FirstGroup has warned of a dent to this year’s profits from severe weather in the UK and driver shortages in the US, but insists that its transformation plans are on track.
The Aberdeen-based group’s shares fell by over 11 per cent as it warned that UK bus revenues in its third quarter had been affected by lower than expected high street footfall in the run-up to Christmas, with extreme weather and flooding also impairing services in some areas.
FirstGroup said like-for-like bus revenues were flat, but its cost efficiency programme continued as planned and it remained on course to improve trading margins by one percentage point, excluding the impact of depot closures.
In the US, where the turnround of its biggest business First Student is a key objective for the group, momentum was slowed by “higher than budgeted costs incurred in response to acute driver shortages in certain of our markets”.
The Greyhound coach network, which is battling competition from motoring at the lower fuel prices, saw revenues drop by 5.2per cent in the quarter.
The group said its First Rail business had experienced some slowing in passenger demand growth in the weeks following the Paris terror attacks in November, and in areas affected by recent flooding. Like-for-like passenger revenue growth in the third quarter was 5.6per cent, and full year results for the division were still on track. Last month First landed its first new rail franchise, after four unsuccessful attempts in 2014-15, with the TransPennine Express secured for at least another seven years from April 1. It has also bid for the East Anglia franchise, due to be announced in June ahead of the franchise start in October.
There was “no material change in the group's financial position” since the half-year, with underlying cash flow for the year seen as broadly flat.
Chief executive Tim O'Toole said: “Our transformation plans continue to make headway despite a challenging third quarter trading period in our markets, with disappointing retail footfall and the terrible weather affecting First Bus, and our largest division First Student experiencing acute driver recruitment and retention challenges in certain locations.
“While these issues have slightly moderated our trading performance in the period they are not of a magnitude to materially affect our multi-year transformation plans, which we expect to deliver significantly improved cash generation in our next financial year as planned.”
Mr O’Toole went on: “Our ability to create sustainable value in the medium term continues to strengthen through our improvements to First Student's contract pricing and cost efficiency, the transformation of Greyhound's business model through improved systems and the restoration of profitable commercial passenger revenue growth to First Bus, while our disciplined but ambitious approach to rail franchising has resulted in the award of the TransPennine Express franchise to at least 2023.”
The shares dropped 11.75p to 90.55p.
Analysts at JP Morgan maintained an ‘overweight’ stance on the stock, saying the current market valuation “accounts for only a fraction of savings targeted by management over the next few years” and ignored an improving UK economic outlook. Nomura was more cautious, remaining neutral on the stock but noting that the margin improvement potential was offset by “concerns around speed of delivery and, following today’s update, near-term trading”.
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