National Express chief rejects fears over franchise premiums

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.