Arriva’s revenues soar – but fuel cost rises cause concern

Apr 24 2008 by Karen Dent, The Journal

ARRIVA’S revenues jumped by more than 60% in the first three months of this year as the public transport giant drove up business at home and abroad.

But the Sunderland-based group spooked its investors by revealing it had been faced with “substantial” increases in the cost of fuel since the start of the year, when it gave a trading update at its annual general meeting in Durham yesterday.

Although Arriva has a hedging policy of buying fuel up to 15 months in advance, it is likely to be exposed to the current soaring oil prices in the latter half of next year.

Most of this year’s fuel consumption has been protected by this policy of buying ahead, but Arriva did not comment on what impact the current high fuel costs would have on the business in 2009. Cazenove analyst Edward Stanford said: “Clearly the recent rise in the oil price, if sustained, will put pressure on margins.

“However, the group does have 12 months to react and historically the industry has been adept at mitigating fuel price increases.”

Arriva chairman Sir Richard Broadbent used yesterday’s AGM to look ahead to a “positive” 2008 and a “robust” balance sheet offering prospects of more investor returns following last year’s dividend hike.

The group’s revenue rose by 60% in the first quarter of this year compared to the same period in 2007, as its business interests increased in mainland Europe and it took over the operation of the Aberdeen to Penzance CrossCountry rail franchise.

Arriva, which runs more than 6,500 buses in the UK, last month posted a 7% rise in annual operating profits to £128m for 2007.

The business has public transport interests in 10 European countries including the UK and earlier this month announced it is planning to take an 80% stake in Hungary’s biggest bus operator which also runs services in Slovakia.

Arriva, which employs more than 40,000 people worldwide, also signalled that further acquisitions may be on the cards. It said the business had “ample financial capacity to meet further anticipated investment opportunities”.

However, its shares fell by almost 5% in yesterday’s trade as travel and transport stocks such as rival FirstGroup and budget airline easyJet were hit by oil prices surging towards US$120 a barrel.