FirstGroup trading update points to difficult times ahead for UK Bus

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Passenger revenues increase for UK Bus, but expected lower economic activity looks set to restrict operations and squeeze profit margins
Passenger revenues increase for UK Bus, but expected lower economic activity looks set to restrict operations and squeeze profit margins

FirstGroup’s update predicts a future with slowed growth and squeezed operating margins

FirstGroup has released its preclose trading update for the six months to September 30. Promising figures have been discussed, though more difficult trading conditions are predicted to arrive during the course of the second half of the financial year.

The operator’s UK Bus division is expected to show an increase in like-for-like passenger revenue of 1.2% and improvements in operating margin, and an increase in operating profit by 19.4% to £148.8m. However “more challenging trading conditions” are anticipated in the next financial half-year.

This has been put down to “lower economic activity continuing to impact regional economies.” Many local authorities around the country have had to reduce their financial provision for bus services.

In spite of this, FirstGroup’s focus will remain on developing existing opportunities, with a view to encouraging growth, while maintaining “strong cost discipline.”

First’s Greyhound coach travel brand, which originated in the US and was purchased in 2007, has been operating in the UK for the past year and passenger revenue is expected to increase by 0.8%.

FirstGroup trading update points to difficult times ahead for UK Bus Chief executive of FirstGroup Tim O’Toole said: “We are encouraged by improving trends in UK Rail and Greyhound and a continued steady performance in our UK Bus and First Transit operations. We expect that our North American First Student business will continue to see pressure on margins during 2011/12.”

In other departments, UK Rail’s performance remained strong as demand for rail services grew and led to an expected increase in like for like passenger revenue of 9%, and First Student, following a disappointing performance last year, operated within expectations and is undergoing a recovery plan to “address performance.”

The group’s outlook maintains several key goals for the future, including increasing cash generation to support capital investment, reducing debt, and achieving dividend growth of at least 7% per annum. A £150m target for net cash inflow in 2011/12 will remain.

While there are economic challenges that have to be addressed in the short term, “the Board is confident that the Group has good prospects to continue to deliver long term value for shareholders… the Group has diverse operations that are fundamentally strong and we have a clear focus on creating a stronger business.”