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FirstGroup: Trading remains difficult, with some optimism ahead

George Salmon | 15 July 2016 | A A A
FirstGroup: Trading remains difficult, with some optimism ahead

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FirstGroup have this morning released a trading statement for the first quarter of their financial year. Trading is said to have continued in much the same vein as in the recent trading update in June, and the share price was down almost 2% this morning.

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.

With c. two thirds of negotiations for the current bid season completed, the First Student business is achieving price increases, while contract retention is in line with targets. Revenue is up 1.1% while 130 staff positions have been removed, reducing costs. Significant margin progression in the current year is expected.

First Transit delivered a solid performance, with revenue up 1% despite the continued fall in demand for shuttle services to the Fort McMurray in Canada, devastated by wildfire earlier this year. The business' core service markets continue to provide growth opportunities, with overall revenue growth expected this year and margins maintained.

Like-for-like revenues in the Greyhound and First Bus businesses fell by 5% and 1.4% respectively, amid falling customer demand. Cost reductions are planned across both divisions, as conditions look set to remain challenging in the near-term.

First Rail like-for-like revenues increased 2.3% as volume growth moderated, especially on the Great Western Railway franchise, although the TransPennine Express did perform better than the industry average. Margins are set to fall towards industry norms in the current year.

The group has not changed its outlook for the financial year, and reiterate their confidence in making strong progress with a focus on disciplined bidding, cost efficiency plans and the expected benefit of lower fuel costs and an increased number of school days in the US. The group expect performance for the year to be weighted towards the second half, as a result of the GWR direct award.

FirstGroup say it is too early to judge the impact of the UK's decision to leave the European Union as although the outlook in the UK now looks uncertain, the group expect to benefit from a weaker pound, which will boost the group's US dollar based businesses.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research for more information.