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Arriva: 2005 results
Transport company Arriva reported a slight decline in operating profits for the year to December 2005 as a strong performance in continental Europe was offset by a sharp decline in earnings from UK rail services.
Operating profits for the year reached £123.1m compared to £126.3m last year. Operating profits in UK Trains dropped to £14.9m (before intangible asset amortisation) from £31.9m the previous year following the loss of the Northern franchise that ceased in December 2004. The company’s remaining franchise runs until 2018.
The company’s largest business, UK buses reported an operating profit of £68m before exceptional items, up slightly from the £63.6m reported last year. Profit growth was held back by increases in fuel costs of ‘more than £6m’. The company has booked its entire fuel requirements for 2006 – which will result in additional costs of £14m for UK buses this year.
The company’s strongest performance was in mainland Europe where, helped by more liberal pricing arrangement, operating profits zoomed by 37% to £48m (before goodwill impairment, intangible asset amortisation and exceptional items). Acquisitions added £2m to operating profits but the largest increase was due to fare increases (indexation on some contracts and state-approved fare increases on others) which limited the impact of rising fuel costs.
The company’s expansion strategy is focused on continental Europe, where it hopes to become the largest transport services organisation. Growth is expected to be fuelled by acquisitions and expansion of the franchise base. The main risk to earnings comes from rising fuel costs.
The share trades at 608p, on a prospective PE (2006 earnings) of 14.4x, at the upper end of the sector range with a yield of 3.4%.
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