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West Coast Mainline Contract Chaos Leads FirstGroup To Freeze Shareholder Payments

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FirstGroup shareholders suffer a dividend freeze, caused by the West Coast Mainline bidding fiasco | PA

Transport giant FirstGroup has been forced to freeze its dividend because of the uncertainty caused by the botched attempt to win the West Coast mainline.

The company, which published its half-year results on 7 November, said it remained committed to UK rail, but was forced to freeze payments to shareholders at last year's levels of 7.62p a share until the government reviews have been completed.

"The Department for Transport has cancelled the InterCity West Coast competition, in which FirstGroup had been chosen as the winning bidder, and has paused the current rail franchise competitions," the company said.

"As a result of the uncertainty this creates, the board has decided to hold the interim dividend at last year's level, and will consider the appropriate level for the full year dividend in May 2013.

"By that time, the prospects for our UK Rail division are expected to be clearer, following independent reviews into the cancellation of the West Coast competition and the future of franchising."

FirstGroup had tried to take over the line from Virgin Rail, but the bid was cancelled due to a flawed bidding process, is holding its interim dividend at last year's level and will review the full-year payment once its rail prospects are clearer in the wake of the government review.

The Aberdeen-based FirstGroup paid £12.3 million in total UK rail bidding costs, including the bid for the West Coast franchise. The DfT has already said it will repay bidding costs to the four groups involved in the botched bid process.

Tim O'Toole, chief executive of FirstGroup, told the markets that while the company was still in a period of transition, he was satisfied with the progress of the actions taken so far, although he remains cautious of the continued economic weakness.

He continued: "As the UK's largest rail operator, with approximately a quarter of the market and unrivalled expertise from a diverse portfolio, we remain committed to maintaining our leading position in the rail market, and are actively engaging with the ongoing reviews to help shape the future of franchising.

"Demand for high quality, attractive services that offer value for money remains and we are confident that the actions we are taking will strengthen our business and its prospects for long term growth."

FirstGroup, which runs First Great Western, TransPennine Express, First Capital Connect and Scotrail services, is also suffering from three further franchise bids being frozen - having been shortlisted for the rail services, all bids have been put on hold while the government investigates the flawed bidding processes.

The half-year results also revealed FirstGroup had suffered a 42% fall in underlying pre-tax profits to £48.7m and noted its bus business was suffering from high petrol costs.

Operations in the north of England and Scotland saw improved revenue growth whereas, in keeping with industry trends, it saw a reduction in concessionary volumes in our businesses in the south.

On the future for FirstGroup's UK buses, the report stated: "We are taking action with a clear and detailed plan to fix and restore growth to the division, informed by a thorough review of all our operations. While there remains considerable work to be done, these actions are delivering early positive signs in some of our markets.

"The vast majority of our bus operations generate good returns or have potential for significant further improvement...We are confident of the opportunities to continue to focus the size and shape of our UK Bus portfolio and, with discussions ongoing with a number of interested parties, we will continue to work through our programme of selected business and asset disposals."

By the end of next year, FirstGroup will have completed the £160m introduction of 1,000 new vehicles into its fleet and £4m will have been spent on modernising and repainting 750 of its existing vehicles.

FirstGroup's share price dropped by around 2.5% in early trading on 7 November 2012.

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