CONTINUED problems at Aberdeen-based FirstGroup's American school bus business are holding back its turnaround, its latest stock market update has revealed leading to a share price fall of up to 3.1%.

In May FirstGroup persuaded investors to hand it an extra to hand it £615 million to relieve the pressure on its balance sheet as it seeks to overhaul troubled divisions such as First Student and its UK bus arm, which runs services in places including Glasgow and Aberdeen.

The company said its UK bus business has seen a 2% rise in like-for-like revenues in the final three months of 2013, thanks to growth in passenger volumes.

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But it reported that a drive to boost profit margins at First Student "will be slower than we had targeted" due to poor weather, limited pricing power and rising costs.

Chief executive Tim O'Toole said: "The slowing of our margin progression in First Student during the period was disappointing, however we remain confident in achieving our medium term objectives for the division as we refresh the management team and drive further cost efficiencies and improve returns across the business.

"As we work through the current bidding season, which is just commencing, our focus remains on those markets where our superior offering is valued."

Gert Zonneveld, analyst at Panmure Gordon said he was "disappointed" with the lack of progress at First Student.

"We recognise the attractiveness of the company's key businesses in the UK and North America but also believe that the road to margin recovery is likely to be a lengthy (and potentially rocky) one," he said.

FirstGroup's shares fell to 138.5p in early trading before closing down 1.80p, or 1.26%, on the day at 141.20p.

Mr O'Toole, who used to run London Underground, said: "In UK Bus, we are pleased with the tangible results we are seeing from our comprehensive transformation plans, and although challenging economic conditions continue in some of our local markets, our confidence continues to grow."

It had previously seen a slump in demand at its operations in Scotland and northern England.

Like-for-like passenger revenue at its rail arm, whose franchises include ScotRail, increased by 6.3% year on year in the quarter due to volume growth.

FirstGroup has been shortlisted alongside Stagecoach to operate the East Coast Main Line.

Former Royal Bank of Scotland director John McFarlane who has become chairman in place of Martin Gilbert brings "extensive international experience", Mr O'Toole said.