FirstGroup posts rise in FY profit despite drop in revenue

In its preliminary results for the year to the end of March, the transport operator said statutory pre-tax profit rose 7.3% from 2015 to £113.5m, despite a 13.8% decline in revenue to £5.22bn. FirstGroup attributed the revenue fall mainly to changes in the rail franchise portfolio, noting the end of the First Capital Connect and First ScotRail franchises.

Adjusted pre-tax profit came in at £168.3m from £163.9m the year before and net finance costs before adjustments were £132.4m, down from £139.7m, mostly on the back of lower interest rates.

The company maintained operating profit fairly steady at £300.7m despite a smaller rail portfolio and a challenging trading environment in some businesses.

FirstGroup said its bus division reacted well to disappointing passenger volume trends across the industry in the year, rapidly adjusting commercial and cost efficiency plans including its depot footprint while maintaining a focus on long-term investments.

The rail division, meanwhile, won the new seven-year TransPennine Express contract in the year and secured opportunities to grow its open access operations, while maintaining good passenger volume and revenue growth.

Chief executive Tim O’Toole said: “Overall we have made encouraging progress this year toward a profile of more consistent financial returns for the group. As we indicated at the start of the year, a smaller rail franchise portfolio and fewer operating days in our school bus business were factors that would make delivering headline growth this year challenging.

“However, by being flexible with our plans we have delivered a comparable adjusted operating profit to last year and a net cash inflow ahead of our expectations.”

Shore Capital, which rates the stock at ‘buy, said the results were 0.4% ahead of its expectations at the operating profit level and 2.3% ahead at the adjusted pre-tax profit level.

“Clearly the beat has been driven by better than expected finance costs and better than expected tax costs. Given the importance of this line on our investment case, we are particularly happy to see the better than expected finance costs.

“With the point at which FirstGroup can refinance its expensive fixed term debt now coming into view, this line in the P&L and ultimately the cash flow should now be at the forefront of investors’ minds.”

At 0828 BST, FirstGroup shares were up 3.1% to £106.30p.