28th Feb 2008 07:02
National Express Group PLC28 February 2008 National Express Group PLC Preliminary Results For the year ended 31 December 2007 National Express Group PLC, a leading international public transport group,operates bus, coach and train services in the UK, bus and coach operations inSpain and school bus services in North America. Highlights 2007 2006 Change ----------- ----------- -------Revenue £2.6 billion £2.5 billion +4% ----------- ----------- -------Group operating profit £162.3 million £141.6 million +15% ----------- ----------- -------Normalised operating profit* £205.6 million £184.8 million +11% ----------- ----------- -------Profit before tax £149.9 million £104.1 million +44% ----------- ----------- -------Normalised profit before tax* £177.0 million £156.1 million +13% ----------- ----------- -------Operating cash flow** £196.7 million £209.7 million -6% ----------- ----------- -------Diluted earnings per share from continuing operations 73.1 pence 52.5 pence +39% ----------- ----------- -------Normalised diluted earnings per share* 83.9 pence 76.5 pence +10% ----------- ----------- -------Final dividend per share 26.4 pence 24.0 pence +10% ----------- ----------- -------Total dividend for the year per share 37.96 pence 34.75 pence +9% ----------- ----------- -------Net debt £910.8 million £438.4 million +108% * Normalised results are the statutory results excluding the profit or loss on the sale of businesses, exceptional profit or loss on sale of non-current assets and charges for goodwill impairment, intangible asset amortisation, exceptional items and tax relief on qualifying exceptional items. ** Operating cash flow as defined in the Finance Review, before franchise entry and exits. • Results at the top end of market expectations;• Strong passenger growth in all divisions - 6% in trains, 3% in coaches, 2% in buses and 4% in Spain;• Completion of the acquisition of Continental Auto for £459.8 million (€659.3 million) to create Spain's leading coach and bus operator;• Award with launch in December of National Express East Coast franchise;• Restructuring of UK operations to form one division, releasing £11 million of annualised savings, well underway;• Record North American bid season and Business Transformation project on course;• Positive start to 2008; and• Commitment to increase the Group's dividend by 10% per annum for the next three years reflecting the Board's confidence in the Group's future prospects. Commenting on current trading and prospects, Chairman, David Ross said: "Over the last year, National Express has undertaken significant change todeliver a more customer focused service culture, which has contributed toanother year of passenger growth for the Group. Growing awareness of thepositive environmental impact of public transport and population growth withinour core markets continues to support long term growth trends within ouroperations. The acquisition of Continental Auto and the award of the East Coast franchise inthe final quarter of 2007 reinforced our strong market positions in the Spanishand UK markets. Our diversified portfolio of transport activity provides robustcash flow, market leading margins and significant opportunities for futuregrowth. Despite the current economic backdrop, all operations have started theyear well and we have seen no adverse impact on current trading. Our new dividend policy, announced today, underlines our commitment todelivering value for shareholders. We remain confident about the Group'sprospects for the year ahead." For further information, please contact: Richard Bowker, Chief ExecutiveAdam Walker, Finance DirectorNicola Marsden, Director of Group CommunicationsNational Express Group PLC 020 7506 4324/4333 Neil Bennett/Suzanne Bartch/Brian HudspithMaitland 020 7379 5151 • There will be an analyst and investor meeting at 0900 hours on 28 February 2008 at Merrill Lynch, 2 King Edward Street, London, EC1A 1HQ.• A webcast of the analyst presentation will be available on our website www.nationalexpressgroup.com at 0900 hours on 28 February 2008.• High resolution images are available for the media to view and download, free of charge, from www.vismedia.co.uk or telephone 020 7613 2555. National Express Group PLC Preliminary Results For the year ended 31 December 2007 Chairman's Statement National Express Group PLC ("the Group") today reports on trading for the yearended 31 December 2007. I am delighted to announce that we traded stronglythroughout the year and that our results are at the top end of marketexpectations. All divisions provided a healthy contribution. We have delivered10% earnings growth and increased the Group margin to 7.9%. Safety continues to be of paramount importance to us. During 2007 we saw twoserious coach accidents, one tragically involving the loss of three lives. Ourcondolences and thoughts remain with those families affected. In our Coachbusiness, as with all our operations, our policy is one of continuousimprovement in safety. We have restructured our three UK Divisions into a single UK business. This willenable us to put much greater focus on the needs of our customers and be moreresponsive to new opportunities. We are well on track to deliver the £11 millionof annualised savings from this project and we are already seeing the benefitsof a much more integrated approach to product and service design and delivery. Our trains business has seen revenue growth of 11%. We believe the addition ofNational Express East Coast ("NXEC"), the UK's premier railway business, to ourtrains portfolio significantly strengthens our position in the key long distancemarket. Our bus business delivered revenue growth of 7% and we are particularly pleasedthat the voluntary partnerships we have entered into with Centro in the WestMidlands are already delivering strong passenger growth on some of these routesof up to 10%. We are already working on the next network of services, which weexpect to launch in April this year. Coach travel is the most environmentally friendly form of transport with thelowest carbon emissions of any motorised mode. Our coach business has hadanother outstanding year, both on core scheduled routes as well as on newproducts related to supporting events at major venues. Scheduled coach revenuegrowth has been 6%. In North America, our Business Transformation project is on track and willdeliver significant efficiencies and improved stability of earnings. This willmake us the most efficient and competitive North American school bus operation,with a goal to attract those school boards yet to outsource their operations. Weremain on course to offer school boards the best value and safest product in themarket. Our Spanish bus and coach operations traded well with passenger growth of 4%.Our acquisition of Continental Auto makes us the number one private operator ofpublic transport services in Spain. Continental Auto's complementary set ofgeographical routes and business segments especially commuter buses and urbantransport, positions us very well for future growth and further marketliberalisation, particularly in urban bus and rail. The acquisition ofContinental Auto is the largest acquisition the Group has made to date and weare making good progress with the integration and are on track to deliver thebenefits and returns we announced at the time of the acquisition. It is clear that there is an opportunity to create value through developingcloser relationships through greater communications with our UK customers. Wehave started to roll out our masterbrand strategy across all our UK operationsenabling our customers to relate to the wide range of services that we offer,leveraging the greater awareness of the National Express brand. We have begun toaddress a broader range of opportunities to grow our top line including eventsrelated activities. Other sales & marketing initiatives are also starting toshow real success and growth. In 2007 we ran a series of marketing campaignsaimed purely at our rail customers. From a database of 150,000 customers wegenerated incremental profit of around £1 million representing a return oninvestment of 100%. In 2008 we will broaden this activity to our NXEC, NationalExpress East Anglia and coach customers, a combined database of over 2.3 millioncustomers. In November our focus on improving the quality of our services wasrecognised when we won the business to business category at the UK CustomerService Experience Awards, which identify and recognise industry leaders incustomer service, featured in the Sunday Times. The award recognised the Group'sefforts to increase customer satisfaction in every part of the business. It is becoming clear that wider recognition of the environmental credentials ofpublic transport over the car and the plane is contributing to the increased useof our services. Businesses, as well as consumers, are becoming more focused onreducing their carbon footprint for travel and we are developing a range ofcorporate products to encourage this. With the changes in the Group's portfolio during the year, I would like to thankall our people for their efforts during the year to deliver an excellent set ofresults. I also welcome those new employees who have recently joined us and alsoto thank those who have left the Group during the year. It is down to theefforts and commitment of our people that we are able to further develop thisGroup and improve our customer offering in the markets where we operate. Board changes Following a further strengthening of the Board in October when Roger Devlin wasappointed as a non executive director, Sue Lyons retired in November after sixyears service as a non executive director. On behalf of the Board I would liketo thank Sue for her invaluable contribution particularly in her role asChairman of the Safety Committee. In November Adam Walker, Group FinanceDirector, announced he would be leaving the Group after seven years. Adam waspromoted to the Board back in 2003. He has made a significant contribution tothe strategic development of the Group and overseen our entry into new marketssuch as Spain. Adam will be leaving the Group on 26 March and the Board wish himwell in his next role. The recruitment process for a successor is well advanced. Outlook and current trading Over the last year, National Express has undertaken significant change todeliver a more customer focused service culture, which has contributed toanother year of passenger growth for the Group. Growing awareness of thepositive environmental impact of public transport and population growth withinour core markets continues to support long term growth trends within ouroperations. The acquisition of Continental Auto and the award of the East Coast franchise inthe final quarter of 2007 reinforced our strong market positions in the Spanishand UK markets. Our diversified portfolio of transport activity provides robustcash flow, market leading margins and significant opportunities for futuregrowth. Despite the current economic backdrop, all operations have started theyear well and we have seen no adverse impact on current trading. Our new dividend policy, announced today, underlines our commitment todelivering value for shareholders. We remain confident about the Group'sprospects for the year ahead. Results and Dividend Revenue was £2.6 billion (2006: £2.5 billion) and normalised Group operatingprofit was £205.6 million (2006: £184.8 million). After interest and the Group'sshare of profits from associated undertakings, normalised profit before tax was£177.0 million (2006: £156.1 million). Normalised diluted earnings per sharefrom continuing operations were 83.9 pence (2006: 76.5 pence). We are recommending a final dividend of 26.4 pence per ordinary share (2006:24.0 pence), an increase of 10%, to be paid on 9 May 2008 to shareholders on theregister at 25 April 2008. Including the interim dividend, the proposed totaldividend for the year is 37.96 pence (2006: 34.75 pence). Based on the Board's confidence in the Group's prospects and the greatervisibility of rail earnings following the completion of the recent round of railfranchising, we have announced today a commitment to increase our dividend by10% per annum for the next three years. This reflects the Board's confidence inthe Group's future prospects. Operational Review UK highlights • Passenger growth of 6% in trains, 3% coaches and 2% in buses;• Award with launch in December of National Express East Coast franchise• Sales & marketing initiatives to drive top line growth taking place across all UK operations with early signs of success and value creation;• Bus Partnership launched in West Midlands with encouraging signs of substantial growth;• Masterbrand strategy rolling across UK operations;• Rail businesses continue to lead the industry performance tables;• Launch of National Express Dot2Dot; and• Restructuring of UK operations to form one division, releasing £11 million of annualised savings, well underway. Overseas highlights • Completion of the acquisition of Continental Auto, one of Spain's leading coach and bus operators, for £459.8 million (€659.3 million);• Passenger growth in Spain of 4%;• Record bid season in North America with over $38 million of new business won and over 95% of existing business retained;• North American Business Transformation project on course to deliver first benefits in 2008; and• Sale of Stewart airport completed. Trains We operate c2c, Gatwick Express, National Express East Anglia including theStansted Express, and National Express East Coast. We provide 218 millionpassenger journeys per year and employ 7,500 people. Revenue for the year was £1,472.1 million (2006: £1,497.6 million) withnormalised operating profit of £63.3 million (2006: £49.1 million). Theseresults were ahead of expectations and reflect strong passenger growththroughout the year. There were excellent contributions from one railway,recently renamed National Express East Anglia ("NXEA"), and Midland Mainline,reflecting the growth that can be achieved in long distance railways whenperformance levels are sustained. This is particularly encouraging given thatNational Express East Coast ("NXEC") joined the Group in December 2007. The reduction in revenue reflects the three franchises that left the Group inNovember: Central Trains, Midland Mainline and Silverlink. This also impacts thecash outflow from this business in 2007 and 2008. We saw strong passenger growth of 6%. We believe that growth has been driven bya number of factors, including performance. Our franchises lead the way in theperformance league tables with c2c and Gatwick Express at the top of the tables.c2c is the best performing railway in Britain and this continued highperformance is attracting good levels of additional off peak business. At NXEAwe have improved punctuality from 87.4% to over 90% - its best year for thefranchise to date. This has been achieved by implementing joint performanceimprovement plans with Network Rail and managing their delivery. During the year we incurred bid costs of £7.5 million (2006: £9.8 million). Wewere delighted to be awarded the premier East Coast franchise in August andstarted running the service on 9 December. This new franchise, which runs until2015, will receive an investment of £44.0 million. We have made an immediate andpositive impact in terms of customer service such as introducing free wi-fiinternet access for all customers, not just first class and we are making the100 day joint improvement plan with Network Rail, a top priority. We know fromexperience elsewhere that improving performance leads to more passengerstravelling on our services. Further improvements will be introduced includingreal time running information accessible by mobile phone; print at home tickets;a website which will enable total journey booking including parking and onwardconnections in a single visit; and Smartcard ticketing. In addition more andfaster services are scheduled from 2010, with the addition of five more trainsto the fleet and a further 25 services providing 14,000 extra seats daily. Another major contributor to our strong revenue performance has been our focuson yield management and pricing strategies. Our industry leading yieldmanagement capability at Midland Mainline enabled us to sell otherwiseunder-utilised capacity and this strategy has enabled us to maximise yieldacross a wide range of tickets and related services. We have brought all thetechnology and experience gathered around the Group to the NXEC franchise. As agreed with the Department for Transport in April last year, Gatwick Expresswill leave our portfolio in June 2008 prior to the competition for the Southernfranchise, which we will enter, being announced later in the year. Buses We operate over 2,000 buses, providing approximately 390 million passengerjourneys and employ 7,250 people in the West Midlands, Dundee and London. Wealso operate the Midland Metro, the light rail service in the West Midlands. Revenue for the year was £322.3 million (2006: £300.8 million) and normalisedoperating profit was £43.5 million (2006: £40.7 million). Profits have increasedin our bus division for the first time since 2001 and margins have beenmaintained at 13.5%. In order to stimulate growth and encourage customer loyalty and repeat journeys,we did not increase the price of a number of our travelcard products in 2007. Weachieved 2% passenger growth in our deregulated services with increases in bothconcessionary and non concessionary passengers. We were delighted to sign a ground breaking voluntary partnership with Centro todeliver improved performance and customer satisfaction on six key routes throughBirmingham, Walsall and West Bromwich. We have set ourselves demanding targetsand, despite only starting the first of the routes in November, we have alreadyseen year on year passenger growth of up to 10% on these routes. Thesepartnership routes provide more frequent services, improved infrastructure, newor refurbished vehicles with the latest CCTV systems and improvements totimetables and employee training. The success has given both the Group andCentro real confidence to develop further ambitious partnership schemes. A newjointly agreed network for Dudley, which covers approximately 40 routes, will berolled out in April this year and it is intended that this will form the basisof a wider partnership scheme. Our London operations account for a quarter of our overall bus revenues and wehave been pleased to be awarded four new contracts during the period byTransport for London. In December we introduced five hybrid fuel vehicles intothe Travel London fleet to operate on the 127 service between North Greenwichand the Cutty Sark in south east London. These vehicles use up to 40% less fuel.In mid February 2008 we received planning permission for the redevelopment ofthe Battersea bus depot in London which will see a doubling of capacity at thissite. Travel Dundee performed well in the period. It was awarded the 2007 ScottishDisability and Business Award in November for driver training on disability andits contribution to community work with a range of community groups in the city.This award followed Travel Dundee becoming the first UK based urban bus companyto have 100% low-floor easy- access vehicles in 2004. Coaches National Express coaches provide Britain's only scheduled national coach networkand serves more than 1,000 destinations, providing approximately 19 millionpassenger journeys each year. Eurolines offers value for money European travelby coach. The division employs over 2,100 people. National Express Dot2Dot waslaunched in 2007 operating over 70 vehicles in the south east. Revenue for the year was £231.0 million (2006: £207.3 million) with a normalisedoperating profit of £23.1 million (2006: £23.7 million). As expected for a startup business, National Express Dot2Dot incurred losses in 2007 of £4.8 million onrevenue of £3.1 million. In the rest of our coaches business, we have grown ourtop line and increased our margin through segmentation of our product andenhanced yield management. Coaches experienced an excellent trading year with passenger growth of 3%. Thiswas achieved by the use of yield management, fare innovations and changes in ourservice offering. We have increased direct sales within the business withinternet sales accounting for 35% of all transactions. We believe that greateruse of self service ticket kiosks, which are now installed in the majority ofour major coach stations, will continue to reduce our costs within the business.Our investment in our retail systems has enabled us to accelerate the roll outof yield management across the network, with £1 funfares now offered on morethan 50 popular routes. We are continuing to grow our business around special events and venues wherepublic transport is required and travel by private car is discouraged. This yearwe created a unique network offering customers direct coach services to WembleyStadium to enable them to attend both sporting and music events. We carriedaround 1,000 people to each event at Wembley since the start of our association.We have developed similar arrangements with other venues such as the MillenniumStadium and Twickenham. We believe that coach has a very strong role to play in Britain's futuretransport strategy and are encouraged by the increasing support we are receivingfrom Government and stakeholders around the country. We are responding to thatsupport by developing and implementing a wide range of innovative products andservices. In the summer we trialed a new commuter service operating betweenMilton Keynes and Canary Wharf in London. The service, which offers a direct andlow cost alternative to rail travel, provides free wi-fi, seat back tables,electrical plugs, GPS tracking and leather seats. Customers are texted with upto date information about their services. The trial has gone extremely well andwe are now rolling out this concept to other parts of the UK where commuterflows exist. We extended our knowledge of the commuter coach market through theacquisition of the Kings Ferry Travel Group in November. Kings Ferry is a wellestablished Kent based coach operator providing popular commuter travel servicesin London and the South of England as well as providing a wide range of contractmanagement services in the bus and coach sector. During the year we became the first coach company to fit new child friendlyareas, with child seatbelts. Existing coaches were fitted with eight seatsoffering height adjustable seat belts for children and isofix fixings for childcar seats. All new coaches will have these facilities provided. The redevelopment and transformation of our main coach hub, Digbeth, inBirmingham is well underway and we await planning permission. During the secondhalf of the year we completed a seamless move to a new temporary site nearDigbeth. The redevelopment is on schedule to be completed by early 2010. In November we launched National Express Dot2Dot, a high quality, on demand,shared ride product, targeted primarily at the business to business marketalthough with significant capability for the business to consumer market aswell. It currently has over 70 vehicles within its fleet. The start up ofoperations has gone well and customer satisfaction ratings are amongst thehighest we have ever seen for any public transport type service. North America The North American division consists of student transportation. It operates over15,000 buses. The division employs over 19,000 people. Revenue in the division for the year was £308.0 million (2006: £283.7 million)and normalised operating profit was £37.7 million (2006: £39.1 million). Inlocal currency, revenue was US$617.5 million (2006: US$524.0 million) andnormalised operating profit was US$75.5 million (2006: US$72.3 million). Aspreviously announced, the expiry of a fuel hedge caused an increase in NorthAmerica fuel costs of $13 million in 2007. Following the successful sale of Stewart airport in October, we are now focusedon school bus provision. Our school bus operations performed well during theyear despite the increasingly competitive landscape. Whilst 2006 had seen ourbest bidding season, 2007 surpassed this record with $38 million of new businessbeing won and a retention rate of more than 95% of contracts. Following ourentry into two new states, Tennesse and South Carolina, the division nowoperates in 27 states and two Canadian provinces. During the period we acquiredthree small bolt-on operations which were integrated into the business. We arecurrently seeing lower levels of business coming out to tender, partly becauseof the cycle of contracts coming up for expiry and also because the competitivelandscape is going through a period of change. Even so, we are well placed to besuccessful in the bidding opportunities that arise. Our Business Transformation initiative is focused on changing our business inorder to create the highest margin and highest quality school bus business inNorth America. By fundamentally differentiating ourselves from others and with afocus on quality of service, we aim to compete more effectively, including beinguniquely positioned to develop conversion opportunities. Business Transformationis about how to work smarter and more efficiently, how to respond to newcompetitors and look at creative ways to grow our business. We are alsoinvesting in systems and tools which meet the demands of our planned growth.During 2008, we will spend $31 million and expect net benefits to arise in 2009.Full year benefit will commence in 2010. To complement our BusinessTransformation we are formalising our environmental practices by creating anindustry leading environmental strategy. As with all our businesses, safety is our prime concern and we were delighted tosee a further significant improvement in preventable accidents in 2007 from analready low base. Spain We are Spain's leading private operator of coach and bus services. The divisionprovides nearly 144 million passenger journeys per annum and employs over 6,400people. Revenue was £298.0 million (2006: £249.3 million) and normalised operatingprofit was £50.9 million (2006: £44.3 million). In local currency revenue was€434.9 million (2006: €365.6 million) and normalised profit was €74.3 million(2006: €65.0 million). 2007 results include a three month contribution fromContinental Auto. Trading improved in the second half of 2007 and we achieved afull year margin of 17.1%. Following the successful acquisition of Continental Auto, we reinforced ourposition as the number one private transport operator in Spain. We believe thatthis positions us well to access new market opportunities in Spain as well asdriving a more sales and marketing orientated agenda in our existing businesses.Continental Auto has a higher proportion of urban and commuter services whichbalance the long distance services which is the largest part of Alsa. Theintegration of Continental Auto is proceeding to plan both in terms of timingand synergies delivered, adjusting and optimising resources. Already we havefully integrated finance, sales and routing systems and implemented our safetymanagement and financial control procedures within Continental Auto. We are inthe process of consolidating maintenance facilities and the fleet purchasingprocess. During 2007 we negotiated the extension of a number of contracts which now meanswe do not have a single concession expiring before 2013. Competition pressuresexist within the market however we have responded to the entry of low costairlines and the development of high speed rail by varying our frequency,adapting our prices and altering our network to provide complementary services. In addition we secured non regulated work outside the formal concessionaryarrangements which we believe arises from having the scale of operations and theexpertise to deliver on a timely and consistent basis. We are developing our product offering in the market. In October we launched thenew Supra class incorporating a revised on-board catering offering and on-boardwi-fi, being the first transport mode in Spain to incorporate this facility. Inaddition we launched a new loyalty card Bus Plus which provides loyalty benefitto our customers and etickets were rolled out on long distance routes. We arealso reviewing our overall distribution costs and are pleased that now 15% ofall sales for long distance and regional services are via the internet. With over 60% of the Spanish transport market represented by bus and coach, webelieve there are plenty of opportunities for growth particularly in the urbanbus market. We also believe that when future liberalisation of the publictransport market in Spain occurs, we are well positioned to bring our experienceand market presence to bear. Finance Review Year at a glance We have continued our track record of delivering strong financial results.Profit before tax increased by 44.0% to £149.9m (2006: £104.1m), driven by a14.6% increase in operating profit to £162.3m (2006: £141.6m). Basic earningsper share from continuing operations improved 39.4% to 73.6p (2006: 52.8p). Our financial key performance indicators are based on normalised results, whichwe feel reflect the performance of the business more appropriately. Normalisedresults are defined as the statutory result before the following, asappropriate: profit or loss on the sale of businesses, exceptional profit orloss on the disposal of non-current assets and charges for goodwill impairment,intangible asset amortisation, exceptional items and tax relief thereon asappropriate. Normalised group operating profit was up by 11.3% to £205.6m (2006: £184.8m), onrevenue of £2,615.4m (2006: £2,525.5m) resulting in an increased operatingmargin of 7.9% (2006: 7.3%). Normalised profit before tax increased by 13.4% to£177.0m (2006: £156.1m), driving a 9.7% increase in normalised diluted earningsper share to 83.9p (2006: 76.5p). Reflecting this earnings growth and the Board's confidence for its futureprospects, the proposed final dividend per share will be increased by 10.0% to26.40p (2006: 24.0p). This results in a full year dividend per share of 37.96p(2006: 34.75p), an increase of 9.2%. Net debt increased by £472.4m to £910.8m (2006: £438.4m), with £481.9m of theincrease resulting from our acquisition of Continental Auto in Spain. Divisional review Commentary on the divisional results is included in the Operational Reviewabove. Specific financial points to note are included below. Trains Revenue decreased 2% as a result of franchises leaving the Group. Normalisingthe result for franchise exits, revenue increased by 11%. The business margin has improved to 4.3% (2006: 3.3%). The Central Trains,Silverlink and Midland Mainline franchises expired in November 2007, and as partof the DfT re-mapping exercise, Gatwick Express leaves the Group in June 2008.The settlement of working capital balances in respect of Trains franchises thathave finished will continue to result in operating cash outflows. Coaches The trading results for the start up business National Express Dot2Dot were inline with the business plan, with revenue of £3.1m resulting in an operatingloss of £4.8m. This has been reported as part of the UK Coach results.Consequently on a life for like basis the Coach margins increase to 12.2% (2006:11.4%). Spain In local currency, we generated normalised operating profit of €74.3m (2006:€65.0m) on revenue of €434.9m (2006: €365.6m). We are pleased to have maintainedour margins above 17%. The integration of Continental Auto into Alsa is a major project covering thesystems for sales, vehicle maintenance and financial reporting. We started thisproject as soon as the sale completed in October and expect it to be completedby mid-2008. The valuation work on intangibles and key assets will be includedin the 30 June 2008 balance sheet in accordance with IFRS 3, 'BusinessCombinations'. North America In local currency, North America increased normalised operating profit toUS$75.5m (2006: US$72.3m). Revenue has increased by 18% to US$617.5m (2006:US$524.0m). As reported in last year's results, historic fuel hedges that were in placeended in 2006, which resulted in US$13m increase in the cost base in 2007. Thisresulted in a lower margin of 12.2% (2006: 13.8%). Following the Group's announcement of the planned sale of the operating lease onStewart International Airport, the assets and related liabilities of thedisposal group were separately identified in the 2006 balance sheet, inaccordance with IFRS 5, 'Non-current assets held for sale and discontinuedoperations'. The business did not meet the definition of a discontinuedoperation, therefore the results, which do not make a significant contribution,are included within continuing operations in 2007 and 2006. Fuel We use fuel swaps to hedge short term movements in the fuel price. These swapscover a number of different positions including ULSD and gasoil in the UK,heating oil in North America and Euro denominated ULSD in Spain. For 2008 and2009 we have hedged 58% and 31% of our volumes respectively. Joint ventures and Associates The Group has a number of associates and joint ventures in Spain and holds a 40%investment in Inter-Capital and Regional Rail Limited ("ICRRL"). The results of the associates and joint ventures in Spain were a profit of £0.6m(2006: £0.2m) and a loss of £0.2m (2006: £0.2m loss) respectively. The Group's Eurostar contract with ICRRL was designated an onerous contract in2006. As a result there is no charge to the income statement in 2007, but in2006 the total charge was £29.6m, comprising our share of the ICRRL result of£3.9m and a £25.7m exceptional charge for the onerous contract. We have providedfor the Eurostar losses to the end of the contract in 2010. Finance cost Net finance costs increased to £29.0m (2006: £24.9m), reflecting the £481.9mincrease in net debt following the acquisition of Continental Auto in October2007. Included in the net finance cost is a £3.0m (2006: £2.1m) charge to unwind thediscounting on provisions, most notably the ICRRL onerous contract. Adjustingfor the discounting charge and comparing to normalised operating profit beforedepreciation and other non-cash items ("EBITDA") of £282.9 (2006: £264.0m), theEBITDA finance cover was 10.9 times (2006: 11.6 times). Amortisation of Intangible assets Amortisation of £27.5m (2006: £27.8m) was charged on the intangible asset thatarises from the Group's right to operate its rail franchises £1.1m (2006: £1.6m)and on contracts acquired in Alsa £20.2m (2006: £20.1m), UK Bus £1.1m (2006:£1.6m) and North America £5.1m (2006: £4.5m). Exceptional items Exceptional charges totalled £15.8m, incurred on the Business Transformationprogram in North America (£8.2m), UK Integration program (£4.2m), theContinental Auto integration (£2.6m) and the NXEC franchise mobilisation(£0.8m). In 2006, exceptional items totalled a net income of £4.8m, comprising a creditof £6.7m in relation to defined benefit pension liabilities and charges of £1.9min relation to the integration of Alsa. The £16.2m profit on disposal of non-current assets arises from the sale of theoperating lease on Stewart International Airport in October 2007. The £16.9mprofit in 2006 resulted from the disposal a 14% shareholding in TrainlineHoldings Limited (£9.4m) and the disposal of a car park in Sheffield (£7.5m). Taxation The total tax charge of £37.6m (2006: £23.6m) on profit before tax of £149.9m(2006: £104.1m) represents an effective rate of 25.1% (2006: 22.7%). The tax charge on normalised profit of £177.0m (2006: £156.1m) was £48.1m (2006:£39.2m), which represents an effective rate of 27.2% (2006: 25.1%). Reductionsin jurisdictional tax rates mean that the expected tax rate on normalised profitbefore tax decreased by 1.0% to 31.3%. However, the effective tax rate hasincreased by 2.1% to 27.2% due to the expiry of certain tax efficient financingarrangements. The total tax charge includes a tax credit on exceptional items of £10.5m (2006:£15.6m) which includes the deferred tax benefit of the Group's non-deductibleintangible asset amortisation. Discontinued operations An additional provision of £6.3m was recognised in relation to the Group'sPublic Transit business which was disposed of in 2005. The Group provided anindemnity to the purchaser at the time of the disposal regarding an industryemployment issue in California. The issue is close to resolution and this chargereflects the Directors' best estimate of the Group's liability. The charge of£2.9m on the face of the income statement comprises £6.3m of additionalliabilities in relation to the disposed operations, offset by a tax credit of£3.4m. Cash flow The Group continues to generate strong cash flow with normalised operatingprofit of £205.6m (2006: £184.8m) converted into operating cash flow beforeone-offs of £196.7m (2006: £209.7m). Net cash inflow from operations of £300.6m(2006: £297.1m) is then used to maintain high levels of investment across theGroup, particularly in North America where capital expenditure is required forcontract wins. Operating Cash Flow North UK UK UK American Central Bus Coach Trains Bus Europe functions Total £m £m £m £m £m £m £mNormalisedoperating profit 43.5 23.1 63.3 37.7 50.9 (12.9) 205.6Depreciation 17.0 4.8 15.9 25.9 15.4 0.6 79.6Amortisation ofleaseholdpropertyprepayment 0.1 - - - - - 0.1Amortisation offixed assetgrants (0.1) - (0.8) - (0.4) - (1.3)Profit ondisposal 0.1 (0.2) (2.8) (0.6) (0.8) - (4.3)Share basedpayments 0.3 0.2 0.6 0.4 0.2 1.5 3.2 ------ ------- ------ -------- ------ -------- -------EBITDA 60.9 27.9 76.2 63.4 65.3 (10.8) 282.9Working capitalmovement (9.5) (0.1) 43.1 (3.6) 1.5 (13.7) 17.7 ------ ------- ------ -------- ------ -------- -------Net cash inflowfrom operations 51.4 27.8 119.3 59.8 66.8 (24.5) 300.6Net capitalexpenditure (22.3) (9.6) (6.1) (45.1) (20.3) (0.5) (103.9) ------ ------- ------ -------- ------ -------- -------Operating cashflow beforeone-offs 29.1 18.2 113.2 14.7 46.5 (25.0) 196.7 UK Trainfranchise entryand exits (31.9) -------Operating cashflow 164.8 Operating cash flow is intended to be the cash flow equivalent to normalisedoperating profit. To reconcile the operating cash flow to the statutory cashflow the following items are included: "Cash generated from operations" plus"Proceeds from disposal of property, plant and equipment" less "Finance leaseadditions" and "Purchase of property, plant and equipment" as set out in note 10and the cash flow statement. The non-operating items are then excluded whichcomprise £8.4m payment to associates and £11.3m payments in relation to otherexceptional items. The working capital outflow in UK Bus comprises payments to the defined benefitpension schemes in excess of the income statement charge and the lossesassociated with the onerous contracts in our London business. The workingcapital inflow in UK Trains arises from a number of items including workingcapital phasing and non-cash charges at NXEC incurred in the franchise entry.The working capital outflow in Central Functions arises from the reversal ofprior year working capital inflows and the settlement of foreign currency swaps. Net capital expenditure was £103.9m (2006: £87.4m) including £0.2m (2006:£20.7m) of additions purchased under finance leases and £15.4m (2006: £6.8m) ofproceeds from disposals. The net operating cash outflow in respect of TOC franchise entry and exits was£31.9m (2006: £27.7m) comprising cash flows in respect of working capital andproperty, plant and equipment. Reconciliation of net debt 2007 2006 £m £m ------ ------Operating cash flow 164.8 182.0Exceptional cash flow (11.3) (2.0)Exceptional property proceeds - 13.0Payments to associates (8.4) (8.4)Receipt in respect of investments 10.7 -Net interest (23.4) (20.6)Dividends paid to minority interests (0.1) -Taxation (18.8) (9.0) ------ ------Free cash flow 113.5 155.0Share buy back - (11.6)Financial investments & shares 5.5 15.8Acquisitions and disposals (482.1) (16.8)Dividends (53.9) (49.7) ------- ------Net funds flow (417.0) 92.7Foreign exchange (55.4) 32.3 ------- ------Funds flow post exchange (472.4) 125.0Opening net debt (438.4) (563.4) ------- ------Closing net debt (910.8) (438.4) Payments to associates of £8.4m (2006: £8.4m) represent the annual outflow inrespect of the ICRRL onerous contract. In 2007 £10.7m was received on theredemption of preference shares following the completion the Channel Tunnel RailLink. Net interest paid of £23.4m (2006: £20.6m) comprises the cash outflow of £22.5m(2006: £19.7m) adjusted for loan fee amortisation of £0.9m (2006: £0.9m). Theincrease in interest paid follows the acquisition of Continental Auto in October2007. As disclosed last year, the 2006 tax payments were reduced by the receipt of taxrebates in respect of prior years. Acquisitions and disposals in the year increased net debt by £482.1m,principally due to the £481.9m increase resulting from the acquisition ofContinental Auto. Three bolt-on acquisitions in North America and theacquisition of the Kings Ferry Group and Hotelink in the UK were funded by thedisposal of Stewart Airport in North America. Movements in foreign currency exchange rates increased net debt by £55.4mprincipally due to the strengthening of the Euro. The increase in net debt dueto exchange is hedged by a corresponding increase in our net investment in Eurodenominated assets. Dividend A final dividend of 26.40p per share will be paid in May 2008, bringing thetotal dividend for the year to 37.96p. This is a 9.2% increase in totaldividends declared compared to 2006 reflecting the 9.7% increase in normaliseddiluted earnings per share. This dividend is covered 2.2 times (2006: 2.2 times)by normalised profits after tax. In light of the consistent nature of our rail portfolio for the medium term andbased on the Board's confidence in the Group's future prospects, it is proposedto announce a three year commitment on dividend growth of 10% per annum. Liquidity At 31 December 2007, the Group had two bank debt facilities: an £800 millionrevolving credit facility maturing in June 2011 and a €500m term loan facilityexpiring in April 2008. At 31 December 2007, the headroom under the facility was£199.4m (2006: £247.8m). The Group has complied with all of its bankingcovenants in the year. Since year end we have replaced the €500m term loan facility with a €540m termloan facility expiring in February 2009 with a one year extension to February2010 at the Group's option. NATIONAL EXPRESS GROUP PLCGROUP INCOME STATEMENTFor the year ended 31 December 2007 Total before Total before goodwill Goodwill goodwill Goodwill impairment, impairment, impairment, impairment, intangible intangible intangible intangible amortisation amortisation amortisation amortisation and and and and exceptional exceptional exceptional exceptional items items Total items items Total 2007 2007 2007 2006 2006 2006 Note £m £m £m £m £m £m -------- ------- ------ ------- ------- ------ContinuingOperationsRevenue 3 2,615.4 - 2,615.4 2,525.5 - 2,525.5 -------- ------- ------ ------- ------- ------Operatingcosts beforegoodwillimpairment,intangibleamortisation &exceptionalitems (2,409.8) - (2,409.8) (2,340.7) - (2,340.7)Goodwillimpairment 3 - - - - (20.2) (20.2)Intangibleamortisation 3 - (27.5) (27.5) - (27.8) (27.8)Exceptionalitems 3 - (15.8) (15.8) - 4.8 4.8 -------- ------- ------- ------- ------- -------Totaloperatingcosts (2,409.8) (43.3) (2,453.1) (2,340.7) (43.2) (2,383.9) ---- -------- ------- ------- ------- ------- -------Groupoperatingprofit 205.6 (43.3) 162.3 184.8 (43.2) 141.6Profit ondisposal ofnon-currentassets 3 - 16.2 16.2 - 16.9 16.9 ---- -------- ------- ------- ------- ------- -------Profit fromoperations 205.6 (27.1) 178.5 184.8 (26.3) 158.5Share of posttax resultsfromassociates andjoint venturesaccounted forusing theequity method 0.4 - 0.4 (3.8) (25.7) (29.5)Finance income 4 17.0 - 17.0 12.4 - 12.4Finance costs 4 (46.0) - (46.0) (37.3) - (37.3) ---- -------- ------- ------- ------- ------- -------Profit beforetax 177.0 (27.1) 149.9 156.1 (52.0) 104.1Tax expense 5 (48.1) 10.5 (37.6) (39.2) 15.6 (23.6) ---- -------- ------- ------- ------- ------- -------Profit aftertax for theyear fromcontinuingoperations 128.9 (16.6) 112.3 116.9 (36.4) 80.5Loss for theyear fromdiscontinuedoperations - (2.9) (2.9) - (3.2) (3.2) ---- -------- ------- ------- ------- ------- -------Profit for theyear 128.9 (19.5) 109.4 116.9 (39.6) 77.3 -------- ------- ------- ------- ------- -------Profitattributableto equityshareholders 128.4 (19.5) 108.9 116.1 (39.6) 76.5Profitattributableto minorityinterests 0.5 - 0.5 0.8 - 0.8 -------- ------- ------- ------- ------- ------- 128.9 (19.5) 109.4 116.9 (39.6) 77.3 ---- -------- ------- ------- ------- ------- ------- Earnings pershare:- basicearnings pershare 7 71.7p 50.7p- dilutedearnings pershare 7 71.2p 50.4p Normalised earningsper share:- basicearnings pershare 7 84.5p 77.0p- dilutedearnings pershare 7 83.9p 76.5p Earnings per share from continuingoperations:- basicearnings per share 7 73.6p 52.8p - dilutedearnings pershare 7 73.1p 52.5p ---- -------- ------- ------- ------- ------- -------Dividends perordinary share:- interim 6 11.56p 10.75p- final 6 26.40p 24.00p ---- -------- ------- ------- ------- ------- ------- 37.96p 34.75p Dividends of £54.0m were declared and payable during the year (2006: £50.1m).Dividends of £57.8m were proposed for approval during the year (2006: £52.5m). NATIONAL EXPRESS GROUP PLCGROUP BALANCE SHEETAt 31 December 2007 2007 2006 Note £m £m ----- ---------- -----------AssetsNon-current assetsIntangible assets 1,173.9 697.6Property, plant andequipment 678.7 501.9Financial assets - Available for sale 7.2 13.5 - Derivative financial instruments 5.3 0.3Investments accountedfor using the equitymethod 11.8 8.7Other receivables 10.0 4.1Deferred tax asset - 10.6 ----- ---------- ----------- 1,886.9 1,236.7 ----- ---------- -----------Current assetsInventories 20.0 15.5Trade and otherreceivables 272.4 272.3Financial assets - Derivative financial instruments 10.0 8.1Current tax assets 9.5 26.4Cash and cashequivalents 157.2 143.6 ----- ---------- ----------- 469.1 465.9 ----- ---------- -----------Disposal group assetsclassified as heldfor sale - 20.1 ----- ---------- -----------Total assets 2,356.0 1,722.7 ----- ---------- -----------Non-current liabilitiesFinancial liabilities - Borrowings (641.6) (538.4) - Derivative financial instruments (5.4) (8.3)Deferred taxliability (104.0) (84.3)Other non-currentliabilities (3.7) (3.0)Defined benefitpension liability 8 (29.8) (52.8)Provisions (43.5) (61.3) ----- ---------- ----------- (828.0) (748.1) ----- ---------- -----------Current liabilitiesTrade and otherpayables (573.3) (518.4)Financial liabilities - Borrowings (426.4) (43.6) - Derivative financial instruments (17.7) (6.4)Current taxliabilities (24.7) (40.9)Provisions (44.8) (17.4) ----- ---------- ----------- (1,086.9) (626.7) ----- ---------- -----------Liabilities directlyassociated withdisposal group assetsclassified as heldfor sale - (2.4) ----- ---------- -----------Total liabilities (1,914.9) (1,377.2) ----- ---------- -----------Net assets 441.1 345.5 ----- ---------- -----------Shareholders' equityCalled up sharecapital 9 7.7 7.7Share premium account 9 195.3 189.8Capital redemptionreserve 9 0.2 0.2Own shares 9 (16.3) (16.7)Other reserves 9 30.7 7.9Retained earnings 9 219.6 153.3 ----- ---------- -----------Total shareholders'equity 437.2 342.2Minority interest inequity 9 3.9 3.3 ----- ---------- -----------Total equity 441.1 345.5 NATIONAL EXPRESS GROUP PLCGROUP STATEMENT OF CASH FLOWSFor the year ended 31 December 2007 Note 2007 2006 £m £m ----- --------- ---------Cash generated from operations 11 272.1 254.5Tax paid (18.8) (9.0) ----- --------- ---------Net cash from operating activities 253.3 245.5 ----- --------- ---------Cash flows from investing activitiesPayments to acquire businesses, net of cash acquired (485.0) (19.8)Deferred consideration for businesses acquired (1.7) (3.0)Purchase of property, plant and equipment (149.7) (73.5)Proceeds from disposal of property, plant and equipment 22.9 24.3Payments to acquire available for sale investments - (4.6)Payments to acquire associates - (1.5)Receipts from disposal of available for sale investments 10.7 13.2Receipts from disposal of businesses, net of cash disposed 34.3 -Payments in respect of discontinued operations (1.9) -Receipts from disposal of intangible assets - 1.5Interest received 17.0 12.4 ----- --------- ---------Net cash used in investing activities (553.4) (51.0) ----- --------- ---------Cash flows from financing activitiesProceeds from issue of ordinary shares 5.5 15.8Purchase of treasury shares - (11.6)Interest paid (39.5) (32.1)Finance lease principal payments (26.3) (21.5)Net loans advanced/(repaid) 424.9 (89.9)Loans receivable repaid - 1.0Dividends paid to minority interests (0.1) -Dividends paid to shareholders of the Company (53.9) (49.7) ----- --------- ---------Net cash from/(used in) financing activities 310.6 (188.0) ----- --------- ---------Increase in cash and cash equivalents 10.5 6.5 ----- --------- ---------Opening cash and cash equivalents 143.6 140.0Increase in cash and cash equivalents 10.5 6.5Foreign exchange 3.1 (2.9) ----- --------- ---------Closing cash and cash equivalents 157.2 143.6 NATIONAL EXPRESS GROUP PLCGROUP STATEMENT OF RECOGNISED INCOME AND EXPENSEFor the year ended 31 December 2007 Note 2007 2006 £m £m ----- --------- ---------Income and expense recognised directly in equityExchange differences on retranslation of foreign operations 83.2 (55.3)Exchange differences on retranslation of foreigncurrency borrowings (89.1) 46.8Exchange differences on retranslation of minority interests 0.2 -Actuarial gains on defined benefit pension plans 11.7 20.6Gain/(loss) on cash flow hedges taken to equity 21.5 (12.1) ----- --------- --------- 27.5 - ----- --------- --------- Transfers to the income statementOn cash flow hedges (1.0) 1.6 ----- --------- --------- (1.0) 1.6 ----- --------- --------- Tax on exchange differences on retranslation offoreign operations 14.3 (1.3)Tax on share based payments 0.4 2.4Deferred tax on actuarial gains (3.5) (6.2)Deferred tax on cash flow hedges (6.1) 3.7 ----- --------- ---------Tax on items taken directly to or transferred from equity 5.1 (1.4) ----- --------- ---------Net losses recognised directly in equity 31.6 0.2Profit for the financial year 108.9 76.5Profit attributable to minority interests 0.5 0.8 ----- --------- ---------Total recognised income and expense for the year 141.0 77.5 --------- ---------Income and expense attributable to equity shareholders 140.3 76.7Income attributable to minority interests 0.7 0.8 --------- --------- 141.0 77.5 NATIONAL EXPRESS GROUP PLCNOTES TO THE ACCOUNTSFor the year ended 31 December 2007 1. Basis of preparation The results have been prepared in accordance with International FinancialReporting Standards ("IFRS") and the International Financial ReportingInterpretations Committee's interpretations as adopted by the European Union,and with those parts of the Companies Act 1985 applicable to companies reportingunder IFRS. These results have been prepared using the accounting policies set out in theGroup's 2006 statutory accounts. Normalised results are defined as the statutory results before the following asappropriate: profit or loss on the sale of businesses, exceptional profit orloss on the sale of non-current assets and charges for goodwill impairment,intangible asset amortisation, exceptional items and tax relief on qualifyingexceptional items. 2. Exchange rates The most significant exchange rates to UK sterling for the Group are as follows: 2007 2007 2006 2006 Closing rate Average rate Closing rate Average rate ---------- ---------- ---------- ----------US dollar 1.98 2.00 1.96 1.85Canadian dollar 1.98 2.15 2.28 2.09Euro 1.36 1.46 1.48 1.47Australian dollar 2.27 2.39 2.48 2.44 If the results for the year to 31 December 2006 had been retranslated at theaverage exchange rates for the year to 31 December 2007, North America wouldhave achieved normalised operating profit of £36.5m on revenue of £264.5m,compared to normalised operating profit of £39.1m on revenue of £283.7m asreported, and Europe would have achieved a normalised operating profit of £44.5mon revenue of £250.5m, compared to normalised operating profit of £44.3m onrevenue of £249.3m as reported. 3. Segmental analysis Analysis by class and geography of business Operating Operating Revenue result Revenue result 2007 2007 2006 2006 £m £m £m £m ------- ------- ------- -------UK Bus 322.3 43.5 300.8 40.7UK Trains 1,472.1 63.3 1,497.6 49.1UK Coach 231.0 23.1 207.3 23.7Intercompany elimination (16.0) - (13.2) - ------- ------- ------- -------UK operations 2,009.4 129.9 1,992.5 113.5North American Bus 308.0 37.7 283.7 39.1European Coach & Bus 298.0 50.9 249.3 44.3Central functions - (12.9) - (12.1) ------- ------- ------- -------Result from continuing operations 2,615.4 205.6 2,525.5 184.8Goodwill impairment - (20.2)Intangible asset amortisation (27.5) (27.8)Exceptional items (15.8) 4.8 ------- ------- ------- -------Group operating profit 162.3 141.6Profit on disposal of non-current assets 16.2 16.9 ------- ------- ------- -------Profit from operations 178.5 158.5Share of post tax results from associates 0.4 (29.5)Net finance costs (29.0) (24.9) ------- ------- ------- -------Profit before tax 149.9 104.1Tax expense (37.6) (23.6) ------- ------- ------- -------Profit for the year from continuingoperations 112.3 80.5 Loss from discontinued operations (2.9) (3.2) ------- ------- ------- -------Profit for the year 109.4 77.3 Intercompany sales only occur between the Group's UK Divisions. 3. Segmental analysis (continued) Goodwill impairment, intangible asset amortisation and exceptional items can beanalysed by class and geography of business as follows: Intangible asset Exceptional amortisation items Total 2007 2007 2007 £m £m £m -------- -------- --------UK Bus 1.1 0.1 1.2UK Trains 1.1 1.8 2.9UK Coach - 0.3 0.3North American Bus 5.1 8.2 13.3European Coach &Bus 20.2 2.6 22.8Central functions - 2.8 2.8 -------- -------- --------Total 27.5 15.8 43.3 In the year to 31 December 2007 exceptional costs of £4.2m for UK Integrationwere incurred in UK Bus, UK Trains, UK Coach and Central functions. Mobilisationcosts of £0.8m were incurred in National Express East Coast. Integration costsof £2.6m were incurred in Continental Auto. Business transformation costs of£8.2m were incurred in North America. In the year to 31 December 2007 non-operating exceptional items comprise £16.2mof profit on disposal of the trade and business of Stewart InternationalAirport. Intangible Goodwill asset Exceptional Impairment amortisation items Total 2006 2006 2006 2006 £m £m £m £m -------- -------- -------- --------UK Bus 1.0 1.6 (4.9) (2.3)UK Trains 19.2 1.6 - 20.8UK Coach - - (1.3) (1.3)North AmericanBus - 4.5 - 4.5European Coach& Bus - 20.1 1.9 22.0Centralfunctions - - (0.5) (0.5) -------- -------- -------- -------- Total 20.2 27.8 (4.8) 43.2 -------- -------- -------- -------- In the year to 31 December 2006 exceptional income arose in UK Bus, UK Coach andCentral Functions for a past service pension credit. Integration costs of £1.9mwere incurred in Alsa. In 2006 non-operating exceptional items comprise £7.5m of profit on the disposalof property and £9.4m of profit on disposal of investments, both items relate tothe UK Trains division. 4. Net finance costs 2007 2006 £m £m -------- --------Bank interest payable (37.9) (28.2)Finance lease interest payable (5.0) (7.0)Other interest payable (0.1) -Unwind of provision discounting (3.0) (2.1) -------- --------Finance costs (46.0) (37.3)Finance income: Bank interest receivable 17.0 12.4 -------- --------Net finance costs (29.0) (24.9) -------- -------- 5. Taxation Analysis of taxation charge in the year 2007 2006 £m £m -------- --------Current taxation:UK corporation tax - continuing operations 24.9 10.0Overseas taxation - continuing operations 11.3 8.8 -------- --------Current income tax charge 36.2 18.8Amounts under/(over) provided in prior years - UK (2.0) (4.8)Amounts overprovided in prior years - Overseas - (0.2) -------- --------Total current income tax 34.2 13.8 Deferred taxation:Origination and reversal of temporary differences -continuing operations - 9.8 -------- --------Total tax charge 34.2 23.6 -------- -------- The tax charge in the income statement is disclosed asfollows:Income tax expense on continuing operations 37.6 23.6Income tax credit on discontinued operations (3.4) - -------- -------- 34.2 23.6 -------- -------- The tax expense on continuing operations is disclosed asfollows:Tax charge on profit before goodwill impairment, intangibleasset amortisation and exceptional items 48.1 39.2Tax credit on intangible asset amortisation and exceptionalitems (10.5) (15.6) -------- -------- 37.6 23.6 6. Dividends payable and proposed Declared and paid during the year 2007 2006 £m £m --------- ---------Ordinary final dividend for 2006 paid of 24.00p per share(2005: 22.25p per share) 36.4 33.9 Ordinary interim dividend for 2007 paid of 11.56p pershare (2006: 10.75p per share) 17.6 16.2 --------- --------- 54.0 50.1 --------- --------- Proposed for approval (not recognised as a liability at 31December) --------- ---------Ordinary final dividend for 2007 of 26.4p per share (2006:24.00p per share) 40.2 36.3 7. Earnings per share 2007 2006 --------- ---------Basic earnings per share - continuing operations 73.6p 52.8pBasic loss per share - discontinued operations (1.9p) (2.1p) --------- ---------Basic earnings per share - total 71.7p 50.7p --------- ---------Normalised basic earnings per share - continuing operations 84.5p 77.0p --------- --------- Diluted earnings per share - continuing operations 73.1p 52.5pDiluted loss per share - discontinued operations (1.9p) (2.1p) --------- ---------Diluted earnings per share - total 71.2p 50.4p --------- ---------Normalised diluted earnings per share - continuing operations 83.9p 76.5p --------- --------- Basic earnings per share is calculated by dividing the earnings attributable toequity shareholders of £108.9m (2006: £76.5m) by the weighted average number ofordinary shares in issue during the year, excluding those held by employee shareownership trusts and those held as treasury shares which are both treated ascancelled. For diluted earnings per share, the weighted average number of ordinary sharesin issue during the year is adjusted to include the weighted average number ofordinary shares that would be issued on the conversion of all the dilutivepotential ordinary shares into ordinary shares. 7. Earnings per share (continued) The reconciliation of basic and diluted weighted average number of ordinaryshares is as follows: 2007 2006 --------- ---------Basic weighted average shares 151,914,241 150,847,303Adjustment for dilutive potential ordinary shares 976,000 915,923 --------- ---------Diluted weighted average shares 152,890,241 151,763,226 --------- --------- The normalised basic and normalised diluted earnings per share have beencalculated in addition to the basic and diluted earnings per share required byIAS 33 since, in the opinion of the Directors, they reflect the underlyingperformance of the business's operations more appropriately. The reconciliation of the earnings and earnings per share to their normalisedequivalent is as follows: 2007 2007 2006 2006 Basic Diluted Basic Diluted 2007 EPS EPS 2006 EPS EPS £m p p £m p p ------- ------- ------- ------- ------- -------Profit attributable toequity shareholders 108.9 71.7 71.2 76.5 50.7 50.4Loss from discontinuedoperations 2.9 1.9 1.9 3.2 2.1 2.1 ------- ------- ------- ------- ------- -------Profit from continuingoperations attributable toequity shareholders 111.8 73.6 73.1 79.7 52.8 52.5Goodwill impairment oncontinuing operations - - - 20.2 13.4 13.3Intangible assetamortisation 27.5 18.1 18.0 27.8 18.5 18.3Exceptional charge forassociate onerous contractprovision - - - 25.7 17.0 16.9Exceptional items 15.8 10.4 10.3 (4.8) (3.2) (3.1)Profit on disposal ofnon-current assets (16.2) (10.7) (10.6) (16.9) (11.2) (11.1)Tax relief on goodwill andexceptional items (10.5) (6.9) (6.9) (15.6) (10.3) (10.3) ------- ------- ------- ------- ------- -------Normalised profitattributable to equityshareholders 128.4 84.5 83.9 116.1 77.0 76.5 8. Pensions and other post-employment benefits The UK Bus and UK Coach divisions operate both funded defined benefit schemesand a defined contribution scheme. The majority of employees of the UK Traincompanies are members of the appropriate shared-cost section of the RailwaysPension Scheme ("RPS"), a funded defined benefit scheme. The assets of allschemes are held separately from those of the Group. Contributions to theschemes are determined by independent professionally qualified actuaries. Subsidiaries in North America contribute to a number of defined contributionplans. The Group also provides certain additional unfunded post-employmentbenefits to employees in North America and Spain, which are disclosed in theOther category below. The total pension cost for the year was £27.5m (2006: £23.9m), of which £3.2m(2006: £3.4m) relates to the defined contribution schemes. The defined benefit pension liability included in the balance sheet is asfollows: 2007 2006 £m £m ---------- ----------UK Bus (5.1) (17.3)UK Coach (4.9) (12.7)UK Train (18.8) (21.1)Other (1.0) (1.7) ---------- ----------Total (29.8) (52.8) ---------- ---------- 9. Share capital and reserves Capital redemp- Share Share tion Own Other Retained Minority Total capital premium reserve shares reserves earnings Total interests equity £m £m £m £m £m £m £m £m £m ------- -------- --------- -------- -------- ------- ------ ----- ------ At 1January 2007 7.7 189.8 0.2 (16.7) 7.9 153.3 342.2 3.3 345.5Shares issued - 5.5 - - - - 5.5 - 5.5Own sharesreleased tosatisfy employeeshare schemes - - - 0.4 - (0.4) - - -Totalrecognisedincome andexpense - - - - 22.8 117.5 140.3 0.7 141.0Share-basedpayments - - - - - 3.2 3.2 - 3.2Dividends - - - - - (54.0) (54.0) - (54.0)Payments tominorityinterests - - - - - - - (0.1) (0.1) -------- --------- -------- -------- --------- ------ ------ ------ -------At 31December 2007 7.7 195.3 0.2 (16.3) 30.7 219.6 437.2 3.9 441.1 Own shares comprise treasury shares and shares held in the Employee BenefitTrust. Treasury shares include 1,825,000 (2006: 1,825,000) ordinary shares in theCompany. During the year, the Group repurchased no (2006: 1,425,000) shares forconsideration of £nil (2006: £11.6m). No additional (2006: 1,425,000) shareshave been retained as treasury shares within equity for future issue under theGroup's share schemes or cancellation. No shares were cancelled during the year(2006: nil). The market value of these shares at 31 December 2006 was £22.7m(2006: £20.6m). Own shares include 447,554 (2006: 663,352) ordinary shares in the Company thathave been purchased by the Trustees of the National Express Employee BenefitTrust (the "Trust"). During the year, the Trust purchased no (2006: nil) sharesand 215,798 (2006: 186,105) shares were used to satisfy options granted under anumber of the Company's share schemes. The value of shares within the Trust hasbeen recognised as an investment in treasury shares. The market value of theseshares at 31 December 2006 was £5.6m (2006: £7.5m). The dividends payable onthese shares have been waived. 10. Net debt Net debt at 31 December 2007 comprises cash and cash equivalents of £157.2m(2006: £143.6m), current interest bearing loans and borrowings of £426.4m (2006:£43.6m) and non-current interest bearing loans and borrowings of £641.6m (2006:£538.4m). At At 31 1 January Cash Acquisitions/ Exchange Other December 2007 flow Disposals Differences movements 2007 £m £m £m £m £m £m ------ ------- -------- ------- ---------- ---------Cash 43.7 22.4 - 1.9 - 68.0Overnightdeposits 21.6 (7.0) - - - 14.6Other shortterm deposits 78.3 (4.9) - 1.2 - 74.6 ------ ------- -------- ------- ---------- ---------Cash andcash equivalents 143.6 10.5 - 3.1 - 157.2 ------ ------- -------- ------- ---------- ---------Borrowings:Loan notes (0.8) - - - - (0.8)Bank loans (478.1) (424.9) (4.4) (57.6) (0.9) (965.9)Financelease obligations (103.1) 26.3 (23.4) (0.9) (0.2) (101.3) ------ ------- -------- ------- ---------- --------- (582.0) (398.6) (27.8) (58.5) (1.1) (1,068.0) ------ ------- -------- ------- ---------- ---------Net debt (438.4) (388.1) (27.8) (55.4) (1.1) (910.8) Short term deposits included within liquid resources relate to term depositsrepayable within three months. Changes in cash and cash equivalents arising fromacquisitions and disposals in the year are disclosed separately on the face ofthe cash flow statement. Other non cash movements in net debt represent finance lease additions of £0.2m(2006: £20.7m) and £0.9m (2006: £0.9m) amortisation of loan arrangement fees. 11. Cash flow statement The net cash inflows from operating activities include outflows of £11.3m (2006:£2.0m) from continuing operations which related to exceptional costs. The reconciliation of Group profit before tax to cash generated from operationsis as follows: Total Operations 2007 2006 £m £m --------- ---------Net cash inflow from operating activitiesProfit before tax 149.9 104.1Net finance costs 29.0 24.9Profit on disposal of non-current assets (16.2) (16.9)Share of post tax results from associates and joint (0.4) 29.5venturesDepreciation of property, plant and equipment 79.6 81.7Amortisation of leasehold property prepayment 0.1 0.6Goodwill impairment - 20.2Intangible asset amortisation 27.5 27.8Amortisation of property, plant and equipment grants (1.3) (2.0)Profit on disposal of non-current assets (in operating (4.3) (3.1)profit)Share-based payment 3.2 2.0(Increase)/decrease in inventories (2.1) 2.9Decrease in receivables 17.7 27.3Increase/(decrease) in payables 5.9 (21.1)Decrease in provisions (16.5) (23.4) --------- ---------Cash generated from operations 272.1 254.5 --------- -------- 12. Financial information The financial information set out above, which was approved by the Board on 28February 2008, is derived from the full Group accounts for the year ended 31December 2007 and does not constitute full accounts within the meaning ofsection 240 of the Companies Act (as amended). The Group accounts on which theauditors have given an unqualified report, which does not contain a statementunder section 237 (2) or (3) of the Companies Act 1995, will be delivered to theRegistrar of Companies in due course. Copies of the Preliminary Results may be obtained from the Company Secretary at7 Triton Square, London, NW1 3HG. Copies are also available viawww.nationalexpressgroup.com. - ENDS - This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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