Amid tougher economic conditions, Arriva served up a downbeat assessment about prospects for UK rail passenger growth. What's more, management says that there will be an increase in fuel costs during 2009, and that pressure won't begin to ease until 2010.
Operationally, however, 2008 was a reasonably good year for Arriva with the UK bus operation - the group's core business - having increased operating profit by 13 per cent to £99m. In continental Europe, which comprises both bus and train operations, profit rose 22 per cent to £78.5m. Meanwhile, UK train passenger profits reached £33.7m, up from £7.5m a year earlier, as the group benefited from the contribution of its new CrossCountry franchise.
However, the rail division remains the focus of concern as CrossCountry needs annual passenger sales growth of around 10 per cent to maintain profits. It achieved 11.2 per cent growth in 2008, but the fourth quarter saw a slowdown which has continued into this year. The Arriva Wales train service is slightly less vulnerable to economic conditions because of greater subsidies. Additionally, the company's policy of hedging fuel use 12 months in advance will mean higher fuel costs of £60m in 2009, despite lower spot rates. Better priced contracts will see this fall back by £30m for 2010.
Like all rail operators, Arriva is sensitive to the ticket pricing formula - retail price inflation (RPI) plus 1 per cent - that's used to determine price rises of regulated fares. Chief executive David Martin said he would know by the middle of the year whether fares will or won't be frozen. Mr Martin said that about half of CrossCountry's revenues would be affected if there was a freeze, although the group has the discretion to raise the price of non-regulated fares. He added that Arriva's operational problems in the Netherlands, after a series of strikes, cost it around €5m (£4.5m), but there's now an agreement in place.
Broker Investec expects pre-tax profits of £142m for 2009 (£157m in 2008), with EPS of 51.9p (58.2p in 2008).
ARRIVA (ARI) | ||||
|---|---|---|---|---|
| ORD PRICE: | 431p | MARKET VALUE: | £856m | |
| TOUCH: | 430-431p | 12-MONTH HIGH: | 839p | LOW: 404p |
| DIVIDEND YIELD: | 5.6% | PE RATIO: | 8 | |
| NET ASSET VALUE: | 344p* | NET DEBT: | 115% | |
| Year to 31 Dec | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2004 | 1.76 | 109 | 42.6 | 18.90 |
| 2005 | 1.57 | 103 | 42.2 | 19.84 |
| 2006 | 1.73 | 110 | 41.6 | 20.83 |
| 2007 | 2.00 | 116 | 43.5 | 22.65 |
| 2008 | 3.04 | 150 | 52.6 | 24.06 |
| % change | +52 | +29 | +21 | +6 |
Ex-div: 25 Mar Payment: 1 May *Includes intangible assets of £586m, or 295p a share | ||||
