The transport operator, which recently won the Greater Western and Thameslink/Great Northern franchises, said trading for the current year had started well and was in line with expectations.

Moir Lockhead, chief executive, pledged to maintain the company's annual 10 per cent dividend increase as he revealed the two new franchises would provide an additional £1bn in annual revenue.

In the year to March 31, FirstGroup lifted pre-tax profit from £155.7m to £157.4m, including £28.5m of bidding costs, while fuel costs increased by £31m to £170m.

The company, which also runs the Croydon Tramlink, has 38 per cent of its UK fuel needs hedged at $59 (£31) a barrel and about a third of its US fuel requirements hedged at $35 this year.

The UK rail division lifted sales by 10 per cent to £1bn and operating profit jumped 23 per cent to £80m on stronger passenger volumes, more efficient fare collection and some fare increases of 3 to 4 per cent.

John Lawson, analyst at Investec, said: "These are a very strong set of results. FirstGroup may or may not achieve this year's numbers again due to the adverse fuel trend." Investec forecasts pre-tax profit of £171m for 2006.

Group turnover rose to £3bn (£2.7bn).

Earnings per share increased to 27.4p (27.1p). The dividend is 14.1p (12.815p) and the shares rose 1⁄2p to 4021⁄2p yesterday.

FT Comment

* FirstGroup is a company doing well in less than perfect circumstances. Existing UK rail franchises have been lifted by higher passenger numbers and the two new franchises wins boost earnings visibility. The company really does not need another large franchise. Soaring fuel prices have hurt the UK bus division and a lack of hedging for 2007 will not help but, stripping out fuel, this is a growth business. Analysts' consensus puts its shares on a forward p/e of 13, bang in line with the sector - hold.