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FirstGroup warns of short-term challenges

- First Student suffers slowdown in margin progression
- Strong First Transit revenue growth
- Shortlisted for East Coast franchise

FTSE 250 transport company FirstGroup has posted an in-line third quarter performance but shares fell after it warned of ongoing short-term challenges and slower progress in its First Student division.

While it made progress with its recovery plan for First Student, the market remained ‘challenging’, with limited growth opportunities and poor weather conditions affecting both revenue and operating profit. Revenue for the full year is expected to be broadly in line with the prior year, while margins are expected to be only slightly ahead.

Its First Transit business delivered a strong performance over the period, and said it expects full-year revenue growth to total more than 7%.

Its Greyhound business saw like-for-like (LFL) revenues inch 0.3% higher, with robust Thanksgiving and Christmas sales partially offset by poor weather. It also suffered from the impact of the subdued US economic environment, but said the Greyhound Express has delivered strong growth of 12.6% in LFL revenues.

UK Bus saw 2% LFL passenger revenue growth, underpinned by good passenger volume growth. The group said it was on track with its plan to return the division to double-digit margins in the medium term, with positive results seen amongst those of its operations which are further along its transformation programme.

Finally, UK Rail, which also announced it had been shortlisted for the InterCity East Coast franchise competition by the Department for Transport, reported LFL passenger revenue growth of 6.3%, driven by strong volume growth across all of its train operating companies.

Chief Executive Tim O’Toole acknowledged that there remained a number of short term challenges to overcome, but said the programmes put in place by the company would enable it to benefit from its market position.

He said: ‘The slowing of our margin progression in First Student during the period was disappointing, however we remain confident in achieving our medium-term objectives for the division as we refresh the management team and drive further cost efficiencies and improve returns across the business.

‘As we work through the current bidding season, which is just commencing, our focus remains on those markets where our superior offering is valued.’

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