UK rail and bus operator FirstGroup predicted it would swing back into profit on Tuesday, just two months after warning of uncertainty over its ability to continue as a going concern.
The unexpected forecast of profits for the first half of its financial year comes as the company has been helped by the slow return of passengers and state support.
It reported a “stronger than expected” financial performance for the five months between April and August, as revenues recovered from lockdowns in the UK and US faster than it had predicted.
It now expects to record a small adjusted profit for the six months to the end of September, ahead of expectations and following a £300m pre-tax loss in the previous financial year ending in March.
The company had warned in July that a lack of clarity over state support and when passengers would return to public transport meant there was “material uncertainty” over its future.
But on Tuesday, Matthew Gregory, chief executive, said “clarity is improving over time”.
The group expects to “comfortably” meet its banking covenants at the end of this month and had about £850m in free cash by the end of August.
FirstGroup has received significant state support on both sides of the Atlantic as national and regional governments have stepped in to make sure public transport services, including school buses in the US, continue to operate where needed.
FirstGroup also said it has received “significant interest from potential buyers” of its US businesses, which it put up for sale this year following pressure from an activist shareholder.
FirstGroup has faced pressure from US-based Coast Capital Management, which holds more than 10 per cent of its shares, to split off its North American divisions, which includes more than 40,000 of the distinctive bright yellow school buses in the US and Canada.
The sale process was delayed by the pandemic, but Mr Gregory said it was one of the company’s priorities this autumn.
Coronavirus business update
How is coronavirus taking its toll on markets, business, and our everyday lives and workplaces? Stay briefed with our coronavirus newsletter.
In the UK, the government is in talks with rail operators about extending existing “emergency measures agreements”, which were introduced in March to keep the railways running as passenger numbers evaporated and are due to expire at the end of this week.
Industry figures expect the arrangements to be rolled over, although the management fees paid to companies including FirstGroup to operate the railways are set to be squeezed.
The number of passengers on FirstGroup’s UK rail franchises, which include Great Western Railway, are about a third of their pre-pandemic levels after slowly creeping higher throughout the summer.
“Passengers can be confident that public transport is safe and we are encouraged that activity levels are increasing, especially since the start of the new school year on both sides of the Atlantic,” Mr Gregory said.
Get alerts on FirstGroup PLC when a new story is published