Unveiling a robust set of annual results, he reassured investors that the Aberdeen-based rail and bus operator is not about to lose its franchise north of the border.

"The Scottish Executive has no plans to take back ScotRail," he told a press conference in London. "We have a seven-year contract (to 2011) and Network Rail's focus has to be on improving its own performance. We have delivered in Scotland after a very difficult start. Stories that Network Rail will take over Scot-Rail are all froth."

Lockhead was commenting in the wake of The Herald's revelation a month ago that privatisation on Scotland's railways could end within four years with one not-for-profit firm running tracks, stations and trains. Executives at Network Rail, the quasi-public concern that runs rail infrastructure, have discussed operating passenger services as well.

FirstGroup stressed yesterday that ScotRail's performance had continued to improve, adding that the network is now "regularly running services at more than 90% punctuality".

FirstGroup reported an 11% rise in underlying profit for the year to March 31, to £195.8m, despite absorbing £37.1m in increased fuel costs. Revenues climbed from £3bn in 2006 to £3.7bn.

The company's UK rail business drove the increase after "good growth" in passenger volumes and the first full-year contribution of its enlarged First Great Western and First Capital Connect franchises. Sales in the rail division improved by 56.6% to £1.82bn, while operating profits lifted by 36.7% to £108.8m.

Bus operating profits were hit by the lion's share of the fuel cost increase, some £28.2m, but the figure climbed 5% on 2006 to £103m, boosted by concessionary fare initiatives. FirstGroup is the largest bus operator in the UK with a market share of around 23%.

FirstGroup's North America division, which currently runs about 22,000 yellow school buses, was hit by the weak dollar and rising fuel costs, and operating profit remained broadly flat at £68.2m.

Total profit before tax fell to £140.2m from £157.4m, which First said reflected higher one-off costs largely relating to rail franchise mobilisation and lower property results.

FirstGroup is awaiting approval from US competition watchdogs for its £1.9bn takeover of American transport giant Laidlaw, which will see FirstGroup operate 63,000 out of the 450,000 school buses in the US. Lockhead declined to forecast when the deal will be completed, but stated: "We are told by our advisers that the progress of the deal is where it was ex- pected to be at this stage."

Lockhead also declined to be drawn on whether FirstGroup will sell off Laid- law's iconic Greyhound bus division.

"We have not really given any thought to that. We have not begun a review of that business but it looks good. It's a very profitable business and it's in good shape."

FirstGroup is in the running for three further franchises: East Midlands, New Cross Country and the East Coast mainline service currently operated by GNER.

Lockhead denied a weekend report that the Department for Transport has undermined his ambition to create a UK-wide rail network by dropping FirstGroup from a list of bidders for the £300m Cross Country franchise. "We are still in the running for Cross Country. I don't know where that came from," he said.

FirstGroup declared a 10% dividend rise for the third year in a row, to 15.5p. Lockhead said trading in the new financial year "has started well and is in line with our expectations".

The shares lost 2.5p to 679p.