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London bus boost offsets FirstGroup rail setback

A surge in London bus revenues following the introduction of congestion charging in the capital is helping the transport operator FirstGroup to offset falling rail subsidies.

The company, which operates 1,300 buses for Transport for London, said yesterday that turnover from its London bus routes had risen by 23 per cent in the first half of the year. This helped FirstGroup to increase turnover in its UK bus business by 6 per cent to £443m and lift profits to £46.2m.

Underlying profits remained flat at £56.8m, but at the pre-tax level profits fell by 55 per cent to £23.7m. FirstGroup shares fell 3 per cent after the broker ABN Amro questioned the company's accounting treatment of its school bus division in the United States and issued a sell note.

The bus revenues rise cancelled out a £7.7m reduction in subsidies for its five passenger rail franchises, which left profits from its train business 25 per cent lower at £22.1m. Rail subsidies will fall by £16m for the year, due to a £10m reduction in support for the inter-city service First Great Western and a £6m payment to the Strategic Rail Authority on the First Great Eastern franchise. Moir Lockhead, the chief executive, said that since privatisation in 1996, the company had invested £500m in its rail franchises - more than it had made in profits.

Despite this, he said rail was "still a good place for us to do business". This year the group has won two new rail franchises - the newly created Trans-Pennine route and Thames Trains, which it will take over from Go-Ahead in April. Although Go-Ahead is no longer receiving subsidies for Thames Trains, and in fact will pay £5.4m to the SRA this year for the right to operate the franchise, FirstGroup said it expected to receive subsidy to take on the route.

Michael Mitchell, the corporate communications director, said this could vary between £1m and £5m a year depending on which option the SRA selected from two put it to by FirstGroup. However, such is the financial squeeze on the SRA from the Treasury that it is struggling to come up with the money.

In the six-month period to the end of September, FirstGroup took on eight new bus contracts in London and it will also open a new depot in Willesden, which will further increase its capacity when new services using articulated buses start early next year.