FirstGroup reports 'encouraging' first half thanks to divisional strategies
By Josh White
Date: Tuesday 13 Nov 2018
(Sharecast News) - FirstGroup reported growth in revenue, adjusted profit and adjusted earnings per share in its first half report on Monday, with its trading said to be in line with its plans at the start of the financial year.
The FTSE 250 passenger transport operator said group revenue was up 6.0% at constant currency for the six months to 30 September, though that was excluding the South Western Railway franchise which started towards the end of the comparable period last year.
Group revenue including South Western Railway was ahead 21.6% at constant currency, at £3.3bn.
Adjusted operating profit rose 9.2% at constant currency to £92.4m, with the firm's road divisions ahead 17.9%.
That was led by First Student and First Bus, and partially offset by a decline in Greyhound, with the contribution from the rail division 5.8% lower, as expected.
Adjusted profit before tax surged 63.4% at constant currency to £42m, and adjusted earnings per share improved 81.3% to 2.9p, which the board said reflected the higher adjusted operating profit, lower finance costs and a reduction in US tax rates.
Net cash inflow totalled £50.6m for the period, up from £21.9m a year earlier, before working capital inflow from the start of the South Western Railway franchise.
FirstGroup made a statutory loss before tax of £4.6m for the period, widening from a £1.9m loss, with statutory losses per share of 0.6p widening from 0.2p.
Its board said that reflected restructuring and reorganisation costs from the withdrawal of Greyhound services in Western Canada.
Looking at the company on a divisional basis, it said First Student's fleet was to grow this year following a "strong" bid season, with 92% contract retention and new customer wins, and pricing remaining in excess of the cost inflation from driver shortages.
First Transit reportedly continued to add to its business portfolio, with its margin said to be "stabilising", reflecting a changing contract mix and non-recurrence of prior-year costs.
At Greyhound, FirstGroup said its improvement plan was underway, targeting at least mid-single digit margins in the medium term, including the recent withdrawal from Western Canada.
Long-haul markets in particular remained "challenging", resulting in like-for-like revenue down 0.7%.
First Bus delivered 1.5% growth in like-for-like passenger revenue, as well as "strong" margin momentum, which was apparently underpinned by increased commercial passenger volumes from its focus on making journeys "simpler".
First Rail like-for-like passenger revenue was ahead 5.5%, with a solid financial contribution driven by its GWR franchise, despite infrastructure issues.
South Western Railway experienced "challenging" trading, with issues relating to infrastructure reliability, industrial relations and the effects of the revenue protection mechanisms included in the franchise.
FirstGroup said it was working with industry partners to resolve those issues.
Looking ahead, FirstGroup said its performance in the first half was "encouraging", although conditions in its markets remained challenging.
It made no change to its full year outlook, and continued to expect "broadly stable" group operating earnings in constant currency for the full year, with improvements in the road divisions and a smaller rail contribution.
It also expected broadly stable free cash generation for the full year.
"We have made good progress in the first half delivering on our plans to strengthen the group, generating sustained cash flow to further reduce leverage and deploy to targeted growth," said chief executive Matthew Gregory.
"First Student's bid season success will see our largest business return to growth as planned, while maintaining our disciplined approach to pricing.
"In September, First Bus completed the rollout of contactless payment across the UK on schedule, becoming the first of the UK's principal bus operators to do so."
Together with other revenue and cost actions, Gregory said that helped First Bus to achieve strong margin improvement in the period.
"Meanwhile our First Rail operations continued to focus on improving services for our passengers while maintaining overall profitability in a more challenging industry environment during the period.
"We completed our review of Greyhound and have launched a plan to optimise our smallest business for the challenges it is facing.
"Having recently addressed our loss-making activities in Western Canada, these further actions will assist in improving Greyhound's performance going forward," Gregory said.
He explained that the company was "getting on" with delivering its plans to improve performance across its divisions.
"Although conditions in our markets remain challenging, our performance to date underpins the confidence we have in our unchanged outlook for the full year."
Chairman Wolfhart Hauser added that the firm was implementing "clear" divisional strategies across its portfolio to mobilise the "considerable value" inherent in the group, adding that he was encouraged by progress made in the period.
"I am confident that with Matthew Gregory as chief executive, we have the right person to drive forward our plans at pace, and with the appointment of Steve Gunning as an independent non-executive director, we are strengthening the board further.
"In addition, we are developing a more agile business, with its emphasis firmly on a divisional framework."
Hauser said that allowed FirstGroup to make the most of its evolving markets and customer requirements, while maintaining strong stewardship and creating more strategic flexibility at the group level.
"We are also driving a strong focus on service throughout the group, ensuring that we continue to create solutions for our customers that reduce complexity, making travel smoother and life easier."
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