TRANSPORT operator FirstGroup has said it expects to make "strong progress" despite seeing revenues fall following the loss of key rail franchises.

Earlier this year it warned over profits, with poor weather and extreme flooding across Cumbria and the North of England at the end of last year compounding already difficult trading.

Its rail arm, which operates the Great Western Railway and First TransPennine Express franchises, suffered a drop-off in demand from passengers following recent terrorist attacks in Paris and Brussels.

Rail revenues tumbled to £1.3 billion from £2.2 billion the previous year, reflecting the loss of recent rail franchises over the past few years, such as the East Coast Line and ScotRail.

But it won a seven-year contract in December to continue running the TransPennine Express train line, while it has been shortlisted for the East Anglia franchise.

The group reported a 1 per cent fall in underlying earnings to £300.7m for the year to March 31, with revenues dropping by 13.8 per cent after losing key rail franchises, while its First Student business was impacted by the timing of the school calendar.

Underlying pre-tax profits edged 2.7 per cent higher to £168.3m.

But chief executive Tim O'Toole struck an upbeat tone for the year ahead, saying the group was on track for a "significant" increase in net cash generation for the first time since launching an overhaul three years ago.

He said: "In the coming year we expect the group to make strong progress despite a challenging trading environment in several of our markets.

"This will come from our ongoing focus on disciplined contract bidding and our cost efficiency programmes, as well as lower fuel costs and a higher number of First Student operating days compared with the prior year."

The firm added it was planning to make further savings in its First Bus division - which runs a fleet of around 6,300 buses - having already slashed costs by more than £20m in the past financial year, closing depots as part of cost-cutting efforts.