Tender battles dent FirstGroup profits

THE COSTS of fighting battles to win rail franchises, plus rising pension liabilities and the expense of shaking up its bus division, have dragged down profits at FirstGroup.

The group lost its East Anglian train licence last month to National Express, but is attempting to fight back by making the short list for all four of the current franchises up for tender: the new Kent contract, the East Coast Main Line against GNER, Northern Trains after the sacking of Arriva, and ScotRail against National Express.

Costs of trying to persuade the Strategic Rail Authority (SRA) to pick FirstGroup were put at £6.7m last year when its won the new Trans Pennine Express franchise. Millions more are likely to be spent this year.

Despite improved performance at its Great Western services out of Paddington, profits from FirstGroup's rail business slumped by nearly 20% after a steep reduction in handouts from the SRA to run the service.

While underlying profits were up marginally in the year to 31 March at £161m - helped by a strong performance from its US bus businesses which now account for nearly a third of the group - rail bid costs plus £7m spent restructuring the UK bus business and an extra £15m pumped into the group's £162m in-deficit pension fund, sent pre-tax profits down to £122m against £133m last time. The dividend is up 6% at 11.65p.