FirstGroup in blow from bus division

Transport operator FirstGroup said growth was stalling at its bus operations in the north of England and Scotland, reflecting a growing disparity between the region and the prosperous south of England.

"The economic environment is presenting challenging trading conditions and performance during the year reflects the growing North-South divide with considerably lower growth rates emerging in Scotland and the North of England," FirstGroup said in a statement on Thursday.

About 60 per cent of FirstGroup's UK Bus passenger revenues are generated in the north, which has been particularly hard hit by government austerity measures.

Revenue growth and cost cutting would not offset the impact of reduced government subsidies and rising fuel costs, it said.

"Hitherto most UK regional bus companies had appeared confident in their ability to offset higher costs/reduction of various subsidies with higher fares in the year ahead," Goldman Sachs analyst Oliver Neal said.

"FirstGroup's guidance calls this into question."

Analysts at Liberum said the "confidence sapping" UK bus earnings downgrade would lead to group 2013 EBIT forecasts falling over 10 per cent to about £352m.

The FTSE-250 company saw its shares lose up to 15 per cent in early trading.