8th Oct 2014 06:45
LONDON (Alliance News) - Transport operator FirstGroup PLC confirmed Wednesday it has not been awarded the new ScotRail Franchise by the UK government, although it stressed that this does not alter its medium-term targets.
FirstGroup will continue to operate First ScotRail until the new franchise begins on April 1, 2015, and said it will deliver further enhancements to trains and stations until that time, including introducing further free Wi-Fi, extending smart ticketing across the whole country and opening Borders Railway next year.
FirstGroup has operated the First ScotRail franchise since 2004.
The company expressed disappointment that it will "not have the opportunity to implement the credible plans we submitted". However, the company is "actively participating in franchise competitions with the objective of achieving earnings on a par with the last round of franchising."
FirstGroup is in negotiations with the UK Department for Transport to operate the First TransPennine Express franchise until February 2016, and is continuing discussions with it over a longer direct award to operate its largest franchise First Great Western.
Separately FirstGroup said that its trading in the first half to end-September had been in line with its expectations, and expressed confidence in seeing an improved performance in its second half.
The company said it had continued to make progress with its UK bus transformation plans in the first half. Early pricing improvements on its First Student contract portfolio were maintained through the whole bid season, and it said it saw contract retention towards the top of its expectations.
FirstGroup said that the slow pace of economic recovery for its core Greyhound customers in the US, and in some of its local UK Bus markets, is offset by contract pricing and cost reduction progress in its First Student bus service in the US and good performances in First Transit and its UK Rail operations.
In its US Greyhound operations, FirstGroup said revenue growth was at the low end of its expectations. FirstGroup attributed this to growth in the US economy failing to trickle through to customers' disposable incomes. It expects to see improvement in margin, however, as it adjusts its cost base to respond to trends.
In First Student, the company continued to drive down costs, and said that notwithstanding the "ongoing headwind of cost inflation running slightly ahead of price indexation on our older multi-year contracts", it is making progress to its medium-term target of double-digit margins for the business. A high retention rate for contracts, share shift from its competitors, a bolt-on acquisition and a new business being outsourced for the first time, underpins confidence that the business will see revenues for the 2014/15 year at the top of its planning range.
UK Bus is expected to see improvements in underlying revenue and improvements in its operating margin in 2014/15 compared to the previous year, although there will be restructuring costs relating to its transformation plan in the first half, meaning progress will be weighted towards the second half.
FirstGroup saw a performance towards the top of its expectations from its UK Rail businesses, as it expects to post passenger volume growth in the first half. Its First Transit business performed well, with revenue in dollar terms expected to rise 9.0%. However it said it expects this growth to moderate in the second half as there are fewer contract start-ups and some larger contracts roll off.
The company continues to expect its total cash outflow for the full year to be around GBP100 million, primarily due to cash outflow in the second half of around GBP70 million related to the end of its First Capital Connect franchise.
"Despite the variable trading conditions across our markets, we are confident that our financial performance will continue to improve during the second half and for the full year, and that the multi-year plans we are executing across the group will return us to a profile of sustainable cash generation and value creation in the medium term," said Chief Executive Tim O'Toole in a statement.
By Hana Stewart-Smith; [email protected]; @HanaSSAllNews
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