First returns profit, but no dividend
First chairman John McFarlane notes: “First Transit, Greyhound and UK Rail are delivering returns broadly in line with what I would expect, though clearly we have significant opportunity for further improvement.
“On the other hand, two of our businesses, First Student and UK Bus, have not performed, and are well short of their potential and delivering lower margins than their competitors. Although both divisions have faced challenging economic conditions in their respective markets, we cannot escape that we should have managed them better. Progress has been made in addressing the performance of these two divisions, with headway being made in UK Bus in particular, but there remains much to do still.”
Revenue at First UK Bus was £930.2million (2013: £1,128.2million) and the division's operating profit was £44.4million (2013: £50.8million). However the operating margin showed a slight improvement at 4.8 per cent, up from the 2013 figure of 4.5 per cent but still a long way short of the group's “double digit” target.
Adoption of best practice operating procedures at First UK Bus have led to efficiencies including a 27 per cent reduction in breakdowns and a 21 per cent reduction in lost mileage. This has also improved punctuality and reliability.
The company says: “Although the local economies in some of our markets continue to be challenging, and local authority concessionary fare budgets remain under pressure, we have confidence that we will harness our compelling market positions to deliver sustained volume and revenue growth underpinned by tight cost disciplines.”
In terms of revenue, the group's biggest division is UK Rail, with 2014 income of £2,870.1million, making up 42.7 per cent of group revenue – but with the lowest operating margin, at just 1.9 per cent. The most profitable sectors measured by operating margin are First Transit and Greyhound, both returning 7.4 per cent.
The company is not paying a dividend, choosing instead to reduce its debt, which it has cut by just over a third to £1,303.8million from last year's figure of £1,979.1million. McFarlane says: “Clearly it is disappointing that we have not been in a position to declare a dividend for the year, but we ask for shareholders’ patience while we return the group to a dividend paying position.”