First Group dividend on hold after West Coast fiasco
- 7 November 2012
- From the section Business
Travel company First Group has decided to freeze its interim shareholder dividend due to the uncertainty created by the cancellation of the West Coast Main Line franchise competition.
The Aberdeen-based transport group had been announced as the winning bidder.
But then the government scrapped the competition after irregularities in the tendering process came to light.
First Group's interim dividend will now be held at 7.62p. A decision on its full-year dividend will come in May.
"By that time, we expect the prospects for our rail division to be clearer, following independent reviews into the cancellation of the West Coast competition and the future of rail franchising," it said in a statement.
The reviews are crucial to First Group as all four of its rail franchises expire over the next three years.
First Group had previously committed to raising the payment it makes to shareholders by an annual rate of 7% a year for three years.
The announcement that it was freezing its dividend payments came as the bus, coach, and rail company reported a disappointing first half trading statement for the six months to 30 September 2012.
While group revenues rose 2% to £3.25bn, pre-tax profits slumped to £8.4m, down 93.4% from £127.8m for the same period last year.
The company said the particularly sharp fall in pre-tax profits was down to a charge for exceptional items in the first half and a one-off gain of £73.3m in 2011 following the restructuring of its UK Bus pension scheme.
Stripping out one-off items, underlying profits fell from £163m to £128.7m.
First Group chief executive Tim O'Toole said: "In the short term we have to contend with the uncertainty around future rail franchises created by the Department for Transport's decision to cancel the InterCity West Coast contract and pause the current franchise competitions, following its discovery of flaws in the way it conducted its process."
First Group, which runs the First Transit, Greyhound, UK Bus subsidiaries as well as its rail division, had been shortlisted for three other franchise competitions, so the government pause has cast a cloud of uncertainty over the group's rail strategy.
Chairman Martin Gilbert said: "It has been an exceptionally difficult period in rail", adding that the company was "extremely disappointed and frustrated that our employees and our shareholders have had to endure this extraordinary series of events".
First Group's total UK bidding costs reached £12.3m.
The Department for Transport has said it will repay the estimated £40m costs to the four groups involved in the flawed bid process.
First Group said it was in discussions with government over its bill for its franchise bid.
The company's shares closed down 5.1% and have now dropped about 40% over the year.