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FirstGroup shares on the road to recovery

SHARES in under-pressure rail and bus company FirstGroup accelerated 6.2% after it revealed its plans remain on track despite the buffeting of the economy.

CROSSROADS: FirstGroup has sold a number of its businesses to rival operator Stagecoach. Picture:  Marc Turner
CROSSROADS: FirstGroup has sold a number of its businesses to rival operator Stagecoach. Picture: Marc Turner

Aberdeen-based FirstGroup is restructuring its bus business after warning last year that the economic slump and ill-timed fare rises had hit demand in the north of England and Scotland.

Debt-laden FirstGroup, which owns Greyhound in the United States, is expected to slash its dividend later this year.

FirstGroup chief executive Tim O'Toole said: "Trading for the group, excluding the one-off effect of Hurricane Sandy, during the third quarter was in line with our expectations."

As part of its restructuring drive, FirstGroup announced the sale of bus operations in Kidderminster and Redditch in Worcestershire to Rotala for £1.5 million. Rotala is listed on the Alternative Investment Market and its businesses include Preston Bus.

Mr O'Toole said: "While there is significant work still to do, we are satisfied with the progress of the actions taken so far, though we remain cautious in respect of continued economic weakness."

FirstGroup's shares finished up 11.8p at 203.8p. They have now risen 16.7% since hitting a low of 174.6p in late November.

Mr O'Toole, who used to run London Underground, gave little away about the dividend plans but linked it to uncertainties about rail franchising after Whitehall failings meant FirstGroup was stripped of the West Coast Main Line franchise it had been awarded in the summer.

He said: "As previously stated, following the uncertainty caused by the Department for Transport's decision to delay its refranchising programme the board held the interim dividend at last year's level.

"We will consider the full-year dividend in May, by which time the prospects for our rail division are expected to be clearer."

Gert Zonneveld, analyst at Panmure Gordon, said: "A significant dividend cut seems likely."

FirstGroup said that like-for-like passenger revenue in its bus business, which has operations in locations including Glasgow, Aberdeen and Galashiels, grew 2.1% in the period.

"Notwithstanding the challenging economic environment, which continues to affect many urban areas in which we operate, we are making headway with our plan to recover performance and equip the business to achieve increased revenue and patronage growth," FirstGroup said. "We continue to work through our programme of disposals."

The company, which has £2 billion of debt, has sold a number of businesses to rival Stagecoach, including its Birkenhead and Chester operations which it agreed to offload for £4.5 million in November.

"While there remains considerable work to be done across our UK bus division, we are encouraged by early positive signs in some of our markets," FirstGroup said.

Its rail business, which includes ScotRail, recorded like-for-like revenue growth of 8.1%.

"We look forward to receiving details on the recommencement of the franchise process-and submitting further high quality bids that deliver for passengers, taxpayers and shareholders," FirstGroup said.

Virgin Rail, which is part-owned by Stagecoach, will continue to run the West Coast Main Line for another two years. The ScotRail franchise will now end on March 31, 2015, rather than November 2014.

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