Shares in Scottish transport giant FirstGroup have risen four per cent after the company said its rail and bus operations performed better than expected in the first half despite the challenges posed by the surge in inflation.
The Aberdeen-based group said its First Bus operation recorded strong passenger volumes in the 27 weeks to September 30 and benefited from actions that management had taken to increase productivity.
The First Rail division was buoyed by stronger than expected demand for services operated by its Lumo and Hull trains businesses amid increased leisure travel over the summer.
Lumo and Hull Trains are open access operations, which First Group runs on lines covered by franchises held by other firms.
Lumo staff did not participate in strikes called this year by the Aslef and RMT trades unions in support of pay demands. These have caused widespread disruption to other services.
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FirstGroup operates the Great Western and South Western operations. It runs the Avanti West Coast service linking Glasgow and London with Italy’s Trenitalia.
FirstGroup did not provide details of passenger numbers on these operations yesterday.
Last month FirstGroup and Trenitalia were awarded an extension to the Avanti West Coast contract for up to nine years after responding to pressure from ministers to reduce what were seen as unacceptably high cancellation rates.
In June First Group lost the contract covering the TransPennine Express after the Government nationalised the service citing “months of significant disruption and regular cancellations”.
However, First Group said yesterday that it is in line to receive higher than expected incentive fees from the Department for Transport this year in respect of the management contracts that are in place.
The division’s annual underlying operating profit is expected to be up to £15 million ahead of expectations for the current year.
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FirstGroup expects to achieve £1 million cost savings after deciding to end its participation in two local authority pension plans, with effect from the end of this month. The employees affected will be enrolled into the First Bus Retirement Savings Plan.
The London-listed group developed out of the former Grampian Regional Transport.
Analyst Gerald Khoo at joint house broker Liberum Capital said FirstGroup had also made progress towards resolving the legacy pension arrangements that remained with the group following the disposal of the Greyhound coach operation in the USA in 2021 to FlixMobility, for up to $172m.
The Group said it anticipates that its adjusted operating profit for the current year will be £14m to £20m ahead of the board’s previous expectations.
Chief executive Graham Sutherland said: “Our updated outlook for FY 2024 reflects a strong performance in our First Rail division … In First Bus, we are delivering sustainable revenue growth as passenger volumes increase and we continue to benefit from the actions we have taken to transform the business.”
Liberum’s Gerald Khoo noted the current consensus forecast is for FirstGroup to achieve £175.6m annual operating profit.
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He said: “We continue to see FirstGroup as a beneficiary of decarbonisation policies. These are going to require a shift away from private cars and taxis (now the single largest source of greenhouse gas emissions) in favour of public transport.”
FirstGroup shares closed up 5.4p at 151.9p. The shares sold for less than 110p each in October last year.
FirstGroup achieved adjusted operating profit from continuing operations of £161m in the 52 weeks to March 25 – compared with the £149.1m forecast by a company-compiled consensus of analysts.
Lumo services launched in 2021 on tracks operated by LNER, which took over the East Coast franchise after Virgin Trains handed it back in 2018.
In May FirstGroup said the investment and improvements it had made to the TransPennine Express service over the years resulted in growing annual passenger numbers from 14 million in 2004 to more than 29m before the pandemic.
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