FirstGroup expands into Yorkshire as profits soar

Unveiling results yesterday, FirstGroup also announced a major expansion in Yorkshire.

It is acquiring the 80% of the 700-bus Mainline Partnership it does not already own for #56.4m.

Some analysts took heart from the increase in passenger volumes in bus operations outwith Central Scotland.

FirstGroup has now, for two consecutive six-monthly periods, been able to report a reversal of the steady decline in bus passenger numbers which has taken place since the immediate post-war period.

The company said profit margins had increased in bus operations in all areas apart from Scotland, where FirstGroup has been involved in battles with Stagecoach on several fronts, notably Glasgow.

As a result, the overall bus operating margin was held at 15.2%.

And the number of passengers carried by both Glasgow-based Strathclyde Buses and Midland Bluebird in the Central Belt fell.

But Nigel Davies, transport analyst at stockbroker Panmure Gordon, was encouraged by the near-1% increase in passengers elsewhere.

The revenues from such volume increases feed almost directly through to the bottom line.

Davies said: ''It is less than 1% but the operational gearing of these bus companies is mind-blowing.''

Total operating profits from FirstGroup's bus operations increased by #15m to #93.2m. FirstGroup's Aberdeen-based chief executive, Moir Lockhead, declined to disclose operating margins for the Scottish companies or the overall cost of the bus wars with Stagecoach.

He said: ''We have declined to give any information on the

Scottish operation because we think it simply gives a competitive benefit to our competitors and we are just not prepared to do that.''

But he claimed Strathclyde Buses' profitability was now moving forward again.

''In this current year, Strathclyde's performance will be better than it was last year.

''It is starting now to improve its profitability and its margin, despite the competition,'' said Lockhead.

The contribution from

FirstGroup's Great Eastern Railway passenger train franchise leapt from #1.8m to #9.3m, on the back of healthy payments from the Government for meeting performance targets and a 5.6% increase in passenger volumes.

Excluding pay-outs under its employee share-option scheme, exceptional charges and gains, which were fairly similar in the latest and prior 12 months,

FirstGroup's annual operating profits rose 30% to #95.9m.

The 42% rise in group pre-tax profits was enabled partly by a #4.5m jump, to #5.9m, in

FirstGroup's 25% share of passenger train company Great Western Holdings' profits.

FirstGroup now owns all of this former associate company, which runs Great Western Trains and North Western Trains, following its controversial #104.8m

purchase of the remaining 75% in March.

FirstGroup's shares dipped 2p to 429.5p yesterday, although the results were better than expected.

Davies now expects current-year pre-tax profits of #93m. His estimate is struck after exceptional restructuring charges of #17m signalled yesterday for Mainline, Great Western, and the recently-purchased Bristol International Airport.

His pre-exceptional forecast of #110m is #4m higher than it was before yesterday's results.

FirstGroup's shares, like those of rival Stagecoach, have had an exceptionally strong run ahead of hoped-for measures to boost public transport use in the Transport White Paper expected this month.

The #56.4m which FirstBus is paying for 80% of Mainline

Partnership includes a #14m kickback to the South Yorkshire

Passenger Transport Authority (SYPTA) and #12.7m of Mainline debt being taken on by

FirstGroup.

The SYPTA, which sold the company to its employees five years ago, retained an entitlement to a share of the gain on any subsequent sale within 10 years.

FirstGroup acquired 20% of Mainline after Stagecoach was ordered by the Government, three years ago, to sell this stake.

The acquisition of Mainline, which made pre-tax profits of #1.7m on turnover of #56.5m in the year to March and employs some 2300 people, will give FirstGroup its first significant presence in Sheffield, Doncaster, and Rotherham.

Lockhead said Mainline employees would receive between #10,000 and #15,000 each for their shares.

They did not have to invest any money at the time of the 1993 buy-out, he added.

FirstGroup said yesterday that work had started at Livingston on a 150-vehicle depot for Midland Bluebird, even though the company is still waiting to hear whether the Government still requires it to dispose of this subsidiary following its purchase of Strathclyde Buses in 1996.

Under the last Conservative administration, FirstGroup was ordered to dispose of Midland Bluebird and one Glasgow depot. But the Labour Government agreed to review this and FirstGroup has now supplied it with possible behavioural undertakings which might allay the Monopolies and Mergers Commission's concerns.

Lockhead said yesterday that he had no idea when FirstGroup would hear from President of the Board of Trade Margaret Beckett on this issue.

Asked if the building of the

Livingston depot indicated

FirstGroup was confident about a favourable outcome, Lockhead replied that it did not.

He added: ''That was a plan we put in place three years ago, before the divestment order.

''We have continued that. When and if we are told we still have to sell it (Midland Bluebird), we will sell that with it.''

When the divestment order was originally made early last year, FirstGroup gained support from Livingston MP and now Foreign Secretary Robin Cook.

FirstGroup is raising its total dividend by 20% to 6.6p, with a final pay-out of 4.4p.

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