FirstGroup’s bumpy road
Transport giant’s bus passenger revenue falls but weaker pound to boost US profits
BUS and rail company FirstGroup has highlighted a more challenging economic outlook for its UK business following the vote to leave the European Union.
It believes this might offset gains arising from the profits of its sizeable US operations being worth more in sterling terms as a result of the pound’s tumble against the dollar in the wake of the June 23 Brexit vote.
Aberdeen-based FirstGroup declared there was therefore no change to its overall outlook for the current financial year to March 2017.
Its First Bus business in the UK experienced a 1.4 per cent year-onyear fall in passenger revenues on a like-for-like basis in the first quarter to June. FirstGroup cited a “challenging market backdrop”, noting it continued to merge or close a number of depots and pursue other “cost efficiencies”.
FirstGroup noted lower high street footfall was weighing on revenues in its UK bus business, and added congestion was impairing services in several markets. A spokesman cited congestion issues in Manchester and Bristol.
The company reported a 1.1 per cent year-on-year rise in revenues in the first quarter of the financial year at its First Student school bus business in North America on a like-forlike basis, in constant currency terms. It said it expected “significant progression” in First Student’s profit margins this financial year, noting price rises on contracts and cost-cutting.
The North American First Transit division, which provides shuttle services at the likes of airports and university campuses, achieved a one per cent-year on-year rise in like-forlike revenues during the quarter. This rise was achieved in spite of further reductions in demand for its shuttle services sands sites.
But FirstGroup’s Greyhound coach operation in North America saw a five per cent year-on-year fall in like-for-like revenues during the quarter. Lower fuel prices continued to present challenging conditions reducing the cost for people of making long journeys by car.
FirstGroup’s UK rail business, comprising Great Western Railway and TransPennine Express, posted year-on-year growth of 2.3 per cent in passenger revenues on a like-forlike basis during the quarter. The company noted that, consistent with industry-wide trends, passenger volume growth in its rail division moderated during the quarter.
FirstGroup declared it was too soon to judge the overall effect of the EU referendum decision on its business. The company said: “[There is] no change to overall outlook for the current year, recognising the degree to which potential net currency at Canadian oil benefits as a result of our significant US dollar-based businesses will be offset by a more challenging macroeconomic outlook for our UK businesses is uncertain, following the outcome of the EU referendum.”
It highlighted the large proportion of profits generated by its dollardenominated businesses in North America, and the impact of the pound’s fall in this context.
FirstGroup said: “More than two-thirds of group adjusted operating profit was generated in North America in the last financial year, and the weakening of sterling since the referendum outcome would, if maintained, result in translation benefits from our US dollar-denominated businesses, albeit partly mitigated by some US dollardenominated costs incurred in the UK divisions, principally for fuel, and some US dollar interest and tax costs.”
But FirstGroup also flagged the potential dampening impact of the vote to leave the EU on UK consumer confidence and economic growth.
FirstGroup, led by chief executive Tim O’Toole, said: “Like other business sectors, our UK-based First Bus and First Rail operations are affected by trends in the wider economy, including factors such as weakening economic growth and lower consumer confidence. The degree to which the net currency benefit from our US-based operations will be offset by more challenging UK economic conditions for our UK-based businesses is uncertain at this stage.”
FirstGroup shares dipped 2.2p to 100p.
Trade union Unite this week launched a consultative ballot to ask its 1,700 members employed by the First Glasgow bus business whether they would be in favour of strikes or other industrial action over what the union described as a “substantial shortage” of drivers. FirstGroup said it was disappointed and surprised Unite saw the need for a ballot.