Shares down in FirstGroup over uncertain UK outlook
Transport giant hails recovery in US as profits exceed forecasts
SHARES in FirstGroup plunged by five per cent as the bus and rail giant warned of continuing economic uncertainty in the UK.
Investors reacted coolly as chief executive Tim O’Toole said the company’s First Bus and First Rail divisions face more challenging conditions this year. He observed that political uncertainty is “always worrisome” and makes it difficult to put together franchise bids and make forecasts about markets.
The assessment came as Mr O’Toole hailed the company’s recovery in the US, which helped lift pre-tax profits by more than 20 per cent to £207 million.
Aberdeen-based FirstGroup said its dominant First Student division, the largest provider of student transportation in the US, had seen significant margin improvements last year, in spite of continuing challenges over driver recruitment. It also reported a revenue boost from the collapse in sterling since the Brexit vote, as revenue climbed by 8.3 per cent to £5.65 billion.
Mr O’Toole, who said the group’s performance had beaten its public forecasts for the year, said the results have put FirstGroup on a “level of stability and strength we haven’t enjoyed in a long time”.
He declared: “It was all built on largely North American strength in our student transit businesses. We’ve got more challenges over here but we also have a lot of good stories over here, so the longer term prospects of the company we feel very positive about.”
Asked why business had turned around in the US, Mr O’Toole said the company was seeing the benefit of having “sown the seeds” of its recovery in the last two years. While driver shortages remain an issue, owing to near full-employment in the sector, he said the business had become better at managing costs and improved all aspects of its services.
Citing the benefits of “re-pricing the portfolio, he added: “We have the cumulative benefit of three years of this, and when we bring all of this together it has produced this 9.6 per cent margin, which is 250 basis points above where we were, which I think has surprised people on the upside.”
Mr O’Toole noted the benefits to the business from the buoyancy of the US economy, even though the low oil price meant increased competition for its Greyhound business from private cars and budget airlines. He welcomed President Trump’s pre-election pledge to invest in infrastructure across the Atlantic, noting his belief infrastructure funds would “naturally go into a lot of urban transport projects”.
However he added: “We see very little action in that regard”.
While FirstGroup’s fortunes improved in the US, Mr O’Toole warned the company continued to face “economic uncertainty” in the UK. FirstGroup’s bus services in Aberdeen have come under pressure from the downturn in the oil and gas sector, with conditions in the north east proving to be much tougher than in Glasgow.
Asked how market conditions in Scotland compared with the rest of the UK, he said that as a “general rule, as you go north the business market seemed to be less buoyant. Bus companies to the south have been posting better numbers. That is in comparison, because the whole industry has been fairly weak.”
Mr O’Toole also said the company’s UK bus market is challenged by traffic congestion and a reduction in high street footfall.
Meanwhile, on UK rail, the company secured the South Western franchise during the period, seen as a major coup for the business after losing the ScotRail contract to Abellio. Mr O’Toole signalled his hope that the win would usher in a new approach to how franchises are awarded, with its bid for the £1 billion contract won on “quality rather than price”.
FirstGroup will be submitting bids for the East Midlands and West Coast franchises in partnership with TrenItalia.
Shares closed down
142.3p.
7.7p
at