadian exploration activity, Mr O'Toole said. Margins were down from 7.4 to 6.8per cent, while at First Student they rose from 6.5 to 7.5 per cent. Rail margins were up from 1.9 to 3.4 per cent as the group secured a four-year contract extension on its flagship Great Western route, and a one-year reprieve on the Trans-Pennine franchise, where it is now re-bidding.