Mixed bag of results for FirstGroup

Half year results for First Group for the six months ended 30 September 2013 (H1 2013) show mixed results among the five main sectors. UK Bus results are down on H1 2012, but UK Rail performance improved. The results from the three North American divisions – First Student, First Transit and Greyhound also varied.

Revenues for First Group as a whole were £3,300.7m, up by 1.6% (H1 2012, £3,250m), and the net debt was slashed by 30.5% to £1,446.8m (H1 2012, £2081.8m). Underlying (or unadjusted) EBITDA (earnings before interest tax depreciation and amortisation) was up 2.6% to 269.2m (H1 2012 £262.3m), and operating profit increased 10.1% to £109.9m (H1 2012 £99.8m).

However, the adjusted results after depreciation, amortisation and interest, but before tax resulted in a group loss of £8.0m. A tax credit of £11.8m transformed this into a £3.8m profit. This is an improvement on H1 2012, where a £9.9m tax credit reduced a £20.6m loss to one of £10.7m.

Return on capital employed (ROCE) after tax is currently 8%, though First wants to ratchet this up to 10-12% in all save the rail sectors within the next four years.

The operating margins on the UK Bus (3.5%) and UK Rail (2.4%) divisions compare unfavourably with North America’s Greyhound (9.5%) and First Transit (7.7%), but are considerably better than First Student (1.7%).

UK Bus accounts for around 15% of group turnover and is in third size behind UK Rail (with over 40%), and First Student (about 20%). UK Bus revenue fell 14.3% to £490.7m (H1 2012, £572.9m), and operating profit slumped 17.6% to £17.3m (H1 2012, £21.0m), bringing down margins from 3.7% to 3.5%.

First attributes this fall to a number of factors: withdrawal from the London bus market, the 2012 Olympic Games boost, higher fuel costs and reduced central government support. However, when these are factored out it claims that passenger revenues on a like-for-like basis actually increased by 1.7%.

Sale of eight London bus depots for £79.1m resulted in a net £16.5m gain.

First has initiated a three-prong programme to stimulate revenue growth and to return margins to double-digit levels – through cost cutting, selective fare cuts and introducing new vehicles. Average passenger volumes grew 0.7% in the six month period, for the first time in several years, with 7.8% increases reported in the North region. Lost mileage has been reduced by 20%, and nearly one quarter of all management positions have been changed.

UK Rail is a very mixed portfolio:  First Capital Connect (FCC) and First Great Western (FGW) are premium payers, but First Scotland (FSR) and First TransPennine (FTPE) receive subsidises, while First Hull Trains (FHT) is an open-access operator.

Total rail revenue increased 7.6% to £1,395.2m (H1 2012, £1,296.4m), and operating profits shot up 37.8% to £32.8m (H1 2012, £23.8m), improving margins from 1.8% to 2.4%. Passenger growth remains strong in all five operators, averaging 5.7% over the first six month period, with FHT turning in the best performance of 8.0%. Passenger volumes also increased 3.6% during the same time.

FGW and FCC premiums were up, but so was government revenue top-up support in the money-go-round system. Subsidises to FSR and FTPE also increased:

  • Premiums: FGW £234.2m (H1 2012, £200.5m); FCC £118.0m (H1 2012, £105.5m)
  • Revenue support: FGW £153.4m (H1 2012, £132.3m); FCC £39.3m (H1 2012, £26.0m)
  • Subsidises: FSR £231.2m (H1 2012, £206.4m); FTPE £30.8m (H1 2012, £26.0m)

(Revenue support can be claimed from the DfT if the actual annual revenue falls below the agreed target revenue level of the original bid: If the shortfall is between 94% and 98%, the DfT makes up 50%; if less than 94%, the DfT contribution rises to 80%. Both FCC and FGW are in the latter category).

The FCC franchise expires in 2014, and the other three follow in 2015. First has been shortlisted for the following new franchises: Essex Thameside; Thameslink, Southern & Great Northern; ScotRail; Caledonian Sleeper; and LUAS light rail network in Dublin. It will also be tendering for the East Coast Mainline next year.

635/Nov 13


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