Diversity is the key as Arriva’s profits climb
Mar 6 2009 by Andrew Mernin, The Journal
BUS and rail firm Arriva yesterday reported a 30% climb in profits and said its diverse portfolio will protect it from the expected plunge in passenger revenues likely to be caused by the recession in the tough year ahead.
The Sunderland firm saw profits rise 30% to £150m last year - boosted by the first full year of income from CrossCountry rail franchise - but it also said it expects a “demanding” year ahead.
The company warned that the dire state of the economy made it impossible to make confident forecasts over passenger revenues in the near future.
However it also cited its high cash generation, diverse portfolio and lack of sensitivity to passenger revenues as factors which would bolster the firm, giving it the resilience to survive the recession this year.
Meanwhile the group - which runs public transport in 12 European countries including the UK - said it is facing pressure from a £60m hike in fuel costs and slowing rail revenue growth, and is ready to take “contingency action“ where it can.
Chief executive David Martin said: “Though macro-economic uncertainty makes it impossible to predict short-term passenger revenues with confidence, we stand ready to take contingency action wherever practicable.”
CrossCountry, which runs services from Aberdeen to Penzance, saw revenues grow 11.2% last year but Government subsidies reduce in subsequent years of the franchise.
Arriva must lift franchise revenues by around 10% this year to maintain profits. But growth has slowed to below 2008 levels in recent weeks, with bad weather and network disruption adding to the headaches. The UK bus business, which operates services in cities including London, Liverpool, Leeds and Newcastle, produced a “robust'” 13% increase in operating profits to £99.3m.
The firm’s experience of previous recessions signalled that regional demand for bus travel would be “relatively resilient”.
In mainland Europe - where profits and revenues have more than doubled since 2004 - Arriva expects acquisitions and new orders will “go some way” towards offsetting the recession, although the pace of new contract wins slowed last year.
Mr Martin said that public transport was a “long-term business with deep roots” despite the current challenges faced by the business.
He said: “Even against the current background of economic downturn and financial sector crisis, attractive, integrated public transport networks are increasingly seen as a kingpin for long-term prosperity, all over Europe.”
Analysts said Arriva’s results were broadly in line with expectations and that the remains the most defensive company in the sector. Gert Zonneveld, analyst at Panmure Gordon, said: “The rail division remains the most vulnerable because it has high fixed costs but it is still relatively strong.”
Analyst Gary Fawcett, divisional director of Brewin Dolphin in Newcastle, said: “Arriva’s results highlight the strong cash generative nature of its businesses, which have allowed the company to maintain a progressive dividend policy at a time when many other companies are cutting their payout to shareholders.
Click on the links below for recent stories on Arriva's growth:
Dec 2008: Transport firm Arriva 'to outperform its rivals'
Aug 2008: CrossCountry and bus travel boost for Arriva
