Firm runs 8,000 buses in 40 towns and cities across UK, with 60% of bus revenues coming from Scotland and north England
Shares in FirstGroup have slumped 17% after the UK's largest bus operator issued a profit warning in the wake of an apparent widening in north-south economic divide.
FirstGroup runs 8,000 buses in 40 towns and cities across Britain, with 60% of the revenues generated by its bus unit coming from Scotland and the north of England.
That geographic split was punished by investors on Thursday morning as the Aberdeen-based group said "considerably lower growth rates" in Scotland and the north would prevent the business from making up a shortfall in revenues caused by a reduction in state subsidies. As a consequence, FirstGroup said, bus operating margins will be around 8% in 2012/13 – a considerable shortfall on analysts' expectations of a margin of up to 12%.
One analyst, speaking on condition of anonymity, said FirstGroup appeared to have fallen victim to the location of its businesses, which include strong presences in Aberdeen, Glasgow, Edinburgh, Manchester, York and Leeds. The analyst said: "FirstGroup has seen flat bus volumes for a little while and everybody else is seeing volume growth, so it does look like a question of geographic exposure primarily. Perhaps, or even obviously, it also includes [fare] pricing. Are their prices too high?"
The analyst added that investors could write down group operating profit forecasts for this year by as much as 10% in the wake of the warning. Last year, FirstGroup's UK bus business accounted for one third of the company's £457.4m operating profits. However, the unit has struggled to match the performance of Stagecoach's much-envied bus division.
The update on FirstGroup's bus business overshadowed good news for the company's rail unit, which has been shortlisted for three major rail franchises, the Department for Transport said this morning. The franchises are: Great Western; Thameslink; and Essex Thameside.
The DfT shortlist also confirmed the rehabilitation of National Express, which handed back the £1.4bn east coast franchise in 2009 amid government threats that it would never work in rail again. National Express has been shortlisted for Thameside - where it is the incumbent under the c2c brand - and for Great Western. The current operator of the Great Western London-to-Swansea route is FirstGroup.
The company's shares fell to 241p in early trading, later trading at 250p, down 14%.