FirstGroup to speed up UK bus shake-up

Buses and trains operator FirstGroup is to shake up its UK bus operations to focus on those areas that offer the greatest potential for growth.

The group announced full year results for the year to the end of March that were slightly ahead of expectations, but counter-balanced the good news with a warning about the tough market conditions its bus operations face, particularly in Scotland and the north of England.

Revenue rose 4.1% to £6,678.7m from £6,416.7m the year before, ahead of expectations of £6,499.8m. However, there was an extra week of trading this time round, and with the effects of this excluded, revenue was up 2.9% year-on-year.

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Adjusted profit before tax eased 1.1% to £271.4m from £274.3m the previous year, but was ahead of market consensus of £267.9m. Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) fell 3.4% to £742.9m from £768.9m the prior year.

As expected, operating profits in the First Student and UK Bus divisions declined, but there were partly offset by higher profits from the Greyhound bus operation and UK Rail.

Adjusted basic earnings per share dipped 2.7% to 40.0p (consensus forecast: 39.78p) from 41.1p, but there was good news on the dividend front, with the full year dividend ahead of market expectations at 23.67p, up 7% on the previous year's 22.12p; the market had been expecting a full year dividend of 23.62p, even though the group has committed itself to growing the dividend by 7.0% each year through to the end of the current financial year.

Figures for the previous year have been restated.

Net debt slimmed down to £1,837.5m at the end of March from £1,949.4m a year earlier. The combined effect of the outlook for trading together with the actions to reposition the UK Bus portfolio is expected to result in the group's net cash flow being broadly neutral in the current financial year.

"We have seen a further deterioration of economic conditions particularly in our urban operations in Scotland and the North of England. As result, we do not expect revenue growth and cost efficiencies in 2012/13 to be sufficient to offset the impact of reduced government subsidies and funding to the industry, which are more acute than originally estimated, and increased fuel costs," said FirstGroup's Chief Executive, Tim O'Toole.

"In response we are accelerating a comprehensive plan that will deliver sustainable growth in revenue and patronage and improved returns. This includes repositioning our UK Bus portfolio through a programme of business and asset disposals to focus on those areas where the greatest potential for growth exists," O'Toole said.

JH