FirstGroup boosted by new South Western Railway franchise

Passenger transport operator FirstGroup updated the market on its overall trading in the first half on Tuesday, saying it was “consistent” with plans it outlined at start of the financial year with “strong” cash performance in addition to inflows from the recent start of its South Western Railway joint venture.

The FTSE 250 company said group revenue was ahead 8.1% to £2.77bn in the six months to 30 September, including the new SWR rail franchise from 20 August and favourable foreign exchange.

Excluding those factors, group revenue was ahead 0.9%.

Adjusted operating profit was said to be flat at £89.4m, with “solid” trading performances and favourable foreign exchange offset by a £6m impact of severe North American hurricanes, mainly on First Transit’s three contracts in Puerto Rico.

At constant currencies, adjusted operating profit fell 9.1%.

Adjusted earnings per share rocketed 35.7% to 1.9p, which the board said reflected lower interest costs tempered by a “significantly higher” tax rate as expected.

FirstGroup’s adjusted earnings per share remained flat at constant currencies.

Net cash inflows stood at £97.0m, swinging from outflows of £64.3m for the same period last year.

The board said that included a cash flow improvement of £86.2m, in addition to a £75.1m working capital inflow from the start of the SWR franchise.

Its net debt-to-EBITDA ratio improved to 1.7x at the half year, compared to 2.4x a year ago.

The company reported a statutory operating profit decline of £20.5m, a statutory loss before tax of £1.9m and a statutory earnings per share reduction to 0.2p, which FirstGroup said primarily reflected a gain on the disposal of property in the prior period which did not recur.

“The overall trading performance and significantly increased free cash generation of the group in the first half was consistent with the plans we outlined at the start of the financial year,” said chief executive Tim O'Toole.

“Solid performances from most of our businesses are partially obscured by the impact of the recent severe hurricane on our operations in Puerto Rico.”

In the second half, O’Toole said the company will benefit from its normal seasonal bias, its ongoing focus on cost efficiencies and from additional business which commenced in the period, including the South Western Railway franchise.

“We expect to make further progress and deliver substantial free cash generation for the year as a whole.”

Looking at the divisions, the company said First Student delivered average price increases of 5.3% and retention of 83% retention through its ‘up or out’ bidding strategy.

It “successfully managed” the school start-up despite ongoing driver shortages, and completed an acquisition in the period.

First Transit growth and contract wins continued, but its margin was affected by the impact of severe hurricanes mainly on its Puerto Rico operations, and higher driver shortage costs due to strength in the US employment market.

Greyhound like-for-like revenue was ahead 1.2%, including a 7.8% improvement in Greyhound Express and other short haul growth while long haul declined.

Fuel and cost savings in the Greyhound business was partially offset by higher inflation and maintenance costs.

First Bus like-for-like passenger revenue rose 0.6%, including 1.3% from commercial passengers, while its adjusted margin improved 50bps during the period, which the board said was driven by a “systematic programme” of management actions.

First Rail like-for-like passenger revenue was up 3.2%, with cost efficiencies contributing to an increased margin.

The South Western Railway franchise - a joint venture with Hong Kong’s MTR Corporation, contracted to operate commuter and long distance services out of London Waterloo and around South West England, commenced towards the end of the period.

That franchise had been held by Stagecoach since the privatisation of British Rail.

“Our overall trading and cash performance in first half, excluding the short term impact of the severe hurricanes, affirms our confidence that the group will make further progress and deliver substantial cash generation for the full year,” FirstGroup’s board said of its outlook.