9th Nov 2005 07:00
Embargoed until 07.00am on Wednesday 9 November 2005 FIRSTGROUP PLC INTERIM RESULTS FOR THE SIX MONTHS TO 30 SEPTEMBER 2005SUMMARY * Solid performance in challenging trading conditions * Revenue increased by 14% * Overall impact of additional fuel costs ‚£13.0m * Interim dividend increased by 10% * Excellent performance in UK Rail + New franchises performing ahead of expectations + Successful first year of operating First ScotRail franchise + Strong passenger growth at First TransPennine Express + Submitted bids for three new enlarged rail franchises * Revenue growth and margin improvement in North America + Highest ever H1 sales and earnings + First Student - good revenue growth and contract retention + First Transit - retention of important contracts and new business wins + First Services - earnings more than doubled during period * UK Bus + Strong underlying revenue growth + Improved operating performance + Improved positions in London league tables + Continued focus on service reliability FINANCIAL SUMMARY* * Revenue ‚£1,376.5m (2004: ‚£1,207.3m) * Operating profit1 ‚£81.4m (2004: ‚£85.6m) * Adjusted profit before tax1 ‚£55.5m (2004: ‚£63.7m) * Profit before taxation ‚£55.3m (2004: ‚£64.3m) * Adjusted basic earnings per share 9.2p (2004: 10.9p) * Basic earnings per share 9.0p (2004: 11.0p) * EBITDA2 ‚£135.3m (2004: ‚£133.0m) * EBITDA:interest cover3 5.2x (2004: 6.1x) * Interim dividend per share up 10% to 4.55p (2004: 4.125p) *2004 as restated for transition to International Financial Reporting Standards1 Before intangible asset amortisation, bid costs and profit on disposal offixed assets2 Operating profit1 as defined, plus depreciation3Calculated as EBITDA divided by net interest payable and similar chargesCommenting, FirstGroup's Chief Executive, Moir Lockhead said:"I am pleased to report another set of solid results in a challenging tradingenvironment. We have faced considerable cost increases in the period with theoverall impact of additional fuel costs being ‚£13.0m. Our UK Rail Divisioncontinues to do well with a particularly strong performance from our twolonger-term rail franchises First TransPennine Express and First ScotRail. Weare beginning to see a recovery in patronage on our First Great Western andFirst Great Western Link franchises following the July terrorist attacks inLondon. We have now submitted bids for the three new enlarged rail franchises -Integrated Kent, Thameslink/Great Northern and Greater Western.Our North American business recorded its highest first half earnings to dateand has delivered improved US Dollar margins. First Student has continued toexpand and maintain an excellent record of contract retention. Our Servicesbusiness has delivered another excellent result with earnings more than doubledduring the period.In UK Bus, we have seen a further period of strong revenue growth and improvedoperating performance. Our focus on service quality has already delivered someearly positive results with lost mileage and driver turnover at the lowestlevels for two years. We continue to see encouraging patronage growth where weare able to work with Local Authorities to provide bus services alongsidetraffic management schemes.The Board has increased the dividend by 10% for the third time since November2004 when we announced our commitment to this level of dividend growth in themedium-term. Our strategy is to enhance shareholder value by growing our corebusiness, developing opportunities in new markets, progressive dividend growthtogether with share repurchases, while maintaining a strong balance sheet.Early indications are that trading in the second half of the year is in linewith our expectations"Enquiries:FirstGroup plcMoir Lockhead, Chief Executive Tel: 020 7291 0512Dean Finch, Finance Director Tel: 020 7291 0512Rachael Borthwick, Head of Group Corporate Communications Tel: 020 7291 0508 Photographs for the media are available at www.newscast.co.uk NOTES TO EDITORS:FirstGroup plc is a UK based international transport company with a turnover of‚£2.7 billion a year and over 67,000 employees throughout the UK and NorthAmerica.¯â€š· The Group is Britain's largest bus operator running more than one in five ofall local bus services. A fleet of some 9,300 buses carries 2.8 millionpassengers a day in more than 40 major towns and cities.¯â€š· The Group is also one of the UK's largest rail operators with four passengerfranchises - First Great Western, First Great Western Link, First TransPennineExpress and First ScotRail - and one open access operator Hull Trains.¯â€š· The Group operates nearly one-sixth of the UK passenger rail network, with abalanced portfolio of intercity, commuter and regional services.¯â€š· The Group is shortlisted for the new Integrated Kent, Thameslink/GreatNorthern and Greater Western franchises.¯â€š· The Group also operates freight services through GB Railfreight.¯â€š· The Group holds the operating contract for the Croydon Tramlink network,which carries over 20 million passengers a year.¯â€š· In North America the Group has three operating divisions: Yellow School Buses(First Student), Transit Contracting and Management Services (First Transit)and Vehicle Fleet Maintenance and Support Services (First Services).Headquartered in Cincinnati the businesses operate across the US and Canada.- First Student is the second largest provider of student transportation inNorth America with a fleet of over 20,000 yellow school buses, carrying nearly2 million students every day across the US and Canada.- First Transit is one of the largest private sector providers of transitmanagement and contracting, managing public transport systems on behalf oftransit authorities in cities such as Atlanta, Los Angeles, Houston andSeattle. We are one of the largest providers of airport shuttle bus services inthe US, serving airports in cities such as Cincinnati, Miami and Philadelphia.We also manage call centres, paratransit operations and other light transitactivities.- First Services is the largest private sector provider of vehicle maintenanceand support services in the US. We provide fleet maintenance for public sectorcustomers such as the Federal Government, cities and fire and policedepartments. We also provide a range of support services including vehiclemaintenance, logistics support and facilities management to public and privatesector clients including the US Navy and US Air Force.Chairman's statementWe were all deeply shocked and saddened by the tragic events in London on 7July. On behalf of the Board of FirstGroup plc and all of its employees I wouldlike to express my condolences to the injured and the bereaved. As a majortransport operator in the capital we are proud of the exceptional efforts ourstaff made to continue their duties and assist passengers in very difficultcircumstances.Safety is our highest priority and we continuously strive to improve ourperformance to achieve the highest standards.I am pleased to report another strong set of results for the first half. Grouprevenue increased by 14% to ‚£1,376.5m (2004: ‚£1,207.3m) and profit before taxwas ‚£55.3m (2004: ‚£64.3m). This is a creditable performance given theadditional cost increases, most notably fuel prices which had an overall impactof ‚£13.0m during the period. Cash generation has remained strong with EBITDA(Group operating profit* plus depreciation) for the period rising to ‚£135.3m(2004: ‚£133.0m). Adjusted basic earnings per share (before intangible assetamortisation, bid costs and property profits) was 9.2p (2004: 10.9p). Inrecognition of the Group's continuing strong cash generation the Board hasrecommended an increase in the interim dividend of 10% to 4.55p (2004: 4.125p).The dividend will be paid on 8 February 2006 to shareholders on the register on13 January 2006. The Board remains confident that this level of dividend growthis sustainable for the medium term.We have now been operating First ScotRail, Scotland's national railway and theUK's largest rail franchise, for 12 months. A tremendous amount has beenachieved during this first year and we continue to initiate improvements toservices and facilities to benefit passengers. We are shortlisted for three newenlarged rail franchises worth up to ‚£1.1bn of additional revenue per annum andduring the period we submitted bids for these important rail franchises.In our UK Bus business we are encouraged by growth in areas where we are ableto develop partnerships with Local Authorities to improve services through buspriority schemes and other traffic management measures.Contract retention remains high within our North American division. We continueto grow and win new business across all of our North American operations. InOctober our Services division commenced operation of a major contract for theUS Navy.In July Professor David Begg joined the Board as a Non-Executive Director.David has vast experience and an impressive record in public transport andtransport policy. Sid Barrie joined the Board as Commercial Director in Augustand his appointment further strengthens our commercial team. I am confidentthat both will make a significant contribution to the Group.I would like to take this opportunity to thank all employees for theircontinued hard work and commitment in delivering another year of growth and towelcome new staff to the Group who have joined our businesses in the UK and USduring the period.Our strategy is to deliver shareholder value by continuing to grow in our corebusinesses and explore opportunities to develop in new markets. As well asinvesting for growth we remain committed to a programme of progressive dividendgrowth and share repurchases, while maintaining a strong balance sheet.Martin GilbertChairman*Operating profit referred to throughout this document refers to operatingprofit before intangible asset amortisation, bid costs and profit on disposalof fixed assets.Chief Executive's operating reviewOVERVIEWSafetyThe safety and security of our passengers and staff is at the forefront ofeverything we do and we actively endorse a culture of `Safety First' throughoutour business. We continually assess our working practices and procedures toensure that we are doing everything we can to meet the highest possiblestandards of safety.ResultsRevenue has increased to ‚£1,376.5m (2004: ‚£1,207.3m). Operating profit was ‚£81.4m (2004: ‚£85.6m). Operating profit was impacted by ‚£13.0m by thesignificant rise in fuel costs as a result of the increase in global oilprices. The Group generated EBITDA (operating profit as defined plusdepreciation) of ‚£135.3m (2004: ‚£133.0m) enabling us to invest ‚£113.1m in thebusiness predominantly in our UK Bus and North American businesses.UK RAILThe UK Rail division operates passenger and freight services in the UK.Passenger rail franchises consist of First Great Western, First Great WesternLink, First TransPennine Express and First ScotRail. We also operate HullTrains, a non-franchised open access intercity passenger train operator, and weprovide rail freight services through GB Railfreight.ResultsRevenue in the Group's rail division increased by 18% to ‚£526.0m (2004: ‚£446.6m). Operating profit was ‚£34.3m (2004: ‚£32.7m). This is a particularlystrong performance, given the effect of the terrorist attacks on London whichhad a significant adverse impact on our rail franchises during the secondquarter, and demonstrates the strength of our longer-term rail franchises FirstTransPennine Express and First ScotRail.Current OperationsIt is now 12 months since we commenced operation of First ScotRail. The strongperformance reflects the enormous effort put in to delivering serviceenhancements for passengers and raising standards across all areas of thefranchise. We have worked particularly hard to improve train serviceperformance and as a result have seen a 20% reduction in operator delays, forwhich we are responsible, in the past 12 months, compared to a franchisecommitment of a 2% reduction per annum. Significant improvements have also beenmade in other areas. For example, we have brought our on-board cateringin-house, established a new Customer Contact Centre and introduced newpassenger information services such as JourneyCheck and JourneyAlert enablingpassengers to receive instant information on how services are running anddetails of planned engineering works. We launched a Customer Service QualityInitiative aimed at delivering cleaner stations and trains, a safer environmentwith improved CCTV and better information for customers. We were delighted torecord the strongest customer satisfaction figures for punctuality andreliability for the past five years. We have also seen significant improvementsin customer satisfaction for on-train cleanliness, comfort, provision ofinformation on trains and at stations and in many other areas of the business.Revenue protection is one of our key priorities and we have implemented anumber of initiatives to improve ticket purchasing opportunities and increaseticket checks across the network. As a result we have seen a substantialreduction in revenue leakage across the franchise.First TransPennine Express has performed extremely well with passenger incomeincreased by 12.7%. Passenger volumes across the First TransPennine networkincreased by 6% in the first 12 months of operation with substantial volumegrowth of 29% achieved on key services to and from Manchester Airport. We havecontinued to focus on train performance and introduced a team of technicalriding inspectors who are on call to travel around the network and attend tofaults on trains in service that might otherwise have led to delay orcancellation. Initiatives such as these have led to a significant improvementin the performance of the rolling stock. We continue to manage the introductionof a new fleet of 51 new 100mph Siemens trains. The first of the new trains isdue to arrive for testing in the UK in December with entry into passengerservice scheduled for Spring 2006.In First Great Western we are working closely with Network Rail and otherindustry partners as part of a Joint Performance Improvement Plan. First GreatWestern has reduced the operator delays, for which they are responsible, byover 30% in the last four years. In September we launched a further integratedtransport initiative with the launch of a new range of PlusBus season ticketsenabling passengers to switch between bus and rail services with one ticket.PlusBus can be added to both ends of a rail journey allowing passengers toleave their car at home and make their entire journey by public transport. Wewere pleased that our Exeter St Davids station was the latest First GreatWestern station to be accredited with `Secure Station' status, furtherdemonstrating our commitment to enhance security and safety at our stations forthe benefit of our staff and passengers.We have now successfully delivered the integrated timetable for First GreatWestern and First Great Western Link. This major overhaul to the scheduling ofservices has enabled us to offer passengers increased capacity, faster trainsand improved journey times on certain routes. We were pleased to launch apackage of security and safety improvements, in partnership with Transport forLondon (TfL), for stations across the First Great Western Link network.Improvements such as new CCTV and Help Points at stations provide increasedsecurity for rail users.Hull Trains, our non-franchised, open access intercity train company operatingbetween London Kings Cross and Hull, performed well during the period withstrong revenue and passenger growth. In May we introduced new 125mph trains into service which are performing well. We were granted regulatory approval tointroduce two new weekday services which commenced operation in June. We weredelighted to be awarded the Guardian, Observer and Guardian Unlimited TravelAward for Best Train Operator 2005.GB RailfreightGB Railfreight (GBRf), our freight company, has continued to show encouraginggrowth with a number of new contract wins including Royal Mail, Knights Rail,Petrochem Carless, Angel Trains and Network Rail. Most recently GBRf won asignificant contract with Metronet to transport infrastructure materials aspart of the programme to renew the London Underground network. A number oflocomotives and wagons have been ordered, for delivery early next year, tosupport the new contracts.Franchise biddingWe were delighted to be shortlisted for the three new enlarged rail franchises;Integrated Kent, Thameslink/Great Northern and Greater Western. We have nowsubmitted bids for all three franchises to the Department for Transport andhope to hear the outcome towards the end of the year.NORTH AMERICAIn North America the Group is the second largest operator of studenttransportation with over 20,000 yellow school buses carrying nearly 2 millionstudents every day across the US and Canada. We operate the largest transitcontracting and management business in North America and we have an expandingservices business.ResultsOur three North American operations achieved their highest level of first halfrevenue and earnings and delivered margin improvement during the period.Revenue was ‚£353.3m or $647.2m (2004: ‚£284.3m or $514.6m) and an increase of25.8% in US Dollar terms. Operating profit was ‚£19.0m or $35.9m (2004: ‚£15.3mor $27.1m). Results from this division were impacted by additional fuel costsas a result of global oil price increases.We continue to generate excellent returns in our three North Americanbusinesses with EBITDA of ‚£39.6m or $74.0m (2004: ‚£33.0m or $59.0m) and thedivision remains self-financing for maintenance capital expenditure, organicgrowth and in-fill acquisitions.First StudentDuring the period we have continued to grow our yellow school bus operationsand deliver margin improvement despite ongoing fuel cost pressures. US Dollarrevenue increased by 22% and US Dollar operating profit rose by 31%. As inprevious years, the highly seasonal nature of this business (with the summerholidays being a period when we earn minimal revenue but still incur fixedcosts) means that results in the first half of the year are not representativeof the full year. Contract retention remained high with over 90% of ourexisting business that came up for renewal retained by First Student. Wecontinued to gain market share during the period through a combination of newbusiness wins, acquisitions and organic growth. New business was won in thestates of California, Massachusetts, Vermont, Illinois, Iowa, Louisiana,Minnesota and Maryland and we made two in-fill acquisitions in Ohio andWisconsin. First Student was pleased to be able to assist the relief effort inLouisiana following the impact of Hurricane Katrina. Yellow school buses wereused to evacuate people from the region and provide transport for children whowere re-located to new schools outside of the state.First TransitUS Dollar revenue increased by 15%, however operating profit was impacted byadditional fuel costs. During the period we successfully commenced operation ofnew contracts in Texas, Washington DC, New York and North Carolina. In additionwe were pleased to retain a number of important contracts that came up forrenewal including paratransit business in Houston and management andcontracting business in Los Angeles, Colorado as well as contracts inMassachusetts, North Carolina, Illinois and Alabama. We also renewed animportant shuttle bus service contract with Philadelphia Airport. In October wewere delighted to be awarded a new contract to operate a call centre inIndianapolis.We continue to focus on expanding in the fast growing `light transit' marketsuch as call centre operations, logistics consultancy, paratransit, and public/private shuttle services where we can utilise our expertise and continue toprofitably grow this side of the business.First ServicesThis has been another very successful period for our Services Division, whichprovides a range of outsourced vehicle maintenance, operations and supportservices to public and private sector clients. US Dollar revenue rose by 73%and operating profit increased by 112% primarily as a result of a full sixmonths trading contribution from the services business we acquired last year.First Vehicle Services continued to win new business in the private sector withvehicle maintenance contracts in Massachusetts and California. We also won newcontracts to fit specialist communications and mobile technology products forclients in Tennessee, Kansas, New York, Florida and Los Angeles. In OctoberFirst Services commenced operation of a substantial contract to provide a rangeof land-based support services to the US Navy.UK BUSThe Group is the largest bus operator in the UK with a fleet of 9,300 buses anda market share of approximately 23%. We carry some 2.8 million passengers everyday.ResultsDuring the period on-bus revenue increased by 5.9% and total revenue rose to ‚£493.6m (2004: ‚£473.1m) as a result of revenue growth initiatives, patronagegrowth, improved tender revenues and pricing. Operating profit before thefinance element of leasing costs was ‚£40.7m (2004: ‚£49.4m). UK Bus facedsignificant cost pressures throughout the first half most notably the increasein fuel costs, which were partly mitigated through revenue growth initiatives,cost reductions through further operational efficiencies and pricing. We arenow fully hedged for our fuel consumption in the UK for the remainder of thefinancial year to 31 March 2006. We also made significant investment in ourengineering and maintenance functions to improve operational performance. Weare encouraged to see that this is already beginning to yield results with lostmileage currently at its lowest level in two years. While we continue to facemargin pressure in UK Bus our priority is to achieve sustainable profit growthand continue to bear down on costs and drive more efficient processes andhigher productivity. We are closely managing the issue of driver retention and,as a result of our initiatives such as the recruitment of European drivers,have seen a very encouraging decrease in driver turnover.In London we were pleased to significantly improve our performance the leaguetables issued by Transport for London (TfL) for punctuality and reliability.This marked improvement reflects the significant effort to improve servicequality and the investment in additional focused supervision of specificroutes. We were also delighted to be awarded the contract to operate one of thetwo Heritage Bus Routes on behalf of TfL. The service, which will commence on12 November, is a high profile contract and we are pleased to be entrusted withproviding this high quality service.The Mayor of London has now approved plans to extend the Congestion Chargingzone westward in 2007. We have already prepared, and are well positioned withdepot location and capacity, to provide further services should they berequired in order to meet the needs of passengers.Following the announcement in July that London is to host the Olympics in 2012we look forward to working closely with the Olympic Transport Authority todevelop innovative and comprehensive transport plans that will deliver the besttransport system for London and the Olympic Games.Outside London in our urban bus operations, which comprise approximately 60% ofUK Bus revenue, we have continued to see strong revenue growth in those townsand cities where we are able to work with Local Authorities to provide busservices alongside traffic management schemes to tackle congestion. We continueour policy to target our capital investment in those areas where there is aclear commitment to support public transport.We have developed `Punctuality Improvement Partnerships' (PIPs) where we worktogether with Local Authorities to minimise the impact of traffic congestionand identify areas where we can deliver time-saving solutions to improve thereliability of services. The first PIP was introduced in Manchester earlierthis year and we are working closely with Local Authorities throughout the UKto roll out these innovative partnerships across our operating areas.In Glasgow, which has one of the fastest growing bus networks in the UK, wewere delighted to join Glasgow City Council in a ‚£30m partnership agreementover 10-years to boost bus transport in the city. This innovative agreementwill see Glasgow City Council, together with West Dunbartonshire Council withbacking from the Scottish Executive and Strathclyde Passenger Transport, invest‚£27m to provide bus information and signalling systems, traffic managementmeasures on key corridors to improve journey times and reliability as well asother infrastructure such as new bus shelters and bus access. The Group hasalready made a significant investment in 220 new vehicles for the city and willcontribute a further ‚£4m towards bus improvements including tracking equipmentlinked to the Council's traffic control systems and improved security equipmentsuch as CCTV. This partnership, known as `Streamline', is a complete packagewhich is only possible when the public and private sector work together todeliver a high quality public transport system which provides a viablealternative to the car.Capital expenditure has been focused on areas with the potential for highpassenger growth. During the period ‚£52.1m was spent on new, low floor, easyaccess buses for towns and cities including Aberdeen, Bath, Edinburgh, Glasgow,Manchester, Halifax, Huddersfield, Norwich and Stoke-on-Trent.Investment in our people is key to our success and we continue to develop anumber of employee training programmes and facilities. During the last yearover 200 managers and supervisors have completed specially tailored trainingcourses. For the current trading year a further 560 places are being taken upensuring that our staff have the necessary skills and training to meet theneeds of passengers. In London we have introduced, in partnership with LondonBuses, a simulator for bus drivers. The simulator, based at our WillesdenJunction depot, will be used to support traditional driver training for new andexisting employees.We were delighted that our bus operations in York won `Public TransportOperator of the Year' at the National Transport Awards in June. It wasparticularly pleasing to have been nominated for this award by the City of YorkCouncil in recognition of the close and effective partnership between us.As part of our ongoing drive to improve operational efficiency and increaseproductivity we have continued to make significant investment in ourengineering and maintenance functions. We have rolled out standardisedmaintenance procedures across all of our operating companies and we havereviewed and improved our processes for inspection and repair. We have alreadystarted to see a positive impact from these reforms and expect to continue tosee an improved operating performance and reduction in costs over the mediumterm.GROUP OUTLOOKWe remain optimistic about our future prospects. In UK Railways our twolonger-term franchises, First TransPennine Express and First ScotRail, continueto outperform and we are well positioned to benefit from rail re-franchising,having been shortlisted and now submitted bids for three new enlarged railfranchises in this current round. Our North American business has highlydependable revenue streams, of which 80% are covered by medium-term contracts,and has continued to deliver excellent returns. In UK Bus we are seeing strongrevenue growth together with encouraging passenger growth where we are able towork with Local Authorities who are committed to public transport and reducingcongestion through traffic management measures. Our investment in servicequality and reliability has already begun to deliver some encouragingimprovements and we continue to bear down on costs and drive further processefficiencies and increased productivity. Our strategy remains clear - we willuse the Group's strong cash flows to invest for growth in our core businesses;we will explore opportunities to develop in new markets and we will increasedividends and buy back shares while maintaining a strong balance sheet. Earlyindications are that trading in the second half of the year is in line with ourexpectations.Moir LockheadChief ExecutiveFinance Director's reviewOverviewFirstGroup has a portfolio of businesses in the UK and North America whichgenerate strong predictable profits and cash flows which are used to increaseshareholder value by investing for growth, increasing dividends and whereappropriate, repurchasing shares. We aim to create value for our shareholdersthrough a competitive dividend yield, our progressive dividend growth policiesand earnings growth.This is the first set of results prepared under International FinancialReporting Standards (IFRS) and comparative results for the six months to 30September 2004 and the year to 31 March 2005 have been restated under IFRS.ResultsI am pleased to report revenue growth of 14% for the group as a whole. We arecurrently bidding for three rail franchises worth up to ‚£1.1 billion ofadditional revenue per annum. 6 months to 6 months to Year to 30 September 2005 30 September 2004 31 March 2005 Divisional Revenue Operating Operating Revenue Operating Operating Revenue Operating Operatingresults ‚£m profit * Margin * ‚£m profit * Margin * ‚£m profit * Margin * ‚£m % ‚£m % ‚£m % UK Bus 493.6 40.7 8.2 473.1 49.4 10.4 960.7 115.2 12.0 UK Rail 526.0 34.3 6.5 446.6 32.7 7.3 1,059.7 64.5 6.1 North America 353.3 19.0 5.4 284.3 15.3 5.4 665.8 62.4 9.4 Financing - (4.5) - - (4.5) - - (9.0) -element of leases ** Other *** 3.6 (8.1) - 3.3 (7.3) - 7.2 (18.3) - Total Group 1,376.5 81.4 5.9 1,207.3 85.6 7.1 2,693.4 214.8 8.0 * Before intangible asset amortisation, bid costs and profit on disposal offixed assets.** Financing element of UK PCV operating lease costs.*** Tram operations, central management and other items.Throughout the financial review, operating profit and operating margin aredefined as being before intangible asset amortisation and bid costsUK Bus revenue was ‚£493.6m (six months to 30 September 2004: ‚£473.1m) anincrease of 4.3%. Operating profit was ‚£40.7m (six months to 30 September 2004:‚£49.4m). There were significant cost pressures during the period in particularfuel costs and drivers' wage settlements in excess of inflation. The periodalso saw a continued investment in engineering. These cost pressures werepartly mitigated by price/yield activities and reduced costs elsewhere throughoperational efficiencies. UK operations are now 100% hedged on crude oil pricerisk for the remainder of financial year 2005/06 at $38 per barrel. Fuel aside,we are focusing on improving bus margins and believe that opportunities existto both grow revenues and improve efficiency.UK Rail revenue was ‚£526.0m (six months to 30 September 2004: ‚£446.6m), anincrease of 17.8%. Operating profit was ‚£34.3m (six months to 30 September2004: ‚£32.7m). There were extremely strong performances during the period fromboth First ScotRail and First TransPennine Express. First Great Western profitshowever were down on last year due to a lower subsidy and the impact of theLondon bombings. We have submitted bids for three major franchises - IntegratedKent, Greater Western and Great Northern/Thameslink and we anticipate hearingthe outcomes of these bids by the end of the year.North America revenue was ‚£353.3m (six months to 30 September 2004: ‚£284.3m),an increase of 25.8% in US Dollar terms. Operating profit was ‚£19.0m (sixmonths to 30 September 2004: ‚£15.3m), an increase of 32.5% at constant exchangerates. Operating margin in US Dollars increased to 5.5% from 5.3%. FirstStudent benefited by $4.0m in incremental profit recovering the "lost"operational days from 2004/05. Student results were impacted however byadditional fuel costs of a similar amount. First Services performed extremelywell with profits up by 112% principally due to a full half year of SKE whichwas acquired towards the end of the first half of last year. First Transitresults were down year on year principally due to higher fuel costs.Operating profit in both Rail and North America have grown with record firsthalf earnings in both divisions. Overall operating profit is down by 5% as aresult of both high fuel costs and continued investment in improvingengineering reliability in UK Bus. We are pleased to report a strong turnaroundin the reliability of our UK Bus services both in terms of Transport for Londonleague tables and overall lost mileage.PropertyProperty gains on disposal of ‚£11.8m (six months to 30 September 2004: ‚£3.7m)were realised during the period with the most significant being the disposalsof depots in Leicester and Motherwell. These sales reflect the Group's ongoingprogramme of disposing of older UK Bus depots in high value city centrelocations and re-investing in more modern and efficient facilities.Bid costsBid costs of ‚£10.0m (six months to 30 September 2004: ‚£2.7m) were incurredduring the period principally on our bids for Integrated Kent, Greater Westernand Great Northern/Thameslink franchises as well as the Docklands Light Railwaybid.Intangible asset amortisationThe intangible asset amortisation charge for the period was ‚£2.0m (six monthsto 30 September 2004: ‚£0.4m) with the increase due to amortisation on theScotRail pension intangible, which arose in the second half of last year, and afull period charge for contract related intangibles acquired in financial year2004/05.Interest payable and similar chargesThe net interest charge was ‚£25.9m (six months to 30 September 2004: ‚£21.9m)with the increase principally due to a higher average level of net debtcompared to the first half of last year. The net interest charge is covered 5.2times (six months to 30 September 2004: 6.1 times) by earnings before interest,taxation, depreciation and amortisation (EBITDA).TaxationThe taxation charge for the period, on profit before tax after exceptionalitems, was ‚£15.2m (six months to 30 September 2004: ‚£17.6m) with the reductionbeing principally due to lower pre-tax profits. The taxation charge for thehalf-year has been based on the estimated effective rate for the full year of27.5% (six months to September 2004: 27.5%) on profit before intangible assetamortisation and bid costs. The actual cash cost of taxation to the Group isestimated to be 5% of profit before tax after exceptional items for the fullyear (year to 31 March 2005: 16%). The reduction in the cash tax rate islargely due to tax depreciation from higher capital expenditure, pensionpayments and increased property gains.DividendsThe interim dividend of 4.55 pence (six months to 30 September 2004: 4.125pence) per ordinary share represents an increase of 10.3%. The interim dividendwill be paid on 8 February 2006 to shareholders on the register of members atthe close of business on 13 January 2006. Under the new internationalaccounting rules this interim dividend has not been provided in the accounts asat 30 September 2005.EPSThe adjusted basic EPS, before intangible asset amortisation, bid costs andprofit on disposal of fixed assets, was 9.2 pence (six months to 30 September2004: 10.9 pence). Basic EPS was 9.0 pence (six months to 30 September 2004:11.0 pence).Cash flowThe Group's businesses continue to generate strong operating profits which areconverted into cash. EBITDA for the period was ‚£135.3m (six months to 30September 2004: ‚£133.0m and year to 31 March 2005: ‚£322.4m). EBITDA by divisionis set out below: 6 months to 6 months to Year to 30 September 2005 30 September 2004 31 March 2005 Revenue EBITDA EBITDA Revenue EBITDA EBITDA Revenue EBITDA EBITDA ‚£m ‚£m % ‚£m ‚£m % ‚£m ‚£m % UK Bus 493.6 69.6 14.1 473.1 76.2 16.1 960.7 168.6 17.5 UK Rail 526.0 37.3 7.1 446.6 34.4 7.7 1,059.7 69.4 6.5 North 353.3 39.6 11.2 284.3 33.0 11.6 665.8 109.3 16.4America Financing - (4.5) - - (4.5) - - (9.0) -element of leases Other 3.6 (6.7) - 3.3 (6.1) - 7.2 (15.9) - Total Group 1,376.5 135.3 9.8 1,207.3 133.0 11.0 2,693.4 322.4 12.0 During the period there was a working capital outflow of ‚£27.2m which wasprincipally due to pension payments and growth in both the United Kingdom andNorth America.Capital expenditure and acquisitionsCapital expenditure, as set out in note 9 to the interim financial information,was ‚£113.1m (six months to 30 September 2004: ‚£47.3m and year to 31 March 2005:‚£135.3m). Capital expenditure was predominantly in North American operations of‚£52.9m and UK Bus operations of ‚£55.8m.The North American division acquired US School Bus businesses for a totalconsideration of ‚£3.5m. Provisional goodwill arising amounted to ‚£2.3m.Net cash invested in capital expenditure and acquisitions was ‚£107.8m (sixmonths to 30 September 2004: ‚£31.1m), with the increase principally due to thetiming of new bus purchases in the UK and North America, partly offset by alower level of acquisitions, in the first half of this year compared to thefirst half of last year.Net debtThe Group's net debt at 30 September 2005 was ‚£759.9m and was comprised asfollows:Analysis of net debt Fixed Variable Total ‚£m ‚£m ‚£m Cash - 48.4 48.4 Rail ring-fenced cash and deposits - 71.4 71.4 Sterling bond (2013 6.875%) * (296.2) - (296.2) Sterling bond (2019 6.125%) ** (245.2) - (245.2) Sterling bank loans and overdrafts - (231.6) (231.6) US dollar bank loans and overdrafts (3.6) (13.5) (17.1) Canadian bank loans and overdrafts (2.5) (39.8) (42.3) Euro bank loans and overdrafts - (10.0) (10.0) HP and finance leases (8.5) (8.2) (16.7) Loan notes (8.7) (11.9) (20.6) Interest rate swaps (57.0) 57.0 - Total (621.7) (138.2) (759.9)* excludes accrued interest** excludes accrued interest, swapped to US Dollars and is stated net of a gainon the associated currency swapsBalance sheet and net assetsNet assets increased by ‚£46.2m over the period principally reflecting retainedearnings for the period of ‚£35.5m, an increase in the hedging reserve of ‚£23.2m, favourable movements on foreign exchange reserves of ‚£18.5m, and higherminority interest (net of dividends paid to minority shareholders) for theperiod of ‚£2.4m, partly offset by dividends paid of ‚£34.2m.Shares in issueAs at 30 September 2005 there were 393.6m (30 September 2004: 398.4m and 31March 2005: 393.6m) shares in issue, excluding treasury shares. The weightedaverage number of shares in issue for the purpose of EPS calculations(excluding own shares held in trust for employees and treasury shares) was393.3m (six months to 30 September 2004: 400.9m and year to 31 March 2005:399.2m).Foreign exchangeThe results of the North American businesses have been translated at an averagerate of ‚£1:$1.83 (six months to 30 September 2004: ‚£1:$1.82 and year to 31March 2005: ‚£1:$1.85). The period end rate was ‚£1:$1.78 (30 September 2004: ‚£1:$1.80 and 31 March 2005: ‚£1:$1.87).Accounting policiesThe Interim Report for the six months to 30 September 2005 has been preparedusing accounting policies that comply with International Accounting Standards(IAS) and IFRS. These accounting policies were used for the preparation of therestated IFRS financial information for the six months ended 30 September 2004and the year ended 31 March 2005, issued in a press release on 28 September2005. The accounting policies and the IFRS restatements are available on thegroup's website, www.firstgroup.com.We expect to use consistent accounting policies for the preparation of theresults for the year ending 31 March 2006. There is, however, a possibilitythat the accounting policies may have to be changed due to any new standardsthat may be issued by the International Accounting Standards Board between nowand our financial year end. In addition, interpretations may be issued by theInternational Financial Reporting Interpretations Committee, and interpretationof existing IFRS or industry practice may evolve.Dean FinchFinance DirectorConsolidated income statement Notes Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited before before amortisation total amortisation amortisation total total amortisation impairment 6 months impairment impairment 6 months year to impairment charges and to charges and charges and to charges and 31 March bid 30 bid bid 30 bid September September 2005 costs costs costs 2004 costs 2005 6 months to 6 months to 6 months to 6 months to 30 September 30 September 30 September 30 September 2005 2004 2004 2005 ‚£m ‚£m ‚£m ‚£M ‚£m ‚£m ‚£m Revenue Continuing operations 2 1,376.5 - 1,376.5 1,207.3 - 1,207.3 2,693.4 Operating costs before profit on disposal of fixed assets Continuing operations (1,295.1) (12.0) (1,307.1) (1,121.7) (3.1) (1,124.8) (2,492.7) Operating profit before profit on disposal of fixed assets Continuing operations 81.4 (12.0) 69.4 85.6 (3.1) 82.5 200.7 Operating profit before 81.4 - 81.4 85.6 - 85.6 214.8amortisation, impairment charges and bid costs Amortisation and - (2.0) (2.0) - (0.4) (0.4) (2.2)impairment charges Bid costs - (10.0) (10.0) - (2.7) (2.7) (11.9) Operating profit before 81.4 (12.0) 69.4 85.6 (3.1) 82.5 200.7profit on disposal of fixed assets Profit on disposal of - 11.8 11.8 - 3.7 3.7 3.3fixed assets Operating profit 81.4 (0.2) 81.2 85.6 0.6 86.2 204.0 Finance income 3 5.2 - 5.2 1.5 - 1.5 4.3 Finance cost 3 (31.1) - (31.1) (23.4) - (23.4) (52.6) Profit before taxation 55.5 (0.2) 55.3 63.7 0.6 64.3 155.7 Taxation 4 (15.3) 0.1 (15.2) (17.4) (0.2) (17.6) (41.4) Profit for the period 40.2 (0.1) 40.1 46.3 0.4 46.7 114.3from continuing operations Attributable to: Equity holders of the 35.9 (0.4) 35.5 43.6 0.4 44.0 107.8parent Minority interest 4.3 0.3 4.6 2.7 - 2.7 6.5 40.2 (0.1) 40.1 46.3 0.4 46.7 114.3 Basic earnings per share 6 9.0p 11.0p 27.0p Diluted earnings per 6 9.0p 10.9p 26.8pshare Dividends of ‚£34.2m were paid during the period (30 September 2004: ‚£31.8m).Dividends of ‚£17.9m were proposed for approval during the period (30 September2004: ‚£16.4m and 31 March 2005: ‚£34.2m). Consolidated balance sheet Notes Unaudited Unaudited Unaudited 30 30 31 March September September 2005 2004 2005 ‚£m ‚£m ‚£m Non-current assets Goodwill 7 485.8 469.9 465.8 Other intangible assets 8 28.0 8.0 29.4 Property, plant and equipment 9 904.9 789.8 835.0 1,418.7 1,267.7 1,330.2 Current assets Inventories 54.4 40.8 40.1 Trade and other receivables 10 396.4 375.1 368.7 Financial assets 13 57.4 - - Short-term deposits - 5.1 7.5 Cash and cash equivalents 119.8 76.4 146.6 628.0 497.4 562.9 Non-current assets classified as 11 5.7 5.8 5.2held for sale Total assets 2,052.4 1,770.9 1,898.3 Current liabilities Trade and other payables 12 503.1 468.9 503.5 Retirement benefit obligation 4.0 3.9 3.8 Tax liabilities 59.1 61.3 52.8 Obligations under finance leases 13 5.2 14.3 9.0 Bank overdrafts and loans 13 6.1 20.0 51.4 Loan notes 13 2.8 0.3 0.5 580.3 568.7 621.0 Net current assets/(liabilities) 47.7 (71.3) (58.1) Non-current liabilities Financial liabilities - other 13 2.4 - - Bonds 13 576.8 536.2 527.9 Bank loans 13 294.9 171.3 192.8 Retirement benefit obligation 205.4 233.0 221.1 Deferred tax liabilities 62.6 19.2 39.0 Long-term provisions 14 38.2 31.6 44.6 Obligations under finance leases 13 11.5 11.3 15.1 Loan notes 13 17.8 20.7 20.5 1,209.6 1,023.3 1,061.0 Total liabilities 1,789.9 1,592.0 1,682.0 Net assets 262.5 178.9 216.3 Equity Share capital 16 19.9 19.9 19.9 Share premium account 17 238.8 238.8 238.8 Hedging reserves 17 23.2 - - Other reserves 17 4.6 4.6 4.6 Own shares 17 (18.8) (1.3) (18.9) Translation reserves 18 13.3 1.3 (14.2) Retained earnings 17 (31.5) (88.4) (24.5) Equity attributable to equity 249.5 174.9 205.7holders of the parent Minority interests 13.0 4.0 10.6 Total equity 262.5 178.9 216.3Consolidated cash flow statement Note Unaudited Unaudited Unaudited 6 months to 6 months to Year to 30 September 30 September 31 March 2005 2004 2005 ‚£m ‚£m ‚£m Net cash from operating activities 20 62.9 13.9 193.7 Investing activities Interest received 2.7 1.1 6.8 Proceeds of disposal of property, 2.0 17.6 27.1plant and equipment Purchases of property, plant and (106.3) (30.1) (124.3)equipment Acquisition of businesses (3.5) (2.6) (14.9) Acquisition of subsidiaries - (16.0) (22.3) Net cash used in investing (105.1) (30.0) (127.6)activities Financing activities Repurchase of ordinary share capital - (11.8) (29.7) Share purchased by Employee Benefit (0.7) (0.3) (0.3)Trust Dividends paid (34.0) (31.5) (48.0) Dividends paid to minority (2.5) (0.8) (3.1)shareholders Repayments of bank borrowings (222.8) - - Repayment of obligations under (7.4) (11.3) (20.2)finance leases Repayment of loan notes (0.4) (0.3) (0.3) Payment of new bank facility issue (1.0) - -costs New bank loans raised 286.8 61.2 90.4 Net cash from financing activities 18.0 5.2 (11.2) Net (decrease)/increase in cash and (24.2) (10.9) 54.9cash equivalents Cash and cash equivalents at 145.9 92.2 92.2beginning of period Effect of foreign exchange rate (1.9) 0.2 (1.2)changes Cash and cash equivalents at end of 119.8 81.5 145.9period Cash and cash equivalents for cash flow 30 30 September 31 Marchstatement purposes comprise: September 2004 2005 2005 ‚£m ‚£m ‚£m Cash and cash equivalents per balance 119.8 76.4 146.6sheet Short-term bank deposits - 5.1 7.5 Overdrafts - - (8.2) 119.8 81.5 145.9Cash and cash equivalents for the purposes of the cash flow statement comprisecash at bank and in hand, overdrafts and other short-term highly liquidinvestments with a maturity of three months or less.Reconciliation of net cash flows to movement in net debt Unaudited Unaudited Unaudited 6 months to 6 months to Year to 30 September 30 September 31 March 2005 2004 2005 ‚£m ‚£m ‚£m (Decrease)/Increase in cash and cash (24.2) (10.9) 54.9equivalents in year Cash inflow from increase in debt (56.2) (49.6) (70.0)and HP contract and finance lease financing Debt acquired on acquisition of - - (20.6)businesses Lease and hire purchase contracts - - (2.2)acquired with new franchise Fees on issue of Bond and loan 1.0 - -facility Foreign exchange differences (15.9) (1.0) 7.0 Other non-cash movements in relation (1.5) (0.4) (1.5)to financial instruments Movement in net debt in year (96.8) (61.9) (32.4) Net debt at beginning of year (663.1) (630.7) (630.7) Net debt at end of year (759.9) (692.6) (663.1)Net debt includes the value of foreign exchange derivatives in connection tothe ‚£250m bond and excludes all accrued interest.Consolidated statement of recognised income and expense Unaudited Unaudited Unaudited 6 months 6 months Year to to to 31 March 30 30 September September 2005 2005 2004 ‚£m ‚£m ‚£m Derivative hedging instrument movements (13.8) - - Share based payments 1.6 1.4 2.9 Exchange differences on translation of foreign 35.2 1.3 (14.2)operations Actuarial gains on defined benefit pension - - 20.8schemes Movement in EBT, QUEST and Treasury Shares (0.6) (0.7) (17.8)during period Deferred tax on share based payments (0.2) 0.3 0.9 Deferred tax on actuarial gains - - (6.3) Net income recognised directly in equity 22.2 2.3 (13.7) Profit for the period 40.1 46.7 114.3 Total recognised income and expense for the 62.3 49.0 100.6period Attributable to: Equity holders of the parent 57.7 46.3 94.1 Minority interests 4.6 2.7 6.5 62.3 49.0 100.6 Balances recognised on 1 April 2005 on 20.3 - -adoption of IAS 39, net of tax Notes to the interim financial information1 Basis of preparationThis interim consolidated report is for the six months ended 30 September 2005.IFRS 1 "First-time Adoption of IFRS" has been applied as the accounting periodforms part of the Group's first IFRS financial statements for the year ended 31March 2006. The comparatives for the period 30 September 2004 and the yearended 31 March 2005 have been restated under IFRS. The transition date to IFRSis 1 April 2004.This interim consolidated report has been prepared in accordance with theaccounting policies that are anticipated to be used in preparation of theannual financial statements those IFRS standards and IFRIC interpretationsissued and effective or issued and early adopted as at the time of preparingthis report. The IFRS standards and IFRIC interpretations that will beapplicable at 31 March 2006, including those that will be applicable on anoptional basis, are not known with certainty at the time of preparing thesefinancial statements. In particular the accounting policies assume that theamendments to IAS 19 "Employee Benefits", allowing actuarial gains and lossesto be recognised in full through reserves, is adopted by the European Union.The Group prepared financial statements in accordance with UK GenerallyAccepted Accounting Principles (UK GAAP) until 31 March 2005. UK GAAP differsin some areas from IFRS. IFRS accounting policies, reconciliations anddescriptions of the effect of the transition from UK GAAP to IFRS on theGroup's equity at 1 April 2004, 30 September 2004 and 31 March 2005 and on itsprofit for the 6 months ended 30 September 2004 and for the year ended 31 March2005 are available on the Company's website www.firstgroup.com.The accounting policies have been consistently applied to all the periodspresented except those relating to the classification and measurement offinancial instruments. The Group has made use of the exemption available underIFRS 1 to only apply IAS 32 "Financial Instrument: Disclosure and Presentation"and IAS 39 "Financial Instruments: Recognition and Measurement" from 1 April2005.The results for the six months ended 30 September 2005 are unaudited but havebeen reviewed by the auditors. The information shown for the year ended 31March 2005 has been derived from the IFRS transition document published on theGroup's website on 28 September 2005. Prior to 1 April 2005, the Group preparedits audited annual financial statements and unaudited interim results under UKGAAP. The audited UK GAAP annual financial statements for 31 March 2005, whichrepresents the statutory accounts for that year, and on which the auditors gavean unqualified opinion, have been delivered to the Registrar of Companies.The figures for the six months to 30 September 2005 include the results of therail businesses for the period ended 17 September 2005 and the results of theother businesses for the 26 weeks ended 24 September 2005.This interim consolidated report is unaudited and does not constitute statutoryaccounts within the meaning of section 240 of the Companies Act 1985.Theinterim report will be sent to all shareholders in November 2005 and will beavailable to the public at the Registered Office of the Company, 395 KingStreet Aberdeen AB24 5RP.This interim report was approved by the Board on 8 November 2005.2 Segment informationFor management purposes, the Group is currently organised into three operatingdivisions - UK Bus, UK Rail and North America. These divisions are the basis onwhich the Group reports its primary segment information. The principalactivities of these divisions are set out in the operating and financialreview.The segment results for the six months to 30 September 2005 are as follows: UK Bus UK Rail North Group Consolidated America items 6 months 6 months 6 months to to 30 to 30 6 months 6 months 30 September September September to 30 to 30 September September 2005 2005 2005 2005 2005 ‚£m ‚£m ‚£m ‚£m ‚£m Revenue 493.6 526.0 353.3 3.6 1,376.5 Segment results * 40.7 34.3 19.0 (8.1) 85.9 Amortisation of intangible - (1.3) (0.7) - (2.0)assets Financing element of (4.5) - - - (4.5)operating leases Bid costs - (9.5) - (0.5) (10.0) Profit on disposal of 11.8 - - - 11.8fixed assets Operating profit 48.0 23.5 18.3 (8.6) 81.2 Investment income 5.2 Finance costs (31.1) Profit before tax 55.3 Tax (15.2) Profit for the period 40.1The segment results for the six months to 30 September 2004 are as follows: UK Bus UK Rail North Group Consolidated America items 6 months 6 months 6 months 6 months 6 months to 30 to 30 to 30 September September to 30 to 30 September September September 2004 2004 2004 2004 2004 ‚£m ‚£m ‚£m ‚£m ‚£m Revenue 473.1 446.6 284.3 3.3 1,207.3 Segment results * 49.4 32.7 15.3 (7.3) 90.1 Amortisation of intangible - (0.3) (0.1) - (0.4)assets Financing element of (4.5) - - - (4.5)operating leases Bid costs - (2.7) - - (2.7) Profit on disposal of 3.7 - - - 3.7fixed assets Operating profit 48.6 29.7 15.2 (7.3) 86.2 Investment income 1.5 Finance costs (23.4) Profit before tax 64.3 Tax (17.6) Profit for the period 46.72 Segment information (continued)The segment results for the year to 31 March 2005 are as follows: UK Bus UK Rail North Group Consolidated America items Year to Year to Year to Year to Year to 31 March 31 March 31 March 31 March 31 March 2005 2005 2005 2005 2005 ‚£m ‚£m ‚£m ‚£m ‚£m Revenue 960.7 1,059.7 665.8 7.2 2,693.4 Segment results * 115.2 64.5 62.4 (18.3) 223.8 Amortisation of intangible - (1.6) (0.6) - (2.2)assets Financing element of (9.0) - - - (9.0)operating leases Bid costs - (11.4) - (0.5) (11.9) Profit on disposal of fixed 3.3 - - - 3.3assets Operating profit 109.5 51.5 61.8 (18.8) 204.0 Investment income 4.3 Finance costs (52.6) Profit before tax 155.7 Tax (41.4) Profit for the period 114.3* before amortisation of intangible assets, financing element of leases, bidcosts and profit on disposal of fixed assets.3 Net finance costs 6 months to 6 months to Year to 30 September 30 31 March 2005 September 2004 2005 ‚£m ‚£m ‚£m Interest income on bank deposits 5.2 1.5 4.3 Bond and bank facilities (26.9) (20.2) (43.3) Loan notes (0.9) (0.8) (1.6) Finance charges payable in respect of hire (0.5) (1.1) (2.2)purchase contracts and finance leases Notional interest (2.8) (1.3) (5.5) Finance costs (31.1) (23.4) (52.6) Net finance costs (25.9) (21.9) (48.3)4 Tax 6 months to 6 months to Year to 30 30 31 March September September 2005 2005 2004 ‚£m ‚£m ‚£m Corporation tax 2.6 10.0 19.0 Deferred tax 12.6 7.6 22.4 Tax on profit on ordinary activities 15.2 17.6 41.45 Dividends paid and proposed 6 months 6 months Year to to 30 September to 30 31 2005 September March ‚£m 2004 2005 ‚£m ‚£m Final dividend paid for the year ended 31 March 34.2 31.8 31.82005 of 8.69p (2004: 7.9p) per share Interim dividend paid for the year ended 31 March - - 16.42005 of 4.125p (2004: 3.75p) per share Amounts recognised as distributions to equity 34.2 31.8 48.2holders in the period Proposed interim dividend for the year ended 31 17.9 16.4 -March 2006 of 4.55p (2005: 4.125p) per share The proposed interim dividend will be paid on 8 February 2006 to shareholderson the register of members at the close of business on 13 January 2006. Theproposed interim dividend has not been included as a liability as at 30September 2005.6 Earnings per share (EPS)Basic EPS is based on earnings of ‚£35.5m (six months to 30 September 2004: ‚£44.0m and year to 31 March 2005: ‚£107.8m) and on a weighted average number ofordinary shares (excluding own shares held in trust for employees and treasuryshares) of 393.3m (six months to 30 September 2004: 400.9m and year to 31 March2005: 399.2m) in issue.Diluted EPS is based on the same earnings and on the weighted average number ofordinary shares of 394.6m (six months to 30 September 2004: 403.7m and year to31 March 2005: 402.0m). The difference in the number of shares between thebasic calculation and the diluted calculation represents the weighted averagenumber of potentially dilutive ordinary shares.The adjusted basic EPS and adjusted cash EPS are intended to demonstraterecurring elements of the results of the Group before amortisation ofintangible assets, rail bid costs and profit on disposal of fixed assets. Areconciliation of the earnings used in the bases is set out below: 6 months to 30 September 2005 ‚£m Earnings per share (p) Profit for basic EPS calculation 35.5 9.0 Amortisation of intangible assets 2.0 0.5 UK Rail bid costs 10.0 2.6 Profit on disposal of fixed assets * (11.3) (2.9) Taxation effect of adjustments (0.2) - Profit for adjusted basic EPS calculation 36.0 9.2 Depreciation ** 53.8 13.6 Profit for adjusted cash EPS calculation 89.8 22.8* Profit on disposal of fixed assets of ‚£11.8m per note 2 less‚£0.5m of profit on disposal attributable to equity minorityinterests before tax.** Depreciation charge of ‚£53.9m per note 9 less ‚£0.1m ofdepreciation attributable to equity minority interests.6 Earnings per share (EPS) (continued) 6 months to 30 September 2004 ‚£m Earnings per share (p) Profit for basic EPS calculation 44.0 11.0 Amortisation of intangible assets 0.4 0.1 UK Rail bid costs 2.7 0.7 Profit on disposal of fixed assets (3.7) (0.9) Taxation effect of adjustments 0.2 - Profit for adjusted basic EPS calculation 43.6 10.9 Depreciation * 47.3 11.8 Profit for adjusted cash EPS calculation 90.9 22.7* Depreciation charge of ‚£47.4m less ‚£0.1m ofdepreciation attributable to equity minority interests. Year to 31 March 2005 ‚£m Earnings per share (p) Profit for basic EPS calculation 107.8 27.0 Amortisation of intangible assets 2.2 0.5 UK Rail bid costs 11.9 3.0 Profit on disposal of fixed assets (3.3) (0.8) Taxation effect of adjustments (3.2) (0.8) Profit for adjusted basic EPS calculation 115.4 28.9 Depreciation * 107.4 26.9 Profit for adjusted cash EPS calculation 222.8 55.8* Depreciation charge of ‚£107.6m less ‚£0.2m ofdepreciation attributable to equity minority interests.7 Goodwill ‚£m Cost At 1 April 2005 465.8 Additions 2.3 Exchange rate differences 17.7 At 30 September 2005 485.8 Accumulated impairment losses At 1 April 2005 - Charge for period - Exchange rate differences - At 30 September 2005 - Carrying amount At 30 September 2005 485.8 At 31 March 2005 465.8 At 30 September 2004 469.98 Other intangible assets Contracts Franchise Total acquired agreements ‚£m ‚£m ‚£m Cost At 1 April 2005 10.6 21.0 31.6 Exchange rate differences 0.6 - 0.6 At 30 September 2005 11.2 21.0 32.2 Amortisation At 1 April 2005 0.6 1.6 2.2 Charge for period 0.7 1.3 2.0 At 30 September 2005 1.3 2.9 4.2 Carrying amount At 30 September 2005 9.9 18.1 28.0 At 31 March 2005 10.0 19.4 29.4 At 30 September 2004 4.2 3.8 8.0Contracts acquired through the purchases of businesses and subsidiaryundertakings, are amortised on a straight-line basis over their useful lives,which is on average, eight years.The rail franchise agreements intangible asset represents the part of theeconomic benefit derived from the rail franchise agreements that is realised asa result of recognising our share of the rail pension deficit and is amortisedon a straight-line basis over the term of the franchise.9 Property, plant and Land and Passenger Other Totalequipment buildings carrying plant and ‚£m ‚£m vehicle equipment fleet ‚£m ‚£m Cost or valuation At 1 April 2005 149.1 1,228.7 161.4 1,539.2 Subsidiary undertakings and - 1.5 - 1.5businesses acquired Additions 3.1 102.0 8.0 113.1 Disposals (3.6) (21.8) (0.9) (26.3) Reclassifications (5.1) - 5.1 - Classified as held for sale - (15.6) - (15.6) Exchange rate differences 1.3 24.0 1.9 27.2 At 30 September 2005 144.8 1,318.8 175.5 1,639.1 Depreciation At 1 April 2005 23.7 581.2 99.3 704.2 Subsidiary undertakings and - - - -businesses acquired Charge for period 1.6 42.0 10.3 53.9 Disposals (0.4) (20.8) (0.3) (21.5) Reclassifications (5.1) - 5.1 - Classified as held for sale - (13.7) - (13.7) Exchange rate differences 0.4 9.9 1.0 11.3 At 30 September 2005 20.2 598.6 115.4 734.2 Carrying amount At 30 September 2005 124.6 720.2 60.1 904.9 At 31 March 2005 125.4 647.5 62.1 835.0 At 30 September 2004 119.9 616.8 53.1 789.810 Trade and other receivables 30 September 30 September 31 March 2005 2004 2005 ‚£m ‚£m ‚£m Amounts due within one year Trade debtors 260.1 262.6 258.2 Other debtors 71.2 52.3 61.1 Other prepayments and accrued income 65.1 60.2 49.4 396.4 375.1 368.711 Non-current assets classified as held for saleNon-current assets held for resale comprise of North American yellow schoolbuses which are surplus to requirement and are being actively marketed on theInternet. Gains or losses arising on the disposal of such assets are includedin arriving at operating profit in the income statement.12 Trade and other payables 30 September 30 September 31 March 2005 2004 2005 ‚£m ‚£m ‚£m Amounts falling due within one year Trade creditors 141.1 128.2 122.4 Other creditors 46.7 37.8 43.2 Accruals and deferred income 301.6 291.7 324.6 Season ticket deferred income 13.7 11.2 13.3 503.1 468.9 503.513 Financial assets and liabilitiesThe Group has elected to apply the exemption available in IFRS 1 "First-timeAdoption of IFRS", from restatement of comparatives for IAS 32 "Financialinstruments: Disclosure and Presentation" and IAS 39 "Financial Instruments:Recognition and Measurement". It applies previous UK GAAP rules to derivatives,financial assets and financial liabilities and to hedging relationships for the30 September 2004 and 31 March 2005 comparative information. The adjustmentsrequired for differences between UK GAAP and IAS 32 and IAS 39 are determinedand recognised at 1 April 2005.13 Financial assets and liabilities (continued) 30 September 30 31 March 1 April 2005 September 2004 2005 2005 ‚£m ‚£m ‚£m ‚£m Financial instruments held as current assets Interest and foreign exchange 21.1 - - 20.2derivatives Fuel derivatives 36.3 - - 31.4 57.4 - - 51.6 Financial instruments held as current liabilities Bank and other loans and (6.1) (20.0) (51.4) (51.4)overdrafts Obligations under finance leases (5.2) (14.3) (9.0) (9.0) Loan notes (2.8) (0.3) (0.5) (0.5) (14.1) (34.6) (60.9) (60.9) Financial instruments held as non-current liabilities Bank and other loans and (294.9) (171.3) (192.8) (192.8)overdrafts Obligations under finance leases (11.5) (11.3) (15.1) (15.1) Loan notes (17.8) (20.7) (20.5) (20.5) Interest and foreign exchange (2.4) - - (7.6)derivatives ‚£300m bond (305.3) (295.8) (296.0) (315.6) ‚£250m bond (271.5) (240.4) (231.9) (250.1) (903.4) (739.5) (756.3) (801.7) Bank loans and overdraftsWhilst advances under bank facilities are generally repayable within a fewmonths of the balance sheet date, they have been classified by reference to thematurity date of the longest refinancing permitted under these facilities. Thebank loans and overdrafts are unsecured.Hire purchase contracts and finance leasesHire purchase contract and finance lease liabilities are secured on the assetsto which they relate. The contracts vary in length between four and twelveyears. No new contracts were entered into during the period.Loan notesThe loan notes have been classified by reference to the earliest date on whichthe loan note holders can request redemption. Loan notes of ‚£19.6 m (30September 2004: ‚£20.2m and 31 March 2005: ‚£20.0m) are supported by unsecuredbank guarantees.BondsThe ‚£300m bond is repayable in 2013 and is shown inclusive of accrued interest.The ‚£250m bond is repayable in 2019 and is shown both inclusive of accruedinterest and of the movement in the market value of the Sterling LIBOR riskthat is fully hedged by interest rate derivatives.14 Provisions for liabilities and charges Insurance Pensions Total claims * ‚£m ‚£m ‚£m At 1 April 2005 34.5 10.1 44.6 Provided in the period 25.3 - 25.3 Utilised in the period (35.7) (0.3) (36.0) Subsidiary undertakings acquired - - - Notional interest 2.8 - 2.8 Exchange rate differences 1.5 - 1.5 At 30 September 2005 28.4 9.8 38.2 At 30 September 2004 20.8 10.8 31.6* Insurance claims accruals due within one year at 30 September 2005 amountedto ‚£45.4m (31 March 2005: ‚£39.8m) and are included in "accruals and deferredincome" in note 12.15 Business combinations 30 September 30 31 March 2005 September 2004 2005 ‚£m ‚£m ‚£m Provisional fair values of net assets acquired: Tangible assets 1.5 2.6 34.8 Intangible assets - 4.3 10.6 Other current assets - 10.2 17.1 Cash at bank and in hand - 2.8 3.5 Loans and finance leases - - (20.6) Minority shareholders' interests - - (4.2) Other creditors (0.3) (5.6) (19.2) 1.2 14.3 22.0 Goodwill (note 7) 2.3 7.1 15.2 3.5 21.4 37.2 Satisfied by cash paid and payable 3.5 21.4 37.2There was no material difference between the book value and the provisionalfair values of the net assets acquired and there were no adjustments requiredin respect of accounting policy alignments.The businesses and subsidiary undertakings acquired during the period and datesof acquisition were:Business acquired Date acquired % Voting equity instruments acquired Thunderbird Transit, Inc 30 June 2005 100 SBS Transit, Inc 14 September 2005 100 16 Share capital 30 September 30 31 March September 2005 2005 2004 ‚£m ‚£m ‚£m Authorised: Ordinary shares of 5p each 30.0 30.0 30.0 Allotted, called up and fully paid Ordinary shares of 5p each 19.9 19.9 19.9The number of ordinary shares of 5p each in issue, excluding treasury shares,at the end of the period was 393.6m (30 September 2004: 398.4m and 31 March2005: 393.6m). At the end of the period 5.2m shares (30 September 2004: 0.4mshares and 31 March 2005: 5.2m shares) were being held as treasury shares.17 Reserves Hedging Share Own Retained reserve shares earnings premium ‚£m ‚£m ‚£m account ‚£m At 1 April 2005 - 238.8 (18.9) (24.5) Financial instrument recognition * 37.0 - - (9.0) Retained profit for the financial - - - 35.5period Dividends paid - - - (34.2) Movement in EBT, QUEST and treasury - - 0.1 (0.7)shares during the year Derivative hedging instrument (13.8) - - -movements * Share based payments - - - 1.6 Deferred tax on share based payments - - - (0.2) At 30 September 2005 23.2 238.8 (18.8) (31.5) At 30 September 2004 - 238.8 (1.3) (88.4)*Net of deferred taxThe adjustments required for differences between UK GAAP and IAS 32 and IAS 39are determined and recognised at 1 April 2005. The impact of recognising theinterest rate swaps, currency swaps, fuel derivatives and the related deferredtax, is included in the statement of recognised income and expense at 1 April2005.Actuarial valuations of pensions schemes are not carried out at the half yeartherefore no actuarial gains or losses are recognised. Capital Capital Total other redemption reserve reserves reserve ‚£m ‚£m ‚£m At 1 April 2005 1.9 2.7 4.6 Cancellation of shares - - - At 30 September 2005 1.9 2.7 4.6 At 30 September 2004 1.9 2.7 4.618 Translation reserves ‚£m At 1 April 2005 (14.2) Transfer to hedging reserve on financial instrument recognition (7.7) Movement for the financial period 35.2 At 30 September 2005 13.3 At 30 September 2004 1.319 Analysis of net debt At 1 April Cash flow Other At 30 non-cash September 2005 ‚£m changes 2005 ‚£m ‚£m ‚£m Cash and cash equivalents 146.6 (24.9) (1.9) 119.8 Bank overdrafts (8.2) 8.2 - - Cash 138.4 (16.7) (1.9) 119.8 Short-term bank deposits 7.5 (7.5) - - Bank loans due within one year (43.2) 37.1 - (6.1) Bank loans due after one year (192.8) (100.1) (2.0) (294.9) Loans and loan notes (21.0) 0.4 - (20.6) Obligations under hire purchase (24.1) 7.4 - (16.7)contracts and finance leases ‚£300m bond (296.0) - (0.2) (296.2) ‚£250m bond (swapped to US dollars) (231.9) - (13.3) (245.2) Financing (809.0) (55.2) (15.5) (879.7) Net debt (663.1) (79.4) (17.4) (759.9) Net debt includes the value of foreign exchange derivatives in connection withthe ‚£250m bond and excludes all accrued interest.20 Notes to the consolidated cash flow 6 months to 6 months Year tostatement to 30 September 31 March 2005 30 2005 September ‚£m ‚£m 2004 ‚£m Operating profit 69.4 82.5 200.7 Adjustments for: Depreciation charges 53.9 47.4 107.6 Amortisation of intangible assets 2.0 0.4 2.2 Share based payments 1.6 1.4 2.9 Loss on disposal of property, plant and 0.3 - 1.9equipment Operating cash flows before working capital 127.2 131.7 315.3 Increase in inventories (5.7) (0.7) (2.6) Increase in receivables (3.9) (43.0) (41.0) Decrease in payables (17.6) (50.7) (24.5) Cash generated by operations 100.0 37.3 247.2 Corporation tax repaid/(paid) 0.7 3.0 (16.1) Interest paid (37.3) (25.1) (35.1) Interest element of hire purchase contracts (0.5) (1.3) (2.3)and finance lease payments Net cash from operating activities 62.9 13.9 193.7 ENDFIRSTGROUP PLCRelated Shares:
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