Arriva is anticipating higher fuel bills next year

Fuel costs at Arriva's UK bus business will rise by �14m in 2006, despite it taking steps to limit future bills.

However, Arriva said higher oil prices could benefit the firm by persuading more people to use public transport.

The firm reported a dip in half-year sales and profits, caused partly by the end of one of its UK train franchises.

Franchise loss

In the six months to 30 June, pre-tax profits fell to �50.3m from �51.4m for the same period last year.

Its financial performance was hindered by the loss of its Northern rail franchise last year.

In the short term, increased fuel prices are an issue for the group, especially in the UK Sir Richard Broadbent, Arriva chairman Check Arriva's share price

This contributed to a sharp fall in operating profits from UK train operations, which slipped from �14.6m to �8.4m.

Profits from Arriva's UK bus operations rose �1m to �30m, even though the firm incurred �3m in extra fuel costs.

Arriva said it had been successful in offsetting the higher fuel prices by controlling costs and growing its business.

It has hedged its 2006 fuel costs by buying most of its fuel in advance at an agreed price, shielding it from further price rises.

European growth

Arriva's mainland European businesses enjoyed strong growth over the period, with operating profits rising from �14.9m to �21.5m.

Contracts were won to operate bus services in the Netherlands and Sweden, while Arriva also made acquisitions in Italy and Germany.

It is now the largest private bus operator in Denmark, Italy and the Netherlands, and sees further chances for growth as European governments continue to deregulate their transport systems.

"In the short term, increased fuel prices are an issue for the group, especially in the UK," said chairman Sir Richard Broadbent.

"However we believe that, in the medium term, higher fuel prices are likely to reinforce government policies facing public transport and stimulate customer demand."