UK bus revenue growth in first half of group’s financial year was almost completely wiped out in the second half. Rail also experienced slowdown

 

firstmanchesterFirstGroup is considering the closure of one of its six Manchester depots

 

FirstGroup will consider closing one of its Manchester depots in a new round of cost cuts at its UK bus division triggered by expectations of declines in revenue and patronage over the next 12 months. The outlook echoes concerns over trading conditions expressed by other transport groups.

“It’s about tightening things in light of trading. For example, we’ve six depots in Manchester, and we think we may be able to close one of them in light of the current environment,” chief executive Tim O’Toole said.

First has already announced proposals to close two depots in East Lothian and largely withdraw from the Scottish Borders (PT135).

In addition, First will make changes at its rail businesses in response to a slowdown in growth across the industry. O’Toole said First would be “adjusting our spending plans accordingly in rail to ensure we can still deliver our goals as we go forward”.

Presenting its financial results for the year to March 31, 2016, First reported that revenue growth at its UK bus business during the first six months of 2015/16 had been almost cancelled out by declines in the following six months. Over the year as a whole, like-for-like revenue growth fell back to 0.3%.

Finance director Matthew Gregory said the decline had increased in the last three months of the year and that the company was “not expecting growth necessarily” over the next 12 months. “That’s why we’re trying to step up our cost savings,” he said.

He blamed a combination of fewer people shopping on the high street, exceptionally wet weather and traffic congestion for the situation.

The plans for the new round of cost cuts follow £23m of savings during 2015/16, including the closure of six depots. The cuts meant full-year operating profit at First’s UK bus division rose slightly from £51.8m to £52.0m, while total revenue fell from £896.1 to £870.9m.

O’Toole said even a low level of revenue growth would set the bus division on course to achieve its target 10% profit margin compared to a 6% margin at present. However, he acknowledged it was difficult to see where the growth was coming from in the short term. “You tell me when growth returns to the business and I’ll give you a more precise date,” he told City analysts. He added that inefficiencies in First’s business meant there was scope to improve financial performance regardless of whether growth returned.

“We do have a kind of advantage, it’s good news, bad news: it’s bad news in that there are still categories in which our costs do not match the best of our competitors, so the good news is we should still make profit margin progress even in the face of a tough market,” O’Toole said.

In the rail division, First repeated concerns expressed by Stagecoach over a slowdown in business. However, O’Toole said that in First’s case it was hard to tell whether the causes were due to disruption caused by engineering works, particularly at Great Western, or factors such as fear of terrorism and slower than expected economic growth cited by other operators.

Despite the loss of the First Capital Connect and ScotRail franchises, First reported broadly flat rail operating profits for 2015/16 of £72.9m, compared to £74.1m the previous year. Revenue fell from £2.2bn to £1.3bn.

Overall, across its American and UK businesses, First reported operating profits of £300.7m, down 1%, on revenue of £5.2bn, down 13.8%.

 

This article appears inside the latest issue of Passenger Transport.

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