The Scottish transport giant FirstGroup minimized its losses, but cautioned in the midst of the pandemic of “continued material uncertainty” when reaching a separate deal with the government to terminate two rail franchises.
The Department of Transport (DfT) has agreed that no payment would be required in exchange for the cancellation of Avanti West Coast’s contract, as the Aberdeen-based company said the brand “performed well prior to the pandemic,”
FirstGroup, however, is being asked to contribute £ 33.2 million to cancel its South Western Railway contract.
Pre-tax losses decreased from 187.1 million pounds in the first half of last year to 100.1 million pounds, while sales dropped more than 12 percent to 3.1 billion pounds.
In July, the company, which aims to sell its U.S. school bus, transit and intercity bus companies and is in negotiations with a number of “credible potential buyers,” cautioned that “significant uncertainty” existed regarding its ability to continue as a continuing concern.
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“Despite the reduction in overall risks we identified as part of our annual results in July, the possibility of several potential downside risks remains, primarily related to lower service levels and the pace at which our markets recover from the pandemic, resulting in continued material uncertainty.” the company told the city on Thursday.
The U.K. has helped the bus and train operators. As with other major transport companies after passenger numbers fell from late March, the Scottish and Scottish governments retained service to key staff throughout the pandemic.
As a result of the fall in demand triggered by the coronavirus outbreak, recent talks with the railroads became part of the Emergency Recovery Measures Agreements (Ermas) introduced.
According to Ermas, the DfT has assumed the financial obligations of the railway undertakings and will pay them up to 1.5% of their pre-pandemic operating costs.
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For the current financial year, this would leave taxpayers with a bill of £ 8 billion, with a further £ 2.1 billion for 2021/22.
Ermas also has clauses that allow franchises, if agreement can be reached on what additional fees they should make, to opt out of franchise agreements.
FirstGroup is now negotiating the terms of the directly awarded management contracts for Avanti West Coast and SWR with the government after having reached this point.
These provide for the continuity of the services by FirstGroup when Ermas for SWR expires in March 2021 and Avanti West Coast expires in March 2022.
“We welcome this agreement, which represents a further evolution of the contractual framework for our train operating companies SWR and Avanti, both in the context of providing resilient services during the coronavirus pandemic and in a more sustainable long-term approach,” said Matthew Gregory, chief executive officer of FirstGroup.
With a more acceptable combination of risk and reward, these new direct awarded management contracts will concentrate on ridership and operational performance.
“We look forward to working constructively with the DfT to make this a reality, using our expertise and understanding of our customers’ needs to deliver improvements we know passengers want.”
“Mr. Gregory also said, “While the outlook remains uncertain due to the pandemic, in the first half of the year we surpassed forecasts, took prudent measures to improve the balance sheet and are confident in the group’s resilience.
We are continuing to advance our efforts to streamline the portfolio as this is the best way for all shareholders to unlock material value. We are in talks with a range of reputable potential buyers with a long-term outlook with regard to the disposal of our North American contract firms, which the company and our advisors are investigating and reviewing.
The transportation industry remains one of the most challenged by the Covid 19 pandemic and FirstGroup continues to feel the effects of this,” said Stuart Lamont, investment manager at Brewin Dolphin Aberdeen.” Nevertheless, the company’s performance display signs of resistance.