FirstGroup plc Earnings Call: Growth Amid Challenges

Firstgroup plc ((GB:FGP)) has held its Q2 earnings call. Read on for the main highlights of the call.

FirstGroup plc’s recent earnings call revealed a balanced sentiment, highlighting both significant achievements and ongoing challenges. The company reported impressive revenue growth and strategic advancements, yet acknowledged hurdles such as declining bus volumes and inflationary pressures. Despite these challenges, FirstGroup maintains a robust financial stance and has proposed an increased dividend, reflecting confidence in its future performance.

Significant Increase in Group Adjusted Revenue

FirstGroup plc reported a remarkable 30% increase in group adjusted revenue, reaching GBP 834 million. This growth was primarily driven by the strategic acquisition of First Bus London, which has significantly bolstered the company’s revenue streams.

Adjusted Earnings Growth

The company achieved a 16% rise in adjusted earnings per share, now at 9.9p. This growth was supported by the strategic repurchase of approximately 22 million shares, demonstrating FirstGroup’s commitment to enhancing shareholder value.

Interim Dividend Proposal

In a move to reward its shareholders, the Board proposed an interim dividend of 2.2p per share, marking a 29% increase compared to the previous year. This proposal underscores the company’s strong financial health and confidence in its ongoing strategies.

Reduction in Lost Mileage

First Bus has successfully reduced lost mileage by 24%, bringing it down to 1.3%. This improvement reflects the company’s focus on operational efficiency and service reliability.

Operational Efficiency and Cost Savings

The company achieved annualized overhead savings of around GBP 15 million, with GBP 7 million in efficiencies attributed to electrification progress and overhead reductions. These savings are part of FirstGroup’s broader strategy to enhance operational efficiency.

Sustainability Initiatives

FirstGroup made significant strides in sustainability, with 23% of its fleet now zero emission. The launch of First Charge further emphasizes the company’s commitment to reducing its environmental footprint.

Open Access Rail Expansion

The company received approval to extend Lumo services to Glasgow and introduce a new Stirling to London Houston service, increasing seat miles capacity. This expansion is part of FirstGroup’s strategy to enhance its rail offerings.

Impact of Economic Factors on Bus Volumes

Economic factors and the transition to a GBP 3 fare cap have led to a 4% decline in total bus volumes. This challenge highlights the external pressures facing the company’s bus operations.

Inflationary and National Insurance Pressures

Inflation, particularly in wages, and higher national insurance contributions have increased costs, impacting profit margins. These pressures are a significant concern for FirstGroup’s financial performance.

Open Access Rail Challenges

Industrial action at Hull Trains and GBP 1.3 million in mobilization costs for the new Stirling service have adversely affected adjusted operating profit, posing challenges to the company’s rail operations.

Higher CapEx and Adjusted Net Debt

Investment in bus electrification has led to higher capital expenditures, resulting in an adjusted net debt position of GBP 207.6 million. This investment is crucial for the company’s long-term sustainability goals.

Forward-Looking Guidance

Looking ahead, FirstGroup anticipates modest growth in adjusted earnings per share for the full year 2026 and aims to sustain this growth into 2027. The company is focusing on U.K. growth and diversification strategies to navigate economic challenges and enhance its market position.

In summary, FirstGroup’s earnings call reflects a company that is navigating economic challenges while achieving significant growth and strategic advancements. The proposed dividend increase and strong financial position underscore the company’s confidence in its future prospects, despite the hurdles it faces.