FIRSTGROUP has declared its transformation strategy is on track after delivering statutory profits of £9.9 million for the first six months of its financial year, as chief executive Tim O'Toole underlined the bus and rail giant's bitter disappointment over losing the ScotRail franchise.

Mr O'Toole said the group's first half trading performance had been in line with management expectations, with the profit rise following an £8m loss at the same stage last year.

Underlying profits, which strip out factors such as amortisation, business disposals and revisions to onerous contracts, rose by 69.9 per cent to £33.3 m.

Mr O'Toole said the firm was on track to meet expectations for the full year, noting that annual profits and cash flows are weighted towards the second half because its First Student school bus division in North America enjoys a higher number of operating days.

FirstGroup said the first half had seen a good performance from its UK Rail division, although it conceded some local bus markets in the UK had still to see the benefits of the improving economy.

Like-for-like rail passenger revenue rose 6.5 per cent at the rail business over a period which saw it lose the ScotRail franchise to Dutch firm Abellio.

Mr O'Toole insisted the loss of the contract would not affect its head office operations in Aberdeen, or its commitment to Scotland, where FirstGroup is the country's biggest bus operator.

Asked how the company planned to offset the loss of the ScotRail business, he said: "We wait with other bidders the result of the East Coast (franchise).

"Then there are about a dozen more competitions coming down the pipe, so we will remain active and hopefully replace and restore our rail earnings in line with our plan.

"But I have to say, while we are confident and believe we can do that, it is still a bitter disappointment to lose ScotRail because we had such a good run there."

Mr O'Toole said it was difficult to assess in hindsight whether he would have changed the FirstGroup bid for ScotRail, noting that Abellio was not obliged to make details of its bid public. But he emphasised that FirstGroup was not in a position to "bid uneconomically" while it was in the process of restoring shareholder value. Last year investors backed a £615m rights issue.

On UK bus operations, the firm saw like-for-like passenger volumes rise by 2.1 per cent on the back of "selected fare rebasing" and improving service quality.

Mr O'Toole said the company's bid to revive routes in Glasgow with the launch of the SimpliCITY network was the "right thing to do," while conceding "it's also undeniably true that the growth rates there have not been what we hoped for given the investment we are putting in.

"But we're going to stick with it. It's a very important market."

FirstGroup indicated it would start to introduce inflation-based price increases in parts of its UK bus business. But he was adamant this was not about "running up price increases."

He said: "We are not going to reverse the good progress we have made across all of our networks with a bunch of price increases that push them off."

Mr O'Toole said the departure of chairman John McFarlane, who will step down in July, was disappointing. But he expressed confidence that the company would benefit from the changes he has made, including the new non-executives board.

In North America, FirstGroup reported encouraging progress with the turnaround of First Student and a strong performance by First Transit in the US.

Shares in FirstGroup closed up 3.6p, or 3.13 per cent, at 118.7p.