9th Mar 2006 07:03
National Express Group PLC09 March 2006 Thursday 9 March 2006 National Express Group PLC Preliminary Results For the year ended 31 December 2005 Financial Highlights • Revenue of £2.2 billion (2004*: £2.4 billion) • Group operating profit up 9.6% to £109.5 million (2004*: £99.9 million) • Normalised** operating profit up 8.5% to £155.5 million (2004*:£143.3 million) • Normalised** Group operating margin increased to 7% (2004*:6.1%) • Profit before tax up 14.6% to £89.3 million (2004*: £77.9 million) • Normalised** profit before tax up 10.7% to £135.3 million (2004*: £122.2 million) • Diluted earnings per share from continuing operations up 11.5% to 44.5 pence (2004*: 39.9 pence) • Normalised** diluted earnings per share up 10.1% to 76.3 pence (2004*: 69.3 pence) • Final dividend increased by 7.7% to 22.25 pence per share (2004: 20.65 pence per share), making a total dividend for the year of 32.25 pence per share up 7.5% (2004: 30.0 pence per share) • £29.3 million of shares were purchased by the company in 2005 and share buy-back programme set to recommence • Net debt of £563.4 million (2004: £136.6 million) * as restated for the transition to IFRS ** excluding goodwill impairment, intangible amortisation, exceptional items and tax relief on qualifying exceptional items The financial highlights refer to the results of continuing businesses incompliance with IFRS. Operating Highlights • Alsa acquired in December and integration progressing well • Disposal of North American public transit division enabling strategic focus on school bus operations • Record bid season in United States and completion of key strategic acquisition in Canada • 2% passenger growth in UK Coaches despite effects of terrorist attacks • Strong operational performance in trains division above Government targets, with focus for 2006 on incumbent franchises • Continued growth in London bus market • Substantial ongoing investment in fleet and customer facilities Commenting on current trading and prospects, Chairman, David Ross said: "The current year has started well. We have experienced good operationalperformance across all our divisions and achieved early successes in the currentUS school bid season. We are making good progress with the integration of Alsaand believe this division will play a key role in the Group's future growthprospects. We remain confident that the foundations are in place to enhanceshareholder value through organic and acquisitive growth whilst maintainingdividend and share buy-backs." Commenting on Phil White's retirement announcement today he continued: "After ten years' service as Chief Executive of the Group, Phil White hasannounced today his intention to retire from the Board, no later than December2006. Phil has made a significant contribution to the Group's development and,on behalf of the Board, I would like to thank him and wish him well for thefuture." For further information, please contact: Phil White, Chief Executive Adam Walker, Finance Director Nicola Marsden, Director of Group Communications National Express Group PLC 020 7529 2000 Andrew Dowler/ Ben Foster Financial Dynamics 020 7831 3113 • There will be an analyst and investor meeting at 0900 hours on 9 March2006 at Financial Dynamics, Holborn Gate, 26 Southampton Buildings, London WC2A1PB. • A web-cast of the analyst presentation will be available on ourwebsite www.nationalexpressgroup.com at 0900 hours on 9 March 2006. For furtherdetails, contact Helen Lutman at Financial Dynamics on 020 7831 3113. • High resolution images are available for the media to view anddownload, free of charge, from www.vismedia.co.uk or telephone 020 7436 9595. Chairman's Statement I am pleased to report the Group's results for the year ended 31 December 2005. 2005 was a strong year for the Group. As well as achieving organic growthacross most of our operations, we extended our presence in the public transportmarket through both new contract wins and acquisitions in existing and newmarkets. This year will be remembered for the tragic events of the London bus and tubebombings. The Group has many operations in and around London and many of ourcolleagues were close to, or involved in, the aftermath of the events. Whilstour operations were not directly affected, we are proud that many of ouremployees played an active role in assisting Londoners during this difficultperiod. I would like to take this opportunity to thank them for their commitmentand their tremendous efforts in reassuring the public, getting services back tonormal and working alongside the teams from the emergency services during thisdifficult time. In December Alsa, Spain's largest private coach and bus operator, owned by theCosmen family, joined the Group. In one transaction we achieved critical mass ina major European country which has good growth prospects, gaining sustainableearnings at above average margins. Alsa is a long established business with anexperienced management team who are keen to drive the business forward. Thequality of its product delivery has earned Alsa a first class reputation as bothan operator and employer in the Spanish public transport market. Operating inthe Spanish regulated coach and bus markets, Alsa has extensive contracts, withan average life of nine years, which provides stable earnings. These featuresprovide stability to the Group's earnings. Recognising the opportunities thatexist in the enlarged company, the Cosmen family acquired a substantialshareholding in the Group and we are delighted that Jorge Cosmen has joined theGroup Board as a non executive director. This development gives the Group a significant combined coaching operation,enabling the transfer of best practice between two major businesses. Our initialfocus has been the integration of Alsa's financial and reporting systems, whichis currently on schedule. Our management teams are already working well togetherto identify cost synergies, particularly in procurement, risk management and IT.We believe there are many opportunities to grow this business by the use ofbetter yield management and improved marketing. In addition, we will be drawingon our experience in the UK coach market to reduce Alsa's cost of sales. Therespective cultures of National Express and Alsa have significant similaritieswhich should enable the integration plan to be fully delivered by the end ofthis year. We are pleased with the progress we have made to date and areconfident that we can achieve the benefits identified when we announced thisstrategic move. This year we revised our North American strategy to focus on our highlysuccessful school bus operations where our strong reputation with our customersdelivers a high quality and reliable earnings stream. Consequently, we sold ATC,our public transit business, during the year. As part of the rail remapping, we have agreed with the Department for Transport("DfT") to align our Central Trains, Silverlink and Midland Mainline franchisesto run until the end of 2007. We are currently in discussions with the DfT toagree the financial arrangements around the new extensions. On the next round ofbidding during 2006 we will focus on franchises where we are incumbent and, as aconsequence, we have withdrawn from the competition for the South Westernfranchise. Following the announcement relating to the GN/Thameslink and Greater Westernrail franchises, the employees of Wagn and Wessex Trains will leave the Group on31 March this year. I would like to thank them for their contribution whilstpart of the Group and wish them all the best for the future. As part of our succession planning process and following a thorough selectionprocess, I am delighted that following the retirement of Brian Jackson, DenisWormwell has been appointed Chief Executive of our UK Bus division in February.Consequently, Paul Bunting moved from Midland Mainline to replace Denis as ChiefExecutive of our UK Coach division. The Board After what will be ten years as Chief Executive, Phil White has decided he willbe retiring from the Group by the end of this year. Phil started his career withthe Group in 1994 as Finance Director of Travel West Midlands and was appointedChief Executive of the Group in January 1997. He guided the Group's entry intoNorth America and subsequently into continental Europe with the Alsatransaction. The Board is unanimous in thanking Phil for his contribution overthe years and wishes him well for what the next stage in his life will bring. Ona personal level I would like to thank Phil most sincerely for his help andsupport since commencing my tenure as Chairman in May 2004. The process to finda successor is now underway. I am also pleased to report that this year Phil White, Group Chief Executive,has taken on the role as President of the Confederation of Passenger Transport,the national trade association representing the UK bus, coach and light railoperators. Furthermore, with the Group's interests in rail, Ray O'Toole joinedthe British Transport Police Authority as an Authority member. On 21 September 2005, Barry Gibson was appointed senior independent directorfollowing Tim Stevenson's resignation from the board. I would like to thank Timfor his valuable contribution. Results and Dividend Turnover was £2.2 billion (2004*: £2.4 billion) and normalised Group operatingprofit increased by 8.5% to £155.5 million (2004*: £143.3 million). Afterinterest and the Group's share of losses from associated undertakings,normalised profit before tax was £135.3 million (2004*: £122.2 million).Normalised diluted earnings per share from continuing operations were 76.3 pence(2004: 69.3 pence). We are recommending a final dividend of 22.25p per ordinary share (2004: 20.65pence), an increase of 7.7%, to be paid on 26 May 2006 to shareholders on theregister at 28 April 2006. Including the interim dividend, the proposed totaldividend for the year is 32.25 pence (2004: 30.0 pence). We shall also berecommencing our £100 million share buy-back programme, subject to marketconditions. Current trading and outlook The current year has started well. We have experienced good operationalperformance across all our divisions and achieved early successes in the currentUS school bid season. We are making good progress with the integration of Alsaand believe this division will play a key role in the Group's future growthprospects. We remain confident that the foundations are in place to enhanceshareholder value through organic and acquisitive growth whilst maintainingdividend and share buy-backs. Operational Review Coaches The coach division provides Britain's only scheduled national coach network andserves more than 1,000 destinations. The airport services provide premier, highfrequency scheduled coach services to all the UK's major airports. Eurolinesoffers value for money European travel by coach. The division employs 1,800people. Revenue for the year was £200.5 million (2004*: £195.6 million) with anormalised operating profit of £21.5 million (2004*: £19.3 million). Thedivision experienced an encouraging year as we focused on our core scheduledcoaching business. The first half saw good growth on our London bound and airport routes. However,the terrorist incidents in July and the subsequent reduction of inbound leisurejourneys into London saw a softening of this growth in the second half.Nevertheless, in the full year passenger growth of 2% was achieved. Following a detailed market segmentation analysis undertaken early in the year,we are working on strategies to increase further the appeal of coach travel.Our promotion of dynamic pricing continues to play a key role enabling customersto buy value for money tickets. We repeated our successful £9 "Go Anywhere"fares as well as the "Million Seat Sale". These, along with our continuedroll-out of funfares, from as little as £1 each way, backed up by nationaladvertising campaigns, have heightened an awareness of coach travel amongstexisting and potential customers. We have further extended our sales channelsthrough the increased promotion of the internet which now accounts for 21% oftotal sales. E-ticket and m-ticket sales increased. Up to 9 out of 10purchases on the web are now e-tickets with up to two thirds of all tickets soldvia our customer contact centre distributed by either e or m-tickets. Our investment in coach stations continues. Working in partnership with BAA, weinvested £2m to improve Heathrow Central Bus station. The new customerfacilities include improved waiting and refreshment areas and a new ticketoffice and information desk. Further investment is taking place at key locationsat Cardiff, Cheltenham, Manchester airport and Southampton with plans forfurther improvements at Bournemouth, Leicester, Milton Keynes and Wolverhampton.We have drawn up plans for the total redevelopment of Digbeth coach station inBirmingham, our major hub for connecting services and we anticipate constructionstarting later this year. We are improving the quality of our product and services. We have been rollingout our state-of-the-art "WOW" coaches, used currently on the London toBirmingham route, onto other key corridors such as Bristol, Cheltenham andGloucester. NXTV has been fitted on over 40 vehicles and will be rolled outfurther by the end of 2006. This year we were proud to launch our first fullyaccessible coach, the Caetano Levante, enabling wheelchair users and people withmobility impairments to travel by coach. The bespoke vehicle, which has beendeveloped in consultation with the Mobility and Inclusion Unit of the DfT,complies with the new DDA legislation which was introduced at the start of thisyear. We aim to have a fully wheelchair accessible fleet on the network by theLondon 2012 Olympic Games. Last year we were pleased to be awarded contracts for the provision of coachingservices for the G8 summit and the EU summit. This year we have extended ourprovision of transport services to other events including music and sportingevents at venues such as the Millennium Stadium, Cardiff. We are investing in new technology, such as Coachcom, which provides satellitetracking and improved information for customers, drivers and operationalcontrol. The new system will also improve seat utilisation by 'checking in' alltickets at the departure point, enabling all coach tickets to be checked in.Coachcom will be rolled out across the whole fleet from summer 2006. Buses The bus division operates over 2,250 buses and employs 7,100 people in the WestMidlands, Dundee and London. It also operates the Midland Metro, the lightrail service in the West Midlands. Revenue for the period was £268.6 million (2004*: £239.8 million) and normalisedoperating profit was £41.5 million (2004*: £41.6 million). We welcomed the early introduction of Centro's concessionary fares schemeproviding free travel for men and women over 60 in July 2005. This move helpedto reverse the decline in concessionary fare passenger numbers we haveexperienced over the past two years. We are pleased with our improved operational performance during the period. Thishas been achieved by the recruitment of over 400 Polish drivers within ourTravel West Midlands ('TWM') business. Over 10% of these drivers have alreadyachieved their NVQ qualifications and we are starting to see the first Polishrecruits being promoted to traffic controllers. Three out of every five driversin the West Midlands have NVQ Level 2 qualifications and over four out of fiveTravel London drivers have been awarded the BTEC accreditation. Following its launch in January 2005, strong passenger growth of over 20%continues to be experienced on our Premier 997 service linking Walsall andBirmingham. Recent research has confirmed that half of all users activelychoose this service over alternatives due to its quality offering, highlightingthe opportunities that product segmentation presents. We continue to look forother opportunities where similar growth possibilities exist. With central Government's renewed focus on reducing urban congestion, we believethe introduction of road pricing in London illustrates the benefits andincreased bus patronage that can be achieved on the back of such initiatives. Wewelcome the launch of the Government's Transport Innovation Fund ("TIF"),focusing on demand management, which highlights the West Midlands as one of theTIF feasibility areas. Our investment in technology continues with the roll-out of automatic vehiclelocation ("AVL") equipment and mobile phone based real time information for over350 vehicles. During 2006, we will roll-out AVL on key routes including themain Outer Circle 11 route in Birmingham. To improve the attractiveness oftravelling by bus we have simplified further our ticketing and extended someconcessionary ticket offers such as the Early Bird travelcard to nonconcessionary passengers. In September 2005, Travel Dundee signed the UK's first statutory qualitypartnership. This will be launched in April 2006 in partnership with DundeeCity Council and the Scottish Executive and will focus on improving bus serviceswithin the Dundee area. This has resulted in the introduction of a new crosscity link to a major hospital in the city providing a valuable new communityservice under the Government's Kick Start initiative. In the last quarter of theyear Travel Dundee achieved Investors in People status and in November wasawarded "Bus Operator of the Year" at the Scottish Transport Awards. This year we achieved further growth in our Travel London operation through newcontract wins and the acquisition of Tellings Golden Miller's London busoperations which have been integrated into our London business. This hasresulted in a much greater presence in the London market, a regulated marketwhere further contract opportunities exist. We operate a fleet of over 400vehicles operating from six depots at which there remains additional capacity toaccommodate future growth. The Midland Metro continued to perform well with passenger growth of 2%. We arecontinuing to discuss with Centro the long term development of this systemincluding line extensions and new services. Trains We operate c2c, Central Trains, Gatwick Express, Midland Mainline, 'one'including the Stansted Express, Silverlink, Great Northern and Wessex Trainsfranchises. The division currently employs 11,500 people. Revenue for the period was £1,497.2 million (2004*: £1,712.1 million) withnormalised operating profit of £64.2 million (2004*: £61.3 million). 2005 saw the launch of a major internal initiative focused on improvingpunctuality and reliability within the trains division. This resulted insignificant improvements in performance across all our franchises includingCentral Trains, a highly complex regional train operating company ("TOC"), whereconsiderable progress was made. Five of our TOCs are in the top seven positionsin the latest industry public performance measure ("PPM") figures released inJanuary 2006. The division also made encouraging progress in its customer satisfactionratings. Gatwick Express consolidated its position at the top of the leaguetables for customer satisfaction recording an overall satisfaction rating of 93%in the DfT's December 2005 National Passenger Survey, marking the fifthconsecutive period when Gatwick has been rated first in the survey. In additionc2c improved its results from 83% to 90% and Midland Mainline showed thegreatest increase year-on-year, rising 10 points to 89% this year. Overall thetrains division improved its customer satisfaction scores by three points from79% last year to 82%. During the first half of the year, we experienced substantial patronage growth.However, following the terrorist attacks in July, demand for discretionarytravel in and out of London was badly affected. We are pleased that passengernumbers returned to pre-July levels towards the end of the year. Midland Mainline made good progress in the year with passenger growth of 3% andwas the most punctual long distance operator for 2005 in the January 2006 PPMfigures. This performance was assisted by the introduction of the new Meridian9 car trains. Growth was also achieved through new marketing initiatives,including a summer promotion offering 200,000 seats to London for £15 per personand a new pricing structure launched in October offering travel from Sheffieldto London for £6. With Sheffield station being a key hub for our MML services,we have worked in partnership with key stakeholders in Sheffield to improve theambience and quality of the station. In June a new DDA compliant travel centrewas opened including extra ticket windows and a new electronic queuing process. Gatwick Express performed well despite the impact of 7 July. Strong revenue andcost control ensured the solid performance of the business. We will bediscussing the future of this franchise with the DfT following publication ofthe Brighton Main Line Route Utilisation Strategy. In December, 'one' introduced its new timetable on the West Anglia route. Thechanges, the biggest on this route for fifty years, seek to optimise routeutilisation to meet the growth at Stansted airport, whilst also catering forgrowth on the domestic commuting traffic to the City, Stratford and on to CanaryWharf. Due to the complex nature of the changes, stakeholder consultation hasbeen extensive and the majority of users have benefited from the improvedscheduling. North America The North American division consists of student transportation and StewartAirport in New York State. The division employs 15,800 employees, with 3,300 inCanada. Revenue in the division for the year was £241.8 million (2004*: £213.2 million)and normalised operating profit was £35.0 million (2004*: £29.6 million). Inlocal currency, revenue was US$440.5 million (2004*: US$391.0 million) andnormalised operating profit was US$63.7 million (2004*: US$54.3 million). Weare pleased to report that we increased our margins despite the cost pressuresthat we face. 2005 was a watershed year for our North American business. As well as sellingour public transit business we experienced our best ever bidding season and woncontracts in Connecticut, Missouri and Rhode Island. We achieved a retentionrate of contracts of approximately 95%, highlighting strong levels of customersatisfaction. All operations experienced a smooth school startup, a significantfeat given the amount of new business won during the year. In September we completed the sale of our public transport operations for cashconsideration of US$93 million (before working capital adjustments), enablingthe division to focus on the provision of and growth in school bustransportation. In August we strengthened our presence in the school bus marketin Canada through the acquisition of Northstar, which services school boards.Northstar operates 800 school buses and has 850 employees. It serves 12 schoolboards and provides entry into new areas such as Simcoe County, north ofToronto. In October we completed the acquisition of Jones Bus Service, which has650 buses in Wisconsin and Illiniois. During the year we relocated the headquarters of our US Head Office from Texasto Chicago, providing a better location to manage and grow the division. Our re-engineering project focusing on improving the cost effectiveness of ouroperations has been launched across the whole North American division. The keyobjectives are to improve the cost effectiveness of our operations by reviewingthe efficiency of employee rotas, the use of technology and better management ofour assets such as fleet. We believe we are well positioned to capitalise on further growth opportunitiesat the bid table and through acquisition. Alsa Alsa is Spain's leading private operator of coach and bus services operating 90coach and 19 bus concessions within the Spanish market. Alsa joined the Group on 1 December, providing immediate scale in an attractiveEuropean growth market. We have consolidated revenue of £18.2 million andoperating profit of £2.6 million into the Group's 2005 results. Alsa is Spain's leading coach and bus operator with annualised turnover of £218million. It operates exclusive national and regional coach concessions andurban and suburban bus services with 75% of its revenue generated by its coachoperations. It also operates 65 international coach routes in Europe. Spain is Europe's fifth largest passenger transport market and the third biggestcoach market. Approximately double the number of passengers travel by coach onlong distance concessions in Spain than by rail, with coach representing 11% ofthe total public transport market. Alsa is the clear leader in coaching withnearly 10% of the market. Alsa's long distance concessions are granted on anexclusive basis by the national government for each route with durations varyingbetween 8 - 20 years. The regional coach network concessions are awarded byregional government. As Spain's second largest private bus operator, Alsa operates 19 urban busconcessions primarily in Oviedo and Leon, northern Spain. It also operates busesin Porto, Portugal and Marrakech, Morocco. Alsa is a quality business run by an experienced and long standing managementteam, known to the Group through the Eurolines partnership. We believe thatthrough close working between Alsa and our National Express sales, marketing andoperations teams we can bring further value to both businesses. Thisacquisition gives the Group critical mass in the Spanish transport market wherewe believe further opportunities for public transport growth exist. Investments On 1 March, the Secretary of State for Transport announced that he wouldconsider any potential offers for London and Continental Railways ("LCR") inwhich the Group has a minority ordinary shareholding and a preferenceshareholding in one of LCR's subsidiaries. Copies of the Preliminary Results may be obtained from the Company Secretary at75 Davies Street, London, W1K 5HT. Copies are also available viawww.nationalexpressgroup.com. - ENDS - Finance Director's Review Year at a glance We have achieved another strong set of results, increasing profit before tax by14.6% to £89.3m (2004*: £77.9m), driven by a 9.6% increase in operating profitto £109.5m (2004*: £99.9m). Basic earnings per share from continuing operationsimproved to 45.2p (2004*: 40.5p). For the remainder of this report we will refer to normalised results, which wefeel reflect the performance of the business more appropriately. Normalisedresults are defined as the statutory result before the following, asappropriate: charges for goodwill impairment, intangible amortisation,exceptional items and tax relief on qualifying exceptional items. Normalised group operating profit was up by 8.5% to £155.5m (2004*: £143.3m), onrevenue of £2,216.0m (2004*: £2,354.5m) resulting in an increased operatingmargin of 7.0% (2004*: 6.1%). Normalised profit before tax increased by 10.7% to£135.3m (2004*: £122.2m) driving up normalised diluted earnings per share fromcontinuing operations to 76.3p (2004*: 69.3p) an increase of 10.1%. Net debtincreased by £426.8m to £563.4m, principally as a result of the acquisition ofAlsa. The proposed full year dividend per share will be increased by 7.5% to32.25p (2004: 30.0p). * As restated for the transition to IFRS Divisional review Revenue Normalised operating profit 2005 2004 2005 2004 £m £m £m £mUK Coach 200.5 195.6 21.5 19.3UK Bus 268.6 239.8 41.5 41.6UK Train 1,497.2 1,712.1 64.2 61.3Inter-segment sales (10.3) (6.2) - -North American Bus 241.8 213.2 35.0 29.6Alsa 18.2 - 2.6 -Central functions - - (9.3) (8.5) 2,216.0 2,354.5 155.5 143.3 Coaches Our UK Coach operations delivered another year of strong performance, increasingnormalised operating profit by 11.4% to £21.5m (2004*: £19.3m). A 2% increase inpassenger numbers was driven by promotions such as our 'Million Seat' campaignand improved customer service initiatives increasing revenue by £4.9m to £200.5m(2004*: £195.6m). The terrorist events in July caused passenger decline on keyroutes going into London during our busy summer months. Nevertheless, thenormalised operating margin improved to 10.7% (2004*: 9.9%) reflectingcontinuing controls over costs, including working with our contractors tomitigate the rising cost of fuel, and the disposal of our low margin HeathrowAirport airside operation. During the year we started a rail replacement division and a special eventsdivision to broaden the reach of our coaching product. Buses Revenue increased by 12.0% to £268.6m (2004*: £239.8m) and we generatednormalised operating profit of £41.5m (2004*: £41.6m). Divisional operatingmargins are being diluted by a greater presence in the regulated London market.Revenue, excluding Travel London, increased by £5.0m, however this was offset byincreased driver costs and the final share based payment charge of £2.1m in 2005for the appropriation of shares from the TWM Share Incentive Plan. The acquisition of the London bus operations of Tellings Golden Millercontributed normalised operating profit of £0.8m and revenue of £12.4m. Thisbrings our share of the London bus market to 5%. The early introduction of the national concessionary fares scheme in Birminghamby Centro has helped to reverse the recent decline in patronage from this keypart of our passenger group. The Group's fuel hedging policy has mitigated theimpact of rising prices in 2005, however, 2006 will see an increase in fuelcosts as new hedges have been put in place. Fuel costs will increase by £7m thisyear and are the principal reason why we introduced an above inflationary faresincrease this year. Trains Normalised operating profit increased to £64.2m (2004*: £61.3m) on reducedrevenue of £1,497.2m (2004*: £1,712.1m), as a result of changes in our portfolioof TOCs. This resulted in improved margins of 4.3% (2004*: 3.6%). The terrorist activities in July had an impact on discretionary rail travel overthe summer months, however this loss in revenue was partly mitigated by existingrevenue and profit share arrangements with DfT Rail. As a result, railpassenger revenue was up 3.3% on a like-for-like basis, having been 5.4% aheadat June. Our franchises continue to appear at the top of the TOC league tablesfor performance and customer satisfaction, which has contributed to our abilityto stimulate customer demand. On 31 March 2006, our Wessex and Great Northern franchises will leave the Group.As part of the DfT current re-mapping exercise, Central Trains, Silverlink andMidland Mainline will run until November 2007. We are currently negotiating newfinancial arrangements for these franchises. North America In local currency, North America increased normalised operating profit toUS$63.7m (2004*: US$54.3m). Revenue has increased by US$49.5m to US$440.5m(2004: US$391.0m), improving our margins to 14.5% (2004: 13.9%). Thestrengthening dollar increased revenue by £4.9m year on year and operatingprofit by £0.8m. Revenue in our Student Transportation business increased by 12.7% through thebenefit of new routes operated and acquisitions during the year. The 2005 USbid environment remains competitive but we were delighted with our best ever bidseason, winning new business with annualised revenue of US$29m. We achieved highretention of existing contracts showing our mix of value for money and customerservice is proving successful with the School Boards. Our Canadian operationscontinued to perform well boosted by the acquisitive growth in the Ontario andOttawa regions. Existing fuel hedges continue to the end of 2006. The acquisitions of Aboutown, Northstar and Jones consolidates the Group'sposition as the third largest student transportation operator in North America.Annualised turnover for these acquisitions is £26.2m. We relocated our US head office from Austin to Chicago during the summer and arepleased that such a move was well controlled, given the large number ofrecruitment, systems and timing issues it presented. In accordance with IFRS 5, "Non-current assets held for sale and discontinuedoperations", the trading results for Public Transit have been reclassified intoone line in the income statement. Alsa Alsa's results were consolidated from 1 December. In local currency itcontributed €3.8m (£2.6m) to normalised operating profit. The government haveannounced a tariff increase of 3.3% on concessions from 1 December 2005 to coverthe above inflation impact of fuel costs which have been fully hedged in 2006. Our integration programme has commenced and is proceeding in line withexpectations. Initial focus has been on financial and reporting systems and weare pleased with the efforts being made to ensure a seamless transition.Valuation work on intangibles and key assets is underway and we will completethe work for inclusion in our next financial statements. Joint ventures and Associates The total charge for associates was £8.8m (2004: £3.4m). At the year end we held a 33% investment in Altram LRT Limited ("Altram").Altram has operated the Midland Metro since June 1999. Our share of theoperating loss for 2005 was £0.2m (2004: £0.2m). On 2 March, we receivedclearance from the Office of Fair Trading regarding our acquisition of theoutstanding 67% shareholding. Completion is expected to occur by the end ofMarch. Altram's results will be disclosed within the Bus Division in 2006. We hold a 40% investment in Inter-Capital and Regional Rail Limited ("ICRRL").ICRRL is contracted to manage the operations of Eurostar UK to 2010. Our shareof the operating loss for the year was £8.6m (2004: £3.2m). The cash outflow of£1.7m in 2005 comprises the Group's share of funding for the 2004 losses. On 1March, the Secretary of State made a statement requesting expressions ofinterest for London and Continental Railways ("LCR"), which owns Eurostar UK. Ifa sale is concluded we would expect to recover the book value for our preferenceshares in the LCR Group. The results of the joint ventures and associates acquired with Alsa wereimmaterial for the period from acquisition to 31 December 2005. Finance cost Net interest payable decreased to £11.4m (2004*: £17.7m), principally reflectinga lower level of net debt in the first half of the year when compared to 2004and the termination of a US$200m interest rate swap as reported in our AnnualReport and Accounts 2004. This was offset by the strengthening of the US dollarwhich increased the cost of servicing our US dollar denominated financing. After excluding £5.1m (2004*: £15.9m) for discontinued operations, continuingnormalised operating profit before depreciation and other non-cash items ("EBITDA") was £212.5m (2004*: £194.7m) and continuing EBITDA finance coverimproved to 20.2 times (2004*: 11.5 times). Goodwill and Intangibles The impairment charge for the year on the goodwill arising from the acquisitionof Prism Rail PLC in December 2000 was £33.3m (2004*: £33.3m). Although IFRS 3,'Business Combinations' prohibits the amortisation of goodwill, the trainfranchises acquired with Prism have finite lives, and therefore the goodwillwill be impaired in line with the remaining cash flows. Amortisation of £4.9m (2004*: £2.4m) was charged on the intangible asset thatarises from the Group's right to operate its rail franchises (£2.4m) and oncontracts acquired in UK Bus (£0.9m) and North America (£1.6m). The goodwill and intangible assets, of £421.4m, arising on the Alsa acquisitionare provisionally classified as goodwill at 31 December 2005 and these will beallocated during 2006 after the valuation work is complete. Exceptional items Exceptional items totalled £7.8m (2004*: £7.7m), of which £3.5m was incurred inrelation to restructuring and redundancies in the UK Trains division following areview of our rail franchise portfolio. In North America £2.8m was incurred in respect of the relocation of thedivisional head office from Texas to Chicago in the year. The balance comprises£1.5m of costs incurred in a reorganisation of our Birmingham operations. Discontinued operations As disclosed in the Annual Report and Accounts 2004, the Group's remaining busoperations in Australia are now in administration and are no longer controlledby the Group. The Group received proceeds of £25.4m from the administrator inDecember and it is possible that further amounts will be received but it is notpracticable to forecast the amount or timing of any receipt. As anticipated in our Interim report, our Public Transit business was sold on 1September 2005, for net proceeds of £49.6m. Taxation The total tax charge of £27.5m (2004*: £22.8m) on profit before tax of £89.3m(2004*: £77.9m) represents an effective rate of 30.8% (2004: 29.3%). The taxcharge on normalised profit of £135.3m (2004*: £122.2m) was £29.5m (2004*:£26.4m), which represents an effective rate of 21.8% (2004*: 21.6%). We expect our normalised tax rate to increase over the medium term to reflectthe higher tax rates in overseas jurisdictions. Cash flow The Group continues to generate strong cash flow with a cash inflow fromoperations of £188.8m (2004: £247.9m). The fall reflects the working capitaltiming reversals highlighted last year in connection with performance and profitshare payments. This cash flow was used to maintain high levels of investmentacross the Group, particularly in North America where most of the capitalexpenditure relates to new bidding work. Operating Cash Flow UK UK UK North Alsa Central Total Bus Coaches Trains American functions £m £m £m Bus £m £m £m £mNormalised operating profit 41.5 21.5 64.2 35.0 2.6 (9.3) 155.5 Normalised operating profitof discontinued operations - - - 3.8 - - 3.8 Depreciation 12.2 5.3 15.4 22.5 0.9 0.5 56.8 Amortisation of leaseholdproperty prepayment 0.1 - - 0.7 - - 0.8 Amortisation of fixed asset - - (0.9) - - - (0.9)grants Profit on disposal (1.2) (0.5) - (0.3) - - (2.0) Share based payments 2.2 0.1 0.3 0.2 - 0.8 3.6 EBITDA 54.8 26.4 79.0 61.9 3.5 (8.0) 217.6 Working capital movement 2.8 (0.1) (20.2) (2.0) (4.1) (3.5) (27.1) Eurostar - - - - - (1.7) (1.7) Net cash inflow from 57.6 26.3 56.8 59.9 (0.6) (13.2) 188.8operations Net capital expenditure (44.5) (8.2) (24.8) (33.3) (0.6) 0.8 (110.6) Operating cash flow beforeone-offs 13.1 18.1 34.0 26.6 (1.2) (12.4) 78.2 Other - Exceptional items (7.7) Operating cash flow 70.5 Operating cash flow represents "Cash generated from operations" plus "Proceedsfrom disposal of property, plant and equipment" less "Finance lease additions"and "Purchase of property, plant and equipment" as set out in note 11 and thecash flow statement. Net capital expenditure was £110.6m (2004: £66.5m) including £57.0m (2004:£16.2m) of additions purchased under finance leases offset by £8.1m of proceedsfrom disposals. The finance lease expenditure included £37.8m (2004: £0.2m) inUK Buses that arose from the conversion of operating lease arrangements tofinance leases in the year. Reconciliation of net debt 2005 2004 £m £m Operating cash flow 70.5 187.5 Net interest (22.0) (20.3) Taxation (26.7) (3.2) Share buy back (29.3) - Financial investments & shares 8.4 2.6 Acquisitions and disposals (359.1) 22.8 Dividends (41.6) (36.4) Net funds flow (399.8) 153.0 Foreign exchange (27.0) 18.2 Funds flow post exchange (426.8) 171.2 Opening effective net debt (136.6) (307.8) Closing effective net debt (563.4) (136.6) Net interest paid of £22.0m (comprising the cash outflow of £21.8m adjusted forloan fee amortisation of £0.2m) increased in the year following the terminationof a US$200m interest rate swap during they year. The receipt of tax rebates in respect of prior years in 2004 resulted in reducedtax payments last year. Acquisitions and disposals includes the acquisition of the Alsa Group of£367.4m, other acquisitions of £65.5m, net proceeds of £49.6m from the sale ofATC, £25.4m from the disposal of Bosnjak Group and other items, including cashdisposed, of £1.2m. The 2004 inflow includes £26.4m from the disposal of threeAustralian Bus subsidiaries in October 2004. Dividend An interim dividend of 10.0p per share was paid in October 2005 and a finaldividend of 22.25p per share will be paid in May 2006, bringing the totaldividend for the year to 32.25p. This is a 7.5% increase in total dividendsdeclared compared to 2004. This dividend is covered 2.5 times (2004*: 2.3times) by normalised profits after tax. Pensions The Group's principal defined benefit pension schemes are all in the UK. Themost recent triennial actuarial valuations were carried out at 31 March 2004 and31 March 2002 for the two Bus schemes, 5 April 2004 for Coaches and 31 December2004 for the Train schemes. These valuations showed funding levels of 88% to107% on the Bus schemes, 65% on the Coach scheme and 86% to 95% on the Trainschemes. Approximately 1,400 (20%) Bus division employees are members of thetwo schemes, which have been closed for some years, and some 450 members ofstaff are members of the Coach division scheme which was closed in June 2002.New employees in the Bus and Coach division are offered membership of definedcontribution pension schemes. In the Trains division approximately 11,000employees are members of the Train schemes. The balance sheet includes provision for the deficits of the defined benefitschemes in the group which includes the Railways Pension Scheme ("RPS"), whereour main obligation is to pay the contributions agreed with the scheme actuaryover the life of our franchise. Overall, the IAS 19 deficits have increased as the increased values of thefinancial assets, reflecting the improvements in global equities, have beenoffset by increased liabilities arising from decreases in the discount rate andin the case of the RPS, an increase in the longevity assumptions. In the coachscheme the deficit increased to £14.9m (2004: £11.0m). In the Bus schemes, thedeficit has increased slightly to £37.8m (2003: £36.2m). The RPS deficitincreased by £16.3m to £34.2m, mainly due to the change in the longevityassumptions and the reduction in the discount rate. Facilities One of the Group's banking facilities expires in October 2006. We are workingwith the Group's banks to put in place a new banking arrangement over the nexttwo to three months. Accounting policies IFRS The Group's Annual Report and Accounts for the year ended 31 December 2005 hasbeen prepared using accounting policies that comply with InternationalAccounting Standards ("IAS") and International Financial Reporting Standards ("IFRS"). We released our restated 2004 results under IFRS on 27 June 2005 and issued ourfirst set of Interim Results under IFRS on 28 July 2005. It has been asignificant additional workload for the Group Finance team and shareholders willnote a number of changes in presentation of our primary statements andsignificant additional disclosure. Due to the length of the disclosuresrequired under the new financial standards, the Group will prepare a summaryreport and accounts for the 2006 year end. Shareholders will have the optionwhether to receive the full annual report and accounts or the summary version. We believe that one of the principal benefits of IFRS is to provide consistencyin accounting standards across geographic areas and industries. With this inmind, we have worked with our peers to produce a consistent approach to theunique difficulties generated by the RPS to the requirements of IAS 19. Adam Walker Finance Director NATIONAL EXPRESS GROUP PLC GROUP INCOME STATEMENT For the year ended 31 December 2005 Total before Total before goodwill Goodwill goodwill Goodwill impairment impairment, impairment, impairment, intangible intangible intangible intangible amortisation amortisation amortisation amortisation & exceptional & exceptional & exceptional & exceptional items items Total items items Total 2005 2005 2005 2004* 2004* 2004* Note £m £m £m £m £m £mContinuing Operations Revenue 2,216.0 - 2,216.0 2,354.5 - 2,354.5 Operating costs beforegoodwill,intangible amortisation &exceptional items (2,060.5) - (2,060.5) (2,211.2) - (2,211.2) UK Trains goodwill impairment - (33.3) (33.3) - (33.3) (33.3) Intangible amortisation - (4.9) (4.9) - (2.4) (2.4) Exceptional items - (7.8) (7.8) - (7.7) (7.7) Total operating costs (2,060.5) (46.0) (2,106.5) (2,211.2) (43.4) (2,254.6) Group operating profit 155.5 (46.0) 109.5 143.3 (43.4) 99.9 Loss on disposal of non-current assets - - - - (0.9) (0.9) Profit from operations 155.5 (46.0) 109.5 143.3 (44.3) 99.0 Share of post tax resultsfrom associates and jointventures accounted for using the equity method (8.8) - (8.8) (3.4) - (3.4) Finance income 3 10.8 - 10.8 13.2 - 13.2 Finance costs 3 (22.2) - (22.2) (30.9) - (30.9) Profit before tax 135.3 (46.0) 89.3 122.2 (44.3) 77.9 Tax expense 4 (29.5) 2.0 (27.5) (26.4) 3.6 (22.8) Profit after tax for theperiod fromcontinuing operations 105.8 (44.0) 61.8 95.8 (40.7) 55.1 (Loss)/profit for theperiod fromdiscontinued operations 5 3.8 (68.3) (64.5) 9.3 (5.8) 3.5 (Loss)/profit for the 109.6 (112.3) (2.7) 105.1 (46.5) 58.6period (Loss)/profit attributableto equity shareholders 109.5 (112.3) (2.8) 106.1 (43.9) 62.2 Profit/(loss) attributableto minority interests 0.1 - 0.1 (1.0) (2.6) (3.6) 109.6 (112.3) (2.7) 105.1 (46.5) 58.6 (Loss)/earnings per share: - basic (loss)/earnings 7 (2.0p) 45.7p per share- diluted (loss)/earnings 7 (2.0p) 45.0p per share Earnings per share fromcontinuing operations: - basic earnings per share 7 45.2p 40.5p - diluted earnings per 7 44.5p 39.9p share *Results are restated for the transition to International Financial Reporting Standards. Dividends of £41.6m were paid during the year (2004: £36.4m). Dividends of£47.0m were proposed for approval during the year (2004: £40.9m). NATIONAL EXPRESS GROUP PLC GROUP BALANCE SHEET At 31 December 2005 Note 2005 2004* £m £mAssetsNon-current assetsIntangible assets 719.4 352.8Property, plant and equipment 507.2 333.5Financial assets - Other investments 11.4 10.2 - Derivative financial instruments 0.6 -Investments accounted for using the equity method 4.8 -Other receivables 26.2 30.5Deferred tax asset 23.0 18.3 1,292.6 745.3Current assetsInventories 18.7 16.1Trade and other receivables 301.8 301.8Financial assets - Derivative financial instruments 6.7 -Current tax assets 11.3 -Cash and cash equivalents 145.5 143.1 484.0 461.0Disposal group assets classified as held for sale - 33.8Total assets 1,776.6 1,240.1Non-current liabilitiesFinancial liabilities - Borrowings (495.5) (251.8) - Derivative financial instruments (8.3) -Deferred tax liability (27.1) (4.5)Other non-current liabilities (6.1) (3.0)Defined benefit pension liability 10 (88.8) (65.7)Provisions (41.3) (36.4) (667.1) (361.4)Current liabilitiesTrade and other payables (533.1) (514.5)Financial liabilities - Borrowings (214.4) (30.3) - Derivative financial instruments (13.4) -Current tax liabilities (24.0) (36.8)Provisions (12.3) (23.4) (797.2) (605.0) Liabilities directly associated with disposal group assetsclassified as held for sale - (6.9) Total liabilities (1,464.3) (973.3)Net assets 312.3 266.8Shareholders' equityCalled up share capital 7.5 7.0Share premium account 174.2 47.5Capital redemption reserve 0.2 -Treasury shares (5.1) (5.1)Other reserves 24.5 13.3Retained earnings 108.1 203.2Total shareholders' equity 309.4 265.9Minority interest in equity 2.9 0.9Total equity 9 312.3 266.8 *Results are restated for the transition to International Financial Reporting Standards. NATIONAL EXPRESS GROUP PLC GROUP STATEMENT OF CASH FLOWS For the year ended 31 December 2005 Note 2005 2004* £m £m Cash generated from operations 11 181.1 254.1Tax paid (26.7) (3.2)Net cash from operating activities 154.4 250.9Cash flows from investing activitiesPayments to acquire businesses, net of cash acquired (218.8) 12.6Deferred consideration for businesses acquired (0.3) (4.5)Purchase of property, plant and equipment (61.7) (69.2)Proceeds from disposal of property, plant and equipment 8.1 18.8Payments in respect of businesses disposed - (1.5)Receipts from disposal of businesses, net of cash disposed 71.3 24.7Interest received 10.8 13.1Receipts from sale of shares for employee schemes 3.5 0.1Net cash used in investing activities (187.1) (5.9)Cash flows from financing activitiesProceeds from issue of ordinary shares 4.9 2.5Purchase of treasury shares (3.5) -Share buy back (25.8) -Interest paid (32.6) (31.6)Repayment of maintenance bond at ScotRail - (18.7)Finance lease principal payments (20.0) (15.8)Repayment of loan notes (6.7) (0.9)Loans advanced/(repaid) 148.1 (93.1)Dividends paid (41.6) (36.4)Net cash from/(used in) financing activities 22.8 (194.0)(Decrease)/increase in cash and cash equivalents (9.9) 51.0Opening cash and cash equivalents 147.2 96.8(Decrease)/increase in cash and cash equivalents (9.9) 51.0Foreign exchange 2.7 (0.6)Closing cash and cash equivalents 11 140.0 147.2 *Results are restated for the transition to International Financial Reporting Standards. GROUP STATEMENT OF RECOGNISED INCOME AND EXPENSE For the year ended 31 December 2005 Note 2005 2004* £m £mIncome and expense recognised directly in equity Exchange differences on retranslation of foreign operations 50.3 (28.0)Exchange differences on retranslation of foreign currency borrowings (45.5) 29.8Actuarial losses on defined benefit pension plans 10 (32.0) (2.3)Gains on cash flow hedges taken to equity 14.5 - (12.7) (0.5) Transfers to the income statementExchange differences on disposal of foreign operations 1.5 -On cash flow hedges (9.4) - (7.9) - Tax on exchange differences on retranslation of foreign operations 7.1 (4.1)Deferred tax on share based payments 1.4 0.8Deferred tax on actuarial gains/(losses) 9.0 (0.2)Deferred tax on cash flow hedges (1.4) -Tax on items taken directly to or transferred from equity 16.1 (3.5) Net losses recognised directly in equity (4.5) (4.0)(Loss)/profit for the financial period (2.8) 62.2Profit/(loss) attributable to minority interests 0.1 (3.6)Total recognised (expense)/income for the period 9 (7.2) 54.6 (Expense)/ income attributable to equity shareholders (7.3) 58.4Income/ (expense) attributable to minority interests 0.1 (3.8) (7.2) 54.6 Effects of changes in accounting policy: Equity shareholders:Net loss on hedges on first-time adoption of IAS 39 (18.4) -Tax recognised on hedges on first-time adoption of IAS 39 5.6 - (12.8) - *Results are restated for the transition to International Financial Reporting Standards. NATIONAL EXPRESS GROUP PLC NOTES TO THE ACCOUNTS For the year ended 31 December 2005 1 Basis of preparation As a company registered and listed in an EU country, National Express Group PLChas been required to adopt International Financial Reporting Standards ("IFRS")with effect from 1 January 2005. The results for the year ended 31 December 2005represent the Group's first annual report and accounts prepared in accordancewith its accounting policies under IFRS. Previously the Group reported under UKgenerally accepted accounting policies ("UK GAAP"). Detailed UK GAAP to IFRSreconciliations of equity for the date of transition, 31 December 2004 and 1January 2005, and of profit for the year ended 31 December 2004 were issued on27 June 2005. The Group's accounting policies under IFRS are published on the Group's website(www.nationalexpressgroup.com). Normalised results are defined as the statutory results before the following asappropriate: profit or loss on the sale of businesses and charges for goodwillimpairment, intangible amortisation, fixed asset impairments, exceptional itemsand tax relief on qualifying exceptional items. 2 Exchange rates The most significant exchange rates to the pound for the Group are as follows: 2005 2005 2004 2004 Closing rate Average rate Closing rate Average rate US dollar 1.72 1.82 1.92 1.84Canadian dollar 2.00 2.20 2.31 2.38Euro 1.45 1.47Australian dollar 2.35 2.39 2.45 2.48 The 2005 average rate for Euros reflects the average rate since the Alsaacquisition. If the results for the year to 31 December 2004 were retranslated at the averageexchange rates for the year to 31 December 2005, North America would haveachieved normalised operating profit of £29.9m on revenue of £215.5m, comparedto normalised operating profit of £29.6m on revenue of £213.2m as reported. 3 Net finance costs 2005 2004 £m £m Bank interest payable (16.3) (23.0)Finance lease interest payable (4.7) (6.6)Other interest payable (0.3) (0.5)Unwind of insurance provision discounting (0.9) (0.8)Finance costs (22.2) (30.9)Finance income: Bank interest receivable 10.8 13.2Net finance costs (11.4) (17.7) 4 Taxation Analysis of taxation charge/ (credit) in the year 2005 2004 £m £mCurrent taxation:UK corporation tax - continuing operations 19.5 22.2Overseas taxation - continuing operations (1.2) 2.7Overseas taxation - discontinued operations (0.2) (1.5)Current income tax charge 18.1 23.4 Amounts overprovided in prior years - UK (9.5) (2.2) Amounts overprovided in prior years - Overseas - (0.1) Total current income tax 8.6 21.1 Deferred taxation:Origination and reversal of timing differences - continuing operations 18.7 0.2Total tax charge 27.3 21.3 The tax charge in the income statement is disclosed as follows:Income tax expense on continuing operations 27.5 22.8Income tax credit on discontinued operations (0.2) (1.5) 27.3 21.3 The tax expense on continuing operations is disclosed as follows: Tax charge on profit before goodwill impairment, intangible amortisation and 29.5 26.4exceptional itemsTax credit on goodwill impairment and exceptional items (2.0) (3.6) 27.5 22.8 5 Discontinued operations The Group decided to exit its non-core markets in North American Public Transitand Australia Bus in 2005 and 2004 respectively. The Group's North American Public Transit operation (trading as ATC) wasdisposed of on 1 September 2005 and has been classified in discontinuedoperations. In the year ended 31 December 2004 the Group sold National Bus Company(Victoria) Pty Limited, National Bus Company (Queensland) Pty Limited andTransport Management Group Pty Limited on 1 October 2004. The Group alsoannounced the voluntary administration of the Bosnjak Holdings Group (comprisingthe Group's remaining operations in Australia) on 31 January 2005. The results of the Group's discontinued operations are presented below.Normalised results are defined as the statutory results before the following asappropriate: profit or loss on the sale of business and charges for goodwillimpairment, intangible amortisation, fixed asset impairments, exceptional itemsand tax relief on qualifying exceptional items. The results for the AustraliaBus and Bosnjak Group are immaterial in 2005. 5 Discontinued operations (continued) 2005 2004 2004 2004 N. American N. American Australia Public Transit Public Transit Bus Total £m £m £m £m Revenue 100.8 152.1 62.4 214.5Operating expenses (97.0) (145.0) (59.9) (204.9)Normalised operating profit 3.8 7.1 2.5 9.6Finance income - - 0.3 0.3Finance costs (0.2) (0.4) (0.3) (0.7)Normalised profit before tax 3.6 6.7 2.5 9.2Tax on normalised profit 0.2 - 0.1 0.1Normalised profit 3.8 6.7 2.6 9.3 Goodwill impairment (60.0) - (10.6) (10.6)Property, plant & equipment impairment - - (6.1) (6.1)Exceptional items (0.2) (0.2) - (0.2) (60.2) (0.2) (16.7) (16.9)Profit on disposal of non-current assets - - 0.8 0.8(Loss)/gain on sale of discontinued (6.6) - 8.9 8.9operationsCumulative exchange differences Transferred from reserves (1.5) - - - (68.3) (0.2) (7.0) (7.2)Tax - related to exceptional and otheritems - 1.4 - 1.4 (68.3) 1.2 (7.0) (5.8)(Loss)/ profit for the period from Discontinued operations (64.5) 7.9 (4.4) 3.5 6 Dividends paid and proposed Declared and paid during the year 2005 2004 £m £m Ordinary final dividend for 2004 paid of 20.65p per share (2003: 17.5p per share) 28.1 23.6Ordinary interim dividend for 2005 paid of 10.0p per share (2004: 9.35p per 13.5 12.8share) 41.6 36.4 Proposed for approval (not recognised as liability as at 31 December)Ordinary final dividend for 2005 of 22.25p per share (2004: 20.65p per share) 33.5 28.1 7 Earnings per share 2005 2004 Basic earnings per share - continuing operations 45.2p 40.5pBasic (loss)/earnings per share - discontinued operations (47.2p) 5.2pBasic (loss)/earnings per share - total (2.0p) 45.7pNormalised basic earnings per share - continuing operations 77.4p 70.4p Diluted earnings per share - continuing operations 44.5p 39.9pDiluted (loss)/earnings per share - discontinued operations (46.5p) 5.1pDiluted (loss)/earnings per share - total (2.0p) 45.0pNormalised diluted earnings per share - continuing operations 76.3p 69.3p Normalised earnings per share are defined as the statutory earnings per sharebefore the following: profit or loss on the sale of business and charges forgoodwill impairment, intangible amortisation, fixed asset impairments,exceptional items and tax relief on qualifying exceptional items. Basic loss per share is calculated by dividing the loss attributable to equityshareholders of £2.8m (2004: profit of £62.2m) by the weighted average number ofordinary shares in issue during the year, excluding those held by employees'share ownership trusts and those held as treasury shares which are both treatedas cancelled. 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 weighted average number of ordinary shares is detailed asfollows: 2005 2004 Basic weighted average shares 136,591,474 136,166,921Adjustment for dilutive potential ordinary shares 2,017,744 2,039,292Diluted weighted average shares 138,609,218 138,206,213 The normalised basic and normalised diluted earnings per share have beencalculated in addition to the basic and diluted earnings per shares required byIAS 33 since, in the opinion of the Directors, they reflect the underlyingperformance of the business's operations more appropriately. Normalised profits for the financial period are: 2005 2005 2005 2004 2004 2004 £m Basic Diluted £m Basic Diluted EPS EPS EPS EPS p p p p (Loss)/profit attributable to equity (2.8) (2.0) (2.0) 62.2 45.7 45.0shareholdersLoss/(profit) from discontinued operations 64.5 47.2 46.5 (7.1) (5.2) (5.1)Profit from continuing operations attributable toequity shareholders 61.7 45.2 44.5 55.1 40.5 39.9Goodwill impairment on continuing operations 33.3 24.4 24.1 33.3 24.4 24.1Intangible asset amortisation 4.9 3.6 3.5 2.4 1.8 1.7Exceptional items 7.8 5.7 5.6 7.7 5.7 5.6Loss on disposal of non-current assets - - - 0.9 0.7 0.6Tax relief on goodwill and exceptional items (2.0) (1.5) (1.4) (3.6) (2.7) (2.6)Normalised profit attributable to equityshareholders 105.7 77.4 76.3 95.8 70.4 69.3 Profit/loss from discontinued operations comprises the results as disclosed innote 5 net of minority interests of £3.6m in the year to 31 December 2004. 8 Business combinations a) Acquisition of Alsa On 1 December 2005 the Group acquired the entire share capital of GeneralTecnica Industrial S.L., Dabliu Consulting S.L. and Turyexpress S.A. whichtogether hold the companies that comprise Alsa, a bus and coach operator basedin Spain. Consideration of £268.6m was satisfied by the issue of 13,503,600ordinary shares of 5p at £9.07 (£122.5m), being the price of National ExpressGroup PLC shares on 1 December 2005, and cash of £146.1m (net of a provisional£2.6m completion adjustment that is receivable at 31 December 2005).Additionally costs of £4.4m have been included in total consideration. 2005 Alsa Alsa Alsa book value fair value fair value total adjustments £m £m £m Net assets at date of acquisition: Intangible assets 178.2 (178.2) -Property, plant and equipment 59.2 14.4 73.6Available for sale investments 1.2 - 1.2Investments accounted for under the equity 6.0 (1.2) 4.8methodInventories 3.1 - 3.1Trade and other receivables 52.8 (3.8) 49.0Current tax 0.8 - 0.8Cash and cash equivalents 10.0 - 10.0Trade and other payables (55.4) - (55.4)Retirement benefit obligations (0.2) (0.9) (1.1)Provisions (1.0) - (1.0)Financial liabilities - Borrowings (211.8) - (211.8)Deferred tax liability 0.4 (6.5) (6.1)Net assets 43.3 (176.2) (132.9)Less minority interest (11.4) (4.1) (15.5)Group's share of net assets 31.9 (180.3) (148.4)Goodwill on acquisition 421.4Total consideration 273.0Net consideration 268.6Acquisition costs 4.4Total consideration 273.0Less: shares issued (122.5)Add: provisional completion adjustment 2.6receivableLess: accrued acquisition costs (0.2)Less: net cash acquired (10.0)Net cash outflow 142.9 8 Business combinations (continued) In accordance with Group accounting policies, provisional fair value adjustmentshave been made to the assets and liabilities acquired. In particular, due to theproximity of the combination to the year end the Group has been unable tocomplete a detailed valuation of the intangible and tangible assets acquiredwith the business. Accordingly, the surplus of consideration over fair value ofthe share of net assets acquired has been allocated to goodwill at 31 December2005. The Group expects to identify intangible assets, including brands,customer relationships and customer contracts, and will complete a propertyvaluation. Independent valuers have been retained by the Group to complete thisexercise and the results will be reflected in the Group's next accounts. Thevalue of goodwill will be adjusted by a corresponding amount for the value ofintangible assets identified and the difference between the market and bookvalues of the property assets. Management believes that goodwill remaining afterthis exercise will comprise value to the Group for which the recognition of adiscrete intangible asset is not permitted and will represent future growthopportunities. On 15 December 2005 the Group paid £12.7m of cash consideration to acquire the10.2% minority interest of Enatcar, a subsidiary of Alsa. This paymentrepresented fair value and consequently had no impact on the goodwill recognisedabove. Due to the date of acquisition, the profit accrued in 2005 was notmaterial to the Group. From the date of acquisition, Alsa has contributed £2.6m to the normalisedoperating profit of the Group. As a privately owned group Alsa did not prepareconsolidated financial information. Using the December 2005 results as beingindicative of the profit for the full year, if the combination had taken placeat the beginning of the year, the normalised operating profit for the Groupwould have been £184.1m and revenue from continuing operations would have been£2,416.2m. Normalised results are defined as the statutory results before the following asappropriate: profit or loss on the sale of businesses and charges for goodwillimpairment, intangible amortisation, fixed asset impairments, exceptional itemsand tax relief on qualifying exceptional items. b) Other acquisitions The Group acquired the entire share capital of TGM Buses Limited and TGMMiddlesex Limited, representing the London bus operations of Tellings GoldenMiller PLC (TGM) on 17 June 2005. In Canada the Group acquired the entire sharecapital of Aboutown School Transit Inc., a school bus operator on 15 July 2005and the entire share capital of Northstar Passenger Services LP and WalshTransportation LP, representing the school bus operations of Contrans IncomeFund (a Canadian freight haulage company) on 1 August 2005. The Group alsoacquired the entire share capital of Jones School Bus Service Inc on 10 November2005, a school bus operator in the United States. The net cash outflow inrespect of these acquisitions was £63.2m. 9 Share capital and reserves Total equity £m At 31 December 2004 266.8Financial instruments recognition (12.8)At 1 January 2005 254.0Shares issued 127.4Shares purchased (29.3)Acquisition of minority interest 2.8Total recognised expense (7.2)Shares awarded to satisfy share scheme 3.5Disposal of subsidiaries (0.9)Share based payments 3.6Dividends (41.6)At 31 December 2005 312.3 10 Pensions and other post-employment benefits i) Financial results for pension benefits The defined benefit pension liability included in the balance sheet is asfollows: 2005 2004 £m £m UK Bus (37.8) (36.2)UK Coach (14.9) (11.0)UK Train (34.2) (17.9)Other (1.9) (0.6)Total (88.8) (65.7) 10 Pensions and other post-employment benefits (continued) The amounts charged to the Group income statement and Group statement ofrecognised income and expense for the year ended 31 December 2005 are set out inthe following tables. Group income statement UK Bus UK Coach UK Trains Other Total 2005 2005 2005 2005 2005 £m £m £m £m £m Amounts charged to operating profit: Current service cost (5.3) (1.6) (31.2) (0.2) (38.3)Past service cost - - - - -Expected return on pension scheme assets 23.9 2.1 30.1 - 56.1Interest on pension liabilities (20.2) (2.2) (24.0) - (46.4)Interest on franchise adjustment - - 3.6 - 3.6Charge to operating profit (1.6) (1.7) (21.5) (0.2) (25.0)Total charge to income statement (1.6) (1.7) (21.5) (0.2) (25.0) Actual return on plan assets 59.2 4.6 84.5 - 148.3 Group statement of recognised income and expense UK Bus UK Coach UK Trains Other Total 2005 2005 2005 2005 2005 £m £m £m £m £m Actual return less expected return on pension 35.3 2.5 54.4 - 92.2scheme assetsOther actuarial gains and losses (41.6) (7.3) (75.3) - (124.2)Actuarial loss (6.3) (4.8) (20.9) - (32.0) The amounts recognised in the balance sheet at 31 December 2005 are: UK Bus UK Coach UK Trains Other Total 2005 2005 2005 2005 2005 £m £m £m £m £m Equities 218.5 17.2 638.1 - 873.8Bonds 159.7 18.5 88.2 - 266.4Property 3.6 - 67.3 - 70.9Other 4.0 - 2.8 - 6.8Fair value of scheme assets 385.8 35.7 796.4 - 1,217.9Present fair value of scheme liabilities (423.6) (50.6) (901.6) (1.9) (1,377.7)Franchise adjustment - - 71.0 - 71.0Group's defined benefit obligation (423.6) (50.6) (830.6) (1.9) (1,306.7)Defined benefit pension deficit (37.8) (14.9) (34.2) (1.9) (88.8) ii) Accounting for the Railways Pension Scheme The majority of employees of the UK Train companies are members of theappropriate section of the Railways Pension Scheme ("RPS"), a funded definedbenefit scheme. The RPS is a shared cost scheme, which means that costs areformally shared 60% employer and 40% employee. To date, the Group hasexperienced three changes of UK Train franchise ownership where the currentowner has funded the scheme during the franchise term and the pension deficit atfranchise exit has transferred to the new owner, without cash settlement.However, although the Group's past experience has proven otherwise, our legaladvice has opined that in certain situations, some of the liability for thedeficit on the relevant sections of the RPS could theoretically crystallise forfunding by an individual TOC at the end of the franchise. By entering into thefranchise contract, the TOC becomes the designated employer for the term of thecontract and under the rules of the RPS must fund its share of the pensionliability in accordance with the schedule of contributions agreed with theScheme trustees and actuaries and for which there is no funding cap set out inthe franchise contract. We understand that franchise contracts entered into inthe future will clarify that RPS pension deficits and surpluses will not be theresponsibility of the outgoing franchisee following exit. To comply with IAS 19, the Group is required to account for its legal obligationunder the formal terms of the RPS and its constructive obligation that arisesunder the terms of each franchise agreement. In determining the appropriate accounting policy for the RPS to ensure that theGroup's accounts present fairly its financial position, financial performanceand cash flows, management has consulted with TOC industry peers and hasconcluded that the Group's constructive but not its legal RPS defined benefitobligations should be accounted for in accordance with IAS 19. This accountingpolicy, which in all other respects is consistent with that set out in this notefor the Group's other defined benefit schemes, means that the Group's accountsreflect that element of the deficits anticipated to be settled by the Groupduring the franchise term and will prevent gains arising on transfer of theexisting RPS deficits to a new owner at franchise exit. In calculating the Group's constructive obligations in respect of the RPS, theGroup has calculated the total pension deficits in each of the RPS sections inaccordance with IAS 19 and the assumptions set out above. These deficits arereduced by a "franchise adjustment" which is that portion of the deficitprojected to exist at the end of the franchise and for which the Group will notbe required to fund. The franchise adjustment, which has been calculated by theGroup's actuaries, is offset against the present value of the RPS liabilities soas to fairly present the financial performance, position and cash flows of theGroup's obligations. 11 Cash flow statement The net cash flows from operating activities include outflows of £7.7m (2004:£5.2m) from continuing operations which related to exceptional costs. a) Reconciliation of Group operating profit to cash generated from operations Total Operations 2005 2004 £m £m Net cash inflow from operating activitiesGroup operating profit 109.5 99.9Operating profit of discontinued operations (56.4) (7.3)Depreciation of property, plant & equipment 56.8 63.6Amortisation of leasehold property prepayment 0.8 0.6Goodwill impairment 93.3 43.9Intangible asset amortisation 4.9 2.4Property, plant and equipment impairment - 6.1Amortisation of fixed asset grants (0.9) (6.5)Profit on disposal of fixed assets (in normalised operating profit) (2.0) (0.6)Share-based payments 3.6 0.6(Increase)/decrease in inventories (0.7) 0.7Decrease in receivables 22.4 18.7(Decrease)/increase in payables (37.2) 34.7Decrease in provisions (13.0) (2.7)Cash generated from operations 181.1 254.1 Discontinued Operations 2005 2004 £m £m Net cash inflow from operating activitiesOperating profit (56.4) (7.3)Depreciation of property, plant & equipment 1.3 6.3Goodwill impairment 60.0 10.6Property, plant and equipment impairment - 6.1Profit on disposal of fixed assets (in normalised operating profit) (0.1) -Share-based payments 0.1 -Increase in inventories (0.1) -(Increase)/decrease in receivables (1.1) 1.2Increase/(decrease) in payables 1.2 (4.9)Decrease in provisions (1.3) (2.9)Cash generated from operations 3.6 9.1 b) Analysis of changes in net debt Net debt at 31 December 2005 of £563.4m (2004: £136.6m) comprises cash and cashequivalents of £145.5m (2004: £147.2m), current interest bearing loans andborrowings of £214.4m (2004: £30.3m) and non-current interest bearing loans andborrowings of £495.5m (2004: £251.8m) and other debt receivable of £1.0m (2004:£1.0m). Additionally, net debt at 31 December 2004 includes £1.5m finance leases duewithin one year and £1.2m finance leases due within one to two yearsattributable to discontinued operations and classified separately on the balancesheet within the "Disposal group assets classified as held for sale" and "Liabilities directly associated with disposal group assets classified as heldfor sale" headings. At Cash flow Other movements At 31 1 January Acquisitions/ Exchange December 2005 Disposals Differences 2005 £m £m £m £m £m £m Cash 26.8 25.0 - 1.4 - 53.2Overnight deposits 24.1 0.4 - - - 24.5Other short term deposits 96.3 (29.8) - 1.3 - 67.8Bank overdrafts - (5.5) - - - (5.5)Cash and cash equivalents (includingoverdrafts) 147.2 (9.9) - 2.7 - 140.0Other debt receivable 1.0 - - - - 1.0Debt due within one year: Loan notes (7.5) 6.7 - - - (0.8) Bank loans (8.0) (174.8) - (1.5) (0.2) (184.5) (15.5) (168.1) - (1.5) (0.2) (185.3)Debt due after one year: Bank loans (207.5) 26.7 (204.0) (25.2) - (410.0) Finance lease obligations (61.8) 20.0 (7.3) (3.0) (57.0) (109.1)Net debt (136.6) (131.3) (211.3) (27.0) (57.2) (563.4) 11 Cash flow statement (continued) Short term deposits included within liquid resources relate to term depositsrepayable within three months. Changes in net debt arising from acquisitions anddisposals in the year are disclosed separately on the face of the cash flowstatement. Other non cash movements in net debt represent finance lease additions of £57.0m(2004: £16.2m) and £0.2m (2004: £1.8m) amortisation of loan arrangement fees. c) Reconciliation of net cash flow to movement in net debt 2005 2004 £m £m (Decrease)/increase in cash and cash equivalents in the period (9.9) 51.0Cash (inflow)/outflow from movement in debt and lease financing (121.4) 109.8Change in net debt resulting from cash flows (131.3) 160.8Change in net debt resulting from acquisitions and disposals (211.3) (8.5)Change in net debt resulting from non cash flows (84.2) 0.2Movement in net debt in the period (426.8) 152.5Opening net debt (136.6) (289.1)Net debt (563.4) (136.6) 12 Financial Information. The financial information set out above, which was approved by the Board on 9March 2006, is derived from the full Group accounts for the year ended 31December 2005 and does not constitute the 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. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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