ScotRail operator FirstGroup will not pay a dividend to shareholders, for the second year running, after admitting it needs more time to revive its UK bus operation.
The Aberdeen-based group said its mass transit services and US FirstStudent arm, which transports six million students in North America every day, were performing well short of their potential and delivering lower margins than rivals.
First posted a £58.5m pre-tax profit for the year to March, comparing very favourably against last year’s £28.9m reverse, as better trading in the UK rail market helped earnings climb back into the black.
But ongoing turnaround costs and the need to further reduce a debt burden which had narrowed to £1.3bn at the year-end means the company will not pay a dividend.
The payout was scrapped last year after the botched bidding process surrounding the West Coast mainline franchise scuppered its turnaround plans, causing shareholders to desert the firm as the value of its stock fell 30% in a single day.
At the time the company said it might restore the dividend this year. However, those hopes were dashed by new chairman John McFarlane, who asked for shareholder patience while the group works to revive its two failing divisions.
“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,” he said.
Profits in the division, which has a fleet of 7,400 buses carrying around 2.3 million passengers every day, fell to £44.4m from £50.8m last year.
While the operation is facing further reductions in public funding, passenger numbers rose for the first time in several years due to network changes, fare reviews and significant investment in fleet and service during the year.
“UK Bus, while still working through its transformation programme, is beginning to show that it is on the right track,” Mr McFarlane added.
However, he said First Student’s progress was slower. The US operation posted lower profits of £93.5m after it was impacted by an unprecedented number of school closures due to snow storms.
In UK rail which runs the franchises Capital Connect, Great Western, ScotRail, TransPennine Express passenger growth was 5.9% on a like-for-like basis and resulted in a profits rise to £55.2m from £19.3m a year earlier.
The company said it had submitted a “compelling” bid for the new ScotRail franchise and expected to make a competitive pitch for the InterCity East Coast competition this summer.
First also announced it was all change on the board, with John Sievwright, David Begg and Colin Hood all stepping down, to be replaced by EasyJet COO Warwick Brady, former Dairy Crest chief executive Drummond Hall, and William Hill, Mitchells & Butlers and Mothercare non-exec Imelda Walsh.
Shares ticked up marginally yesterday, closing the day up 2p or 1.5% at 134.20p.