National Express en route to recovery from East Coast loss

BUS and coach operator National Express flagged the return of its dividend yesterday in a further sign it has turned the corner after a turbulent couple of years.

The firm, which posted a 36 per cent rise in half-year underlying profits to 75.7 million, boosted margins in all but one of its divisions following a major efficiency drive under new chief executive Dean Finch.

The former Tube Lines boss joined the business five months ago in the wake of a disastrous period for the company's rail arm after it was forced to return its loss-making East Coast franchise back to the UK government in November.

At this stage last year, the East Coast deal sent the firm plunging into the red with a 48.1m bottom-line loss.

On the same measure, it made a profit of 24.5m this time and said that it would resume dividend payments after a gap of more than a year if the current trading performance is maintained.

Finch said: "There remains much to do to deliver sustained business improvement across the group; however, we are pleased with our initial progress."

In the group's bus business - which operates in Dundee and the West Midlands - National Express is cutting driver wage costs and running routes more efficiently to save fuel costs.

Margins improved to 8.6 per cent from 6.8 per cent, helping to limit a fall in operating profits to 10.9m, from 11.2m, after revenues dropped sharply due to the sale of its Travel London business.

Underlying revenues in the West Midlands reduced by 1 per cent as passenger volume growth was offset by a 5 per cent reduction in operating mileage.

Following the return of the East Coast service, National Express said its two remaining franchises - East Anglia and c2c - performed well in the first half as rail profits improved to 16.1m from 2.5m.

Better central London employment and the impact of construction activity on the Olympic sites have benefited the franchises, which were recently extended while the government carries out a review of the system.

The UK coach division, which includes its partnership with Eurolines, saw profits slip by 300,000 from last year's record of 10.6m.

"Pricing is fiercely competitive, not least with advance booked rail tickets," the company said.

An overhaul of the US business, which runs school buses, has also earmarked more than $40m (25.6m) of annual savings by 2011. Operating profits increased 26 per cent to 31m.

Shares in National Express closed down 2.5 per cent or 6.1p at 236.8p.

Finch said: "We have secured growth opportunities in which we will selectively invest in the second half of the year.

"We expect trading to remain resilient in the next six months and we look to the future with confidence."