FirstGroup may benefit from weaker pound

Tim O’Toole

The weaker pound since the EU referendum could give a boost to Aberdeen-based bus and rail giant FirstGroup, which has extensive operations in North America.

“It is too soon to judge the overall effect of the EU referendum decision on the group,” said the firm in a first quarter trading update.

But it added: “More than two thirds of group adjusted operating profit was generated in North America in the last financial year, and the weakening of sterling since the referendum outcome would, if maintained, result in translation benefits from our US dollar denominated businesses, albeit partly mitigated by some US dollar denominated costs incurred in the UK divisions (principally for fuel), and some US dollar interest and tax costs.

“Like other business sectors, our UK-based First Bus and First Rail operations are affected by trends in the wider economy, including factors such as weakening economic growth and lower consumer confidence.

“The degree to which the net currency benefit from our US-based operations will be offset by more challenging UK economic conditions for our UK-based businesses is uncertain at this stage.”

FirstGroup said revenue in the first quarter fell 1.4% in constant currency, with revenue growth in its First Student, First Transit and First Rail businesses offset by decreases in its First Bus and Greyhound divisions.

The firm saw no change to its overall outlook for the current year, “recognising that the degree to which potential net currency benefits as a result of our significant US dollar based businesses will be offset by a more challenging macroeconomic outlook for our UK businesses is uncertain, following the outcome of the EU referendum.”

The company’s Greyhound bus division “has continued to experience muted passenger demand in the first quarter, with fuel prices lower than in the comparable period in the prior year.”

Like-for-like revenue at Greyhound fell 5% in the first quarter, and FirstGroup expects year-on-year growth “to remain challenging throughout the first half of the current year.”

First Bus like-for-like revenue fell by 1.4% in the first quarter “with passenger volumes continuing to be affected by lower high street retail footfall and congestion impairing services in several of our markets”

First Rail delivered like-for-like passenger revenue growth of 2.3% in the first quarter with volume growth moderating, consistent with recent industrywide trends.

“This slowdown in growth has been mainly evident on our Great Western Railway (GWR) franchise, where the network infrastructure is undergoing substantial upgrade work,” said the statement.

“Meanwhile revenue performance at TransPennine Express (TPE) has been better than the industry average in the quarter.

“We continue to expect our divisional margin to rebase toward industry norms in the current year, reflecting the terms of the new TPE franchise and new GWR direct award.”

FirstGroup chief executive Tim O’Toole said: “Our trading performance as outlined at the recent full year results in June has continued during the first quarter, and the group expects to make strong progress in the current year despite a challenging and uncertain trading environment in several of our markets.

“This will come from our continued focus on disciplined contract bidding and rigorous cost efficiency programmes, as well as lower fuel costs and more First Student operating days compared with the prior year.

“Overall, we expect to deliver a significant improvement in our profile of sustainable returns and cash generation going forward.”