First signals fuel trouble

NORTH EAST TRANSPORT firm First Group has warned that it expects rising fuel prices and a cut in subsidies to hit UK bus profits for the year ahead, despite the prospect of increasing revenues.

The Aberdeen-headquartered transport giant yesterday said the two hits would have a deeper-than-anticipated impact on returns as it announced preliminary results for the 12 months to the end of March.

That looks set to prompt considerable investment in new services, buses and branding, a review of the routes covered by the company, and a sell-off of underperforming businesses and assets.

Overall, the bus and rail firm, which employs 37,000 people in the UK, revealed it had boosted worldwide revenues by 4%, to £6.6bn, and more than doubled pretax profits — from £126.5m in the year to March 2011 to £279.9m over the same period last year.

But, in a statement, First Group said it would reform the operating model for is UK Bus arm after the division saw a 9.7% drop in operating profits.

It blamed tough trading conditions in UK cities and high fuel prices for its difficulties and revealed a “comprehensive” plan to stimulate growth in passenger revenue.

Transport firms have also lost out thanks to Scottish Government cuts in the Bus Services Operators Grant.

“Notwithstanding the steady performance from our UK Bus division in 2011/12 we have seen a further deterioration of economic conditions particularly in our urban operations in Scotland and the north of England,” said chief executive tim O’toole.

“As a 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.

“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.”

That plan includes a focus on the design of the company’s bus networks, more emphasis on pricing, ticketing and service quality, and a commitment to work alongside councils and other stakeholders.

The steps will also include a new liver y and fleet modernisation programme involving 1,000 new vehicles and an extensive programme of refurbishment, as well as £27m of investment in new smart card ticketing systems.

Revenue and operating profits increased in the firm’s UK railway businesses, the former up 10.4% to £2.5bn and the latter rising by 1.7% to £110.5m.

First noted that the sector was entering a period of transition with eight franchises due to be re-let over the next two years, but claimed it was in a strong position to win deals.

In Scotland the firm said its performance had rallied in the second half of last year, following poor results caused by early 2011’s severe weather.

First Scotrail has also signed one of the first alliance agreements between a train firm and Network Rail, and its hoped that this step will lead to improved efficiency and cost savings for the industry and the Scottish Government.

Chairman Martin Gilbert said the firm would attract more custom through “consistent and reliable provision of high quality, value for money services.”

It already carries around 2.5 billion passengers on its services each year.

The company — which is looking ahead to a role as the main provider of spectator transport at the London Olympics — also said it has taken specific actions to improve performance abroad, most notably at its US school bus arm First Student, and the long haul North American coach firm Greyhound.

First Student, in particular, is said to be on the path to recovery after revitalising its business model to accommodate restricted US school board budgets.

First Group has warned that its profits may hit the buffers due to rising costs.

Tim O’toole.