28th Jun 2006 07:02
Stagecoach Group PLC28 June 2006 28 June 2006 Stagecoach Group plc - Preliminary results for the year ended 30 April 2006 Business Highlights • Strong operational and financial performance across the Group o Fourth year of successive earnings growth o Dividend increased by 12.1% • Innovation driving growth at UK Bus o 2.1% like for like passenger volume growth excluding London and megabus.com o Acquisition of bus operations in Merseyside, Yorkshire, Lincolnshire and Tayside o Named UK Bus Operator of the Year • Excellent performance at UK Rail o Revenue up 5.7% o South West Trains operational performance among best in London and South East o £66.7m of revenue and profit share payable to DfT o Shortlisted for South Western rail franchise - innovative and value-for-money bid to build on record of operational and financial achievement o Named Rail Passenger Operator of the Year • Further growth in North America o Strong revenue growth - overall US$ revenue up 11.0% o Continued margin growth despite significant cost pressures o Launch of budget inter-city coach services in United States • Improved performance and revenue growth at Virgin Rail Group o Good progress on renegotiation of West Coast franchise • Conditional sale of London bus business agreed for £263.6m o Bus division strategy to focus on less regulated bus operations outside London • Disposal of New Zealand operations resulting in gain of £22.5m • Appointment of Sir George Mathewson as a non-executive director Financial Highlights - Results reported under IFRS accounting policies • 11.6% increase in earnings per share, excluding amortisation of intangible assets and exceptional items • 42.7% increase in basic earnings per share Results excluding Reported results amortisation of intangible assets and exceptional items 2006 2005 2006 2005Revenue from continuing 1,530.0 1,413.4 1,530.0 1,413.4operations, excludingacquisitions (£m)Total operating profit (£m) 156.6 153.1 136.1 132.9Profit before taxation (£m) 140.6 131.2 115.0 104.9Earnings per share (pence) 10.6p 9.5p 10.7p 7.5pProposed final dividend (pence) 2.6p 2.3p 2.6p 2.3pFull year dividend (pence) 3.7p 3.3p 3.7p 3.3pFree cash flow (£m) 175.5 173.6 175.5 173.6Net debt (£m) 135.9 214.6 135.9 214.6 Commenting on the results, Stagecoach Chief Executive, Brian Souter said: "The Group has achieved another strong set of results, delivering continuedorganic growth in our bus and rail operations in the UK and North America.Despite continued cost pressures, this has been a very successful year for thebusiness. "Our strong track-record of investment and innovation is attracting more peopleto public transport, particularly in our bus operations in the UK. The plannedsale of our London bus business will allow us to concentrate on our successfulgrowth strategy in our UK Bus businesses outside London. "Excellent operational and financial performance in our UK Rail division meanswe are well placed to submit a strong bid for the new South Western railfranchise. In North America, we have made further progress by growing revenueand passenger volumes in both our scheduled and leisure operations. "The Group will continue to look for further organic growth and bolt-onacquisition opportunities in our UK and North American bus business andopportunities to grow our rail portfolio." Enquiries to: Martin Griffiths, Stagecoach Group +44 (0) 1738 442111Steven Stewart, Stagecoach Group +44 (0) 1738 442111 or +44 (0) 7764 774680John Kiely, Smithfield Financial +44 (0) 20 7360 4900 Note to Editors:High-resolution photographs are available to the media free of charge at:www.newscast.co.uk (telephone +44 (0) 207 608 1000). NOTES TO EDITORS Stagecoach Group is a leading international transport company with bus and railoperations in the UK and North America. The Group, including its London busoperations, employs around 31,000 people and runs 13,000 buses and trains. Chairman's statement Stagecoach has achieved another strong set of results as we continue to delivershareholder value through our successful organic growth strategy in our bus andrail operations in the UK and North America. We have produced further revenue growth in our continuing businesses andenhanced our reputation for delivering high quality public transport servicesthrough market-leading innovation, effective marketing of our products andplanning for the future through targeted investment. During the year ended 30 April 2006, we acquired additional bus operations inthe UK with the prospect of attracting even more passengers to our services. Ourexcellent rail performance, both operationally and financially, has also put usin a strong position when competing for new franchises. During the year, we completed the disposal of our New Zealand operations and on23 June 2006, we agreed the conditional sale of our London bus business toMacquarie Bank Limited for £263.6m. The London bus business has been a key partof the Group's success since 1994 and the sales price represents an excellentreturn for our shareholders. The sale is subject to regulatory approval andother closing conditions, and at the present time, we expect the sale to becompleted within three months. In UK Bus, we will continue to pursue oursuccessful growth strategy outside London, where we are leading our peer groupin attracting new passengers to public transport. Cost pressures, including fuel and insurance, remain a challenge for the Group,and we are continuing to manage these as part of our overall cost base. Webelieve that we have achieved the correct balance of retaining and growing ourcustomer base, while maintaining a financially robust business. The results for the year ended 30 April 2006 are the first full-year results tobe reported in accordance with International Financial Reporting Standards("IFRS") and the comparative amounts for the year ended 30 April 2005 have beenrestated accordingly. Group revenue for the year ended 30 April 2006 was£1,568.5m (2005: £1,420.5m). Operating profit before amortisation of intangibleassets and exceptional items* was £156.6m (2005: £153.1m). Earnings per sharebefore amortisation of intangible assets and exceptional items were up 11.6% at10.6p (2005: 9.5p), the fourth year of successive earnings growth following thesubstantial restructuring of the Group in 2002. Given the Board of Directors' confidence in the future prospects and financialstrength of the Group, we are proposing a final dividend of 2.6p per share(2005: 2.3p), giving a total dividend for the year of 3.7p (2005: 3.3p). This isan increase of 12.1% and based on continued strong, stable cash flows andprofits within the business, we will look to continue progressive dividendgrowth. The proposed final dividend is payable to shareholders on the registerat 1 September 2006 and will be paid on 4 October 2006. Stagecoach has made a promising start to the new financial year to 30 April 2007and the current trading of the Group remains in line with our expectations. Weare confident of achieving our objectives for the year. At the heart of our strong performance this year have been our employees acrossall our operations. Their personal commitment to first-class customer service iscrucial as we pursue our organic growth strategy. I would once again like tothank all our employees for their continued hard work and support. I would like to welcome to the Group, Sir George Mathewson, who has joinedStagecoach as a Non-Executive Director. He has a formidable business background,including substantial experience with major UK-listed companies. Graham Eccles retired as an Executive Director of the Group on 30 April 2006. Iam very grateful to Graham for his significant contribution to the Group and tothe UK rail industry over many years. Russell Walls retires by rotation at the next Annual General Meeting due to beheld in August 2006, and he has indicated that he does not intend to seekre-election. The Group has benefited significantly over the last six years fromRussell's skills and experience. Russell is the Senior Independent Non-ExecutiveDirector and the Chairman of the Audit Committee. The Board will determine hissuccessor to each of these roles in due course. Graham and Russell leave the Group with all our best wishes for the future. Our Group strategy is driven by innovation and investment, and we will continueto look for opportunities to increase shareholder value by growing our bus andrail businesses in the UK and North America. Robert SpeirsChairman28 June 2006 --------------------------* Exceptional items are defined in note 3 to the preliminary results Chief Executive's review Overview Stagecoach Group has produced an excellent set of results for the year ended 30April 2006. Revenue from continuing operations (excluding acquisitions duringthe year) increased by £116.6m (8.2%) from £1,413.4m to £1,530.0m. Operatingprofit before exceptional items and intangible asset amortisation has increasedfrom £153.1m to £156.6m. Revenue by division (excluding the discontinued New Zealand operations) issummarised below: REVENUE 2006 2005 Currency 2006 2005 Growth £m £m Local currency % (m)Continuing GroupoperationsUK Bus 775.7 720.3 £ 775.7 720.3 7.7North America 247.6 213.7 US$ 439.5 396.0 11.0UK Rail 506.7 479.4 £ 506.7 479.4 5.7 1,530.0 1,413.4Acquisitions during theyearUK Bus - Glenvale 17.4 Nil £ 17.4 Nil n/aUK Bus - Traction 21.1 Nil £ 21.1 Nil n/a 38.5 NilDiscontinued GroupoperationsNorth America Nil 7.1 US$ Nil 13.1 (100.0) Nil 7.1Total Group revenue 1,568.5 1,420.5 Operating profit by division (excluding the discontinued New Zealand operations)is summarised below: OPERATING PROFIT 2006 2005 Currency 2006 2005 £m % of £m % of Local currency revenue revenue (m)Continuing Group 88.6 11.4% 87.7 12.2% £ 88.6 87.7operationsUK BusNorth America - 17.7 7.1% 15.5 7.0% US$ 31.5 28.7excluding megabusNorth America - megabus (0.8) n/a Nil - US$ (1.5) NilUK Rail 58.9 11.6% 50.0 10.4% £ 58.9 50.0Group overheads (10.0) (9.0)Restructuring costs (1.5) (1.4) 152.9 142.8AcquisitionsUK Bus - Glenvale (2.3) NilUK Bus - Traction 0.4 NilJoint ventures andassociatesVirgin Rail Group 5.5 10.7Citylink 0.1 NilOther Nil (0.4)Total operating profit 156.6 153.1before intangible assetamortisation andexceptional itemsIntangible asset (20.5) (18.8)amortisationExceptional items (net) Nil (1.4)Total operating profit 136.1 132.9 UK BusOur UK Bus division connects communities in more than 100 towns and citiesacross the country on a network stretching from the Highlands of Scotland tosouth-west England. It includes major city bus operations in Liverpool,Newcastle, Hull, Manchester, Oxford, Sheffield and Cambridge. Revenue in our UK Bus division, excluding acquisitions during the year, hasincreased by 7.7% to £775.7m (2005: £720.3m) and operating profit* is up to£88.6m, compared to £87.7m in the previous year. Operating margin was 11.4%compared to 12.2% in 2005. We are particularly pleased to report that excludingacquisitions, we have grown operating profit against a background of significantincreases in fuel and other costs. In addition, the acquisitions in the yearcontributed £38.5m of revenue and a £1.9m operating loss. Stagecoach has an excellent track record of operating high-quality bus and coachservices and one of our Scottish companies was named Bus Operator of the Year atthe 2005 UK Bus Awards. We have delivered further growth in passenger volumes atour UK Bus division during the year as a result of our emphasis on new productdevelopment, investment and tailored marketing initiatives. We are attractingmore people out of their cars and on to our public transport services and totalpassenger volumes on a like for like basis, excluding London and megabus.com,were up 2.1%. More than £50m has been spent in the past 12 months modernisingour fleet, delivering more low-floor accessible buses and a more comfortabletravelling environment for passengers. We have expanded the reach of our UK Bus operations with the acquisition of twosignificant independent bus businesses in the past year, Glenvale TransportLimited ("Glenvale") and Traction Group Limited ("Traction Group"). As weanticipated at the time we acquired it, the Glenvale business has incurredlosses as we restructure the operations. Revenue from the date of acquisition to30 April 2006 was £17.4m and the operating loss was £2.3m. Traction Group, whichhas operations in Yorkshire, Lincolnshire and Tayside, contributed £21.1m torevenue and made an operating profit of £0.4m in the period since acquisition to30 April 2006. megabus.com in the UK, our market-leading inter-city bus service now has anetwork of services covering more than 40 locations. More modern double-deckercoaches and a comprehensive package of press, billboard, radio and web-basedmarketing have helped drive further passenger growth. Around two millionpassengers have travelled with megabus.com during the year and we have improvedboth the average load factor and the average fare. We are excited by the prospects for our joint venture with ComfortDelGro tooperate inter-city coach services in Scotland, which we believe can competestrongly with existing rail services and attract car users to public transport. We have achieved further organic passenger growth in our UK Bus division. Growthin our provincial and city networks has been driven by our focus on customerprofiling research and targeted marketing. Our telemarketing unit at ourheadquarters in Perth has been expanded to launch new campaigns in the UK toencourage non-users to switch to bus travel. These campaigns, which include theoffer of a week's free travel and focus in particular on parents and car users,have resulted in significant numbers of non-users switching to the bus. --------------------------* References to the operating profit or operating margin of a particularbusiness throughout the Chief Executive's review mean operating profit (oroperating margin) before amortisation of intangible assets, exceptional itemsand restructuring costs. North America Stagecoach is a major provider of transport services in North America where themarket is highly fragmented with several thousand operators. Our businessesinclude commuter services, tour and charter, sightseeing and school busoperations. Stagecoach runs around 2,600 vehicles in the United States where ouroperations are centred on the states of New York, New Jersey, Pennsylvania, WestVirginia, Ohio, northern Indiana, northern Illinois and southern Wisconsin. Ourservices operate in major cities such as New York City, Newark, Pittsburgh,Chicago and Milwaukee. In Canada, we own four operating companies, whichtogether operate 500 vehicles in the Provinces of Quebec and Ontario. North American trading continues to be encouraging, despite ongoing costpressures in relation to fuel and insurance. Cost pressures have resulted in theclosure of a number of smaller competitors and in some areas we have been ableto absorb the additional customer base. In March 2006, we launched our budget coach operation, megabus.com, in theUnited States. Passengers can travel on daily non-stop express coach servicesbetween Chicago and other Midwest cities from as low as US$1. Revenue from North America for the year ended 30 April 2006 was US$439.5m (2005:US$409.1m). On a like for like basis, revenue was up by 9.7%. Operating profitexcluding megabus was US$31.5m (2005: US$28.7m), resulting in an operatingmargin of 7.2%, compared to 7.0% the previous year. Converted to sterling,revenue for the year was £247.6m (2005: £220.8m). Operating profit excludingmegabus for the year was £17.7m (2005: £15.5m), and the operating loss ofmegabus in North America was £0.8m (2005: £Nil), including marketing and otherstart-up costs. We continue to experience strong revenue growth in our highly successfulsightseeing businesses. The growth has been helped by the introduction of newdouble-decker buses and improved tours and marketing. We have also seen further revenue growth in our express, commuter and scheduledairport services. Charter revenues are up year on year and forward bookings are ahead of the sameperiod last year, assisted by improved online booking capabilities through ourredesigned Coach USA website. We have made a small bolt-on acquisition of acharter business in southern Pennsylvania. During the year, we closed some smallunder-performing charter locations in western New York State and reduced ourcasino services. In Canada, revenue has grown by more than 25% despite a very competitiveenvironment. Significant new contracts have been secured with the GreaterToronto Airports Authority and strong growth has also been achieved in transitcontracts. UK Rail The Group's principal wholly-owned rail business is South West Trains, the UK'sbiggest commuter franchise, which runs around 1,600 trains a day in south-westEngland out of London Waterloo. The Group's other franchise is Island Line onthe Isle of Wight. Both franchises are operated under contract until February2007. We also operate Supertram, a 28km light rail network incorporating threeroutes in the city of Sheffield on a 27-year concession running until 2024. The Group's rail division has had another excellent year, with continued growthin passenger income, including strong season ticket sales. Revenue from our UK Rail subsidiaries for the year ended 30 April 2006 was up by5.7% to £506.7m (2005: £479.4m). Operating profit increased to £58.9m (2005:£50.0m), with an operating margin of 11.6% (2005 - 10.4%). Revenue was adverselyaffected by the terrorist attacks in London in July 2005, particularly revenuefrom off-peak travel. The impact on profit was less significant due to therevenue and profit share arrangements that South West Trains has with theDepartment for Transport ("DfT"). The reported operating profit is after deducting £66.7m (2005: £46.0m) ofamounts payable to the DfT under the revenue and profit sharing arrangements atSouth West Trains. Rail bid costs of £11.7m (2005: £3.0m) were expensed during the year ended 30April 2006 in arriving at the UK Rail operating profit of £58.9m (2005: £50.0m).These were principally in relation to the ongoing work on the bid for the SouthWestern franchise and the unsuccessful bids on the Greater Western, GreatNorthern/Thameslink and Integrated Kent franchises. South West Trains was named Passenger Operator of the Year and Rail Business ofthe Year within the past 12 months, reflecting our commitment to excellence.Recent operational performance at what is arguably the UK's biggest and mostcomplex franchise is amongst the best achieved by train operating companies inLondon and the South East, with 90% of trains arriving on time (punctualitymeasured on the basis of the DfT's Passenger Performance Measure). Providing a clean, safe, punctual and reliable service has resulted in thehighest ever overall passenger satisfaction ratings achieved to date at SouthWest Trains, jumping from 78% last spring to 83% in Spring 2006. In the last year, together with third parties, we have invested more than £7m instation refurbishments and security enhancements across the South West Trains'network. megatrain.com, our budget rail service offering seats on off-peak services fromjust £1 plus booking fee, has attracted 50,000 passengers since we launched thefirst two trial routes in November 2005. The service has proved extremelysuccessful in making the most efficient use of the capacity on the rail network.megatrain.com was extended to seven additional locations on the South WestTrains network in April 2006, offering 5,000 cheap seats a week and since theyear end, megatrain.com has started selling tickets on more than a fifth of allVirgin CrossCountry services. We are in discussions with the DfT about makingthe megatrain.com pilot project permanent. Stagecoach is delighted to have been shortlisted for the new South Westernfranchise, which runs from February 2007 and is made up of the current SouthWest Trains and Island Line networks. We believe our record of achievement atSouth West Trains will enhance the Group's bid for the new franchise. Passengersare benefiting from record investment in new trains, consistently highoperational performance, as well as innovation with new ideas such as our budgettrain service, megatrain.com. We are delivering for passengers, taxpayers andour shareholders, and we will be submitting innovative and competitive proposalsto the Government by 30 June. A final decision is expected from Government inAutumn 2006. We were disappointed that our bids for the Thameslink/Great Northern and GreaterWestern franchises and our joint bid with DSB for the Integrated Kent franchisewere unsuccessful. However, we will continue to bid for future rail franchiseson what we believe to be an acceptable risk profile, offering good value forboth the Government and our shareholders. We are excited by the opportunities togrow our rail portfolio, which include the new East Midlands and West Midlandsfranchises. Stagecoach also plans to bid jointly with Virgin for the newCrossCountry franchise when it is tendered later this year. All three of thesenew franchises are expected to commence in November 2007. New Zealand In November 2005, Stagecoach Group sold all of its New Zealand operations toInfratil Limited, a company listed on the New Zealand Exchange that is aspecialist investor in infrastructure and utility assets. The New Zealandbusiness operates bus services in the Wellington and Auckland areas of NewZealand, and ferry services in the Auckland area. The net cash inflow from thedisposal was £97.9m comprising the consideration of £107.0m less disposal costsof £3.1m and £6.0m of net cash disposed of. The sale resulted in a net gain ondisposal of £22.5m. Virgin Rail Group The Group holds 49% of Virgin Rail Group ("VRG"). Our share of VRG's revenue forthe 12-month period amounted to £357.4m (2005: £315.2m) and our share of profitafter finance income and taxation was £5.5m (2005: £10.7m). Of this, operatingprofit was £5.3m (2005: £14.2m), net finance income was £1.7m (2005: £1.7m) andthe net tax charge was £1.5m (2005: £5.2m). VRG's negotiations with the Government over new commercial terms for the WestCoast franchise that extends through to 2012 are progressing well and we lookforward to an agreement being reached later this year. Our objective is tosecure an arrangement which is sustainable and in the long-term interests ofpassengers, taxpayers and shareholders. Passenger numbers are continuing to grow on West Coast, with annual volumes nowapproaching 19 million - an increase of 20% on the previous year. Revenue hasalso increased significantly as the improved performance of the Pendolino trainscontinue to generate new traffic. VRG has been particularly successful incompeting with the airlines on the key London-Manchester route. Over the lasttwo years, rail's share of the combined rail/airline market has increased fromone third to around two thirds on that route. Customer service has also improvedand, in the latest National Passenger Survey (Spring 2006), 90% of passengerswere satisfied with their overall journey experience. The Virgin CrossCountry franchise has grown passenger volumes by 7% over thepast year and now carries in excess of 20 million passengers a year. VirginCrossCountry's rating in the latest National Passenger Survey (Spring 2006),improved to 84% of passengers being satisfied with their overall journeyexperience. The Government announced in October 2005 that a new CrossCountry franchise wouldbe created by incorporating the current Central Trains inter-regional routesinto the existing CrossCountry network. As part of the re-mapping process, theDfT also announced its decision to re-let the CrossCountry franchise and thepre-qualification process is expected to begin in the summer of 2006. Stagecoachand Virgin plan to submit a joint bid for the franchise through VRG. Based onits strong track record of passenger growth and performance improvements, webelieve VRG will be well placed to win any tender for the new CrossCountryfranchise. Scottish Citylink Coaches Limited Our share of Scottish Citylink Coaches Limited's ("Citylink") revenue from theinception of the joint venture in September 2005 to 30 April 2006 amounted to£3.8m and our share of operating profit was £0.1m. The business is seasonallystrongest over the summer and therefore these results do not reflect the mostprofitable part of the year. The Office of Fair Trading decided in March 2006 to refer the Citylink jointventure to the Competition Commission. While we were surprised and disappointedat this decision, we are assisting the Commission with its enquiries and havehad positive discussions to date. We are confident that the Commission willrealise the main competition to the coach is the car and inter-city railservices and that the joint venture can deliver the biggest improvement tointer-city coach services in Scotland in years. Depreciation and amortisation Earnings before interest, taxation, depreciation, intangible asset amortisationand exceptional items from continuing businesses (pre-exceptional EBITDA)amounted to £225.1m (2005: £219.4m). Total depreciation for the year was £68.7m(2005: £62.8m). Amortisation of intangible assets increased from £18.8m to£20.5m. This principally reflects the charge in relation to new intangiblesacquired this year coupled with the full year effect of the charge in relationto intangibles acquired during the course of last year partly offset by thedecrease in the goodwill charge for VRG, which totalled £13.1m (2005: £14.7m). During the year ended 30 April 2005, the Directors reviewed the period overwhich the goodwill in respect of VRG was being expensed, in light of the statusof negotiations on VRG's franchises. As a result, it was decided that theexpensing of goodwill in respect of VRG should be accelerated. This led to anincreased charge in the six months to 30 April 2005 and the six months to 31October 2005 with goodwill charges in the six months to 30 April 2006 reducingas a result of this previous acceleration. Although IFRS 3 'BusinessCombinations' does not generally allow the amortisation of goodwill, the WestCoast and CrossCountry train franchises that VRG operates have finite livestherefore the goodwill is charged to the income statement in line with theremaining term of these franchises. Amortisation of £2.9m (2005: £2.9m) was charged on the intangible asset thatarises from the Group's right to operate its rail franchises, £2.0m (2005:£1.1m) was charged in relation to non-compete contracts, £2.4m (2005: £Nil) wascharged in relation to customer contracts acquired as part of businesscombinations and £0.1m (2005: £0.1m) was charged in relation to software costs. Exceptional items Unlike UK GAAP, there is no definition of "exceptional items" in IFRS. For thispurpose, "exceptional items" are items which individually or, if of a similartype, in aggregate, need to be disclosed by virtue of their size or incidence ifthe financial statements are to present fairly the financial performance of theGroup. A net exceptional gain before tax of £17.4m (2005: loss of £7.5m) was recorded.This comprised a gain on the sale of the New Zealand division of £22.5m, a netloss in respect of other disposed and closed operations of £7.0m, a gain on saleof other investments of £1.1m and a gain on the sale of properties of £0.8m. A tax credit of £2.8m (2005: £1.6m) was recognised in respect of exceptionalitems resulting in net exceptional gains after tax of £20.2m (2005: loss of£5.9m). Net finance costs Net finance costs decreased from £21.9m to £16.0m as a result of a lower averagenet debt during the year. The ratio of pre-exceptional EBITDA from continuingbusinesses to net finance charges was 14.1 times compared to 10.0 times in 2005,reflecting the reduced finance costs. Taxation The tax charge and the effective tax rate for the year is analysed as follows: 2006 2005 £m £m Pre-tax Tax Rate Pre-tax Tax Rate profit profit £m £m % £m £m %Excludingintangible assetamortisation andexceptional items- Before joint 135.0 (31.4) 23.3% 120.5 (28.0) 23.2%ventures- Joint ventures 7.1 (1.5) 21.1% 15.9 (5.2) 32.7% 142.1 (32.9) 23.2% 136.4 (33.2) 24.3%Intangible asset (20.5) 2.2 (18.8) 1.1amortisationExceptional items (5.1) 2.8 (7.5) 1.6 116.5 (27.9) 23.9% 110.1 (30.5) 27.7%Joint venture tax (1.5) 1.5 (5.2) 5.2Reported in income 115.0 (26.4) 104.9 (25.3)statement The above table excludes the profit and tax in respect of discontinued NewZealand operations. Including the tax charge that is presented as a component of the share of profitfrom joint ventures but excluding any tax in relation to discontinuedoperations, the tax charge for the year of £27.9m (2005: £30.5m) represents aneffective tax rate of 23.9% (2005: 27.7%). The equivalent effective tax ratebefore the amortisation of intangible assets and exceptional items is 23.2%(2005: 24.3%). Consistent with previous guidance, we would expect the ongoing effective taxrate to be in the range of 25% to 30% with the cash tax rate being some 3% to 4%below that. Earnings and dividends Overall earnings per share before intangible asset amortisation and exceptionalitems increased by 11.6 % to 10.6 pence, compared to 9.5 pence in 2005,reflecting the strong trading performance. Basic earnings per share (takingaccount of all exceptional items and intangible asset amortisation) were 10.7pence (2005: 7.5 pence). Dividend cover (before intangible asset amortisation and exceptional items) was3.1 times (2005: 3.0 times). The total proposed dividend in respect of ordinaryshares for the year is 3.7 pence (2005: 3.3 pence). Shares in issue The weighted average number of ordinary shares during the year used to calculatebasic earnings per share was 1,075.8m (2005: 1,154.5m). The number of sharesranking for dividend at 30 April 2006 was 1,088.3m (2005: 1,063.0m), with afurther 5.3m (2005: 6.5m) of ordinary shares held by employee trusts and notranking for dividend. The Group has authority to repurchase 107,675,827 ordinary shares. Thisauthority expires at the 2006 AGM and shareholders will be asked to renew thegeneral authority to repurchase up to 10% of the issued ordinary share capital. Net assets Net assets at 30 April 2006 were £211.6m (2005: £115.4m) with the increaseprincipally reflecting the strong reported profit after tax of £115.4m, whichincludes the gain on sale of the Group's New Zealand division. Retirement benefit obligations The reported net assets of £211.6m (2005: £115.4m) are after taking account ofretirement benefit obligations of £222.2m (2005: £220.9m) and related deferredtax assets. The overall increase in the obligations of £1.3m includes netobligations of £21.5m in respect of the defined benefit pension schemes ofcompanies acquired during the year. Excluding the impact of these acquisitions,the retirement benefit obligations fell by £20.2m during the year. Of the total retirement benefit obligations, £176.3m (2005: £160.3m) relates tothe Stagecoach Group Pension Scheme ("SGPS"). The Group will make additionalpension contributions prior to the planned sale of its London bus operations,which will reduce retirement benefit obligations by approximately £60.0m. Cash flows The strong cash generative nature of the Group is once again highlighted by freecash flow of £175.5m (2005: £173.6m). Net cash outflows from investingactivities were £9.9m (2005: £50.8m), including £104.4m (2005: £14.7m) of cashinflows from the disposal of subsidiaries and other businesses, which for theyear ended 30 April 2006 primarily relates to the disposal of our New Zealanddivision. Net debt IFRS does not explicitly define net debt. The Group will therefore continue touse the UK GAAP definition of net debt. Net debt decreased from £214.6m at 30 April 2005 to £135.9m at 30 April 2006.This decrease reflects the benefit of ongoing cash generation from our coreoperations coupled with the disposal of the New Zealand division. Offsettingthis is the redemption of the remaining redeemable 'B' preference shares of£13.9m and the £48.6m impact from acquisitions of subsidiaries. The impact of purchases of property, plant and equipment (excluding thoseacquired as part of business combinations) for the year on net debt was £102.6m(2005: £99.7m). This primarily related to expenditure on passenger servicevehicles, and comprised cash outflows of £91.9m (2005: £73.5m) and new hirepurchase debt of £10.7m (2005: £26.2m). Capital expenditure Additions to property, plant and equipment (excluding those acquired as part ofbusiness combinations) for the year were: 2006 2005 £m £m UK Bus 73.2 51.4North America 25.5 33.8UK Rail 1.9 7.5Discontinued operations 3.2 10.8 103.8 103.5 The differences between the amounts shown above and the impact of capitalexpenditure on net debt arose from movements in fixed asset deposits andcreditors. Acquisitions and disposals The Group acquired the entire share capital of Glenvale on 12 July 2005. Theconsideration paid for the shares was £3.4m in cash and the Group assumed thenet debt of Glenvale at acquisition totalling £7.8m. The fair value of the netliabilities acquired totalled £6.4m (including the £7.8m of assumed net debt)resulting in goodwill of £9.8m. In the period from acquisition to 30 April 2006,Glenvale contributed £17.4m to revenue and made an operating loss of £2.3m. On 12 September 2005, the Group acquired 35% of the share capital of Citylink inreturn for transferring certain rights to the Motorvator and megabus.comoperations in Scotland. Stagecoach accounts for its investment in the combinedbusiness as a joint venture. In the period from creation to 30 April 2006, thejoint venture made a £0.1m contribution to the Group's operating profit. On 14 December 2005, the Group acquired the entire share capital of TractionGroup. The consideration paid for the shares was £26.0m, which was satisfied by£21.5m in cash and the issue of 4,022,070 Stagecoach ordinary shares of 12/19thpence each. Stagecoach has assumed Traction's net debt of £11.0m. The fair valueof the net assets acquired totalled £17.8m (including the £11.0m of assumed netdebt) and acquisition costs of £0.4m were incurred resulting in goodwill of£8.6m. In the period from acquisition to 30 April 2006, Traction contributed£21.1m to revenue and made an operating profit of £0.4m. On 29 November 2005, the Group disposed of its entire New Zealand operations toInfratil Limited, a company listed on the New Zealand Exchange that is aspecialist investor in infrastructure and utility assets. The net cash inflowfrom the disposal was £97.9m comprising the consideration of £107.0m lessdisposal costs of £3.1m and £6.0m of net cash disposed of. After transactioncosts and the impact of the Group's foreign exchange hedges, the disposalresulted in a gain of £22.5m. Operating profit of £5.5m was reported in respectof the New Zealand division in the period from 1 May 2005 to the date ofdisposal, and was included within "profit for the year from discontinuedoperations" in the consolidated income statement. Fuel Hedging The Group's UK and North American bus operations (including the London busoperations) consume the equivalent of 1.9m barrels of diesel fuel per annum. Asa result, the Group's profits are exposed to the movement in the underlyingprice of crude oil, which is the major driver of diesel prices. The Groupmanages the volatility in its fuel costs by maintaining an ongoing fuel-hedgingprogramme whereby derivatives are used to fix or cap the variable unit cost of apercentage of anticipated fuel consumption. If the Group had no hedging inplace, a movement of US$10 in the price of a barrel of crude oil would affectthe Group's fuel costs by approximately US$19m. The Group's fuel hedging levels are summarised below: Financial year ended / ending 30 April 2006 2007 2008 2009 Proportion of actual/forecast fuelconsumption hedged:- Hedged by fuel swaps 85% 18% - -- Hedged by fuel collars - 75% 44% 38% We will adjust our hedging levels where appropriate as and when the planneddisposal of the Group's London bus operations is completed. Accounting policies The Group's results have been prepared using accounting policies based onInternational Accounting Standards ("IAS") and International Financial ReportingStandards ("IFRS"), which we refer to collectively as IFRS. All of thecomparatives referred to in this document are restated for IFRS: further detailsof this were provided in our announcement on 29 September 2005. A copy of thisannouncement can be found on the Stagecoach Group plc website at http://www.stagecoach.com/scg/ir/finanalysis/reports/ Current trading and outlook The current financial year to 30 April 2007 has started well and trading is inline with our expectations. There are a number of exciting opportunities acrossthe Group and we are confident of achieving our objectives for the year. Brian SouterChief Executive28 June 2006 CONSOLIDATED INCOME STATEMENT Audited Audited Year ended 30 April 2006 Year ended 30 April 2005 Performance Intangibles Results Performance Intangibles Results pre and for the pre and for the intangibles exceptional year intangibles exceptional year and items and items exceptional exceptional items items Notes £m £m £m £m £m £mRevenue 5 1,568.5 Nil 1,568.5 1,420.5 Nil 1,420.5Operating costs (1,627.2) (7.4) (1,634.6) (1,453.8) (5.5) (1,459.3)Other operating income 4 209.7 Nil 209.7 176.1 Nil 176.1Operating profit of Group 5 151.0 (7.4) 143.6 142.8 (5.5) 137.3companiesShare of profit/(loss) of 5.6 (13.1) (7.5) 10.7 (14.7) (4.0)joint ventures - after financecharges and taxationShare of profit/(loss) ofjoint ventures:Operating profit/(loss) 5.4 (13.1) (7.7) 14.2 (14.7) (0.5)Finance income (net) 1.7 Nil 1.7 1.7 Nil 1.7Taxation (1.5) Nil (1.5) (5.2) Nil (5.2) 5.6 (13.1) (7.5) 10.7 (14.7) (4.0)Share of loss from interest in Nil Nil Nil (0.4) Nil (0.4)associate - after financecharges and taxationTotal operating profit: Group 5 156.6 (20.5) 136.1 153.1 (20.2) 132.9and share of joint venturesand associatesGain on sale of properties Nil 0.8 0.8 Nil 1.3 1.3Loss on disposed operations 3 Nil (5.9) (5.9) Nil (7.4) (7.4)Profit before interest and 156.6 (25.6) 131.0 153.1 (26.3) 126.8taxationFinance costs 6 (24.6) Nil (24.6) (35.2) Nil (35.2)Finance income 6 8.6 Nil 8.6 13.3 Nil 13.3Profit before taxation 140.6 (25.6) 115.0 131.2 (26.3) 104.9Taxation 8 (31.4) 5.0 (26.4) (28.0) 2.7 (25.3)Profit for the year from 109.2 (20.6) 88.6 103.2 (23.6) 79.6continuing operationsProfit for the year from 7 4.3 22.5 26.8 7.3 Nil 7.3discontinued operationsProfit for the year 113.5 1.9 115.4 110.5 (23.6) 86.9Profit attributable to equity 113.5 1.9 115.4 110.1 (23.6) 86.5shareholders of the parentEarnings per share- Adjusted/Basic 10 10.6p 10.7p 9.5p 7.5p- Diluted 10 10.4p 10.6p 9.3p 7.3pEarnings per share fromcontinuing operations- Basic 10.2p 8.2p 8.9p 6.9p- Diluted 10.0p 8.1p 8.7p 6.7pDividends per ordinary share 9- Interim paid 1.1p 1.0p- Final proposed 2.6p 2.3p The accompanying notes form an integral part of this consolidated incomestatement. CONSOLIDATED BALANCE SHEET Audited Audited As at 30 April As at 30 April 2006 2005 £m £mASSETSNon-current assetsGoodwill 100.1 93.6Other intangible assets 17.3 9.2Property, plant and equipment 708.8 694.2Interests in joint ventures 52.0 56.1Interests in associates 1.0 1.0Financial assets: Available for sale and other 4.2 1.8investmentsDeferred tax assets 8.4 4.1Other receivables 1.6 6.7 893.4 866.7Current assetsInventories 13.2 12.5Trade and other receivables 179.9 169.2Financial assets: Derivative instruments at fair 3.7 NilvalueCash and cash equivalents 198.5 140.0 395.3 321.7Total assets 1,288.7 1,188.4 LIABILITIESCurrent liabilitiesTrade and other payables 341.3 357.6Current tax liabilities 29.0 33.3Financial liabilities: Borrowings 66.3 126.5Financial liabilities: Derivative instruments at fair 2.8 Nilvalue 439.4 517.4Non-current liabilitiesOther payables 9.2 8.1Financial liabilities: Borrowings 291.2 228.1Deferred tax liabilities 5.2 5.5Provisions 109.9 93.0Retirement benefit obligations 222.2 220.9 637.7 555.6Total liabilities 1,077.1 1,073.0 Net assets 211.6 115.4 EQUITYOrdinary share capital 6.9 6.8Redeemable 'B' preference shares n/a 13.9Share premium account 174.8 163.4Retained earnings (212.1) (294.4)Capital redemption reserve 243.0 229.1Own shares (6.1) (6.8)Translation reserve 4.0 3.4Available for sale reserve 1.9 NilCash flow hedging reserve (0.8) NilTotal equity 211.6 115.4 The retained earnings deficit of £212.1m (2005: £294.4m) is the consolidatedposition. The holding company's distributable reserves as at 30 April 2006 underUK GAAP were £317.8m (2005: £288.4m). CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE Audited Audited Year ended Year ended 30 30 April 2006 April 2005 £m £mIncome and expense recognised directly in equityForeign exchange differences on translation of foreign 4.7 3.4operations(net of hedging)Actuarial gains/(losses) on Group defined benefit 13.9 (50.9)pension schemesActuarial gains/(losses) on joint ventures' defined 5.2 (9.1)benefit pension schemesNet fair value gains on cash flow hedges 9.2 NilNet fair value gains on available for sale investments 1.9 Nil 34.9 (56.6)Transfers to the income statementExchange differences on disposal of foreign operations (3.9) NilCash flow hedges reclassified and reported in profit (17.3) Nilfor the year (21.2) NilTax on items taken directly to or transferred fromequityTax on foreign exchange differences on translation of (0.2) Nilforeign operationsTax effect of actuarial (gains)/losses on Group (4.2) 15.3defined benefitpensions schemesTax effect of share of actuarial (gains)/losses on (1.5) 2.7joint venturesdefined benefit pension schemesTax effect of cash flow hedges Nil NilTax effect of share based payments 2.9 Nil (3.0) 18.0 Net income/(expense) not recognised in income 10.7 (38.6)statementProfit for the year attributable to equity 115.4 86.5shareholders of the parentTotal recognised income and expense for the year 126.1 47.9attributable to equity shareholders of the parentEffect of changes in accounting policy:Balances recognised on the adoption of IAS 32 and IAS (7.7) Nil39,net of taxation CONSOLIDATED CASH FLOW STATEMENT Audited Audited Year ended Year ended 30 April 30 April 2006 2005 Notes £m £m Cash flows from operating activitiesCash generated from operations 11 203.0 200.7Tax paid (27.5) (27.1)Net cash from operating activities ("free cash 175.5 173.6flow")Cash flows from investing activitiesAcquisition of subsidiaries, net of cash acquired (27.7) (5.9)Disposals of subsidiaries and other business, net 104.4 14.7of cash disposed ofPurchases of property, plant and equipment (91.9) (73.5)Disposals of property, plant and equipment 8.2 7.1Purchase of intangible assets (0.6) (0.3)Purchase of other investments (2.8) (0.2)Disposal of other investments 0.6 0.6Movement in loans to joint ventures 0.3 6.7Purchase of investments in joint ventures (0.4) NilNet cash used in investing activities (9.9) (50.8)Cash flows from financing activitiesIssue of shares 7.0 5.3Redemption of 'B' shares (13.9) (227.4)Expenses on issue of 'B' shares Nil (0.4)Redemption of 'B' shares by employee ownership Nil 1.7trustsInvestment in own ordinary shares by employee Nil (1.9)share ownership trustsSale of own ordinary shares by employee share 0.7 4.8ownership trustsRepayments of hire purchase and lease finance (35.1) (92.5)Proceeds from sale and leaseback transaction 49.5 NilRepayment of borrowings (73.9) (110.1)Dividends paid (36.6) (37.2)Sale of tokens 7.4 10.2Redemption of tokens (11.4) (10.9)Net cash used in financing activities (106.3) (458.4)Net increase/(decrease) in cash and cash 59.3 (335.6)equivalentsCash and cash equivalents at the beginning of the 138.5 476.5yearExchange rate effects 0.5 (2.4)Cash and cash equivalents at the end of year 198.3 138.5 The accompanying notes form an integral part of this consolidated cash flowstatement. Consolidated statement of changes in shareholders' equity Ordinary Redeemable Share Retained Capital Own Translation Available Cash Total share 'B' premium earnings redemption shares reserve for sale flow capital preference account reserve reserve hedging shares reserve Notes £m £m £m £m £m £m £m £m £m £mBalance at 1 May 2004 6.7 - 392.4 (75.7) 1.7 (3.9) - - - 321.2Profit for the year - - - 86.9 - - - - - 86.9Foreign exchange differences on - - - - - - 3.4 - - 3.4translation of foreignoperations (net of hedging)Actuarial losses on Group - - - (50.9) - - - - - (50.9)defined benefit pension schemesActuarial losses on joint - - - (9.1) - - - - - (9.1)ventures defined benefitpension schemesTax on items taken directly to - - - 18.0 - - - - - 18.0equityOwn shares purchased - - - - - (5.4) - - - (5.4)Own shares sold - - - - - 2.5 - - - 2.5'B' shares issued from share - 241.3 (241.3) - - - - - - -premiumRedemption of 'B' shares - (227.4) - (227.4) 227.4 - - - - (227.4)Expenses on issue of 'B' shares - - (0.4) - - - - - - (0.4)Arising on new ordinary share 9 0.1 - 12.7 - - - - - - 12.8issuesCredit in relation to - - - 1.4 - - - - - 1.4share-based paymentDividends - - - (37.6) - - - - - (37.6)Balance at 30 April 2005 6.8 13.9 163.4 (294.4) 229.1 (6.8) 3.4 - - 115.4Balances recognised on the - (13.9) - (0.9) - - (0.2) - 7.3 (7.7)adoption of IAS 32 and IAS 39,net of taxationBalance at 1 May 2005 6.8 - 163.4 (295.3) 229.1 (6.8) 3.2 - 7.3 107.7Profit for the year - - - 115.4 - - - - - 115.4Foreign exchange differences on - - - - - - 4.7 - - 4.7translation of foreignoperations (net of hedging)Actuarial gains on Group - - - 13.9 - - - - - 13.9defined benefit pension schemesActuarial gains on joint - - - 5.2 - - - - - 5.2ventures defined benefitpension schemesNet fair value gains on cash - - - - - - - - 9.2 9.2flow hedgesNet fair value gains on - - - - - - - 1.9 - 1.9available for sale investmentsExchange differences on - - - - - - (3.9) - - (3.9)disposal of foreign operationsCash flow hedges reclassified - - - - - - - - (17.3) (17.3)and reported in profit for theyearTax on items taken directly to - - - (3.0) - - - - - (3.0)equity (for split see SORIE)Own shares sold - - - - - 0.7 - - - 0.7Redemption of 'B' shares - - - (13.9) 13.9 - - - - -Arising on new ordinary share 0.1 - 11.4 - - - - - - 11.5issuesCredit in relation to - - - 2.2 - - - - - 2.2share-based paymentDividends 9 - - - (36.6) - - - - - (36.6)Balance at 30 April 2006 6.9 - 174.8 (212.1) 243.0 (6.1) 4.0 1.9 (0.8) 211.6 NOTES 1 BASIS OF PREPARATION Stagecoach Group plc ("the Group") previously prepared its primary consolidatedfinancial statements in accordance with UK Generally Accepted AccountingPractice ("UK GAAP") for periods up to and including 30 April 2005. From 1 May2005 onwards, the Group is required to prepare its consolidated financialstatements in accordance with International Financial Reporting Standards("IFRS") and International Accounting Standards ("IAS") as adopted by theEuropean Union ("EU"). The results for the year ended 30 April 2006 representthe Group's first full-year results prepared in accordance with accountingpolicies based on IFRS. The comparatives for the year ended 30 April 2005 havebeen restated. Detailed transitional UK GAAP to IFRS reconciliations for thecomparatives were issued on 29 September 2005 and can be found on the Group'swebsite at: http://www.stagecoach.com/scg/ir/finanalysis/reports/. Note 13summarises changes made to the comparatives subsequent to the announcement on 29September 2005. As permitted by IAS 32 'Financial Instruments: Disclosure and Presentation' andIAS 39 'Financial Instruments: Recognition and Measurement', the Group haschosen not to restate its comparative information for the year ended 30 April2005 for the effects of IAS 32 and IAS 39 on the accounting for financialinstruments. The Group has applied IAS 32 and IAS 39 prospectively with effectfrom 1 May 2005. As the comparative financial information for the year ended 30 April 2005 hasbeen restated from UK GAAP to IFRS, it does not reflect the informationcontained in the Company's last annual financial statements. The UK GAAP annualfinancial statements for the year ended 30 April 2005 received an unqualifiedaudit report and have been filed with the Registrar of Companies. The Board of Directors approved this announcement on 28 June 2006. 2 FOREIGN CURRENCIES The principal rates of exchange used to translate the results of foreignoperations are as follows: Principal rates of exchange 2006 2005 New Zealand Dollar:Period end rate (2006 is as at date of 2.4606 2.6088disposal)Average rate (2006 is average up to date 2.5641 2.7240of disposal)US Dollar:Year end rate 1.8176 1.9099Average rate 1.7751 1.8530Canadian Dollar:Year end rate 2.0368 2.3969Average rate 2.1079 2.3621 3 EXCEPTIONAL ITEMS Unlike UK GAAP, there is no definition of "exceptional items" in IFRS. Whereapplicable, the Group intends to continue to highlight amounts before theamortisation of intangible assets and exceptional items as well as clearlyreporting the results in accordance with IFRS. This is intended to enable theusers of the financial statements to determine more readily the impact ofamortisation and exceptional items on the results of the Group. For thispurpose, "exceptional items" are items which individually or, if of a similartype, in aggregate, need to be disclosed by virtue of their size or incidence ifthe financial statements are to present fairly the financial performance of theGroup. The following items have been highlighted as being exceptional: Year ended Year ended 30 April 30 April 2006 2005 £m £m Gain on sale of New Zealand operations 22.5 NilGain on sale of other investment 1.1 NilLoss in respect of other disposed and closed operations (7.0) (7.4)Return of capital costs Nil (0.3)Impairment of minority investment Nil (0.3)Loss re flooding at Carlisle depot Nil (0.8)Gain on sale of properties 0.8 1.3 17.4 (7.5)Tax effect of exceptional items 2.8 1.6 20.2 (5.9) 4 OTHER OPERATING INCOME Audited Audited Year ended Year ended 30 April 30 April 2006 2005 £m £m Miscellaneous revenue 53.8 46.4Rail franchise support, excluding incentive payments 111.1 91.9Rail liquidated damages 0.7 2.6Rail incentive payments 44.1 35.2 209.7 176.1 Miscellaneous revenue comprises revenue incidental to the Group's principalactivity. It includes advertising income, maintenance income and propertyincome. Rail franchise support is the amount of financial support receivable in respectof rail franchises from the Department for Transport ("DfT") and formerly, theStrategic Rail Authority ("SRA"). Partly offsetting this, the Group recognisedamounts payable to the DfT/SRA under revenue and profit share agreements for theSouth West Trains rail franchise totalling £66.7m (2005: £46.0m), which areincluded within operating costs. Rail liquidated damages of £0.7m (2005: £2.6m) relate to amounts received bySouth West Trains for the late delivery and reliability of trains. Rail incentive payments comprise receipts from/payments to the DfT/SRA inrespect of the operational performance of our rail companies measured againstbenchmarks set by the DfT/SRA. Payments are made to the DfT/SRA when performanceis worse than the target benchmarks and conversely payments are received fromthe DfT/SRA when performance is better than that set by the benchmarks. 5 SEGMENTAL ANALYSIS (A) REVENUE Due to the nature of the Group's business, the origin and destination of revenueis the same in all cases. No material part of each segment's revenue shown below relates to transactionswith other segments. Audited Audited Year ended Year ended 30 April 30 April 2006 2005 £m £m Continuing operationsUK Bus - continuing excluding acquisitions 775.7 720.3in year- acquisitions in year 38.5 NilNorth America 247.6 213.7Total bus continuing operations 1,061.8 934.0UK Rail 506.7 479.4Total continuing operations 1,568.5 1,413.4Discontinued operationsNorth America Nil 7.1Group revenue 1,568.5 1,420.5 The discontinued revenue from North America for the prior year is shown aboverather than being reclassified to the profit on discontinued operations line onthe face of the income statement. This is due to the fact that the expenses andprofit from the discontinued element of North America for the prior year are notclearly distinguishable due to certain "shared" costs that relate to NorthAmerica as a whole. Consequently, as we cannot reallocate the expenses andprofit from the discontinued element of North America to the profit ondiscontinued operations in the income statement, the discontinued element of therevenue remains above. The profit from the discontinued element of North Americais in any case believed to be immaterial. The revenue from the discontinued New Zealand division forms part of the profitfor the year from discontinued operations line on the face of the incomestatement and is shown separately in note 7. 5 SEGMENTAL ANALYSIS (CONTINUED) (B) OPERATING PROFIT Audited Audited Year ended 30 April 2006 Year ended 30 April 2005 Performance Intangibles Results Performance Intangibles Results pre and for the pre and for intangibles exceptional year intangibles exceptional the and items and items year exceptional exceptional items items £m £m £m £m £m £mContinuing operationsUK Bus - continuing excluding 88.6 Nil 88.6 87.7 (0.8) 86.9acquisitions in year- acquisitions in year (1.9) Nil (1.9) Nil Nil NilNorth America 16.9 Nil 16.9 15.5 Nil 15.5Total bus continuing 103.6 Nil 103.6 103.2 (0.8) 102.4operationsUK Rail 58.9 Nil 58.9 50.0 Nil 50.0Total continuing operations 162.5 Nil 162.5 153.2 (0.8) 152.4Group overheads (10.0) Nil (10.0) (9.0) (0.6) (9.6)Amortisation of intangible Nil (7.4) (7.4) Nil (4.1) (4.1)assetsRedundancy/restructuring costs (1.5) Nil (1.5) (1.4) Nil (1.4)Total operating profit of 151.0 (7.4) 143.6 142.8 (5.5) 137.3continuing Group operationsShare of profit/(loss) ofjoint ventures - after financeincome and taxation- Virgin Rail Group 5.5 Nil 5.5 10.7 Nil 10.7Operating profit 5.3 Nil 5.3 14.2 Nil 14.2Finance income (net) 1.7 Nil 1.7 1.7 Nil 1.7Taxation (1.5) Nil (1.5) (5.2) Nil (5.2) 5.5 Nil 5.5 10.7 Nil 10.7- Citylink 0.1 Nil 0.1 Nil Nil NilOperating profit 0.1 Nil 0.1 Nil Nil NilFinance income (net) Nil Nil Nil Nil Nil NilTaxation Nil Nil Nil Nil Nil Nil 0.1 Nil 0.1 Nil Nil NilGoodwill charge on investment Nil (13.1) (13.1) Nil (14.7) (14.7)in continuing joint venturesShare of loss of associate -after finance charges andtaxationContinuing - other Nil Nil Nil (0.4) Nil (0.4)Total operating profit: Group 156.6 (20.5) 136.1 153.1 (20.2) 132.9and share of joint venturesand associates The operating profit from the discontinued element of North America for theprior year is not separately shown because it is not clearly distinguishable dueto certain "shared" costs that relate to North America as a whole. However, thediscontinued element of North America's operating profit is not believed to bematerial in the context of the Group's annual operating profit as a whole forthe year ended 30 April 2005. The operating profit from the discontinued NewZealand division forms part of the profit for the year from discontinuedoperations line on the face of the income statement and is shown separately innote 7. 6 FINANCE COSTS AND INCOME Audited Audited Year ended Year ended 30 April 2006 30 April 2005 £m £mFinance costs:Bank loans, overdraft interest payable and other 3.6 4.0facility costsHire purchase and finance lease interest payable 3.3 8.3Interest payable on bonds and notes 14.2 19.7'B' share dividends 0.2 n/aUnwinding of discount on provisions 3.3 3.2 24.6 35.2Finance income:Interest receivable (8.3) (13.3)Fair value gains on financial instrument notqualifying as hedges- interest rate swaps (0.2) Nil- forward contracts (0.1) Nil (8.6) (13.3)Net finance costs 16.0 21.9 The redeemable 'B' preference shares were redeemed on 30 September 2005. Theyattracted a non-cumulative preferential dividend set at 70% of 6 month's LIBOR.The dividend was payable on the nominal amount of 18 pence per 'B' share and waspaid twice yearly in arrears on 31 March and 30 September. The Group has optedto apply IAS 32 and IAS 39 prospectively from 1 May 2005 without restating priorperiods and accordingly, the dividends on 'B' shares of £0.4m for the year ended30 April 2005 have been deducted directly from equity and are not deducted inarriving at the profit for that year. 7 DISCONTINUED OPERATIONS The Group disposed of its New Zealand operations on 29 November 2005 to InfratilLimited. The disposal was believed by the Directors to be the best way tomaximise shareholder value from the New Zealand operations. The results of the discontinued New Zealand operations that have been includedin the consolidated income statement were as follows: Audited Audited Year ended Year ended 30 April 2006 30 April 2005 £m £m Revenue 37.4 59.0Operating costs (33.1) (52.2)Other operating income 1.2 1.9Operating profit 5.5 8.7Finance income 0.1 0.3Taxation (1.3) (1.7)Profit for the year before gain on disposal 4.3 7.3Gain on disposal 22.5 NilProfit for the year from discontinued operations 26.8 7.3 A gain of £22.5m arose on the disposal of the New Zealand operations, being theproceeds of disposal less the carrying amount of the disposed business' netassets and goodwill at the date of disposal. No tax arose as a result of thisgain. 8 TAXATION The taxation charge comprises: Audited Audited Year ended 30 April 2006 Year ended 30 April 2005 Performance Intangibles Results Performance Intangibles Results pre and for the pre and for the intangibles exceptional year intangibles exceptional year and items and items exceptional exceptional items items £m £m £m £m £m £m Current tax:UK corporation tax at 30% 20.2 Nil 20.2 25.3 (0.3) 25.0(2005: 30%)Prior year under provision 1.0 Nil 1.0 0.3 Nil 0.3for corporation tax Foreign tax (current year) Nil Nil Nil 0.5 Nil 0.5Foreign tax (adjustments in 2.4 Nil 2.4 0.1 Nil 0.1respect of prior years)Total current tax 23.6 Nil 23.6 26.2 (0.3) 25.9Deferred tax:Origination and reversal of 8.5 (5.0) 3.5 3.8 (2.4) 1.4timing differencesAdjustments in respect of (0.7) Nil (0.7) (2.0) Nil (2.0)prior yearsTotal deferred tax 7.8 (5.0) 2.8 1.8 (2.4) (0.6)Tax on profit on ordinary 31.4 (5.0) 26.4 28.0 (2.7) 25.3activities 9 DIVIDENDS Audited Audited Year ended Year ended 30 April 30 April 2006 2005 £m £mAmounts recognised as distributions in the yearDividends on ordinary sharesFinal dividend paid of 2.0p per share for the year ended 30 - 26.5April 2004Interim dividend paid of 1.0p per share for the year ended 30 - 10.7April 2005Final dividend paid of 2.3p per share for the year ended 30 24.6 -April 2005Interim dividend paid of 1.1p per share for the year ended 30 12.0 -April 2006Amounts recognised as distributions to equity holders in the 36.6 37.2yearDividends on redeemable 'B' preference sharesAccrued for the period n/a 0.4 36.6 37.6 Dividends proposed but neither paid nor included as liabilitiesin the financial statementsDividends on ordinary sharesFinal dividend paid of 2.3p per share for the year ended 30 - 24.4April 2005Final dividend proposed of 2.6p per share for the year ended 30 28.4 -April 2006 28.4 24.4 The proposed final dividend in respect of the year ended 30 April 2006 issubject to approval by shareholders at the Annual General Meeting and has notbeen included as a liability in the financial statements. If approved, the finaldividend will be payable on 4 October 2006 to shareholders on the register atclose of business on 1 September 2006. The dividends proposed and the actual dividends recognised as distributionsdiffer slightly due to the number of shares at the balance sheet date beingdifferent to that at the record date. The redeemable 'B' preference shares attracted a non-cumulative preferentialdividend set at 70% of 6 months' LIBOR. The dividend was payable on the nominalamount of 18 pence per 'B' share and was paid twice yearly in arrears on 31March and 30 September. On adoption of IAS 32 and IAS 39 on 1 May 2005, thepreference shares are reclassified as debt rather than equity and subsequentlyany dividends accrued since that date are classified as finance costs and aredisclosed in note 6. 10 EARNINGS PER SHARE Basic earnings per share have been calculated by dividing the profitattributable to equity shareholders (net of any dividends on preference sharesnot already deducted in arriving at the reported profit) by the weighted averagenumber of ordinary shares in issue during the year, excluding any ordinaryshares held by employee share ownership trusts and not ranking for dividend. The diluted earnings per share was calculated by adjusting the weighted averagenumber of ordinary shares outstanding to assume conversion of all dilutivepotential ordinary shares in relation to share options and long term incentiveplans. In respect of share options, a calculation was done to determine thenumber of ordinary shares that could have been acquired at fair value(determined based on the average annual market share price of the Company'sordinary shares) based on the monetary value of the subscription rights attachedto outstanding share options. The number of ordinary shares calculated as aboveis compared with the number of ordinary shares that would have been issuedassuming the exercise of the share options. The difference is added to thedenominator as an issue of ordinary shares for no consideration and noadjustment is made to earnings (numerator). Audited Audited Year ended Year ended 30 April 30 April 2006 2005 Basic weighted average ordinary share capital (number of shares, 1,075.8 1,154.5million)Dilutive ordinary shares- Executive Share Option Scheme 14.7 20.0- Employee SAYE Scheme 0.8 3.6- LTIP Nil NilDiluted weighted average ordinary share capital (number of 1,091.3 1,178.1shares, million) £m £m Profit after taxation 115.4 86.9Non-equity dividends N/a (0.4)Profit after taxation and non-equity dividends (for basic EPS 115.4 86.5calculation)Amortisation of intangible assets 20.5 18.8Exceptional items (see note 3) (17.4) 7.5Tax effect of amortisation of intangible assets and exceptional (5.0) (2.7)itemsProfit for adjusted EPS calculation 113.5 110.1 Earnings Earnings per share per share pence pence Basic 10.7 7.5Adjusted basic 10.6 9.5Diluted 10.6 7.3Adjusted diluted 10.4 9.3 11 RECONCILIATION OF OPERATING PROFIT TO CASH GENERATED FROM OPERATIONS Audited Audited Year ended Year ended 30 April 30 April 2006 2005 £m £m Operating profit of Group companies 143.6 137.3Operating profit of discontinued operations 5.5 8.7Depreciation- continuing operations 68.7 62.8- discontinued operations 3.0 4.5Loss on disposal of plant and equipment 1.9 3.0Amortisation of intangible assets 7.4 4.1Share based payment expense- continuing operations 2.1 1.3- discontinued operations 0.1 0.1Impairment of investment Nil 0.4 232.3 222.2Increase in inventories (0.9) (0.4)Increase in receivables (24.4) (13.2)Increase in payables 14.9 9.8Increase/(decrease) in provisions 6.8 (14.8)Decrease in retirement benefit obligations (6.3) (5.1) 222.4 198.5Interest paid (24.4) (26.2)Interest received 8.3 13.6Interest element of hire purchase contracts and finance lease (3.3) (8.3)paymentsNon equity dividends paid n/a (0.4)Dividends received from joint ventures and associates Nil 23.5Cash generated from operations 203.0 200.7 12 ANALYSIS OF NET DEBT IFRS does not explicitly define "net debt". The analysis provided belowtherefore shows analysis of net debt as UK GAAP defines it. The analysis belowfurther shows the other items classified as net borrowings in the consolidatedbalance sheet. Opening IAS 32 & Cashflows New hire Foreign Acquisitions (Charged)/ Closing IAS 39 purchase exchange credited adoption movements to income statement £m £m £m £m £m £m £m £m Cash 104.2 Nil 59.8 Nil 0.5 Nil Nil 164.5Cash collateral 34.3 Nil (0.5) Nil Nil Nil Nil 33.8Hire purchase and (66.1) Nil (14.4) (10.7) Nil (10.3) Nil (101.5)finance leaseobligationsBank loans and loan (112.1) Nil 73.9 Nil (0.3) (10.6) Nil (49.1)stockBonds (174.9) Nil Nil Nil (8.6) Nil (0.1) (183.6)UK GAAP Net Debt (214.6) Nil 118.8 (10.7) (8.4) (20.9) (0.1) (135.9)Accrued interest on N/a (6.9) 16.2 Nil (0.4) Nil (16.2) (7.3)bondsReclassification of N/a 0.4 1.7 Nil (2.1) Nil 0.1 0.1foreign exchangeforward contractRedeemable 'B' N/a (13.9) 13.9 Nil Nil Nil Nil NilsharesUnamortised gain on N/a (23.5) Nil Nil Nil Nil 7.6 (15.9)early settlement ofinterest rate swapsNet borrowings (214.6) (43.9) 150.6 (10.7) (10.9) (20.9) (8.6) (159.0) The net total of cash and cash collateral of £198.3m (2005: £138.5m) isclassified in the balance sheet as £198.5m (2005: £140.0m) cash and cashequivalents and £0.2m (2005: £1.5m) as bank overdrafts within borrowings. Thecash collateral balance as at 30 April 2006 of £33.8m (2005: £34.3m) comprisesbalances held in trust in respect of loan notes of £33.0m (2005: £33.5m) andNorth America restricted cash balances of £0.8m (2005: £0.8m). In addition, cashincludes train operating company cash of £89.2m (2005: £61.3m). Under the termsof the franchise agreements, train operating companies can only distribute cashout of retained profits. Had the Group's rail franchises ended on the balance sheet date, consolidatednet debt would have increased by £122.7m (2005: £95.2m) as a result of the trainoperating company cash of £89.2m (2005: £61.3m) and the repayment ofinter-company loans of £36.7m (2005: £35.1m) offset by distributable reserves of£3.2m (2005: £1.2m). 13 CHANGES TO IFRS RESTATEMENT PREVIOUSLY PUBLISHED The results for the year ended 30 April 2006 represent the Group's firstfull-year results prepared in accordance with accounting policies based on IFRSand accordingly the comparative figures for the year ended 30 April 2005 havebeen restated in accordance with IFRS. Detailed transitional UK GAAP to IFRSreconciliations for the comparatives were issued on 29 September 2005. In the announcement of 29 September 2005, we noted that the financialinformation presented may subsequently be impacted by changes in the business orto IFRS or the interpretation thereof. The comparative information reported inthese preliminary results differs from that previously reported as a result ofsuch changes. The following changes have been made to the comparatives since thereconciliations published on 29 September 2005: Year ended 30 April 2005 £mIncome statementIncrease in Group operating costs (3.0)Increase in Group other operating income 3.0Increase in operating profit from joint ventures 1.0Increase in profit for the year 1.0 As at 30 April 2005 £mBalance sheetDecrease in interests in joint ventures (6.0)Decrease in net assets and equity (6.0) A loss on sale of plant and equipment of £3.0m has been reclassified from Groupother operating income to Group operating costs. An intangible asset had been previously recognised in relation to VRG in ourprior IFRS restatement which represented the right to operate both the WestCoast and CrossCountry franchises. This has now been removed which results in anincrease in profit for the year ended 30 April 2005 of £1.0m and a decrease innet assets of £6.0m at that date. This change results from further analysis undertaken by VRG and its auditorswith respect to the application of IFRS to the contractual arrangements inrespect of VRG's franchises. The transitional balance sheet shown at 1 May 2005 to comply with IAS 32 and IAS39 in the restatement has changed with net assets at 1 May 2005 decreasing by afurther £0.5m. This reflects the discounting of our North American receivablesin respect of disposals in prior years. The year ended 30 April 2005 comparatives have also been updated to reflect thedisposal of our New Zealand operations, with all income and expenses relating tothe New Zealand division being reclassified to profit for the year fromdiscontinued operations. 14 POST BALANCE SHEET EVENTS On 23 June 2006, the Group agreed to sell its London bus operations to MacquarieBank Limited. The sale is subject to regulatory approval and other closingconditions, and at the present time the Group anticipates that the sale willcomplete within three months. The total proceeds for the sale are £263.6m in cash, subject to adjustmentsdependent on the net assets of the London bus operations at completion. TheGroup's consolidated gain on disposal is estimated at £120.0m although the gainwill depend on the final determination of the net assets at completion of thesale. 15 STATUTORY FINANCIAL STATEMENTS The financial information set out in the preliminary announcement does notconstitute the Group's statutory financial statements for the year ended 30April 2006 within the meaning of Section 240 of the Companies Act 1985. As thisis the first year of reporting under IFRS, both the current year and prior yearfigures included within this press release have been extracted from the fullfinancial statements for the year ended 30 April 2006, which are IFRS compliant. Statutory financial statements for the year ended 30 April 2005 produced underUK GAAP and which received an unqualified audit report, have been delivered tothe Registrar of Companies. The report of the auditors on the financial statements for the year ended 30April 2006 is unqualified and does not contain a statement under either section237(2) or section 237(3) of the Companies Act 1985. The financial statements forthe year ended 30 April 2006 will be delivered to the Registrar of Companies andforwarded to all shareholders in due course. These financial statements willalso be available on the Group's website and from the registered office of theCompany, 10 Dunkeld Road, Perth PH1 5TW. The Board of Directors approved this preliminary announcement on 28 June 2006. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
SGC.L