preliminary results 2008 annual results year ended 30 april 2008 25 june 2008

Preliminary Results 2008

Annual ResultsAnnual ResultsYear ended 30 April 2008Year ended 30 April 2008

25 June 2008 25 June 2008

2 Preliminary Results 2008

Definitions Like-for-like amounts are derived, on a constant currency basis, by comparing

the relevant year-to-date amount with the equivalent prior year period for those businesses and individual operating units that have been part of the Group throughout both periods.

Operating profit for a particular business unit or division within the Group refers to profit before net finance income/charges, taxation, intangible asset expenses, exceptional items and restructuring costs.

Operating margin for a particular business unit or division within the Group means operating profit as a percentage of revenue.

Exceptional items means items which individually or, if of a similar type, in aggregate need to be disclosed by virtue of their nature, size or incidence in order to allow a proper understanding of the underlying financial performance of the Group.

Net debt (or net funds) is the net of cash and borrowings as reported on the consolidated balance sheet, adjusted to exclude any accrued interest and deferred gains on derivatives.


Robert SpeirsRobert Speirs

ChairmanChairman


Highlights

Strong underlying revenue growth in all divisions

Positive environment for public transport

Increased investment in bus and rail services

Excellent return to shareholders

63.0p returned to shareholders in May/June 2007

Adjusted EPS up 73.5%

Full year dividend up 31.7%

Progressive dividend growth

Significant potential for further modal shift


Martin GriffithsMartin Griffiths

Finance DirectorFinance Director


Financial summary

* excluding exceptional items and intangible asset expenses

Revenue - continuing operations

Operating profit* - continuing operations

Adjusted earnings per ordinary share*

Basic earnings per ordinary share

Net (debt)/funds

Dividend per ordinary share

Year to 30 April 08

Year to 30 April 07

£1,763.6m

£205.3m

20.3p

34.6p

£(319.7)m

5.4p

£1,504.6m

£161.3m

11.7p

25.4p

£186.4m

4.1p

Change

17.2%

27.3%

73.5%

36.2%

n/a

31.7%

Dividend rebased up c.32%

Progressive dividend policy maintained


Summary income statement

UK Bus operating profit

North America operating profit excluding Megabus

Megabus North America operating loss

UK Rail operating profit

Share of joint ventures’ profit after tax

Restructuring costs and group overheads

Operating profit

Finance (charges)/income (net)

Tax

Profit excluding intangibles and exceptionals

Intangibles and exceptionals, net of tax

Reported profit from continuing operations

Year to 30 April 08

£m

Year to 30 April 07

£m

109.9

23.9

(2.9)

59.1

32.6

(17.3)

205.3

(30.9)

(28.3)

146.1

83.1

229.2

84.5

19.1

(1.0)

58.8

14.2

(14.3)

161.3

0.7

(37.8)

124.2

16.3

140.5

Change£m

25.4

4.8

(1.9)

0.3

18.4

(3.0)

44.0

(31.6)

9.5

21.9

66.8

88.7


UK Bus

Revenue and journeys benefiting from external drivers of public transport demand, marketing, competitive fares, concessionary travel schemes and continued fleet investment

Relatively stable year-on-year fuel costs

Full year effect of pension scheme changes

Further benefits from integrating 2005/6 acquisitions

Revenue (£m)

Like-for-like revenue (£m)

Total vehicle miles operated (m)

Operating profit (£m)

Operating margin (%)

Estimated like-for-like passenger journeys (m)

Year to 30 April 08

Year to 30 April 07

743.9

738.9

313.3

109.9

14.8%

635.1

690.4

687.5

311.9

84.5

12.2%

613.3

Change

7.7%

7.5%

0.4%

30.1%

2.6%

3.6%


North America (excluding Megabus)

10% margin target (excluding Megabus) achieved one year early

Like-for-like revenue up 4.6%, excluding GTAA contract

Reduced insurance and claims costs

Relatively stable year-on-year fuel costs

Revenue (US$m)

Like-for-like revenue (US$m)

Operating profit (US$m)

Operating margin

Year to 30 April 08

Year to 30 April 07

474.3

465.6

48.0

10.1%

458.9

451.3

36.6

7.9%

Change

3.4%

3.2%

31.1%

2.2%


Rail (wholly-owned)

Strong first full year of new South Western franchise

Manchester Metrolink from July 2007

East Midlands from November 2007 – revenue up 9.5%

Sheffield Supertram record passenger volumes

Revenue (£m)

Like-for-like revenue (£m)

Operating profit (£m)


Estimated passenger miles (m) – South Western

Year to 30 April 08

Year to 30 April 07

777.8

649.3

59.1

7.6%

3,228.7

571.5

571.5

58.8

10.3%

3,055.5

Change

36.1%

13.6%

0.5%

(2.7)%

5.7%


Virgin Rail Group

Re-negotiated West Coast franchise performing strongly Revenue share payable to Department for Transport Successful resolution of Network Rail open items December 2008 timetable

c.30% more services Consistently reliable infrastructure essential Challenging programme of infrastructure work Financial protection

Revenue – 49% share (£m)

- West Coast

- West Coast like-for-like

- CrossCountry

Operating profit – 49% share (£m)


Dividends received (£m)

Estimated like-for-like passenger miles (m) – West Coast

Year to 30 April 08

Year to 30 April 07

394.0

310.3

301.9

83.7

41.9

10.6%

30.5

2,525.2

412.5

271.5

271.5

141.0

12.4

3.0%

31.1

2,330.9

Change(4.5)%

14.3%

11.2%

(40.6)%

237.9%

7.6%

(1.9)%

8.3%


Miscellaneous income statement items

Citylink – divestment of certain services; OFT costs

Increased group overheads includes higher share based payment expenses

Restructuring costs include £3.6m in UK Rail Division

Exceptional gains include favourable resolution of historic tax issues

Citylink joint venture (£m)

Splash Tours joint venture (£m)

Intangible asset expenses (£m)

Group overheads (£m)

Restructuring costs (£m)

Post-tax exceptional items (£m)

Year to 30 April 08

Year to 30 April 07

0.8

(0.4)

(13.0)

(13.0)

(4.3)

113.9

0.9

(0.2)

(14.7)

(11.1)

(3.2)

160.9

Change

(11.1)%

(100.0)%

11.6%

(17.1)%

(34.4)%

(29.2)%


Finance (charges)/income and credit ratios

Net finance (charges)/income* (£m)

EBITDA from continuing operations and joint ventures* (£m)

Year-end net (debt)/funds (£m)

Net Debt/EBITDA*

EBITDA*/Interest*

Year to 30 April 08

Year to 30 April 07

(30.9)

271.9

(319.7)

1.2x

8.8x

0.7

229.6

186.4

n/a

n/a

Change

(31.6)

42.3

(506.1)

n/a

n/a

Efficient capital structure

Good credit ratios

* excluding exceptional items


Taxation

Excluding intangible asset expenses and exceptional items- Before joint ventures- Joint ventures

Intangible asset expensesExceptional items

Joint venture taxReported in income statement

Cash tax received (net)

Pre-taxProfit*

£mTax*£m

141.8 46.3

188.1(13.0)

5.9181.0(13.7)167.3

(28.3)(13.7)(42.0)

2.188.148.213.761.9

57.6

Rate%

20.0%29.6%22.3%16.2%

n/a n/a n/a n/a

Year to 30 April 2008

* Excludes discontinued operations


Divisional income statementsYear ended 30 April 2008

Revenue

Rail franchise support

Other operating income

Staff costs

Fuel costs (i.e. diesel)

Insurance and claims costs

Depreciation

Rolling stock costs – lease & maintenance

Other operating leases

Network Rail/Electricity for trains

Material & consumables

Other costs

Operating profit

UK Bus £m

North America

£m

743.9

-

13.9

(382.1)

(81.6)

(29.4)

(47.6)

-

(6.7)

-

(32.8)

(67.7)

109.9

241.9

-

3.1

(106.3)

(25.1)

(17.8)

(16.9)

-

(3.9)

-

(18.2)

(35.8)

21.0

UK Rail£m

777.8

78.2

48.4

(225.1)

(16.2)

(3.5)

(2.1)

(151.2)

(3.6)

(282.6)

(22.8)

(138.2)

59.1

VRG£m

803.9

283.4

62.1

(164.8)

(26.1)

(5.1)

(1.0)

(254.5)

-

(456.9)

-

(155.6)

85.4


EBITDA from Group companies before exceptionals Dividends from joint venturesMovement in retirement benefitsWorking capital and other operating cash movementsNet interest paidTax receivedNet cash from operating activitiesNet capital expenditure including new hire purchase & finance leasesCash outflow in respect of inception of rail franchiseAcquisitions of businesses, intangibles and investmentsDisposals of businesses and investmentsMovement in loans to joint venturesToken sales and redemptionsForeign exchange/otherReduction in net debt before cash flows with shareholdersEquity dividendsReturn of valueOther share capital movementsIncrease in net debtOpening net fundsClosing net debt

30 April2008£m

239.331.6

(69.0)89.7

(24.2)57.6

325.0(99.5)

(0.5)(9.7)3.6

(0.3)(1.6)(2.5)

214.5(30.0)

(693.0)2.4

(506.1)186.4

(319.7)

Movement in net debt


55.87.6--

63.4

73.624.710.2

0.2108.7

(8.1)(1.0)

-(0.1)(9.2)

65.523.710.2

0.199.5

17.817.110.2

0.245.3

Capital expenditure

UK BusNorth AmericaUK RailGroup

New hire purchase/

financeleases*

£m

Impact ofcapex onnet debt

£m

Disposalproceeds**

£m

Net2007/8Actual

£m

Cash spent on capex*

£m

* Excludes capitalised intangible assets and business combinations

** Excludes proceeds from selling businesses

100.322.363.1

-185.7

Net2008/9Budget

£m


Liquidity

£448.9m undrawn committed bank facilities at 30 April 2008

available for immediate cash drawings

Over £50m of surplus cash at 30 April 2008

Investment grade credit rating

Next significant debt maturity – US$334m bonds, November 2009

Comfortably within covenant levels


Fuel Hedging

2007/8 - average effective price (per litre)

2008/9 - % of forecast consumption hedged

- average hedge price (per litre)





Market price (per litre)

UK BusNorth

America

26.5p

94.4%

33.6p

50.1%

53.8p

-

n/a

56.3p

56.3 cents

75.9%

61.5 cents

50.6%

96.3 cents

-

n/a

101.2 cents

UK Rail

30.7p

76.0%

31.6p

76.0%

31.6p

76.0%

31.6p

55.4p

Market prices are as at 17 June 2008

Prices exclude premia payable on fuel caps, delivery margins, duty, taxes and Bus Services Operators Grant


(150.1)

68.5

(81.6)

(25.1)

(5.3)

(112.0)

-

(10.9)

(122.9)

(168.0)

72.1

(95.9)

(34.6)

(8.6)

(139.1)

-

(22.5)

(161.6)

(201.9)

72.1

(129.8)

(43.6)

(8.7)

(182.1)

-

(22.7)

(204.8)

Fuel costsLatest forecasts

UK Bus, excluding BSOG*

UK Bus, BSOG*

UK Bus, including BSOG*

North America

South Western Trains

London Bus

East Midlands Trains

Total

2007/08Actual

£m

2008/09Forecast

£m

2009/10Forecast

£m

Fuel costs

(145.4)

65.9

(79.5)

(25.5)

(4.3)

(109.3)

(6.1)

-

(115.4)

2006/07Actual

£m

Market prices are as at 17 June 2008, when Brent Crude was $134 per barrel

Above costs include delivery margins, duty and taxes

* Bus Services Operators Grant (“BSOG”) represents a rebate of an element of fuel duty costs in respect of certain UK Bus Services

189.9

-

189.9

74.8

13.1

277.8

-

50.5

328.3

2008/9ForecastLitres m

Volumes


Brian SouterBrian SouterChief ExecutiveChief Executive

New OpportunitiesNew Opportunities


Source: Association of Train Operating Companies

Dynamic of a changing marketThe Rail “U” CurveRail Passenger Miles and Journeys since 1946

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

1946 1956 1966 1976 1986 1996 2006

0

500

1,000

1,500

2,000

2,500

3,000

Passenger miles (LHS)

Passenger journeys (RHS)


Bus Passenger Journeys in the UK, 1950 - 2006/07

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

1950

1957

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

/88

1990

/91

1993

/94

1996

/97

1999

/00

2002

/03

2005

/06

Year

Bu

s p

asse

ng

er jo

urn

eys

Source: Departmentfor Transport

Dynamic of a changing marketThe Bus Graph


Changing consumer behaviour

Stagecoach survey of more than 4,000 people in the UK found:– 64% see the environment as a high priority– 47% use the car less than before– 36% use the bus more than previously– 19% make more use of the train


Modal shift 10% of respondents said they had changed their transport

mode in the last 3 years Reasons cited for modal shift include:

– 20% health reasons

– 12% environmental considerations

– 10% availability of free bus pass

AND…

32% said they would pay more for environmentally friendly public transport


“Green partnerships”

Recycling 92% Very important

Reducing energy use at home 88% Very important

Reducing water use 85% Very important

Buying locally produced food 80% Very important

Using a car less 61% Very important

Flying less 55% Very important

Public transport should partner with organisations that share a common interest in ‘greener’ lifestyles

Stagecoach Group survey: In order of importance, how would you rate the following behaviours?


UK Rail Recent economic trends are challenging

– GDP growth forecasts now 1.7%* v 2.5-2.9% when bidding– Latest Central London Employment: now 0.7%** decline v 1.4%

growth when bidding

BUT… Still strong passenger revenue growth

– Modal shift driven by fuel prices, environmental concerns, rising road congestion

– Improved train service– Revenue initiatives

• Gating• Timetable step-up• Capacity increases• Pricing

* Source: Average independent forecasts for UK GDP growth in 2008 as published by HM Treasury on 18 June 2008.

** Source: April 2008 v April 2007 as supplied by Oxford Economic Forecasting (OEF)


UK Bus

Higher than industry-average growth– Strong operational delivery and customer service– Record investment in greener, accessible fleet– Product development – Competitive pricing strategy – Market-leading telemarketing programme – Excellent stakeholder partnerships


UK Bus (cont’d) Robust and predictable business model

– Flexible to market/economic conditions– Pricing headroom– Cash generative

Strong provincial bus network– Organic growth– “Railway” characteristics– National concession scheme from 1 April 2008


North America

Complementary business mix Weaker dollar positive for sightseeing business High fuel prices driving modal shift Megabus creating a new market for inter city coach

services Continued cost control; further margin improvement

delivered


Current trading and outlook

Strong start to new financial year Current trading in line with our expectations Outlook for the sector and the Group good Monitoring economic and energy price developments Continued focus on organic growth and bolt-on

acquisitions Good potential for further growth in revenue, earnings

and dividends



25 June 2008 25 June 2008


Appendices


Scheduled service/line run/commuterCharterSightseeing & tourSchool bus & contractLike-for-like revenue (excluding Megabus)Closed operations and Canada fxTotal North America (excluding Megabus)MegabusTotal North America

Year to 30 April

2008US$m

Year to30 April 2007

US$m

198.088.988.989.8

465.68.7

474.311.3

485.6

188.587.984.190.8

451.37.6

458.94.7

463.6

% Growth

5.0%1.1%5.7%

(1.1)%*3.2%

14.5%3.4%

140.4%4.7%

North America revenue breakdown

* Includes impact of loss of contract work at Toronto airport


Rail subsidy/(premium) profiles

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

South Western

£m

East Midlands

£m

63.1

21.1

(42.2)

(93.6)

(157.1)

(231.3)

(299.2)

(363.6)

(435.2)

(431.7)

35.7

64.9

36.8

0.2

(44.7)

(78.6)

(99.9)

(157.5)

n/a

n/a

West Coast£m

270.0

291.6

265.2

229.6

197.4

n/a

n/a

n/a

n/a

n/a

Year to 31 March:

The above amounts are subject to adjustment for: (1) various inflation measure (2) risks borne by the Department for Transport (3) called options and (4) changes in Regulated Network Rail charges. The amounts shown above are based on estimated inflation and options called to date but exclude “pass through” adjustment re Network Rail charges.


Rail subsidy/(premium)Year ended 30 April 2008

Subsidy per previous slide

“Pass through” of Network Rail charges

Other adjustments

Year to 30 April 2008 reported in results

South Western

£m

East Midlands

£m

63.1

(39.5)

(4.6)

19.0

35.7

21.0

2.5

59.2

Total£m

98.8

(18.5)

(2.1)

78.2


Exchange rates

US$C$

Closing rate Average rate

1.99992.2102

1.91032.1738

April 2007

Closing rate Average rate

1.98061.9947

2.00722.0525

April 2008



25 June 2008 25 June 2008

preliminary results 2008 annual results year ended 30 april 2008 25 june 2008

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