BUS operations in FirstGroup's Scottish heartland are continuing to be hit by poor economic conditions, even as its turnaround plan begins to pay off elsewhere.
The Aberdeen-based transport company reported its first increase in UK bus passenger volumes for at least five years as underlying pre-tax profit for the six months to September 30 accelerated 43.7% to £28.3 million, on revenues that were up 1.6% at £3.3 billion.
But it said that in Glasgow economic conditions remained "tough" while it was also "under pressure" in the east of Scotland, leading to a fall of up to 4% in passenger journeys on its services north of the Border, despite a strong performance in Aberdeen.
FirstGroup, which earlier this year tapped up investors for £615m to steady its finances, overhauled its Glasgow bus routes in May but said the state of the economy had left it with "further work to do" in the city.
The company noted that the percentage of economically active people in Glasgow had fallen by around 5% in the past 18 months even as the UK as a whole had seen a slight improvement.
Chief executive Tim O'Toole said of its operations in Glasgow: "It is a tough environment"
Asked if its issues in the city could lead to further bus route reductions, Mr O'Toole said: "We are determined to put out a good service that is valued by the community.
"Glasgow has traditionally been good business territory. We know it will come back.
"We have to show some faith here in delivering a good service."
He said the company was seeing encouraging volumes on city centre routes in Glasgow where it had made significant changes.
Earlier this month, Fiona Kerr, FirstGroup's Scottish finance director, was appointed as managing director of First Glasgow.
In the east of Scotland, its operations are also under "considerable pressure". Aberdeen, however, had been stronger, Mr O'Toole said.
The result was total passenger volumes in Scotland "somewhere between 3% and 4% down" on last year.
The company told investors: "Scotland remains a challenging market overall, with retail footfall for example down by as much as 5% in recent months compared to last year."
UK-wide, FirstGroup's bus division reported volume growth of 0.7% in the period, with like-for-like passenger revenues up 1.7%.
This was the first growth in passenger numbers since 2007/8, the company said. Nevertheless profits at the division fell to £17.3m from £21m for the same period last year.
FirstGroup said the volume rises were a platform for further growth in passenger numbers and pricing.
In its UK rail business operating profits rose 37.8% to £32.8m on like-for-like passenger revenue growth of 5.7%.
Underlying passenger volume growth rose by 3.6%.
FirstGroup has been shortlisted for a number of franchises, including for the next ScotRail deal, a line it currently operates and the new 15-year Caledonian Sleeper franchise, both of which will be awarded by the Scottish Government next year.
The group said it was also interested in bidding for the currently state-run East Coast Mainline.
Its current woes came about after it was awarded, and then stripped of the West Coast franchise last year, following flaws in the bidding process.
On a statutory basis, FirstGroup posted an £8m loss for the period after incurring £7m in costs bidding for franchises, including ScotRail.
It also made losses on property sales, took a £25.9m charge relating to a reassessment of contracts in its US school bus arm, and a £17m charge on derivatives after paying off US dollar debt from the proceeds of its rights issue.
Mr O'Toole said: "The bottom line is that we saw a steady performance."
FirstGroup is investing £1.6bn over four years to boost its businesses.
FirstGroup's chairman, Martin Gilbert, who is also chief executive of Aberdeen Asset Management, announced in May that he was stepping down.
He said yesterday that the process to find his successor was underway and making progress.
Ged Zonneveld, analyst at Panmure Gordon, said: "We recognise the attractiveness of the company's key businesses in the UK and North America, but also believe the road to margin recovery is likely to be a lengthy (and potentially rocky) one."
Analysts at Investec said that they were "keeping faith" in FirstGroup's turnaround plans "but believe that patience will be needed".
FirstGroup shares closed up 6.8p or 5.9% at 122.9p.
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