Public spending cuts and fuel costs hit First Group

As the largest provider of student transport in North America with a fleet of about 60,000 yellow school buses, FirstGroup has felt the impact of "unprecedented levels" of pressure on school board budgets.

The company's Greyhound intercity coach business in North America has also been squeezed by recession, but FirstGroup said UK rail and bus services produced resilient performances in the year to March 31.

With FirstGroup also facing increased fuel costs of 90m, the Aberdeen-based company posted adjusted pre-tax profits of 264m, down from 326.4m a year earlier.

It achieved annual savings of more than 200m during the year and said it expected a return to earnings growth in the current financial period.

Chief executive Sir Moir Lockhead said: "Looking ahead we anticipate the new financial year will remain challenging."

During the last year, the UK bus business posted a "steady and resilient" performance after profits slipped to 124.6m from 134m.

Like-for-like passenger revenues increased by 1.9 per cent and FirstGroup said it benefited from efforts to boost operating efficiencies. The division is Britain's largest bus operator with a fleet of 8,500 buses carrying about three million passengers a day in more than 40 towns and cities.

In UK rail, which operates the four First franchises of GreatWestern, ScotRail, TransPennineExpress and CapitalConnect, like-for-like passenger revenues rose by a bigger than expected 2.3 per cent.

This was despite a reduction in regulated fares from January and meant operating profits were 92.6m, down slightly from 94.2m a year earlier.

The North American contract businesses posted operating profits of 233.9m, down from 246.1m a year earlier, while Greyhound saw profits slip to 23.9m from 48.5m.

Analysts at Panmure Gordon stockbrokers said the results were in line with expectations. They added that while the company has secured financing through to 2012 and good cash flows should allow net debt to fall steadily in the coming years, it remains worried about the short to medium term profitability of the North American student transportation business.