Disappointing results for FirstGroup

Cutbacks in state support for UK rail franchises have depressed FirstGroup financial results for the first six months ended 30 September 2014.

Group revenue dropped 10.9% to £2.941bn (H1 2013: £3.301bn). Statutory operating profit fell 11.5% to £80.2m (H1 2013: £90.6m), though FG recorded a statutory profit before tax of £9.9m (as against an £8.0m loss in H1: 2013).

The adjusted figures – which exclude amortisation charges and certain exceptional items that distort yearly comparisons – present a more favourable picture. Adjusted EBITDA (earnings before interest, tax, depreciation, interest and amortisation) fell 2.8% to £253.3m (H1 2013: £260.5m). Adjusted operating profit increased 2.4% to £103.6m (H1 2013: £101.2m), and adjusted profit before tax shot up 69.9% to £33.3m (H1 2013: £19.6m).

Net debt declined 3.0% to £1.403bn (H1 2013: £1.447bn); net finance costs fell 13.8% to £70.3m (H1 2013: £81.6m), reflecting reduced debt levels and lower interest rates.

First Group is an international concern with five main divisions: UK Rail, UK Bus, First Student, First Transit and Greyhound. The UK operations account for 54.6% of group turnover; the other divisions are based in North America.

UK Rail: It’s not been a good year for UK Rail: FG lost the Thameslink franchise to Govia in May, and the ScotRail franchise to Abellio in October. (The former took effect in September 2014; the latter is scheduled for April 2015).

The results cover the four passenger franchises: First ScotRail; First Capital Connect; First Great Western; and First Trans Pennine Express; plus the open access operator First Hull Trains.

Rail revenue slumped 17.2% to £1.156bn (H1 2013: £1.395bn), though EBITDA increased 13.0% to £66.2m (H1 2013: £58.6m). Operating profit increased 55.0% to £40.0m (H1 2013: £25.8m), though this figure also includes a £13.1m amortisation grant. The operating margin nearly doubled to 3.5% (from 1.8%).

The revenue fall was due to subsidy cutbacks to ScotRail (FSR) £133.0m (H1 2013: £231.2m); and to First Trans Pennine Express(FTPE) , £24.8m as against £30.8m. However, this did not affect profitability as the cuts were offset by lower Network Rail track access charges. Also, there were no revenue support payments to either First Great Western (FGW) or First Capital Connect (FCC) as in H1 2013 (when they received £153.4m and £39.3m respectively).

(Revenue support is paid to TOCs when actual revenue falls short of budgeted revenue).

Premium payments by FCC and FGW were down:  FCC paid £69.9m (H1 £118.0m); and FGW paid £53.7m (H1 2013: £234.2m). Both franchises now operate under the ‘direct award’ system.

In H1 2014, FG received more in subsidises (£157.8m) than it paid out in premiums (£123.6m), leaving a net figure of £34.2m. In H1 2013, it was the other way round:  premiums came to £352.2m, and subsidies to £262.0m; a net benefit to the DfT of £90.2m.

FG reports average passenger growth of 6.5% (H1 2013: 5.7%), and an underlying passenger volume growth of 3.5%.

UK Bus: Revenue fell 8.5% to £449.2m (H1 2013: £490.7m), though the previous year’s results were inflated by depot sales (mainly in London) which realised £56m. Operating profit was 6.3% up to £16.9m (H1 2013: £15.9m), and EBITDA improved 4.5% to £48.9m (H1 2013: £46.8m).

The operating margin improved slightly to 3.8% (from 3.2%), though FG has a long way to go before meeting its long term goal of restoring double digit margins.

FG recorded like-for-like revenue growth and like-for-like-volume growth of 2.1%. Passenger volume growth grew consecutively for 17 months.

660/Nov 14



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