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FirstGroup loses bid to retain ScotRail
From the Financial Times of Wed, 08 Oct 2014 08:25:56 GMT
Scotrail Caledonian Sleeper - 2000....UNITED KINGDOM - NOVEMBER 04: ScotRail Caledonian Sleeper from London Euston Station approaching the Horseshoe Curve on the West Highland Line, after leaving Upper Tyndrum, 2000. (Photo by National Railway Museum/SSPL/Getty Images)©SSPL/Getty

FirstGroup has failed in its bid to extend its contract to operate the ScotRail franchise for a further 10 years.

The transport company, which runs buses and train services across the UK as well as buses in the US including the Greyhound coach service, announced on Wednesday it had not been awarded the contract to operate long distance and commuter routes in Scotland. It has operated the franchise as First ScotRail for the past decade and will continue to do so until next April when the contract will be taken over by Netherlands group Abellio.

Tim O’Toole, chief executive of FirstGroup, said: “Our bid would have delivered even greater levels of service and growth, and we are disappointed we will not have the opportunity to implement the credible plans we submitted.”

FirstGroup shares fell 7.4 per cent in early trading to 106.6p.

The Labour party had called on the Scottish National party government to suspend the franchise process, saying that possible devolution of greater powers over transport following Scotland’s independence referendum might open the way for a non-profit operator.

The main pro-union parties have promised substantial new powers for the Scottish parliament will follow last month’s referendum vote to remain in the UK.

Devolution would be an opportunity to allow a “bid where public transport serves the people of Scotland, not boost the profit margins of global corporations”, according to James Kelly, Scottish Labour infrastructure spokesperson.

“In awarding the ScotRail franchise to Abellio, Keith Brown [the SNP transport minister] has decided that the profits from Scotland’s railways should be used to invest in lower fares and better services in Holland rather than here at home,” Mr Kelly added.

“In public the SNP talk about more powers, but when faced with the opportunity to use them in the interests of Scotland they bottle it,” he said.

The Scottish Council for Development and Industry said it warmly welcomed Abellio’s promise of faster, more frequent inter-city services and improvements to Aberdeen and other stations.

Mr O’Toole added that the news did not alter the Aberdeen-based group’s medium-term targets. It is still competing to retain the TransPennine Express franchise, which runs services in the north and into Scotland, until February 2016.

The failure to secure the contract is another blow to Mr O’Toole. In July, a third of shareholders voting at FirstGroup’s annual meeting refused to back his pay packet, which almost doubled from the previous year to £1.9m. In May, the group lost out to Serco in the bidding to extend its contract to run the Caledonian Sleeper franchise for a further 15 years. The service, which runs from London to Scotland, will change hands in April next year.

Separately, the group announced in a trading statement that its performance for the six months to September 30 showed signs of improving despite the tough UK market. Revenues had risen in its Greyhound coach, bus and rail operations while its US school bus business had seen “encouraging results”.

However, it warned that while the US economy was recovering, the majority of lower-income customers who used its Greyhound services had not seen their disposable incomes rise. It expects like-for-like revenue growth in the US coach business to be 2.7 per cent, at the lower end of its initial expectations. Its school bus business retained more than nine out of 10 existing contracts for the coming school year, at the higher end of expectations.

The FTSE 250-listed group has been struggling with turnround efforts since 2007 after overburdening itself with a $3.6bn takeover of US bus business Laidlaw just before the global economic downturn. It was forced into a £615m rights issue last May, after which its share price plunged by a third.

The group reported pre-tax profit of £58.5m on revenues of £6.7bn in the year to March. It will announce first-half results on November 5.

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