RAIL and bus operator Arriva said it is well-positioned for expansion in 2005 thanks to a strong performance this year.

Each division of the company, which is based in Sunderland, traded in line with, or ahead of, expectations since half-year results were announced in September.

The performance places the company in a good position to benefit from internal growth and acquisitions next year, it said. Arriva highlighted the changing transport market in Europe, where rail and bus services are increasingly being contracted out, as offering significant opportunities.

The company runs buses and trains in several member states of the European Union, including Denmark, Germany, Italy, the Netherlands and Portugal.

In October, it announced the purchase from the German state of Bavaria of a 76.9 per cent stake in regional rail passenger operator Regentalbahn for £43.4m. It has since acquired a further 12.9 per cent of Regentalbahn from minority shareholders.

Arriva said its full-year results in the UK to December 31 would include the benefit of the eight-week extension of the Arriva Trains Northern franchise to December 12.

The group, which has lost the franchise to a consortium of Serco and Dutch state railways, continued to run the contract while rail bosses worked to resolve delays in the handover to the new operator.

The company runs Arriva Trains Wales and buses in areas including Derby, Durham, Essex and Hertfordshire, Kent, Leicester, London and the North-West.

Chief executive Bob Davies said the group's upbeat performance would allow it to maintain its progressive dividend policy.

He said: "With the strong performance in 2004, we are well-positioned to continue to deliver shareholder value through organic growth and targeted acquisitions."

In September, Arriva reported a 7.3 per cent rise in half-year operating profits to £60.1m. The group's next acquisitions are expected to be in Scandanavia, where it began its European expansion.

Arriva has been examining the Swedish transport market, where a price war that made transport unprofitable is coming to an end.

It already operates bus services in Copenhagen, Denmark, and six train lines in Jutland, Denmark. Opportunities are also expected to arise in Norway next year.