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FirstGroup shares plunge after freezing of dividend

EMBATTLED FirstGroup chief executive Tim O'Toole insisted he is backed by the rail and bus company's board after the freezing of its dividend prompted another plunge in the company's share price leaving it at less than half the level it was when he took over two years ago.

He said Aberdeen-based FirstGroup is in talks with the Government about recovering the costs of its aborted bid for the West Coast rail franchise.

But it is very unlikely to be compensated for the drop in is share price following what Mr O'Toole described as the "awfully traumatic" Department for Transport decision last month to reverse the awarding of the Glasgow to London franchise to FirstGroup after finding flaws in the bid process.

FirstGroup also still faces problems in its bus business, which it is overhauling. Performance in Scotland and the north of England has picked up but conditions have become harder in the south, the company said.

As a result, FirstGroup yesterday posted a 93.4% fall in pre-tax profit to £8.9 million for the six months to September 30.

Underlying earnings, stripping out the impact of cuts to its bus pension scheme last year, fell 42.4% to £48.7m.

FirstGroup said it would keep its interim dividend at 7.62p, to be paid on February 7, until the future of rail franchising becomes clearer.

But many analysts are sceptical that it will meet its target of 7% dividend growth for the year.

FirstGroup's shares fell 10.4p or 5.1% yesterday to 194.9p.

They were at 408p when Mr O'Toole, who previously ran London Underground, took over in November 2010.

Mr O'Toole said: "I feel the board is extremely supportive. I think people understand this is a tough business turnaround but I stand to be judged by conventional means."

The company booked £12.3m of franchise bidding costs over the six month period.

Mr O'Toole demanded more information about why its successful bid for the West Coast franchise was overturned.

He said: "The explanation of what went wrong and why this result was appropriate remains unclear."

FirstGroup is involved in four franchise bids and he wants the process restored "without delay".

"We feel the franchising system is in no way broke as to need an overhaul," he said.

Mr O'Toole said that FirstGroup is in talks about retaining the Great Western franchise while a review continues.

The company raised eyebrows when it allowed the franchise to expire in early 2013 rather than 2016.

Its ScotRail franchise runs until November 2014. FirstGroup said it is seeing an improvement in its bus operation business in the Scotland and northern England where its troubles in the face of a lacklustre economy sparked an overhaul of the division.

Finance director Chris Surch said that like for like revenues were up 2.9% in the northern operations against 2.6% UK-wide.

A revamp will see FirstGroup dispose parts of the business and some analysts worry poor demand will force it to sell relatively healthy operations.

Mr Surch said: "We stand by the £100m of proceeds from the disposal programme," he said. "There is good interest coming from various parts of the market."

Douglas McNeill, analyst at Charles Stanley, said that FirstGroup is in for a "bumpy ride" and might have to conduct a rights issue to boost its balance sheet.

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