SHARES in FirstGroup closed up nearly 14 per cent last night after the Aberdeen-based transport giant beat profit expectations and cheered investors with an additional share buyback worth £115 million.

The company shrugged off the loss of the TransPennine Express rail contract it had run since 2004 as it underlined the benefit of flagship government policies to boost bus travel amid the cost-of-living crisis, as it reported a 20% in passenger volumes on First Bus in 52 weeks to March 25, compared with the year before.

And while it noted that the “economic and industrial relations backdrop remains challenging”, amid ongoing strike action on the rail network over pay, the company declared that current trading and its outlook for the current year were in line with expectations.

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FirstGroup said free bus travel for people under 22 in Scotland, launched in January 2022, and the £2 bus fare price cap in England as had “positively impacted volumes” as it reported that total passenger revenue at First Bus increased to £660 million from £570m over the period.

Adjusted operating profits at First Bus climbed to £58.4m from £45.2m, boosted by an operating margin of 7.9% in the second half. This compared with a full-year margin of 5.7% last time.

On rail, FirstGroup reported revenue from management-fee based operations of £3.8 billion, up from £3.76bn, as adjusted operating profit dipped to £93.3m from £97.5m.

The company completed 263 million rail passenger journeys, up from 201 million, in a period that saw it stripped of its long-standing contract to run the TransPennine Express, which was nationalised in May following months of disruption and cancellations on the network.

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Overall, group attributable profit more than doubled to £82.1m, ahead of expectations, with adjusted operating profit from continuing operations of £161m – compared with the £149.1m forecast by a company-compiled consensus of analysts. The consensus for the current year is £157.4m.

FirstGroup launched a £75m share buyback in December 2022 and announced this morning an additional buyback of £115m, proposed following receipt of proceeds from exiting from its North American business. The company sealed its withdrawal from the US in October 2021 when it sold its Greyhound inter-city coach business to European bus and rail company FlixMobility. That followed the sale of the First Student and First Transit businesses to EQT Infrastructure in April that year.

FirstGroup reported yesterday that in December 2022 it received net proceeds of £122m from the sale of its two remaining Greyhound properties in the US. It also expects a First Transit earnout consideration estimated to be worth $89m after EQT completed the sale of First Transit in March.

The company is recommending a final dividend of 2.9p per share, resulting in a full-year dividend of 3.8p per share.

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Chief executive Graham Sutherland said: “We have delivered a strong financial performance in FY 2023. In First Rail, our teams have worked extremely hard on our service objectives, and the notable success of our open access operations is further recognition of the considerable expertise and ambition of our team.

"In First Bus, we are seeing the benefits of actions we have taken to transform the business, and we are establishing ourselves as leaders in decarbonisation as we accelerate the electrification of our bus fleet to deliver value not just for FirstGroup but for all our stakeholders.

“Our leading positions in bus and rail, together with the strength of our balance sheet, will allow FirstGroup to create long-term shareholder value while delivering the vital services and innovation that are key to achieving society’s sustainability and economic goals.”

Russ Mould, investment director at AJ Bell, said: “Bus and rail outfit FirstGroup shrugged off the loss of the TransPennine Express franchise and the continuing impact of industrial action as it benefited from strong travel demand.

“Regulation does not always have a negative impact and the company has benefited from a government scheme to cap bus fares – which has helped boost passenger levels.

“Alongside the better-than-expected annual profit, perhaps even more significantly given the recent loss of the TransPennine franchise, the company said current trading and the outlook for 2024 were in line with expectations.

“The company’s strong balance sheet is testament to careful husbandry of its finances through the pandemic and gives the company scope to reward shareholders with buybacks and to look at acquisitions, perhaps even a bid for rival UK bus operator Arriva.

“The company still needs to focus on improving performance and reliability if it isn’t to face further government sanction and also see passenger numbers drop off as people are turned off by delays and cancellations.”

Shares in First Group closed up 16.5p, or 13.9%, at 135.2p.