15th Jul 2016 08:57
LONDON (Alliance News) - Transport operator FirstGroup PLC on Friday affirmed its full-year expectations as trading conditions continued in line with its previous financial year, with a mixed macroeconomic backdrop and differences in trading performances within its divisions.
The group said revenue for the quarter to the end of June was down 1.4% in constant currencies, with growth in its First Student, First Transit and First Rail units offset by weaker trading in its First Bus and Greyhound arms.
For the full year to March 2017, FirstGroup maintained its outlook. It said it recognised that while it may get a translational benefit from the recent, Brexit-sparked fall in sterling given is significant US dollar-denominated sales base, this will be offset by a more challenging economic backdrop in the UK if the uncertainty which has surrounded the UK's vote to leave the European Union continues.
"Our trading performance as outlined at the recent full-year results in June has continued during the first quarter, and the group expects to make strong progress in the current year despite a challenging and uncertain trading environment in several of our markets," said Tim O'Toole, chief executive of FirstGroup.
O'Toole said he remained confident on the outlook for the group as it continues to focus on disciplined bidding for new contracts and cost savings across the business. He added FirstGroup should benefit from lower fuel costs and more operating days for the First Student business in the US than in the prior financial year.
"Overall, we expect to deliver a significant improvement in our profile of sustainable returns and cash generation going forward," the chief executive added.
FirstGroup shares were down 1.9% to 100.30 pence Friday.
In the first quarter, constant currency revenue in the First Student business grew 1.1%, while First Transit, also in the US, grew 1.0%. First Rail in the UK delivered like-for-like passenger revenue growth of 2.3%. This was offset by a 5.0% decline in like-for-like passenger revenue in the Greyhound coach business in the US and a 1.4% fall in like-for-like First Bus passenger revenue in the UK.
Passenger volumes for First Bus continued to be sapped by lower high street retail footfall and by road congestion impairing its services in some markets, FirstGroup said.
FirstGroup is continuing its strategy of merging or closing depots and seeking other cost savings in the business in order to mitigate those challenges. The transport group anticipates margins in the division in the current financial year will improve, partly through cost savings made in the prior financial year feeding through, complementing the further cost cuts it has made and benefits from lower fuel costs.
The Greyhound coach business once more suffered from muted passenger demand in the US. It has been hit in recent years by Americans taking advantage of lower petrol costs to drive their own cars rather than take public transport. FirstGroup said trading for the division is likely to remain tough through the balance of the current year, and it will also pursue cost cuts here in order to soften the blow.
First Rail delivered the strongest performance in the first quarter, but volume growth in the division has moderated, in line with wider industry trends, the company said. This slowdown of growth has been most in evidence in the Great Western Railway franchise, which covers train services out of London Paddington to the west and south west of England and south Wales, where network infrastructure is in the midst of a major upgrade.
The TransPennine Express franchise, however , which covers cities in the north of England and Scotland, delivered revenue growth ahead of the industry trend, FirstGroup said.
FirstGroup said it anticipates margins in the First Rail business to re-base towards industry averages over the course of the year, after the group had seen a significant growth in the unit's margin in the prior financial year thanks to very strong passenger volume growth on its services.
At First Student, the group's school bus business in the US, contract renegotiations for the new school year have progressed and, with around two-thirds of the talks done in the current bid season, FirstGroup said it is achieving higher prices than in the prior year with a retention rate in line with its target.
The First Student business should benefit from a higher number of operating days in the current financial year and a reduction in fuel costs, in addition to cost savings made from a rejig of the regional management teams and central structures in the business completed in the first quarter which resulted in 130 jobs being cut.
First Transit, which transports workers on behalf of companies, continues to take a hit from reduced demand for shuttle services transporting workers in the Canadian oil sands region, partly caused by the wildfires near Fort McMurray. But FirstGroup said it expects First Transit to deliver growth in revenue for the full financial year, while maintaining margins.
By Sam Unsted; [email protected]; @SamUAtAlliance
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