Arriva may bid for rail rival National Express

Aug 28 2009 by Karen Dent, The Journal

ARRIVA is chasing new public transport contracts in Europe and has not ruled out bidding for rival bus and rail operator National Express.

Chief executive David Martin said he would monitor the situation at National Express, which was stripped of the East Coast Mainline train franchise by the Government last July.

“We will evaluate the situation and see if there is an opportunity there that we may want to get involved in,” he said.

Birmingham-based National Express is currently considering an increased takeover bid worth almost £700m from its biggest shareholder, Spain’s Cosmen family, and buy-out firm CVC. But the group is also looking at other options, including a rights issue, if the deal falls flat.

Mr Martin revealed his interest as Sunderland company Arriva announced a drop in first-half pre-tax profits but a rise in revenues.

High fuel prices and the slowing growth in rail passenger numbers contributed to the dip in pre-tax profits to £57.4m in the half-year to June 30, from £66.3m. Revenue jumped by 10% to £1,640m and operating profits grew by 4% to £88.7m.

Mr Martin said Arriva, which runs public transport systems in 12 European countries as well as the UK, was “really quite pleased” with its “robust” performance.

The group, which “hedges” or buys its fuel well in advance, is now being affected by last year’s record-high oil prices.

Mr Martin said: “This year we will take a £60m hit. In the first half, we’ve taken additional costs of £18m.

“But the business has responded well and managed the costs.”

He said the high cost of fuel would reverse substantially next year and Arriva had taken steps to deal with the slowing passenger growth on its CrossCountry rail franchise, which runs from Aberdeen to Penzance and Bournemouth to Manchester. The business, which employs more than 44,000 people worldwide, had already said passenger growth on the CrossCountry route needed to hit 10% to keep profitability at last year’s levels, because of a cut in Government support payments. However, it achieved only a 1.8% growth rate in the first half of the year.

Increased efficiencies and cost-cutting in areas such as catering and cleaning have been imposed. Arriva has also brought in its own buses to provide a replacement service when required for the route.

And Mr Martin is confident the franchise, which has increased capacity by 35% by adding 4,000 seats and refurbishing its trains, will be able to achieve the 10% growth rate as the country emerges from recession.

Although the UK Trains division’s operating profit fell to £10.4m from £14.8m and earnings dropped to £376.2m from 2008’s £415.5m, growth in the British bus wing continued. However, Mr Martin said Arriva would continue to focus on expanding its European public transport interests.

He said: “The strategy of Arriva is to establish itself in a variety of different companies in Europe which are opening up to the liberalisation of public transport.

“Mainland Europe accounts for almost half of group revenues today, but ultimately it will be the biggest area for growth.”