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Go-Ahead to Double U.S. Bus Fleet; Cautious on U.K.

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Sept. 2 (Bloomberg) -- Go-Ahead Group Plc, the biggest operator of London buses, may double the size of its U.S. school-bus venture following a positive start to the project last month, Chief Financial Officer Nick Swift said today.

The business, run in conjunction with U.S. partner Cook-Illinois, operates about 120 yellow buses in St. Louis, Missouri, and that number is likely to rise to as many as 300 vehicles in 2011, Swift said in a telephone interview.

“It’s the potential we’re encouraged by,” the executive said. “It’s a nice low risk start up and a nice-sized contract, so if we could get to two or three hundred buses next year, terrific. We can gradually build it that way.”

Go-Ahead is diversifying its operations to reduce reliance on the U.K., where the bus and train company said it’s still cautious about the outlook because of economic uncertainties. Still, concern about the impact of government spending cuts on the business is probably “slightly overblown,” Swift said.

Go-Ahead rose as much as 6.1 percent to 1,154 pence and was trading up 6 percent as of 11:34 a.m. in London, paring the stock’s decline this year to 14 percent.

Net Jumps

Net income almost trebled to 17.2 million pounds ($26 million) in the 12 months ended July 3, from 6.3 million pounds a year earlier, the Newcastle upon Tyne, England-based company said in a statement. Sales fell 1 percent to 2.2 billion pounds.

The shares advanced because Go-Ahead’s operating profit before one-time items of 102 million pounds was better than expected, said Gert Zonneveld, an analyst at Panmure Gordon in London with a “hold” rating on the stock.

Demand from commuters and shoppers on Britain’s only high-speed rail route, which runs from north Kent to London, is being stymied by delays to housing and retail projects, contributing to state-support claims for the Southeastern franchise that will last until 2014, Swift said.

Go-Ahead reiterated its outlook for the current fiscal year, which envisages that in the bus business lower fuel costs and contributions from acquisitions will partially offset lower profit margins in London, while rail margins will also narrow.

Britain’s new transport minister, Philip Hammond, seems keen to allow rail companies to operate with less interference than did the previous administration, the CFO said. He also welcomed the government’s proposed extensions to train franchises as likely to boost investment and profitability.

To contact the reporter on this story: Steven Rothwell in London at srothwell@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net;

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