FirstGroup plc (the 'Group'), has today reported the following
update on trading since the start of the
2016/17 financial year (the 'current
year').
Summary:
* Trading performance as outlined at
recent full year results in June has
continued during the first quarter
* Group revenue in the first quarter
decreased by 1.4% in constant currency,
with revenue growth in First
Student, First Transit and First Rail offset
by decreases in First Bus and
Greyhound
* No change to overall outlook for
the current year, recognising that the
degree to which potential net
currency benefits as a result of our
significant US dollar based
businesses will be offset by a more challenging
macroeconomic outlook for our UK
businesses is uncertain, following the
outcome of the EU referendum
Increase/(decrease) vs comparable
period, in constant First quarter
currency
2016/17
First Student revenue
+1.1%
First Transit revenue
+1.0%
Greyhound like-for-like passenger
revenue (5.0)%
First Bus like-for-like passenger
revenue (1.4)%
First Rail like-for-like passenger
revenue +2.3%
Divisional update in the first quarter:
The third year of First Student's
contract pricing programme continues to
progress. With approximately two thirds
of negotiations completed in the
current bid season, we are achieving
average price increases above the prior
year while our contract retention rate
is as targeted. Early in the first
quarter we realigned our regional
management and central service structures,
resulting in the elimination of 130
positions, which will assist in meeting our
cost efficiency targets for the current
year. We remain on track to benefit
from a higher number of operating days
and a reduction in our fuel costs due to
our hedging profile. We continue to
work to offset the driver shortage cost
headwinds we are experiencing, and
expect significant margin progression in the
current year.
First Transit delivered a solid
financial performance in the first quarter,
continuing to benefit from growth
opportunities in our core service markets, as
well as exploring additional avenues
for future growth. As anticipated, we are
experiencing further reductions in
demand for our shuttle services to the
Canadian oil sands sector due to the
oil price and the wildfire which
devastated the city of Fort McMurray.
However, we expect First Transit will
deliver overall growth in the current
year, while maintaining margins.
As expected, Greyhound has continued to
experience muted passenger demand in
the first quarter, with fuel prices
lower than in the comparable period in the
prior year. Like-for-like revenue
decreased by 5.0% in the first quarter, and
we expect year-on-year growth to remain
challenging throughout the first half
of the current year. We continue to
take actions to reduce cost in response to
the demand environment, and to make
progress with our business model
transformation.
In the first quarter, First Bus
like-for-like revenue decreased by 1.4%, with
passenger volumes continuing to be
affected by lower high street retail
footfall and congestion impairing
services in several of our markets. We
continue to take action to offset the
challenging market backdrop by merging or
closing a number of depots and other
cost efficiencies, and expect to deliver
margin progression during the current
year from the benefits of past cost
saving actions, additional cost and
operational efficiency initiatives and
reduced fuel costs.
Our First Rail division delivered
like-for-like passenger revenue growth of
2.3% in the first quarter with volume
growth moderating, consistent with recent
industrywide trends. This slowdown in
growth has been mainly evident on our
Great Western Railway ('GWR')
franchise, where the network infrastructure is
undergoing substantial upgrade work.
Meanwhile revenue performance at
TransPennine Express ('TPE') has been
better than the industry average in the
quarter. We continue to expect our
divisional margin to rebase toward industry
norms in the current year, reflecting
the terms of the new TPE franchise and
new GWR direct award. In the recent
National Rail Passenger Survey, our rail
franchises maintained or improved their
customer satisfaction ratings, during a
period when the industry average
satisfaction score fell.
EU referendum
It is too soon to judge the overall
effect of the EU referendum decision on the
Group. More than two thirds of Group
adjusted operating profit was generated in
North America in the last financial
year, and the weakening of sterling since
the referendum outcome would, if
maintained, result in translation benefits
from our US Dollar denominated
businesses, albeit partly mitigated by some US
Dollar denominated costs incurred in
the UK divisions (principally for fuel),
and some US Dollar interest and tax
costs. Like other business sectors, our
UK-based First Bus and First Rail
operations are affected by trends in the
wider economy, including factors such
as weakening economic growth and lower
consumer confidence. The degree to
which the net currency benefit from our
US-based operations will be offset by
more challenging UK economic conditions
for our UK-based businesses is
uncertain at this stage.
Financial position
As in previous years, the Group's
results in the current year will be
significantly weighted to the second
half principally due to the timing of
school summer holidays on First
Student's business compared with our financial
year. First Rail's results in the
current year will also be more second half
weighted as a result of the new GWR
direct award, which took effect towards the
end of the first half of the prior
year.
On 5 July, credit rating agency
Standard & Poor's reaffirmed their BBB-/A-3
rating on the Group.
Commenting on today's announcement,
FirstGroup Chief Executive Tim O'Toole
said:
"Our trading performance as
outlined at the recent full year results in June
has continued during the first quarter,
and the Group expects to make strong
progress in the current year despite a
challenging and uncertain trading
environment in several of our markets.
This will come from our continued focus
on disciplined contract bidding and
rigorous cost efficiency programmes, as
well as lower fuel costs and more First
Student operating days compared with
the prior year. Overall, we expect to
deliver a significant improvement in our
profile of sustainable returns and cash
generation going forward."
