FirstGroup shares tank as board fails to reinstate dividend

Passenger transport operator FirstGroup published its preliminary results for the year to 31 March on Thursday, describing a “significant improvement” in operating results, though the lack of a dividend announcement saw its shares slide through the morning.

The FTSE 250 firm posted an 8.3% increase in revenue to £5.65bn, with operating profit rising 12.7% to £339m and operating profit margins improving by 20 basis points to 6%.

Profit before tax was 23% higher year-on-year at £207m, with earnings per share up 20.4% at 12.4p and net debt shrinking 8.5% to £1.29bn.

On a constant currency basis, revenue was down 0.5%, while operating profit still rose 2.3% and operating margins were still ahead 20 basis points.

Its shares were tanking on Thursday morning, however, hitting losses as much as 8% before paring back to sit 6.01% below the line at 0938 BST.

The lack of a dividend was playing on investor minds, analysts at Shore Capital suggested.

"At the divisional level, all divisions with the exception of UK Bus have reported results ahead of our expectations, although we are disappointed that the board has not reinstated the dividend, something which we believe is now overdue."

Looking at the company’s operations, First Student delivered a 250 basis point adjusted margin progress to 9.6%, following the successful execution of the board’s pricing, cost efficiency and recruitment plans, despite ongoing driver shortage challenges.

First Transit revenue was up 4.4% in constant currency, despite lower Canadian oil sands activity, with strong contract execution in the second half resulting in a 7.0% adjusted margin for the year.

Greyhound like-for-like revenue was down 1.7%, due to competition from other transport modes, although the board claimed an improved adjusted margin through “disciplined cost management” and benefits of business model transformation.

First Bus like-for-like passenger revenue was 0.6% lower, with the board blaming continued demand challenges across the industry, although cost control actions partially reportedly mitigated the margin impact of currency fluctuations on fuel costs.

At First Rail, like-for-like passenger revenue improved 1.3%, which the board said reflected an industry-wide slowdown and infrastructure upgrades on its Great Western network, with the adjusted margin rebasing “towards industry norms” as expected.

The company’s board said it continued to work closely with Transport for London and others to assist those affected by the fatal Tramlink incident which occurred in south London in November 2016, and to support the ongoing investigations.

“We report our results today against the backdrop of the derailment of a tram operated by one of our subsidiaries on behalf of Transport for London in Croydon on 9 November 2016, a tragedy that has shocked and saddened us all,” said chief executive Tim O'Toole.

“We are profoundly sorry that such an incident could take place aboard a service we operate.

“We are focused on understanding the exact cause of this incident and will continue to provide our full support to the ongoing investigations.”

O’Toole said the board’s thoughts remained with the families and friends grieving for the seven people who lost their lives, and those who were injured and affected by the event.

“We are encouraged by this year’s improved financial results, with our largest division First Student delivering a significant margin improvement despite continued driver recruitment challenges, while our First Bus and First Rail operations have faced more challenging market conditions this year.

“Through rigorous focus on sustainable operational and capital efficiencies, we were also able to generate substantially improved net cash inflow of £147m.”

O’Toole pointed out that during the year, the company have maintained its consistent and disciplined approach to bidding for future business throughout the group, with the recent award of the South Western rail franchise being a “good example” of its focus on the service quality improvements customers and communities want.

“Meanwhile, we continue to increase our use of technology across the group to make it easier for passengers to use our services, and to deepen our understanding of our customers’ evolving needs.

“Looking ahead, our financial objectives are to make further progress while maintaining our focus on cash generation, despite the mixed trading environment in our markets.

“Overall this year’s results demonstrate the progress we have made in repositioning FirstGroup to deliver for our customers while creating value for our shareholders, commensurate with our leading market positions and scale.”