FirstGroup resumes divided payments after making “good progress”

An eight-year hiatus on dividend payments has ended at FirstGroup - the UK’s biggest rail operator (with a 27% market share).

With the company’s latest results showing improved profits and debt reduced, shareholders will receive a share of the £8.1 million total dividend payment - a modest final dividend of 1.1p per share (their first since 2013) with the promise of more and increased dividends to come.

The Treasury also benefits with £21.4m tax paid, compared with £4.5m the previous year.

It comes as the group’s financial position has become simpler, following the disposal of its US bus and coach operations, massive debt reduction, and return of its pension funds to ‘normal’ status after a £220m cash injection.

Dividends were halted after First’s winning bid for the West Coast Main Line franchise was reversed, after a review found flaws in the bidding process. The joint Stagecoach/Virgin Rail bid was accepted instead.

A period of poor performance followed. Problems in all its divisions (UK rail, UK bus and US/ Canada bus) led to a loss in 2018.

An underlying factor dragging down results for the past decade has been its US/Canada Greyhound coach business. After two years up for sale, it was finally disposed of in October 2021 for £125m to German-based FlixMobility.

The US school bus businesses were sold in July 2021 for £3.3 billion, of which £2.3bn was used to significantly reduce FirstGroup’s debt and plug a £220m hole in its pension schemes.

The exit from the US de-risks the business from onerous insurance liabilities and means that FirstGroup is now in a strong financial position and expected to generate cash flow that will not be swallowed up by debt payments.

“We have delivered on our commitments this year to refocus the business, de-risk the balance sheet, and unlock value for shareholders,” said Executive Chairman David Martin.

“The Board’s confidence in the prospects for the Group is reflected in the decision to commence dividend payments.”

With the end of franchising, FirstGroup now holds four government National Rail Contract (NRC) operations (Avanti West Coast, Great Western Railway, South Western Railway and TransPennine Express) plus open access operations Hull Trains and Lumo.It is also the ‘shadow operator’ for HS2 and operates the London Trams network for Transport for London.

In its results for the year-ended March 26, FirstGroup recorded a fall in revenue to £5.6bn (2021: £6.8bn). When the now-sold US operations are removed, the results are more positive with

UK rail and bus revenue rising to £4.6bn (£4.3bn), delivering a 2.3% operating margin. It reported an adjusted operating profit of £227m (£220m).

The four NRC operations achieved two-thirds of their performance ‘bonus’ fees, on top of fixed management fees. It means that under the new contract structures, the 53% increase in like-for-like passenger journeys from these operations had no impact on FirstGroup’s fee income.

First Rail’s open access operations made “good progress” during the year with “lower than expected” losses as a result of strong leisure demand since COVID restrictions were reduced and the launch of Lumo in October 2021.

FirstGroup says that “both are performing well in the current financial year” and are “on target” to deliver a profit, having made a combined £16.6m loss owing to the start-up costs for Lumo and the suspensions of Hull Trains due to COVID, when open access operators were not eligible for government emergency support.

In total, First Rail generated £3.8bn revenue (£3.6bn) and made an adjusted operating profit of £88m (£108m) - reflecting the change to management fee contracts (instead of profits from passenger revenue) during the year.