Chief executive Tim O’Toole says profit margins at some of the group’s regional bus operations ‘are simply unsustainable’ and action is required

 

first_bristolUK Bus operating profit margins have fallen to 3.2%

 

FirstGroup has instructed all its UK bus businesses to draw up and accelerate plans to cut costs and revise timetables in a bid to counter the division’s rock bottom profitability. Changes will include service cuts in loss-making and low profit areas so that buses can be reallocated to create higher frequency core corridors.

In a briefing to City analysts, chief executive Tim O’Toole said low profit margins at some regional bus operations “are simply unsustainable and it’s about making changes”.

Group finance director Matthew Gregory also warned that further closures and sales would be considered. “We are not ruling anything out, frankly,” he said in response to questions from City analysts on whether First’s plans involve selling businesses as well as changes to services.

The announcements came as First reported in its half year results that worsening traffic congestion and consumers’ ongoing shift to shopping on line rather than travelling to high streets was continuing to hit bus revenue and patronage.

Like-for-like UK bus revenue fell 1.3% to £426.1m in the six months to October, operating profit fell from £15.3m to £13.5m and the profit margin fell further from 3.5% to 3.2%.

In considering the future shape of the UK bus division, O’Toole said he would balance the long term benefits of turning round a larger business against “changing the portfolio to achieve a healthier overall business sooner because we do not expect conditions to change in the medium term”.

Each UK bus company and region will be subject to a detailed assessment of future opportunities which will include the potential to create higher profits through reallocating buses, the potential to supplement earnings with major contract services and local authorities’ willingness to put congestion-busting measure in place.

Simple mileage cuts have been ruled out. “The trick is to refocus and rededicate the mileage in those corridors where you’ve got the [customer] volumes that will sustain it over time and you can have a frequent, successful network,” O’Toole explained.

Spelling out a warning to local authorities that they need to take action on traffic congestion, O’Toole said First could not tolerate ongoing increased costs from having to put extra buses on its routes simply to maintain frequencies and reliability.

Across the group, First said declining performance in its UK bus and rail businesses had been compensated for by improved results in North America, particularly at the school bus business. Overall, group half year revenue increased from £2.44bn to £2.56bn. Operating profit rose from £88.4m to £89m.

 

This article appears inside the latest issue of Passenger Transport.

DON’T MISS OUT – GET YOUR COPY! – click here to subscribe!