National Express, which runs the One, C2C, Central Trains, Gatwick Express, Silverlink and Midland Mainline franchises, said its efforts to win new contracts are well advanced.

The group said half year operating profits from its UK rail operations fell 26 pct to 20 mln stg in the six months to June 30 following its loss of the Great Northern and Wessex Trains franchises to rival FirstGroup PLC.

It also said growth in its One franchise in East Anglia had been below the industry norm and that it was facing a potential 50-60 percent rise in electricity costs for running trains in 2007/8.

New chief executive Richard Bowker said the group was 'very excited' about being shortlisted for the new East Midlands and Cross Country franchises and would submit a bid for the new North London Railway concession next month.

'There's nothing that's going to put us off bidding for new franchises,' Bowker told journalists in a conference call.

Bowker, the former head of the Strategic Rail Authority, took over as chief executive of National Express earlier this month, replacing Phil White who retired from the board in May.

He said he would review the group's operations and would be open to further acquisitions overseas if they enhance shareholder value.

'The key priority for me will be to look around the group to see what's doing well and what isn't,' he said.

'There are possibilities emerging in Europe and that market is opening up, but I don't want to prejudge what our position on that will be at the moment.'

The former head of rival train operator Great North Eastern Railway, Chris Garnett, said earlier this week that the government's policy of demanding large premium payments from new franchisees was squeezing their margins to unsustainable levels and preventing greater investment in the industry.

Bowker said he believed the industry was getting 'very significant investment', but warned that it needs to increase capacity to deal with growing passenger numbers.

National Express said group pretax profit in the six months to June 30 rose to £67.2 million sterling from £58.1 million sterling last time on a 16.2 percent rise in revenues to £1.25 billion sterling.

It said the rise, above one analyst's expectations of £65 million sterling, was due in large part to a particularly good outcome from its overseas operations in the US.

The UK train division increased overall passenger numbers by 4 percent and its Midland Mainline unit, which has introduced a simplified system for selling advance-booked tickets, grew passenger numbers by 7 percent.

However, the group said One, which runs regional trains in eastern England and intercity services from London to Norwich, experienced some revenue weakness on certain routes including the Stansted Express, which took longer than expected to recover from last year's London terrorist attacks.

Finance director Adam Walker said One had grown at about 6.5 -7 percent during the first half, compared to growth of about 8 percent experienced by other operators in London and the south east.

Walker also said rail infrastructure provider Network Rail had forecast substantial increases in power charges and there had been industry speculation that they could be as high as 50-60 pct.

National Express, which faced a £15 -16 million sterling bill for rail electricity in the first half, was leading industry efforts to find ways to reduce the impact on operators and to avoid increasing fares, he said.

'We're desperately trying to avoid putting fares up because that would deter demand for the railways,' he said.
'We're confident we can find ways of mitigating the cost increases.'

National Express said it was fully hedged against rises in oil costs for the remainder of this year and 2007. It said the year-on-year impact on its UK divisions of fuel price rises would be 7.6 million sterling.

The group said its UK bus division, which runs buses in London, Birmingham and Dundee, had won extra contracts in London and had achieved improved passenger satisfaction levels in the West Midlands.

Divisional revenue for the period was £147.5 million sterling against £127 million sterling beforehand with operating profit of £19 million sterling against £18.2 million sterling previously.

The coach division, which runs National Express in the UK and Eurolines on the continent, lifted operating profits by 29.3 percent to £5.3 million sterling from 4.1 mln previously, with good growth on city-to-city routes including services between London and Bristol, Cardiff and Brighton.

National Express said its overseas operations had performed particularly well, with North American operating profits rising to £26.6 million sterling from £22.6 million sterling previously.

The group said it had also seen a good first six months in its recently acquired Spanish division Alsa, where operating profits were £18.1 million sterling on revenues of £117.1 million sterling.

It said pretax profits fell to £5.5 million sterling against £39.5 million as a result of increased intangible amortisation charges and an onerous contract provision relating to its interest in high speed train operator Eurostar.

It increased the interim dividend by 7.5 pct to 10.75 pence.

The market consensus provided by the company for full year profits is 143-144 mln stg.

Broker Dresdner Kleinwort said the results were 3.5 pct above its expectations at the earnings per share level, driven by better than expected performance in the US and Spain.

It said the UK rail performance was in line with expectations and the key issue was now the renewal of the Central, Silverlink and MML franchises next year.

See also:

National Express chief rejects fears over franchise premiums

Independent Online: 29 September 2006 By Michael Harrison, Business Editor

Richard Bowker, the new chief executive of National Express, dismissed fears yesterday that rail operators could find themselves in financial difficulties by overpaying for passenger train franchises.

Mr Bowker, who took over at the bus, coach and rail group this month, rejected the claims made by the former chief executive of GNER, Christopher Garnett, that the premiums being paid for franchises threatened to make them unsustainable.

"I rather discount comments from people who have not done terribly well," Mr Bowker said. "Christopher's views are for him. I am quite confident in the business and the market generally."

He said National Express, which is in the running for the new East Midlands, Cross Country and London Rail franchises, would put forward "good competitive bids".

Mr Bowker was speaking as the group reported an 86 per cent decline in first-half pre-tax profits to £5.5m after taking a one-off charge of £25.7m to cover National Express's share of losses on Eurostar, the London-Paris-Brussels rail service, over the next four years. National Express has a 40 per cent stake in Eurostar.

However, underlying operating profits for the period rose 25 per cent to £84m, boosted by an £18m contribution from Alsa, the Spanish long-distance coach operator which National Express bought last year, and improved profits from its US bus and coach business.

These more than offset a £7m decline in profits from the group's train division, which lost the Wessex and Great Northern franchises during the period. National Express's biggest rail franchise One, which includes the Stansted Express, also reported weak revenues after taking longer than expected to recover from the London bombings in July last year.

Mr Bowker said there were opportunities for further growth in Spain and the US, either through acquisitions or winning new contracts. Adam Walker, the finance director, said the group had the headroom to borrow a hundreds of millions of pounds to fund takeovers but said any deals in the US were most likely to be small "bolt-on" acquisitions.

Fuel costs were £7.6m higher in the first half and the group expects a similar increase in the second six months. Its rail businesses are also facing significant increases in electricity charges.

National Express is leading an industry group looking at ways of reducing costs, for instance by harnessing the heat generated when trains brake and turning it back into electricity.