FirstGroup chief executive Tim O’Toole has said the group made “a very aggressive bid” to retain the ScotRail franchise last year, and has lamented the lack of transparency over the winning bid from Abellio.
Mr O’Toole, commenting on a half year where rail franchise revenue fell by £586million and operating profit by £13.6m compared with a year earlier, said he had no regrets about the group’s unsuccessful ScotRail bid.
“It was the most celebrated franchise in terms of awards when we were running it, we delivered a six per cent average growth rate for 10 years, and we put in a very aggressive bid of eight per cent growth over the next 10 years,” Mr O’Toole said.
“It is not as though we sat on our hands and thought this would just be handed to us. We can’t explain the Abellio bid, unfortunately because they are not a public company we will never get to see the numbers as we would if it was a different competitor.”
The Dutch-owned operator has had mixed reviews since it took over the franchise last April. Mr O’Toole commented: “The less I say about the current franchise the better.”
FirstGroup, which lost out in four rail bids last year, said the impending award of a new franchise on the Trans-Pennine route which it currently operates under management contract, was “a great opportunity.....plainly we are under the shadow of our record to date in the bids”.
The US-born chief executive said the debt-laden transport giant was on course to generate cash again when his three-year transformation plan completes in early 2017.
He said: “Overall trading for the group during the first half was in line with our expectations, with outperformance in some areas offsetting the more challenging market environment in others.”
The group’s biggest business, First Student in the US, had delivered a second year of contract pricing increases and cost efficiency benefits, moderated by driver shortages and fewer operating days.
First Transit had landed further contract awards helping to offset reduced Canadian oil sands activity, while Greyhound had launched a yield management system to help mitigate lower demand from cheaper fuel. Mr O’Toole said: “We think it puts us in a position to efficiently price existing demand and inspire interest in markets that have been neglected in the past.”
The UK bus operation, where Glasgow has seen the biggest investment of its kind in the Caledonian bus depot, is said to be maintaining turnaround progress despite mixed trading conditions and less concessionary travel.
The rail business reported financial performance “towards the top end of our expectations, underpinned by strong passenger volume growth”. Stripping out the lost franchises and one-off issues, revenue was said to be 0.8 per cent ahead.
Mr O’Toole said investors could now “see the building blocks” for a return to cash generation, adding: “They now want to see it delivered, they don’t want to see reasons why it can’t be delivered.”
Analysts at Liberum said: “The group appears to remain on course for the full year, when we believe the effects of the turnaround programme will be more evident.”
They said the group was trading at only 4.3 times earnings, a clear discount to its peers. “We believe this is unjustified given the recovery potential, although we accept this is masked in the short term by recent rail franchise expiries and management’s track record is far from conclusive.”
The shares closed up 2.6 per cent at100p.
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules here