Transport operator FirstGroup PLC (LON:FGP) saw its shares drop back sharply this morning as a cautious trading outlook countered strong growth in full-year profits and revenue driven by its US school bus business, with the lack of a dividend reinstatment also disappointing investors.
For the year ended March 31, FirstGroup – which was recently re-awarded the South Western rail franchise – reported adjusted pretax profit of £207mln, up 23% from the £168.3mln seen a year earlier, as revenue rose by 8.3% to £5.653mln.
But the FTSE 250-listed firm said it faces a "mixed trading environment" with opportunities for steady progress in the North American divisions countered by continued economic uncertainty in the UK.
READ: FirstGroup's North American operations put their foot on the gas
In early trading, Firstgroup shares topped the FTSE 250 fallers list, down nearly 9%, or 13.4p at 136.4p.
In an initial note to clients on the Firstgroup results, Shore Capital analyst Martin Brown said that "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."
In its results statement, the transport group reported a 12.7% increase in adjusted operating profit growth driven by strong margin improvement at its First Student operations and favourable currency translation.
First Student saw its adjusted margin rise to 9.6% driven by pricing, cost efficiency and recruitment plans, despite ongoing driver shortage challenges.
Elsewhere in the US, Firstgroup’s Greyhound buses business saw its like-for-like revenue fell by 1.7% due to competition from other transport modes.
UK bus revenue falls, rail revenue rises
In the UK, the firm’s bus operations saw a 0.6% fall in like-for-like passenger revenue reflecting “continued demand challenges across the industry.”
In Rail, Firstgroup saw its like-for-like passenger revenue grow by 1.3%, but were constrained by an industry-wide slowdown and infrastructure upgrades on the Great Western network.
Firstgroup’s chief executive Tim O'Toole said: “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 £147mmln.”.
Referring to last year’s tragic crash on the Croydon Tramlink service, which the firm runs, O’Toole added: “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."
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