ARRIVA today said UK rail profits slumped 64% as expectations for passenger revenues growth on its CrossCountry franchise proved too optimistic.
The division, which also includes Arriva Trains Wales, made an operating profit of £12.1 million, down from £33.7 million a year earlier.
A weak spring and flat summer meant CrossCountry revenues were up 2.6% to £328 million in 2009, compared with a figure of £371 million anticipated in its 2007 franchise bid.
In the face of declining franchise support payments, the company warned early last year that it would need around 10% passenger revenues growth from CrossCountry in order to maintain the profitability seen in UK trains.
Revenues have improved 8.8% in the first seven weeks of 2010, but Arriva said the performance is still short of the levels anticipated when it bid for the franchise, which covers 1,400 miles and calls at more than 100 stations between Aberdeen and Penzance, Bournemouth and Manchester and Cardiff and Stansted.
Revenue support measures from the Department for Transport do not kick in until 2011.
Arriva said its UK bus division delivered a good performance as cost controls helped it offset a £30 million rise in its fuel bill. Operating profits in UK bus were £91.2 million, against £99.3 million a year earlier.
Across the group, which has a sizeable transport business in mainland Europe, pre-tax profits fell 19% to £121.7 million in 2009.
Chief executive David Martin said the company had come through a challenging year with ``resilient earnings'', helped by improved efficiency.
He added: "Trading is healthy in most mainland European countries, our UK bus business is showing continuing strength, and the acceleration of passenger revenue growth in our UK rail franchises is encouraging."
Mr Martin said the board’s confidence in prospects was demonstrated by a 5% increase in Arriva’s dividend for the year. Shares rose 4% today.
Investec Securities analyst Joe Thomas said the full-year results were in line with expectations, while recent trading appeared reasonable.
However he has a sell rating on the stock due to uncertainty about the impact of post-election spending cuts on the UK bus arm, while Mr Thomas also has continuing reservations about the performance of the European business.
Arriva recently revealed it was in talks with France’s national rail operator SNCF over a merger which could create a new £6 billion European giant.
The company said in January it had held "very preliminary" talks over a potential tie-up with "all or part" of Keolis, which is 44.5% owned by SNCF.
Keolis employs 40,000 staff with operations in Europe, Algeria, Australia and Canada. It has the largest bus and coach fleet in France, where Arriva currently has no presence.