FirstGroup profits soar thanks to £3.3bn sale of two North American divisions and loosening travel curbs

  • FirstGroup saw net debt decline by £2bn due to selling its North American arms 
  • Aberdeen-based firm reported profits climbing more than sevenfold to £642m
  • Its First Bus and First Rail divisions both saw a big rebound in passenger demand

By Harry Wise For This Is Money

Updated:

Transport giant FirstGroup has seen annual profits skyrocket following a rebound in bus and train passengers and the sale of its North American operations.

The Aberdeen-based company reported earnings climbing more than sevenfold to £642million in the year to 26 March, from £91.1million the previous year, even after returning £500million to shareholders last December.

The investor payout came after it completed the £3.3billion sale of school bus operator First Student, and public transport provider First Transit, to Swedish private equity house EQT Infrastructure.

Profit growth: Bus and train operator FirstGroup reported earnings climbing more than sevenfold to £642m in the year to 26 March, from £91.1m the previous year

Profit growth: Bus and train operator FirstGroup reported earnings climbing more than sevenfold to £642m in the year to 26 March, from £91.1m the previous year

FirstGroup later sold its Greyhound bus arm in the United States to German firm FlixMobility after two years of searching for a buyer, thereby ending all operations outside the British Isles.

As a result of these disposals, the FTSE 250 business saw net debt plummet by £2billion and the end of any UK pension deficit payments, but overall revenue declined by 18 per cent to £1.26billion.

When not counting its abandoned operations, though, sales rose to more than £4.5billion, and profits surpassed expectations thanks to strong performances by its First Bus and First Rail divisions.

Passenger volumes recovered well as the UK Government eased Covid travel restrictions, with the group noting a particularly significant rebound in leisure trips.

On its bus operations, the firm said passenger numbers jumped by 91 per cent as it benefited from a rebound in school, shopping and discretionary travel journeys.

Demand in both divisions did remain depressed by the continuation of Covid-19 lockdown curbs until mid-July and the reintroduction of restrictions following the Omicron variant's emergence.

Deal: FirstGroup announced today that it had won a three-year contract by the Department for Transport to run the Great Western Railway

Deal: FirstGroup announced today that it had won a three-year contract by the Department for Transport to run the Great Western Railway

However, the Scottish company, which runs the Great Western Railway and Avanti West Coast rail franchises, stated that current trading for this fiscal year was in accordance with forecasts and is anticipating continued growth in sales.

Thanks to the impressive performance, FirstGroup shares closed trading 1.4 per cent higher at 134.7p on Tuesday, meaning their value has soared by about 150 per cent in the past two years. 

Chief executive Graham Sutherland said: 'The transformed group has momentum and we expect to make significant further progress in the year to March 2023. 

'With leading positions in bus and rail, a strong balance sheet and a clear purpose, FirstGroup has many opportunities ahead to deliver sustainable shareholder value creation while delivering the vital services that are key to achieving society’s sustainability and economic goals.'

In addition to its results, FirstGroup announced today that it had won a three-year contract by the Department for Transport to run the Great Western Railway, where it will earn a fixed management fee of £6.9million per year, alongside a potential annual performance-related bonus of £17.8million.

Last week, the company revealed it had rejected a £1.23billion takeover bid by I Squared Capital, a private equity firm specialising in infrastructure investments.

FirstGroup claimed the 118p-per-share deal, the second offer made by I Squared, 'significantly undervalued' its operations and future prospects.

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