FirstGroup expects cash flow to steam higher in second half

Bus and rail transport operator FirstGroup chugged to a solid first half as a better performances in North American was partly offset by continuing challenging trading conditions in the UK.

The traditional seasonal cash outflow in the first half was much improved on last year's and so directors are confident of generating "significantly" increased free cash flow over the full year to next March.

This will also be helped by the collapse of the pound due to the Brexit vote, which, with two thirds of business based in dollars, contributed to adjusted revenues growing 5.1% to £2.6bn in the six months to 30 September, which would have been down 1% at constant currency rates.

Adjusted operating profits rose 0.7% to £89m as the operating margin shrank to 3.5% from 3.6% with higher dollar-based UK fuel costs making an impact and the ending of a joint venture feeding through to a 2.2% fall in pre-tax profits to £21.9m.

Earnings per share rose 17% to 1.4p.

Chief executive Tim O'Toole, who said the company was working with Transport for London and other authorities on the ongoing investigation into the fatal Croydon Tramline derailment last week, said in the second half FirstGroup will benefit from its normal seasonal bias as well as his ongoing focus on strategy.

The UK-based businesses has experienced continued challenging trading conditions, with recent disappointing volume trends in both bus and rail continuing throughout the first half.

Bus like-for-like passenger revenue improved modestly in the second quarter compared with the first but was still 1.3% lower overall compared with the first half of last year, as fewer shoppers visit high streets, exacerbated by worsening traffic congestion in many of regional markets.

UK Rail like-for-like passenger revenues increased by 0.7% in the first half, with the slowdown in growth seen across the industry exacerbated by the magnitude of the infrastructure upgrade activity on the Great Western Railway franchise in particular.

The US was better, with its yellow buses profits stronger than expected and boosted by securing higher prices in the annual bid season.

First Transit was robust despite a hit from reduced demand for shuttle services in the Canadian oil sands, and Greyhound coaches continued to face demand challenges from lower fuel prices compared with the prior period.

Overall, O'Toole expects "good progress" in the current year, with likely benefit from currency tailwinds offsetting uncertain economic conditions in the UK.

"Our cash performance in the first half affirms our confidence in generating significantly increased cash flow for the full year."