National Express's push into the Spanish coaches market helped to boost profits last year, although the loss of two rail franchises dragged on performance, it revealed today.

The transport group reported pre-tax profits up 17 per cent to £104.1 million in the year to December 31, helped by the first full-year contribution from Alsa, the Madrid-based long-distance coaches business it bought for £461 million in 2005.

The contribution to profits from Alsa rose to £44.3 million, from £2.6 million in the previous year. Profits in the group's rail business fell from £64.2 million to £49.1 million, largely because of the transfer of its Great Northern and Wessex franchises early last year.

The coaches and trains operator today reiterated its commitment to growing by acquisition, after a review of its business by Richard Bowker, its new chief executive.

The company, which runs the UK's largest long-distance coach service and a string of rail franchises, said it was "actively seeking" deals and had a number of potential opportunities under consideration.

"We do have a few things under development but I don't think it would be appropriate to comment on that at the moment," Mr Bowker said.

The group said it was looking to do deals both in the UK and overseas as part of its expansion strategy.

Mr Bowker, a former Virgin Trains executive and former head of the Strategic Rail Authority, also reiterated the importance of rail to the group. National Express runs seven rail franchises including Midland Mainline, Central Trains and C2C. However Midland Mainline and Central Trains look set to be replaced by a new East Midlands franchise, its Silverlink franchise will be split up and the Department for Transport is considering plans to axe its Gatwick Express service.

The group is shortlisted for three long-distance franchises due to be awarded this year, including the East Midlands franchise. City analysts see the group's success in winning new franchises from the Department for Transport as crucial to its rail strategy.

David Ross, chairman, said: "We have prequalified for the InterCity East Coast franchise, have recently submitted our bid for the East Midlands franchise and will be submitting our New Cross Country bid shortly.

"We believe we can do more in 2007 and beyond by offering new services, putting our customers and stakeholders at the forefront of everything we do and bringing an even greater focus to sales and marketing," he said.

The group said passenger numbers increased 4 per cent in its coaches business and 6 per cent in its trains business.

However, the group said it would not be resuming its suspended £100 million share buyback programme. "We think the right thing to do for the future is to keep all options relating to our capital structure open," Mr Bowker said.

Alastair Gunn, an analyst at Arbuthnot, told clients: "This may reflect the uncertain outlook for the rail portfolio, with the pending loss of three franchises and the group shortlisted to bid for three franchises." He said he would expect a "more significant" review of the group's capital structure once the new franchises had been awarded.

Andrew Fitchie, an analyst at Collins Stewart, said the results from its UK rail and Alsa divisions were both ahead of expectations.

The shares were trading up 19p at £11.18 by 9.30am.

You can track National Express shares here.

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