By Scott Wright

FIRSTGROUP has reported a rise in operating profits as passengers returned to public transport in a year that saw it also exit the US market, but warned “some uncertainty remains around the pace of recovery” from the pandemic.

The Aberdeen-based bus and rail giant, which last week threw out a takeover approach from a private equity player valuing the company at up to £1.23 billion, booked an operating profit of £226.8 million for the 52 weeks ended March 26. This compared with £220.2m profit the year before.

Profits progressed during in a year that saw the company withdraw from the US, following the sale of First Student and First Transit to private equity group EQT Infrastructure for $4.6bn (£3.3bn) in April, and then the disposal of Greyhound to FlixMobility, a European bus and rail company, for $172m (£125m) in October.

FirstGroup, which said that its balance sheet had been deleveraged and de-risked, has subsequently returned £500m to shareholders through a tender offer. And yesterday it announced the resumption of dividends after payments were frozen earlier in the pandemic; its board has proposed a final dividend of 1.1p per share, which would result in a total dividend of around £8.1m.

The results were unveiled by the company les than a week after it knocked back a takeover approach from Miami-based I Squared Capital, with its board declaring that it had “unanimously rejected” the proposal.

The board had been considering the latest in a series of “unsolicited, conditional proposals” from I Squared, which last year acquired Aggreko with TDR Capital for £2.3bn. The most recent proposal comprised a cash component of 118p per share and a contingent right to up to a further 45.6p per share. The contingent right was based on the outcome of the earn-out that can be achieved by FirstGroup from the sale of First Transit, and the net proceeds realised from Greyhound legacy assets and liabilities.

But the FirstGroup board judged that the cash component “significantly undervalues FirstGroup’s continuing operations and future prospects”, adding that the contingent right did not offer shareholders “sufficient certainty”.

The proposal came amid considerable investor interest in major UK transport companies. Stagecoach is poised to be sold to German infrastructure investor DWS for £595m, following a takeover tussle with National Express, while on Monday evening Go-Ahead said it had accepted a £650m takeover offer.

Stripping out the contribution of US businesses First Student, First Transit and Greyhound, FirstGroup reported yesterday that operating profit from continuing operations dipped to £106.7m from £112.2m.

The company noted that while there is still “uncertainty” around the recovery from the pandemic and the “broader macroeconomic backdrop”, it said current trading was in line with expectations and expects to “make significant further progress” this year. It reported that passenger numbers on First Bus has recently reached 76 per cent of the equivalent period in 2019, before the pandemic, adding that it expects volumes to continue to increase this year while being “clearly sensitive to the broader spending outlook”.

On rail, FirstGroup said that its four management fee-based operations – Avanti West Coast, Great Western Railway, South Western Railway and TransPennine Express – were performing in line with expectations. The company announced separately yesterday that it has secured a new three-year deal to run the Great Western Railway, which connects passengers between London and Wales and the south-west and west of England, until June 2025.

Graham Sutherland, the telecoms veteran who joined FirstGroup as chief executive on May 16, said: “The transformed group has momentum and we expect to make significant further progress in the year to March 2023. With leading positions in bus and rail, a strong balance sheet and a clear purpose, FirstGroup has many opportunities ahead to deliver sustainable shareholder value creation while delivering the vital services that are key to achieving society’s sustainability and economic goals.”

FirstGroup highlighted progress with moves to cut costs, which it said have delivered annualised cost savings of around £20m since 2019. It noted that it was on course to realise further cost savings of around £5m.

Executive chairman David Martin said: “We have delivered on our commitments this year to refocus the business, de-risk the balance sheet and unlock value for shareholders. As a cash generative business with a strong balance sheet, FirstGroup is well placed to invest in the services our passengers want, to sustain our path to a zero-emission bus fleet, and to actively consider additional value creation opportunities to leverage our market leading public transport expertise. The board’s confidence in the prospects for the group is reflected in the decision to commence dividend payments.”

Shares closed up 1.4% at 134.7p.