Interim Results

6th Dec 2006 07:01

Stagecoach Group PLC06 December 2006 6 December 2006 Stagecoach Group plc - Interim results for the six months ended 31 October 2006 Business highlightsStrong set of results for six months ended 31 October 2006 • UK Bus: partnerships and innovation driving revenue and passenger growth • "Bus operator of the year" in the UK for second year running • Rail: further revenue growth and excellent operational performance • North America: operating profit* and margin* up • 10-year South Western rail franchise secured • Disposal of London bus operations in August 2006 for c.£265m • Shortlisted for East Midlands rail franchise; Virgin Rail Group shortlisted for New CrossCountry rail franchise Financial highlights • Proposal to return no less than £400m of funds to shareholders by 30 June 2007 • Revenue from continuing businesses+ up 10.0% • 7.4% increase in earnings per share* • Interim dividend up 9.1% at 1.2 pence Six months ended 31 October Results excluding Reported results intangible asset expenses and exceptional items 2006 2005 2006 2005Revenue from continuing operations (£m) 752.1 653.3 752.1 653.3Total operating profit (£m) 80.7 68.5 101.5 55.3Profit before taxation (£m) 77.4 57.9 97.3 40.7Earnings per share (pence) 5.8 5.4 18.9 4.1Interim dividend (pence) 1.2 1.1 1.2 1.1 Commenting on the results, Stagecoach Chief Executive, Brian Souter said: "Ourmanagement expertise and commitment to innovation, investment, targetedmarketing and strong partnerships have driven excellent organic growth in our UKand North American bus operations. "We are delighted to have secured a significant revenue stream for the nextdecade following our successful bid for the South Western rail franchise, and weare encouraged by the potential to develop our rail portfolio. The Group is alsofocused on developing compelling bids for the East Midlands franchise and, withour joint venture partner, Virgin, for the New CrossCountry franchise. "I believe we are well-positioned to create further shareholder value and we areconfident in the prospects for the rest of the financial year." Enquiries to: Martin Griffiths, Stagecoach Group +44 (0) 1738 442111Steven Stewart, Stagecoach Group +44 (0) 1738 442111 or +44 (0) 7764 774680John Kiely, Smithfield +44 (0) 20 7360 4900 * excluding intangible asset expenses and exceptional items (refer to definitionof exceptional items contained in note 4 to the interim financial information)excluding acquisitions of Glenvale and Traction+ excluding acquisitions of Glenvale and Traction Chairman's statement I am pleased to report that Stagecoach Group has achieved another strong set ofresults and has delivered further growth in its bus and rail operations in theUK and North America. We have developed a winning combination of innovation, investment, operationalexpertise, strong marketing and effective partnerships with key stakeholdersthat has resulted in the Group attracting more passengers to our high qualitypublic transport services. This combined with our focus on managing our overallcost base has delivered further growth in profit. Trading across the Group was strong with revenue for the six months ended 31October 2006 at £752.1m (2005: £653.3m). Total operating profit (beforeintangible asset expenses and exceptional items) was £80.7m (2005: £68.5m).Earnings per share before intangible asset expenses and exceptional items wereup 7.4% at 5.8p (2005: 5.4p). The Group's results include net exceptional gains before taxation of £155.9m,principally arising from the profit on the sale of the Group's London busoperations to Macquarie Bank Limited, which was completed in August 2006. As aresult, basic earnings per share increased sharply from 4.1p to 18.9p. Stagecoach is pursuing a successful growth strategy in its UK bus operations,capitalising on its industry leadership and entrepreneurial flair, and the UKBus division is continuing to perform strongly. Trading in the Group's North American operations was also strong, reflecting acontinuing focus on revenue growth and close management of controllable costs. In UK Rail, both South West Trains and the Group's joint venture with Virgin,Virgin Rail Group, experienced significant passenger volume and revenue growth.The award of the new 10-year South Western franchise provides the Group with asubstantial long-term revenue stream in the UK rail market. Our management teamis focused on delivering the opportunities and commitments presented by the newfranchise. VRG has made further progress in its negotiations with the Departmentfor Transport over new long-term commercial terms for the West Coast franchiseand is close to finalising an agreement. We are delighted that the Group hasbeen short-listed for the East Midlands rail franchise and that Virgin RailGroup has been invited to tender for the New CrossCountry franchise. Reflecting the strong performance of the Group and confidence in its futureprospects, the Board of Directors has declared an interim dividend of 1.2p pershare (2005: 1.1p), a 9.1% increase. The interim dividend is payable on 7 March2007 to shareholders on the register at 9 February 2007. Based on continuedstrong cash flows and profits, we will look to continue to increase the dividendper share each year. At 31 October 2006, the Group had net funds of £140.9m compared to net debt of£135.9m at 30 April 2006, being a reduction in net debt of £276.8m. Thisreduction is expected to partially reverse in the second half of the financialyear as a result of the settlement of £59.9m of accruals held at 31 October 2006in relation to South West Trains' revenue and profit share arrangements. Webelieve that by adjusting the mix of equity and debt in the business, the Groupcan lower its overall cost of capital and generate further shareholder value.With this in mind the Board proposes to return no less than £400m of funds toshareholders in order to achieve a more efficient capital structure. The Grouphas also reached agreement in principle with pension scheme trustees for plansto make a further one-off cash contribution of up to £50m to the StagecoachGroup Pension Scheme as part of an agreed funding plan. In May 2006, we announced the appointment of Sir George Mathewson to theStagecoach Board as a Non-Executive Director. Russell Walls retired from theBoard at the 2006 AGM and Janet Morgan has replaced Russell as the seniorindependent Non-Executive Director. The Group also intends to recruit a furtherindependent Non-Executive Director. I would like to pay tribute to the continued hard work of our employees, whosecommitment to first-class customer service is playing a key role in growing ourbusiness and attracting more people to our transport services. As a Group, we will continue to innovate, invest and develop strong partnershipsacross our businesses. We believe we are well placed to benefit from furtheropportunities for growth in our bus operations and the expansion of our railportfolio, both of which can deliver increased value to our shareholders. Stagecoach has made a promising start to the second half of its financial yearand current trading of the Group remains in line with our expectations. Robert SpeirsChairman 6 December 2006 Chief Executive's review Overview Stagecoach has delivered an excellent performance in the first six months of thefinancial year. We have developed strong working relationships with ourtransport partners in the public sector. Coupled with market-leading innovation,strong management, effective cost control, and investment in the future of ourbusiness, significant numbers of new passengers are being attracted to our highquality bus and rail services. Revenue by division (excluding the discontinued London bus and New Zealandoperations) is summarised below: REVENUE 6 6 Currency 6 months 6 months Growth months months to 31 to 31 to 31 to 31 October October October October 2006 2005 2006 2005 £m £m Local currency (m) % Continuing Groupoperations UK Bus excluding prior year acquisitions 298.6 270.1 £ 298.6 270.1 10.6North America 135.7 130.8 US$ 253.5 235.4 7.7UK Rail 276.8 245.6 £ 276.8 245.6 12.7 Acquisitions made inprior year UK Bus - Glenvale 10.7 6.8 £ 10.7 6.8 57.4UK Bus - Traction 30.3 Nil £ 30.3 Nil n/aTotal Group revenue 752.1 653.3 Operating profit by division (excluding the discontinued London bus and NewZealand operations) is summarised below: OPERATING PROFIT 6 months to 31 6 months to 31 Currency 6 6 October 2006 October 2005 months months to 31 to 31 October October 2006 2005 £m % of £m % of Local currency revenue revenue (m)Continuing Group operations UK Bus excluding prioryear acquisitions 33.6 11.3 30.3 11.2 £ 33.6 30.3North America 16.7 12.3 15.7 12.0 US$ 31.2 28.3UK Rail 31.4 11.3 24.4 9.9 £ 31.4 24.4Group overheads (5.2) (5.0)Restructuring costs (0.7) (0.6) 75.8 64.8Acquisitions made inprior year UK Bus - Glenvale (0.6) (5.6) (0.8) (11.8) £ (0.6) (0.8)UK Bus - Traction 1.1 3.6 Nil n/a £ 1.1 Nil Joint ventures andassociates Virgin Rail Group 3.7 4.5Citylink 0.7 NilTotal operating profit before intangible assetexpenses and exceptionalitems 80.7 68.5Intangible asset expenses (7.5) (13.2)Exceptional items 28.3 NilTotal operating profit 101.5 55.3 UK Bus Stagecoach operates around 7,000 buses in nearly 100 towns and cities across theUK, from the Highlands of Scotland to south-west England. We have substantialoperations in a number of key cities, including Manchester, Liverpool,Newcastle, Sheffield, Hull, Oxford and Cambridge. Revenue from our continuing UK Bus operations, excluding the prior yearacquisitions of Glenvale and Traction, was up 10.6% to £298.6m, compared to£270.1m in the prior year. Operating profit*, excluding the prior yearacquisitions of Glenvale and Traction, was £33.6m (2005: £30.3m). Operatingmargin was up at 11.3%, compared to 11.2% in 2005, despite the impact of ongoingcost pressures, particularly in relation to fuel. We delivered further revenue and organic passenger growth at our UK Bus Divisionin the first half of the year. For the second year running, our West Scotlandbusiness has been awarded Bus Operator of the Year as a result of our highquality of service and strong performance in attracting more passengers. Our expanded telemarketing unit at our headquarters in Perth has been extremelysuccessful in attracting new customers on to our buses. We have developeddedicated route branding for a range of new and existing services, which hasalso proved effective in raising the profile of public transport. Significantgrowth has been achieved through our strong partnerships with local authoritiesand Kickstart pump-priming initiatives. Additional passenger growth has resultedfrom the concessionary fares schemes funded by the Department for Transport("DfT"), Scottish Executive, and Welsh Assembly in England, Scotland and Wales.Overall, like-for-like passenger volumes in the six months are estimated to be6.1% higher than the previous year, including the impact of the newconcessionary fares schemes. The integration of Glenvale Transport Limited and Traction Group Limited, theregional bus operations we acquired last year, is progressing well. Revenue forthe six months ended 31 October 2006 for these businesses was £41.0m (2005:£6.8m) and the operating profit was £0.5m (2005: operating loss of £0.8m). We have been pleased with the continuing growth in revenue at our market-leadingbudget travel service, megabus.com, which offers low-cost inter-city travelbetween nearly 40 locations in the UK. megabus.com's financial performancecontinues to improve as average fares and load factors increase. The Group isexcited by the future prospects for megabus.com and is investing more than £11min a fleet of 45 new state-of-the-art coaches. The new 15-metre vehicles - thelongest coaches in Britain - will be delivered from February next year, with thefull order completed by the end of May 2007. Stagecoach is also continuing to invest heavily in its local bus fleets andduring 2006 has placed £50m of orders with four vehicle manufacturers for morethan 460 new buses across the UK. Vehicle manufacturers Alexander Dennis,Optare, Plaxton and Volvo are supplying a total of 13 single-deckers, 160double-deckers, 165 midi-buses, 95 minibuses and 31 coaches by the end ofFebruary 2007. In August 2006, Stagecoach completed the sale of its London bus operations toMacquarie Bank Limited for approximately £265m in cash, resulting in aconsolidated gain on disposal of £127.9m. Stagecoach London comprised twocompanies that provided bus services on routes within and from London,principally under contract from Transport for London. The London bus operationshave been a highly successful part of Stagecoach's UK Bus division since 1994.After assessing Macquarie's offer and the prospects for the London busoperations, the Board concluded that the disposal was in the best interests ofshareholders. The sale of the London bus business will allow the UK Bus divisionto focus on its successful growth strategy outside London. The Group's resultsfor the six months ended 31 October 2006 include profit after tax (before theexceptional gain on disposal) from the discontinued London bus operations of£4.0m for the period up until disposal (six months ended 31 October 2005:£7.3m). *References to the operating margin, profit or loss of a particular division inChief Executive's review refer to operating margin, profit or loss before restructuring costs, intangible asset expenses and exceptional items. Furtherdetails of the divisional split of operating profit can be found in Note 6 to the interim financial information containted in this announcement. North America We operate 2,400 vehicles in the United States, covering the states of New York,New Jersey, Pennsylvania, West Virginia, Ohio, Indiana, Illinois and Wisconsin.In Canada, we serve the provinces of Ontario and Quebec, running around 500vehicles. Our businesses include commuter services, tour and charter,sightseeing and school bus operations. North American trading was strong, despite ongoing fuel and insurance costpressures. Revenue for the six months to 31 October 2006 was up 7.7% atUS$253.5m (2005: US$235.4m). On a like-for-like basis, excluding closedbusinesses, constant currency revenue was up by 10.8%. Operating profit wasUS$31.2m (2005: US$28.3m), resulting in an operating margin of 12.3%, comparedto 12.0% the previous year. Converted to sterling, revenue for the six months to31 October 2006 was £135.7m (2005: £130.8m). Operating profit for the six monthswas £16.7m (2005: £15.7m). Excluding the North American megabus.com operations,which reported revenue of US$2.2m and an operating loss of US$1.0m for the sixmonths, the operating margin was up from 12.0% to 12.8%. In the United States, we continue to experience strong revenue growth in oursightseeing, charter, contract, commuter and scheduled services. Sightseeingrevenue has benefited from the introduction of enhanced products and extendedadvertising to increase our penetration in this market. We have achieved anexceptionally high renewal rate for contract services, while there has beensolid growth in our charter business, with forward bookings up on the sameperiod last year. We are also pleased with the progress of megabus.com, ourbudget inter-city coach service, which links a number of key cities in theMidwestern United States. In Canada, charter revenue remains strong andscheduled service operations have also performed well. We continue to evaluate each of the individual business units in North Americato ensure that capital and assets are deployed where they can earn the greatestreturns. During the six months to 31 October 2006, two business units located inNew York State were closed and vehicles were redeployed. Rail We operate two wholly owned UK heavy rail franchises - South West Trains andIsland Line - and Sheffield Supertram. Revenue from our UK Rail subsidiaries for the six months to 31 October 2006 wasup by 12.7% to £276.8m (2005: £245.6m), which includes some recovery from theimpact of the terrorist bombings in London in July 2005. Operating profitincreased to £31.4m (2005: £24.4m), giving an operating margin of 11.3% (2005:9.9%). South West Trains' operational performance is amongst the best achieved by trainoperating companies in London and the South East, with more than 90% of trainsarriving on time (punctuality measured on the basis of the DfT's PassengerPerformance Measure, "PPM"). Management focus on customer service has resulted in a further increase inpassenger satisfaction at South West Trains, particularly in terms ofpunctuality and reliability. The most recent National Passenger Survey resultsshow that 83% of customers are satisfied with the service they are receiving -five points higher than the London and South East average - and we are workinghard to improve further. More than half of a new fleet of 17 Desiro Class 450 trains are now in passengerservice and the remainder are expected to be in operation by the end of 2006,providing a total of 4,500 extra peak time seats. We are also ahead of schedulewith a £67m partnership project to refurbish the 91 unit Class 455 fleetoperating on suburban routes. Passengers are also benefiting from a £6m ticketvending machine project to make purchasing easier and 259 new ticket machineswill be installed by the end of 2006. Revenue growth is being supported by a series of marketing campaigns, includingpromotions on advance purchase and group saver tickets. megatrain.com, ourbudget rail product, continues to grow and around 150,000 bookings have now beenmade via the web-based service. We were delighted at the decision by the DfT to award Stagecoach the new SouthWestern rail franchise. The 10-year franchise will run from 4 February 2007. Wesubmitted a high-quality, innovative and value-for-money bid, and we are alreadyworking hard to ensure we deliver for passengers, Government and ourshareholders. We look forward to building on the success we have achieved overthe past decade by delivering a comprehensive package of train, station andsecurity investments, further improved operational performance, increasedcapacity, state-of-the-art ticketing options and a range of other customerbenefits. We are confident that our exciting ideas for the franchise will unlockthe opportunity to attract new passengers to rail travel. Stagecoach Group has also been shortlisted for the new East Midlands railfranchise and Virgin Rail Group ("VRG"), in which Stagecoach Group has a 49%shareholding, is one of four shortlisted bidders for the New CrossCountryfranchise. Both franchises will commence in November 2007. We look forward toworking closely with local stakeholders and the DfT during the franchisingprocess to maximise the opportunities for growth from these rail networks. Joint ventures Virgin Rail Group Our joint venture with Virgin, Virgin Rail Group ("VRG"), in which Stagecoachhas a 49% share, operates the West Coast and CrossCountry rail franchises. Our share of VRG's profit after tax for the six-month period amounted to £9.2m(2005: £4.5m). This includes an exceptional credit of £5.5m in relation to thegain on disposal of Trainline recorded by VRG. Our share of operating profit,excluding the exceptional credit, was £3.9m (2005: £6.1m), our share of financeincome was £1.6m (2005: £0.8m) and our share of taxation charges was £1.8m(2005: £2.4m). VRG has made further progress in its negotiations with the Department forTransport over new long-term commercial terms for the West Coast franchise andis close to finalising an agreement. The final terms are expected to be approvedshortly, resulting in a sustainable agreement in the long-term interest ofpassengers, taxpayers and shareholders. Passenger volumes continued to grow on West Coast and operational performancealso improved further. Some 90% of Virgin West Coast customers are now satisfiedwith their travel experience. Punctuality on West Coast (measured on the basisof PPM) has increased by around 12% over the last two years to 87.1% reflectingpositive management action to improve operational performance. VRG has been invited to tender for the New CrossCountry franchise, which runsfrom November 2007. The number of passenger journeys on Virgin CrossCountry isnow double that of 1994 and operational PPM score has further improved withpunctuality now at 83.1%. Passengers on both CrossCountry and West Coast arebenefiting from a £2billion fleet of the UK's only tilting trains with enhancedlevels of safety and performance as well as lower emissions. The improvedservice has helped improve customer service and 84% of passengers are satisfiedwith the service at Virgin CrossCountry. Building on these achievements,management is focused on developing a powerful and value-for-money bid that willfurther enhance CrossCountry's position as one of Britain's premier railbusinesses. Scottish Citylink Stagecoach has a joint venture with transport group ComfortDelGro to operatecertain megabus.com and all Scottish Citylink coach services, making it theleading provider of express coach services in Scotland. Stagecoach owns 35% ofthe share capital of Scottish Citylink Coaches Limited ("Citylink") andComfortDelGro owns the remaining 65% shareholding. Our share of Citylink's profit after tax for the six months to 31 October 2006was £0.7m. This result reflects the fact that the business is seasonallystrongest over the summer period. Citylink has achieved significant passengergrowth on its inter-city coach service - in addition to new journeys under theScottish Executive's national concessionary travel scheme - as a result ofbetter connections, faster services and low fares. The Competition Commission ruled in October 2006 that parts of the ScottishCitylink and megabus.com operations should be split and is currently consultingon the divestment of some services. The joint venture has a small proportion ofthe public transport market in Scotland and we are deeply concerned at thedecision. We believe it will work against the interests of customers, and we arecontinuing to discuss potential solutions with the Commission. Depreciation and intangible asset expenses Earnings before interest, taxation, depreciation, intangible asset expenses andexceptional items from continuing businesses (pre-exceptional EBITDA) amountedto £113.5m (2005: £98.5m). Depreciation from continuing businesses for theperiod increased from £28.4m to £32.2m. The income statement charge forintangible assets decreased from £13.2m to £7.5m. This reduction of £5.7mprincipally reflects the £8.1m decrease in the goodwill charge for Virgin RailGroup, which totalled £2.5m (2005: £10.6m) for the six months. The reducedgoodwill charge for Virgin Rail Group reflects acceleration of goodwill chargesin previous years due to the status of negotiations on VRG's franchises. Rail bid costs Rail bid costs of £8.0m (2005: £6.9m) were expensed in the six month period inarriving at the UK Rail operating profit of £31.4m (2005: £24.4m). The latestcosts were principally in relation to our bids on the South Western and EastMidlands rail franchises. Exceptional items Net exceptional gains before taxation of £155.9m (2005: loss of £4.0m) wererecognised in the six-month period. These comprised a gain of £127.9m on thedisposal of the Group's London bus operations, a non-cash gain of £22.8mrelating to a past service pensions adjustment on the Stagecoach Group PensionScheme, a £5.5m gain being our share of VRG's gain on the disposal of itsinvestment in Trainline Holdings Limited and £0.5m of other losses relating todisposed operations. Also, a small gain of £0.2m (2005: loss of £0.2m) wasrecognised on the sale of properties. A tax charge of £6.4m (2005: credit of £1.7m) was recognised in respect ofexceptional items resulting in a net exceptional gain after tax of £149.5m(2005: loss of £2.3m). Net finance costs Net finance costs from continuing operations decreased from £10.6m to £3.3m as aresult of a lower average net debt during the period principally as a result ofthe disposal of our London bus business. The ratio of pre-exceptional EBITDAfrom continuing Group businesses to net finance charges was 32.9 times for thesix months ended 31 October 2006 (2005: 8.7 times), reflecting the reducedfinance costs. Taxation Including the tax charge that is presented as a component of the share of profitfrom joint ventures but excluding any tax in relation to the discontinued Londonbus and New Zealand operations, the tax charge for the year of £25.6m (2005:£9.2m) represents an effective tax rate of 25.7% (2005: 21.3%). The equivalenteffective tax rate before intangible asset expenses and exceptional items is26.0% (2005: 19.9%). The above tax charge is reconciled to the total tax charge of £23.4m (2005:£6.8m) analysed in note 7 to the interim financial information by thereclassification of the tax of £2.2m (2005: £2.4m) in respect of joint ventures. Earnings per share Overall, earnings per share before intangible asset expenses and exceptionalitems increased 7.4% to 5.8p, from 5.4p in the prior year reflecting the strongperformance at each of our core divisions. Basic earnings per share increasedsharply from 4.1p to 18.9p. Shares in issue The weighted average number of ordinary shares used to calculate basic earningsper share for the six months ended 31 October 2006 was 1,090.0m (2005:1.068.2m). The number of ordinary shares ranking for dividend at 31 October 2006was 1,092.2m (30 April 2006: 1,088.3m), with a further 6.5m (2005: 5.3m)ordinary shares held by employee trusts and not ranking for dividend. Net assets Net assets at 31 October 2006 were £385.2m (30 April 2006: £211.6m) with theincrease principally reflecting the strong results for the six months, whichinclude the gain on the sale of the London bus business. Retirement benefit obligations The reported net assets of £385.2m (30 April 2006: £211.6m) are after takingaccount of net liabilities for retirement benefit obligations of £144.3m (30April 2006: £222.2m) and the related deferred tax assets of £40.9m (30 April2006: £64.3m). Of the total pre-tax retirement benefit obligations, £103.3m (30April 2006: £176.3m) relates to the main Group scheme, Stagecoach Group PensionScheme ("SGPS"). During the period we have made significant progress working in closeconsultation with our employees, trade union representatives and the schemetrustees to protect the accrued benefits of the SGPS for the current members. Weagreed with the trustees to retain the final salary section of the SGPS forcurrent members although this is now closed to new entrants (other than thoseemployees currently serving out a waiting period). We also agreed a number ofbenefit and contribution changes considered necessary to retain the scheme andto protect accrued pension benefits. These changes included increases in themain employee contribution rate from 6.5% to 9.0% and an increase in theemployer cash contribution rate from 9.25% to 12.8% of pensionable salaries. Inaddition, increases in pensionable salaries are to be capped at 3.5% per annum. The benefit and contribution changes along with a one-off contribution of £57.0mand the impact from the sale of our London operations have helped to reduce thepre-tax deficit on the SGPS from £176.3m at 30 April 2006 to £103.3m at 31October 2006. Net debt IFRS does not explicitly define net debt. The Group will therefore continue touse the definition of net debt contained under UK GAAP. Net debt decreased from £135.9m at 30 April 2006 to net funds of £140.9m at 31October 2006. This reflects the sale of our London bus business as well as thebenefit of ongoing cash generation from our core operations. In the second halfof the year, £59.9m of accruals held at 31 October 2006 in relation to revenueand profit share arrangements in respect of South West Trains will be paid incash. Net cash from operating activities for the six months ended 31 October 2006 was£99.4m (2005: £120.2m) and can be further analysed as follows: 6 months to 6 months to 31 October 2006 31 October 2005 £m £m EBITDA of Group companies beforeexceptionals:- continuing 108.5 92.4- discontinued 7.7 20.1Loss on disposal of property, plant & 0.1 0.2equipmentShare based payment expense 0.9 1.1South West Trains revenue/profit share accrued in period but not yet paid 43.0 27.8Other working capital movements (3.9) (8.2)Net interest paid (4.0) (12.5)Dividends from joint ventures 7.7 NilNet cash from operating activities before excess pension contributions 160.0 120.9Pension contributions in excess of pension costs (60.6) (0.7)Net cash from operating activities 99.4 120.2 Excluding the additional pension contributions shown in the table above, netcash from operating activities rose 32.3% from £120.9m to £160.0m, highlightingthe strong cash generative nature of the Group. The net impact of purchases of property, plant and equipment for the six monthson net debt was £54.3m (2005: £44.8m). This primarily related to expenditure onpassenger service vehicles, and comprised cash outflows of £22.1m (2005: £39.1m)and new hire purchase debt of £32.2m (2005: £5.7m). In addition, £1.1m (2005:£2.8m) cash was received from disposals of property, plant and equipment. We recognise that as a result of the Group's continued strong cash generationand the disposal of its bus operations in New Zealand and London, the Group hasthe potential to raise significantly more debt. Having taken account of theGroup's anticipated funding needs and investment opportunities, the Board hasseparately announced today that it proposes to return no less than £400m ofvalue to shareholders. Disposals On 30 August 2006, the Group completed the disposal of its entire London busbusiness to Macquarie Bank Limited. The cash consideration received for thedisposal was £264.7m. After transaction costs, the disposal resulted in a netgain of £127.9m. The proceeds and gain are both higher than previously estimated as a result offinalising the cash due and the net assets as at Completion. Work is continuingon the formal Completion Accounts and any further adjustments required will bereflected in the full-year financial statements to 30 April 2007. Fuel hedging The Group's UK Bus and North American bus operations consume the equivalent of1.6m barrels of diesel fuel per annum. As a result, the Group's profits areexposed to the movement in the underlying price of crude oil, which is the majordriver of diesel prices. The Group manages the volatility in its fuel costs bymaintaining an ongoing fuel hedging programme whereby derivatives are used tofix or collar the variable unit cost of a percentage of anticipated fuelconsumption. If the Group had no hedging in place, a movement of US$10 in theprice of a barrel of crude oil would affect the Group's fuel costs byapproximately US$16m. The fuel hedging levels are summarised below: 6 months to 6 months to Year to 30 Year to 30 31 October 30 April April 2008 April 2009 2006 2007 Proportion of forecast fuelconsumption hedged:- Hedged by fixed price fuel swaps 20% 19% Nil Nil- Hedged by fuel collars 76% 77% 52% 45%- Crude equivalent fixed swap price per barrel $50 $60 N/a N/a- Crude equivalent floor/cap per barrel $54/$83 $54/$83 $54/$83 $54/$83- Average actual/estimated forward price per barrel $68 $63 $67 $68 Seasonality The Group's North American bus operations have historically reported higheroperating profits in recent years for the first half of the financial year (i.e.the six months ended 31 October) than for the second half. This is becauseleisure customers drive an element of the revenue with demand being at itsstrongest in the summer months. On the other hand, the UK Bus operations inrecent years have reported higher operating profits in the second half of thefinancial year. The operating profit earned by the Group's rail division is expected to reducewhen the current South West Trains and Island Line franchises end in February2007. The profits from the new South Western franchise are expected to be belowthat of the current franchise and this will impact the seasonality of profitsfor the current financial year. Like most businesses, there are a range of risks and uncertainties facing theGroup and the principal risks and uncertainties are described in the Group'sAnnual Report for the year ended 30 April 2006. In assessing the Group's likelyfinancial performance for the second half of current financial year, these risksand uncertainties should be considered in addition to the matters referred toabove. Current Trading and Outlook We believe our strategy of focusing on bus operations with organic growthpotential and targeting new rail franchise opportunities can deliver furthervalue to shareholders. The Group has achieved another good performance in thefirst six months of the year and I am pleased to report that current tradingremains in line with our expectations. Brian SouterChief Executive 6 December 2006 CONSOLIDATED INCOME STATEMENT Unaudited Audited 6 months to 31 October 2006 6 months to 31 October 2005 Performance Intangibles Results Performance Intangibles Results Year to pre and for the pre and for the 30 April intangibles exceptional period intangibles exceptional period 2006 and items and items exceptional (note 4) exceptional (note 4) items items Notes £m £m £m £m £m £m £mCONTINUING OPERATIONSRevenue 6(A) 752.1 Nil 752.1 653.3 Nil 653.3 1,343.9Operating costs (809.4) 17.8 (791.6) (690.5) (2.6) (693.1) (1,429.6)Other operating income 5 133.6 Nil 133.6 101.2 Nil 101.2 205.7Operating profit of Group companies 6(B) 76.3 17.8 94.1 64.0 (2.6) 61.4 120.0 Share of profit/(loss) of joint ventures afterfinance income andtaxation 6(C) 4.4 3.0 7.4 4.5 (10.6) (6.1) (7.5) Total operating profit: Group and share of jointventures and associates 6(B) 80.7 20.8 101.5 68.5 (13.2) 55.3 112.5Gain/(loss) on sale of properties 4 Nil 0.2 0.2 Nil (0.2) (0.2) 0.8Loss on disposed operations and sale ofinvestments 4 Nil (1.1) (1.1) Nil (3.8) (3.8) (5.9)Profit before interest and taxation 80.7 19.9 100.6 68.5 (17.2) 51.3 107.4Finance costs (9.8) Nil (9.8) (13.0) Nil (13.0) (23.6)Finance income 6.5 Nil 6.5 2.4 Nil 2.4 7.7Profit before taxation 77.4 19.9 97.3 57.9 (17.2) 40.7 91.5Taxation 7 (18.5) (4.9) (23.4) (9.6) 2.8 (6.8) (20.3)Profit for the period from continuingoperations 58.9 15.0 73.9 48.3 (14.4) 33.9 71.2DISCONTINUED OPERATIONSProfit for the period from discontinuedoperations 9 4.0 128.5 132.5 9.7 Nil 9.7 44.2TOTAL OPERATIONSProfit after taxation for the period attributableto equity shareholders ofthe parent 62.9 143.5 206.4 58.0 (14.4) 43.6 115.4Earnings per share fromcontinuing anddiscontinued operations- Adjusted/Basic 10 5.8p 18.9p 5.4p 4.1p 10.7p- Diluted 10 5.7p 18.8p 5.3p 4.0p 10.6pEarnings per share fromcontinuing operations- Adjusted/Basic 10 5.4p 6.8p 4.5p 3.2p 6.6p- Diluted 10 5.3p 6.7p 4.4p 3.1p 6.5pDividends per ordinary 8share- Interim 1.2p 1.1p 1.1p- Final - - 2.6p The accompanying notes form an integral part of this consolidated incomestatement. CONSOLIDATED BALANCE SHEET Unaudited Audited Notes As at 31 As at 31 As at 30 April October 2006 October 2005 2006 £m As restated £m £mASSETSNon-current assetsGoodwill 94.4 109.4 100.1Other intangible assets 12.3 7.8 17.3Property, plant and equipment 609.5 711.6 708.8Interests in joint ventures 11 51.7 47.0 52.0Interest in associate 1.0 2.0 1.0Financial assets: Available for sale andother investments 4.3 5.0 4.2Deferred tax asset 8.4 4.3 8.4Other receivables 1.3 5.1 1.6 782.9 892.2 893.4Current assetsInventories 12.6 14.1 13.2Trade and other receivables 179.7 181.4 179.9Financial assets: Derivative instruments at fair value 0.6 11.0 3.7Cash and cash equivalents 479.1 157.7 198.5 672.0 364.2 395.3Total assets 1,454.9 1,256.4 1,288.7 LIABILITIESCurrent liabilitiesTrade and other payables 375.7 358.3 341.3Current tax liabilities 38.4 30.4 29.0Financial liabilities: Borrowings 83.0 135.8 66.3Financial liabilities: Derivative 2.4 2.1 2.8instruments at fair valueProvisions 58.0 49.9 63.2 557.5 576.5 502.6Non-current liabilitiesOther payables 10.1 8.2 9.2Financial liabilities: Borrowings 274.2 260.0 291.2Financial liabilities: Derivative instruments at fair value 7.0 Nil NilDeferred tax liabilities 6.6 3.4 5.2Provisions 70.0 48.3 46.7Retirement benefit obligations 16 144.3 220.2 222.2 512.2 540.1 574.5Total liabilities 1,069.7 1,116.6 1,077.1 Net assets 385.2 139.8 211.6 EQUITYOrdinary share capital 12 6.9 6.8 6.9Share premium account 177.8 166.7 174.8Retained earnings (32.4) (289.0) (212.1)Capital redemption reserve 243.0 243.0 243.0Own shares (7.6) (6.1) (6.1)Translation reserve 4.2 7.9 4.0Available for sale reserve 2.0 1.7 1.9Cash flow hedging reserve (8.7) 8.8 (0.8)Total equity (attributable to equity 385.2 139.8 211.6holders of the parent) The retained earnings deficit of £32.4m (2005: £289.0m) is the consolidatedposition. The holding company's distributable reserves as at 31 October 2006under UK GAAP were £273.8m (2005: £287.6m). CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE Unaudited Audited 6 months 6 months to Year to to 31 October 30 April 31 October 2005 2006 2006 £m £m £m Income and expense recognised directly inequityForeign exchange differences on translation of foreign operations (net of hedging) 0.2 4.8 4.7Actuarial gains on Group defined benefit pension schemes Nil Nil 13.9Share of actuarial gains on joint ventures' defined benefit pension schemes Nil Nil 5.2Net fair value (losses)/gains on cash flow hedges (7.9) 10.9 9.2Net fair value gains on available for sale investments 0.1 1.7 1.9 (7.6) 17.4 34.9Transfers to the income statementForeign exchange differences on disposal of foreign operations Nil Nil (3.9)Cash flow hedges reclassified and reported in profit for the period Nil (9.4) (17.3) Nil (9.4) (21.2)Tax on items taken directly to or transferred from equity NilTax on foreign exchange differences on translation of foreign operations (net ofhedging) Nil Nil (0.2)Tax effect of actuarial gains on Group defined benefit pension schemes Nil Nil (4.2)Tax effect of share of actuarial gains on joint ventures' defined benefit pensionschemes Nil Nil (1.5)Tax effect of share based payments 0.8 Nil 2.9 0.8 Nil (3.0)Net (expense)/income not recognised in income statement (6.8) 8.0 10.7Profit for the financial period attributable to equityshareholders of the parent 206.4 43.6 115.4Total recognised income and expense for the periodattributable to equity shareholders of theparent 199.6 51.6 126.1Effect of changes in accounting policy:Balances recognised on the adoption of IAS 32 and IAS 39, net of taxation n/a (7.7) (7.7) CONSOLIDATED CASH FLOW STATEMENT Unaudited Audited Notes 6 months to 6 months to Year to 31 October 31 October 30 April 2006 2005 2006 £m £m £m Cash flows from operating activitiesCash generated from operations 13 99.4 120.2 203.0Tax paid (11.4) (14.0) (27.5)Net cash from operating activities 88.0 106.2 175.5Cash flows from investing activitiesAcquisition of subsidiaries, net of cash acquired (0.1) (2.0) (27.7)Disposals and closures of subsidiaries 9 and other businesses, net of cashdisposed of 260.4 4.0 104.4Purchases of property, plant and equipment (22.1) (39.1) (91.9)Disposals of property, plant and equipment 1.1 2.8 8.2Purchase of intangible assets (0.1) (0.3) (0.6)Purchase of other investments (0.2) (1.5) (2.8)Disposal of other investments 0.2 0.6 0.6Movement in loans to joint ventures 3.3 Nil 0.3Purchase of investments in joint ventures Nil Nil (0.4)Net cash inflow/(outflow) from investing activities 242.5 (35.5) (9.9)Cash flows from financing activitiesIssue of shares 3.0 3.3 7.0Redemption of 'B' shares Nil (13.9) (13.9)Investment in own ordinary shares by employee share ownership trusts (1.9) Nil NilSale of own ordinary shares by employee share ownership trusts 0.4 0.7 0.7Repayments of hire purchase and lease finance (18.6) (11.3) (35.1)Proceeds of sale and leaseback transaction Nil Nil 49.5Repayment of borrowings (1.0) (3.3) (73.9)Dividends paid on ordinary shares 8 (28.4) (24.6) (36.6)Sale of tokens 2.2 2.6 7.4Redemption of tokens (5.0) (6.2) (11.4)Net cash used in financing activities (49.3) (52.7) (106.3)Net increase in cash and cash equivalents 281.2 18.0 59.3Cash and cash equivalents at the beginning of the period 198.3 138.5 138.5Exchange rate effects (0.4) 0.8 0.5Cash and cash equivalents at the end of the period 479.1 157.3 198.3Cash and cash equivalents at the end ofthe period comprises:Cash and cash equivalents included within Current Assets 479.1 157.7 198.5Bank overdrafts included within Financial Liabilities: Borrowings Nil (0.4) (0.2) 479.1 157.3 198.3 RECONCILIATION OF MOVEMENTS IN CONSOLIDATED EQUITY Unaudited Audited 6 months to 6 months to Year to 31 October 31 October 30 April 2006 2005 2006 As restated £m £m £m Profit for the financial period 206.4 43.6 115.4Equity dividends (28.4) (24.6) (36.6) 178.0 19.0 78.8Other recognised income and expense relatingto the period- Foreign exchange differences on translation of foreign operations (net of hedging) 0.2 4.8 4.7- Actuarial gains on Group defined benefit pension schemes Nil Nil 13.9- Share of actuarial gains on joint ventures' defined benefit pension schemes Nil Nil 5.2- Net fair value (losses)/ gains on cash flow hedges (7.9) 10.9 9.2- Net fair value gains on available for sale investments 0.1 1.7 1.9- Foreign exchange differences on disposal of foreign operations Nil Nil (3.9)- Cash flow hedges reclassified and reported in profit for the period Nil (9.4) (17.3)- Tax on foreign exchange differences on translation of foreign operations Nil Nil (0.2)- Tax effect of actuarial gains on Group defined benefit pension schemes Nil Nil (4.2)- Tax effect of share of actuarial gains on joint ventures' defined benefit pension schemes Nil Nil (1.5)- Tax effect of share based payments 0.8 Nil 2.9- Balances recognised on the adoption of IAS 32 and IAS 39, net of taxation n/a (7.7) (7.7)Credit in relation to share based payments 0.9 1.1 2.2Arising on new ordinary share issues 3.0 3.3 11.5Own ordinary shares purchased (1.9) Nil NilOwn ordinary shares sold 0.4 0.7 0.7Net increase in equity 173.6 24.4 96.2Equity at the start of the period 211.6 115.4 115.4Equity at the end of the period 385.2 139.8 211.6 NOTES 1 BASIS OF PREPARATION The financial information contained within this report, and which comprises theConsolidated Income Statement, the Consolidated Balance Sheet, the ConsolidatedStatement of Recognised Income and Expense, the Consolidated Cash FlowStatement, the Reconciliation of Movements in Consolidated Equity and in eachcase, related notes, has been prepared in accordance with the Listing Rules ofthe Financial Services Authority. The financial information has been preparedusing the principal accounting policies used to prepare the Group's 2006 AnnualReport as described on pages 41 to 48 of that report which can be found on theStagecoach Group website at http://www.stagecoachgroup.com/scg/ir/finanalysis/reports/. The Group has chosen not to adopt IAS 34 'Interim Financial Statements' inpreparing the financial information. The financial information for the six months ended 31 October 2006 has not beenaudited, nor has the comparative financial information for the six months ended31 October 2005 but they have both been reviewed by the auditors. Thecomparative financial information presented in this announcement for the yearended 30 April 2006 does not constitute statutory accounts as defined in section240 of the Companies Act 1985 and does not reflect all of the informationcontained in the Company's annual financial statements. The annual financialstatements for the year ended 30 April 2006 received an unqualified audit reportand have been filed with the Registrar of Companies. The Board of Directors approved this announcement on 6 December 2006. 2 PRIOR PERIOD ADJUSTMENTSThe comparatives for the six months ended 31 October 2005 have been restated.This restatement reflects the removal of an intangible asset that had beenpreviously recognised as at 31 October 2005 in relation to Virgin Rail Group("VRG"), which represented the right to operate both the West Coast andCrossCountry franchises. This results in a decrease of £6.0m to the net assetspreviously reported at 31 October 2005. The restatement has no impact on theprofit previously reported for the six months ended 31 October 2005. This changehad already been effected in the Stagecoach results for the year ended 30 April2006 and, as mentioned in the 2006 Annual Report, resulted from further analysisundertaken by VRG and its auditors with respect to the application of IFRS tothe contractual arrangements in respect of VRG's franchises. In addition, provisions as at 31 October 2005 have been restated to separatelyclassify the current and non-current elements. This change has no impact onpreviously reported net assets or profits. 3 FOREIGN CURRENCIES The principal rates of exchange used to translate the results of foreignoperations are as follows: 6 months to 6 months to Year to 31 October 31 October 30 April 2006 2005 2006US DollarPeriod end rate 1.9073 1.7703 1.8176Average rate 1.8687 1.7989 1.7751Canadian DollarPeriod end rate 2.1370 2.0881 2.0368Average rate 2.0914 2.1836 2.1079New Zealand DollarPeriod end rate - (2006 is at date of disposal) n/a 2.5295 2.4606Average rate - (2006 is average up to date of n/a 2.5706 2.5641disposal) 4 EXCEPTIONAL ITEMS AND INTANGIBLE ASSET EXPENSES Unlike UK GAAP, there is no definition of "exceptional items" in IFRS. Whereapplicable, the Group intends to continue to highlight amounts before intangibleasset expenses and exceptional items as well as clearly reporting the results inaccordance with IFRS. This is intended to enable the users of the financialstatements to determine more readily the impact of intangible asset expenses andexceptional items on the results of the Group. For this purpose, "exceptionalitems" are items which individually or, if of a similar type, in aggregate, needto be disclosed by virtue of their size or incidence if the financial statementsare to present fairly the financial performance of the Group. The items shown in the column headed "Intangibles and exceptional items" on theface of the consolidated income statement for the six months ended 31 October2006 can be further analysed as follows: Unaudited 6 months to 31 October 2006 Exceptional Intangible Intangibles items asset and expenses exceptional items £m £m £mOperating costsPast service adjustment - pension scheme 22.8 - 22.8Amortisation of intangible assets - (5.0) (5.0) 22.8 (5.0) 17.8 Share of profit of joint venturesGain on sale of VRG's investment in Trainline 5.5 - 5.5Goodwill charged on investment in joint ventures - (2.5) (2.5) 5.5 (2.5) 3.0 Gain on sale of properties 0.2 - 0.2 Loss in respect of other disposed and closed operations (1.1) - (1.1) Profit for the period from discontinuedoperationsGain on sale of London bus business (note 9) 127.9 - 127.9Gain on sale of New Zealand operations (note 9) 0.6 - 0.6 128.5 - 128.5 Intangible asset expenses and exceptional items 155.9 (7.5) 148.4Tax effect (6.4) 1.5 (4.9)Intangible asset expenses and exceptional items after taxation 149.5 (6.0) 143.5 4 EXCEPTIONAL ITEMS AND INTANGIBLE ASSET EXPENSES (CONTINUED) The items shown in the column headed "Intangibles and exceptional items" on theface of the consolidated income statement for the prior year six months ended 31October 2005 can be further analysed as follows: Unaudited 6 months to 31 October 2005 Exceptional Intangible Intangibles items asset and expenses exceptional items £m £m £mOperating costsAmortisation of intangible assets - (2.6) (2.6) Share of loss of joint venturesGoodwill charged on investment in joint ventures - (10.6) (10.6) Loss on sale of properties (0.2) - (0.2) Loss in respect of other disposed and closed (3.8) - (3.8)operations Intangible asset expenses and exceptional items (4.0) (13.2) (17.2)Tax effect 1.7 1.1 2.8Intangible asset expenses and exceptional items (2.3) (12.1) (14.4)after taxation 5 OTHER OPERATING INCOME Unaudited Audited 6 months to 6 months to Year to 31 October 31 October 30 April 2006 2005 2006 £m £m £m Miscellaneous revenue 25.3 23.4 49.8Rail liquidated damages Nil Nil 0.7Rail franchise support, excluding incentive payments 87.5 56.4 111.1Rail incentive payments 20.8 21.4 44.1 133.6 101.2 205.7 In addition to the above, other operating income for continuing businesses,£1.1m (2005: £3.1m) was recognised in relation to miscellaneous revenue inrelation to our disposed New Zealand and London bus businesses. Miscellaneous revenue comprises revenue incidental to the Group's principalactivity. It includes advertising income, maintenance income and propertyincome. Rail liquidated damages of £0.7m in the year to 30 April 2006 relate to amountsreceived by South West Trains for the late delivery and reliability of trains. Rail franchise support is the gross amount of financial support receivable fromthe Department for Transport ("DfT"). Partly offsetting this, South West Trainsrecognised amounts payable to the DfT under revenue and profit share agreementstotalling £43.0m (2005: £27.8m), which are included in operating costs. Rail incentive payments comprise receipts from/payments to the DfT in respect ofthe operational performance of our rail companies measured against benchmarksset by the DfT. Payments are made to the DfT when performance is worse than thetarget benchmarks and conversely payments are received from the DfT whenperformance is better than the benchmarks. 6 SEGMENTAL ANALYSIS The Group is managed, and reports internally, on a basis consistent with itsthree continuing business segments, which consist of UK Bus, North America andUK Rail. The Group's IFRS accounting policies are applied consistently, whereappropriate to each segment. The segmental information provided in this note is on the basis of three primarysegments, and gives the details for both business segments and geographicalsegments as follows: Segment name Business segment Geographical segmentUK Bus Coach and bus operations United KingdomNorth America Coach and bus operations North AmericaUK Rail Rail operations United Kingdom UK Bus and North America provide coach and bus services while UK Rail providesrail services. The Group's New Zealand operations that were formerly a separate segment weredisposed of during the year ended 30 April 2006. Therefore there is no segmentincome statement information provided for the New Zealand operations. Due to the nature of the services the Group provides, the primary and secondarysegments coincide. The Group's London bus operations were disposed of during the six months ended31 October 2006. These operations were formerly part of the UK Bus segment buthave been reclassified as "discontinued". The Group has interests in two joint ventures: Virgin Rail Group that operatesin UK Rail and Citylink that operates in UK Bus. The profits of these jointventures are shown separately in note 6(C). (A) REVENUE Due to the nature of the Group's business, the origin and destination of revenueis the same in all cases. No material part of each segment's revenue shown below relates to transactionswith other segments. Unaudited Audited 6 months to 6 months to Year to 31 October 31 October 30 April 2006 2005 2006 £m £m £m Continuing operationsUK Bus- Excluding acquisition impact 298.6 270.1 551.1- 2005/06 acquisitions 41.0 6.8 38.5North America 135.7 130.8 247.6Total bus continuing operations 475.3 407.7 837.2UK Rail 276.8 245.6 506.7Group revenue 752.1 653.3 1,343.9 6 SEGMENTAL ANALYSIS (CONTINUED) (B) OPERATING PROFIT Unaudited Audited 6 months to 31 October 2006 6 months to 31 October 2005 Performance Intangibles Results Performance Intangibles Results Year pre and for the pre and for to intangibles exceptional period intangibles exceptional the 30 and items and items period April exceptional exceptional 2006 items items Notes £m £m £m £m £m £m £mContinuing operationsUK Bus- Excluding acquisition impact 33.6 22.8 56.4 30.3 Nil 30.3 65.0- 2005/06 acquisitions 0.5 Nil 0.5 (0.8) Nil (0.8) (1.9)North America 16.7 Nil 16.7 15.7 Nil 15.7 16.9Total bus continuing operations 50.8 22.8 73.6 45.2 Nil 45.2 80.0UK Rail 31.4 Nil 31.4 24.4 Nil 24.4 58.9Total continuing operations 82.2 22.8 105.0 69.6 Nil 69.6 138.9Group overheads (5.2) Nil (5.2) (5.0) Nil (5.0) (10.0)Intangible asset amortisation Nil (5.0) (5.0) Nil (2.6) (2.6) (7.4)Redundancy/ restructuring costs (0.7) Nil (0.7) (0.6) Nil (0.6) (1.5)Total operating profit of continuing Groupcompanies 76.3 17.8 94.1 64.0 (2.6) 61.4 120.0Share of profit/(loss) of joint venturesafter finance chargesand taxation 6(C) 4.4 3.0 7.4 4.5 (10.6) (6.1) (7.5)Total operating profit: Group andshare of jointventures andassociates 80.7 20.8 101.5 68.5 (13.2) 55.3 112.5 (C) JOINT VENTURES Unaudited Audited 6 months to 31 October 2006 6 months to 31 October 2005 Performance Intangibles Results Performance Intangibles Results Year pre and for the pre and for to intangibles exceptional period intangibles exceptional the 30 and items and items period April exceptional exceptional 2006 items items £m £m £m £m £m £m £mContinuingVirgin Rail Group (UKRail)Operating profit 3.9 5.5 9.4 6.1 Nil 6.1 5.3Finance income (net) 1.6 Nil 1.6 0.8 Nil 0.8 1.7Taxation (1.8) Nil (1.8) (2.4) Nil (2.4) (1.5) 3.7 5.5 9.2 4.5 Nil 4.5 5.5Citylink (UK Bus)Operating profit 1.1 Nil 1.1 Nil Nil Nil 0.1Taxation (0.4) Nil (0.4) Nil Nil Nil Nil 0.7 Nil 0.7 Nil Nil Nil 0.1Goodwill charged on investment incontinuing jointventures Nil (2.5) (2.5) Nil (10.6) (10.6) (13.1)Share of profit/(loss) of joint venturesafter finance chargesand taxation 4.4 3.0 7.4 4.5 (10.6) (6.1) (7.5) 7 TAXATION The taxation charge comprises: Unaudited Audited 6 months to 31 October 2006 6 months to 31 October 2005 Performance Intangibles Results Performance Intangibles Results Year to pre and for the pre and for the 30 intangibles exceptional period intangibles exceptional period April and items and items 2006 exceptional exceptional items items £m £m £m £m £m £m £m Group companies - UK tax (17.0) (5.4) (22.4) (5.8) 0.4 (5.4) (22.3)- Overseas tax (1.5) 0.5 (1.0) (3.8) 2.4 (1.4) 2.0 (18.5) (4.9) (23.4) (9.6) 2.8 (6.8) (20.3) 8 DIVIDENDS Unaudited Audited 6 months 6 months Year to to to 30 April 31 October 31 October 2006 2006 2005 £m £m £mAmounts recognised as distributions in the periodDividends on ordinary sharesFinal dividend paid of 2.3p per share for the year ended 30 April 2005 - 24.6 24.6Interim dividend paid of 1.1p per share for the year ended 30 April 2006 - - 12.0Final dividend paid of 2.6p per share for the year ended 30 April 2006 28.4 - -Amounts recognised as distributions to equity holders 28.4 24.6 36.6in the period Dividends proposed or declared but not paid orincluded as liabilities in the financial statementsDividends on ordinary sharesInterim dividend declared of 1.1p per share for the year ended 30 April 2006 - 11.8 -Final dividend proposed of 2.6p per share for the year ended 30 April 2006 - - 28.4Interim dividend declared of 1.2p per share for the year ending 30 April 2007 13.1 - - 13.1 11.8 28.4 The interim ordinary dividend of 1.2p per ordinary share was approved by theBoard on 6 December 2006 and has not been included as a liability as at 31October 2006. It is payable on 7 March 2007 to shareholders on the register atclose of business of 9 February 2007. The dividends proposed or declared and the actual dividends recognised asdistributions differ slightly due to the number of shares at the balance sheetdate being different to that of the record date. 9 DISCONTINUED OPERATIONS The Group disposed of its London bus business during the six months ended 31October 2006. The business was disposed of on 30 August 2006 to Macquarie BankLimited. The Group also disposed of its New Zealand operations on 29 November2005 to Infratil Limited and therefore the six month and year comparativesinclude the results of the New Zealand business as discontinued. The results of the discontinued London bus and New Zealand operations, whichhave been included in the consolidated income statement, were as follows: Unaudited Audited Six Six Six Six Six Six Year to months to months to months to months to months to months to 30 April 31 31 31 31 31 31 2006 October October October October October October Total 2006 2006 2006 2005 2005 2005 £m London New Total London New Total £m Zealand £m £m Zealand £m £m £m Revenue 76.1 Nil 76.1 111.0 28.7 139.7 262.0Operating costs (72.0) Nil (72.0) (102.5) (26.1) (128.6) (238.1)Other operating income 1.1 Nil 1.1 2.2 0.9 3.1 5.2Operating profit 5.2 Nil 5.2 10.7 3.5 14.2 29.1Finance income/(costs) (net) 0.6 Nil 0.6 (0.1) 0.1 Nil NilTaxation (1.8) Nil (1.8) (3.3) (1.2) (4.5) (7.4)Profit for the year 4.0 Nil 4.0 7.3 2.4 9.7 21.7before gain on disposalGain on disposal 127.9 0.6 128.5 Nil Nil Nil 22.5Profit for the year from 131.9 0.6 132.5 7.3 2.4 9.7 44.2discontinuedoperations A gain of £127.9m arose on the disposal of the London bus operations, being theproceeds from disposal less the carrying amount of the disposed business' netassets at the date of disposal. No tax arose as a result of this gain. The gain of £0.6m relating to New Zealand in the six months ended 31 October2006 arises from the release of a liability that was previously recorded foramounts potentially owing to the disposed business, which is now no longerpayable. Businesses disposed in the six months ended 31 October 2006 resulted in £13.2mof cash outflows from operating activities that included £30.0m of one-offpension contributions, £0.8m of cash outflows from investment activities and£9.6m of cash outflows from financing activities. In respect of the businesses disposed of in the six months ended 31 October2006, the net assets disposed of were as follows: London bus Other Total £m £m £mNet assets disposed and accruals for future costs associated with the disposals 135.3 0.5 135.8Profit/(loss) on disposal 127.9 (0.5) 127.4Net consideration 263.2 Nil 263.2Consideration received in the period 264.7 0.1 264.8Costs of disposal (1.5) (0.1) (1.6)Net consideration received in the period 263.2 Nil 263.2Net cash disposed of (0.9) Nil (0.9)Net cash inflow: disposals in the period 262.3 Nil 262.3Net cash inflow: deferred consideration in respect of businesses disposed of in prior years Nil 1.0 1.0Net cash outflow in respect of liabilities of closed and disposed businesses Nil (2.9) (2.9) 262.3 (1.9) 260.4 10 EARNINGS PER SHARE Earnings per ordinary share have been calculated by calculating the profit aftertaxation and non-equity dividends divided by the weighted average number ofordinary shares in issue during the period based on the following: Unaudited Audited 6 months to 6 months to Year to 31 October 31 October 30 April 2006 2005 2006 Basic weighted average ordinary share capital 1,090.0 1,068.2 1,075.8(number of shares, million)Dilutive ordinary shares- Executive Share Option Scheme 6.6 19.0 14.7- Employee SAYE Scheme 1.0 0.8 0.8- LTIP 1.8 Nil NilDiluted weighted average ordinary share 1,099.4 1,088.0 1,091.3capital (number of shares, million) £m £m £m Profit after taxation (for basic EPS calculation) 206.4 43.6 115.4Intangible asset expenses (see note 4) 7.5 13.2 20.5Exceptional items (see note 4) (155.9) 4.0 (17.4)Tax effect of intangible asset expenses and exceptional items (see note 4) 4.9 (2.8) (5.0)Profit for adjusted EPS calculation 62.9 58.0 113.5 Earnings Earnings Earnings per share per share per share pence pence pence Basic 18.9 4.1 10.7Adjusted basic 5.8 5.4 10.6Diluted 18.8 4.0 10.6Adjusted diluted 5.7 5.3 10.4 10 EARNINGS PER SHARE (continued) The basic and diluted earnings per share can be further analysed as follows: Unaudited 6 months to 31 October 2006 6 months to 31 October 2005 Earnings Weighted Earnings Earnings Weighted Earnings average per share average per share number of number of shares shares £m Million pence £m Million pence Basic- Continuing operations 73.9 1,090.0 6.8p 33.9 1,068.2 3.2p- Discontinued operations 132.5 1,090.0 12.1p 9.7 1,068.2 0.9p 206.4 1,090.0 18.9p 43.6 1,068.2 4.1pAdjusted basic- Continuing operations 58.9 1,090.0 5.4p 48.3 1,068.2 4.5p- Discontinued operations 4.0 1,090.0 0.4p 9.7 1,068.2 0.9p 62.9 1,090.0 5.8p 58.0 1,068.2 5.4pDiluted- Continuing operations 73.9 1,099.4 6.7p 33.9 1,088.0 3.1p- Discontinued operations 132.5 1,099.4 12.1p 9.7 1,088.0 0.9p 206.4 1,099.4 18.8p 43.6 1,088.0 4.0pAdjusted diluted- Continuing operations 58.9 1,099.4 5.3p 48.3 1,088.0 4.4p- Discontinued operations 4.0 1,099.4 0.4p 9.7 1,088.0 0.9p 62.9 1,099.4 5.7p 58.0 1,088.0 5.3p 11 INVESTMENT IN JOINT VENTURES Unaudited 6 months to 31 October 2006 £m Cost at 1 May 2006 79.8Share of recognised profits 9.9Dividends received (7.7)At 31 October 2006 82.0 Amounts written off at 1 May 2006 (27.8)Goodwill charged to income statement during period (2.5)At 31 October 2006 (30.3) Net book value, 1 May 2006 52.0Net book value, 31 October 2006 51.7 12 CALLED UP SHARE CAPITAL As at 31 October As at 30 April 2006 2006 £m £m Authorised1,456,666,666 (30 April 2006: 9.2 9.21,456,666,666) ordinary shares of 12/19pence each 2006 No of shares £mAllotted, called-up and fully-paidOrdinary shares of 12/19 pence eachAt 1 May 2006 1,093,600,313 6.9Allotted under share option schemes 5,108,229 -At 31 October 2006 1,098,708,542 6.9 The balance on the share capital account represents the aggregate nominal valueof all ordinary shares in issue. The Group operates two Employee Share Ownership Trusts: the Stagecoach GroupQualifying Employee Share Ownership Trust ("QUEST") and the Stagecoach GroupEmployee Benefit Trust ("EBT"). Shares held by these trusts are treated as adeduction from the shareholders' funds in the Group's financial statements.Other assets and liabilities of the trusts are consolidated in the Group'sfinancial statements as if they were assets and liabilities of the Group. As at31 October 2006, the QUEST held 706,440 (30 April 2006: 628,285) ordinary sharesin the Company and the EBT held 5,825,879 (30 April 2006: 4,690,333) ordinaryshares in the Company. 13 RECONCILIATION OF OPERATING PROFIT TO NET CASH FLOWS FROM OPERATINGACTIVITIES Unaudited Audited 6 months to 6 months to Year to 31 October 31 October 30 April 2006 2005 2006 £m £m £m Operating profit of Group companies 94.1 61.4 120.0Operating profit of discontinued operations 5.2 14.2 29.1Adjustments for:Depreciation- continuing operations 32.2 28.4 61.0- discontinued operations 2.5 5.9 10.7Loss on disposal of property, plant and equipment 0.1 0.2 1.9Amortisation of intangible assets 5.0 2.6 7.4Share based payment expense- continuing operations 0.9 0.9 1.8- discontinued operations Nil 0.2 0.4Operating cashflows before working capital 140.0 113.8 232.3Increase in inventories (0.2) (1.1) (0.9)Increase in receivables (19.3) (6.7) (24.4)Increase in payables 60.7 31.4 14.9(Decrease)/increase in provisions (2.1) (4.0) 6.8Decrease in retirement benefit obligations (83.4) (0.7) (6.3)Cash generated by operations 95.7 132.7 222.4Interest paid (8.4) (13.7) (24.4)Interest received 6.5 2.9 8.3Interest element of hire purchase contracts and (2.1) (1.7) (3.3)finance lease paymentsDividends received from joint ventures 7.7 Nil NilNet cash flows from operating activities 99.4 120.2 203.0 During the period, the Group entered into hire purchase arrangements in respectof new assets with a total capital value at the inception of the contracts of£33.9m (31 October 2005: £6.0m). After taking account of deposits paid up-front,new hire purchase liabilities of £32.2m (31 October 2005: £5.7m) wererecognised. 14 RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS/(DEBT) Unaudited Audited 6 months to 31 6 months to 31 Year to 30 April October 2006 October 2005 2006 £m £m £mIncrease in cash 281.2 18.0 59.3Cash flow from movement in short-term 15.5 14.6 90.2borrowingsCash flow from movement in long-term 4.1 Nil (30.7)borrowings 300.8 32.6 118.8New hire purchase (32.2) (5.7) (10.7)Other movements 8.2 (11.1) (8.5)Borrowings acquired as part of business combinations Nil (10.1) (20.9)Decrease in net debt 276.8 5.7 78.7Opening net debt (UK GAAP definition -see note 15) (135.9) (214.6) (214.6)Closing net funds/(debt) (UK GAAP definition - see note 15) 140.9 (208.9) (135.9) 15 ANALYSIS OF NET (DEBT)/FUNDS IFRS does not explicitly define "net debt/funds". The analysis provided belowtherefore shows analysis of net debt/funds as UK GAAP defines it. The analysisbelow further shows the other items classified as borrowings in the consolidatedbalance sheet. Opening Cashflows New hire Foreign (Charged) Closing purchase exchange credited/ movements to income statement £m £m £m £m £m £m Cash 164.5 281.9 Nil (0.4) Nil 446.0Cash collateral 33.8 (0.7) Nil Nil Nil 33.1Hire purchase and finance lease obligations (101.5) 18.6 (32.2) Nil Nil (115.1)Bank loans and loan stock (49.1) 1.0 Nil 0.5 Nil (47.6)Bonds (183.6) Nil Nil 8.2 (0.1) (175.5)UK GAAP Net (Debt)/Funds (135.9) 300.8 (32.2) 8.3 (0.1) 140.9Accrued interest on bonds (7.3) 8.3 Nil (0.2) (7.7) (6.9)Separate recognition of foreign exchange forwardcontract 0.1 Nil Nil 0.5 Nil 0.6Unamortised gain on early settlement of interest rateswaps (15.9) Nil Nil Nil 3.2 (12.7)Net (borrowings)/funds (159.0) 309.1 (32.2) 8.6 (4.6) 121.9 The net total of cash and cash collateral of £479.1m (30 April 2006: £198.3m) isclassified in the balance sheet as £479.1m (30 April 2006: £198.5m) in cash andcash equivalents and £Nil (30 April 2006: £0.2m) as bank overdrafts withinborrowings. The cash collateral balance as at 31 October 2006 of £33.1m (30April 2006: £33.8m) comprises balances held in trust in respect of loan notes of£32.5m (30 April 2006: £33.0m) and North America restricted cash balances of£0.6m (30 April 2006: £0.8m). In addition, cash includes train operating companycash of £136.7m (30 April 2006: £89.2m). Under the terms of the franchiseagreements, train operating companies can only distribute cash out of retainedprofits. Had the Group's rail franchises ended on 31 October 2006 consolidated net debtwould have increased by £166.1m (30 April 2006: £122.7m) as a result of thetrain operating company cash of £136.7m (30 April 2006: £89.2m) and therepayment of inter-company loans of £35.2m (30 April 2006: £36.7m) offset bydistributable reserves of £5.8m (30 April 2006: £3.2m). Note 17 gives details ofother contingent liabilities that could become payable. 16 RETIREMENT BENEFIT OBLIGATIONS The Group contributes to a number of pension schemes. The principal definedbenefit occupational benefit schemes are as follows: • The Stagecoach Group Pension Scheme ("SGPS"); • The South West Trains' section of the Railways Pension Scheme ("RPS"); • The Island Line section of the Railways Pension Scheme ("RPS"); • A number of UK Local Government Pension Schemes ("LGPS"); • The Yorkshire Traction Company Limited Pension Plan ("YTC") and; • The Strathtay Scottish Omnibuses Limited Pension and Life Assurance Scheme ("SSO"). These schemes are devised in accordance with local employment terms andconditions. Each scheme is administered independently of the employers and theschemes' assets are held in trusts that are managed by investment managersappointed by the schemes' trustees. The Directors believe that separate consideration should be given to RPS as theGroup has no rights or obligations in respect of sections of the schemefollowing expiry of the franchises. Therefore, the liability recognised forthese sections of RPS only represents that part of the net deficit of thesections that the employer is obliged to fund over the life of the franchise towhich each section relates. In addition, the Group contributes to a number of defined contribution schemescovering UK and non-UK employees. The movement in the net pre-tax liabilities recognised in the balance sheet forthe first six months ended 31 October 2006 were as follows: SGPS RPS LGPS YTC SSO Other Unfunded Total £m £m £m £m £m £m Plans £m £mAt 1 May 2006 (176.3) (6.1) (23.6) (9.2) (2.9) (0.5) (3.6) (222.2)Current service cost (11.9) (7.8) (2.1) (0.8) (0.3) Nil Nil (22.9)Past service adjustment 22.8 Nil Nil Nil Nil Nil Nil 22.8Defined contribution costs Nil Nil Nil Nil Nil (0.5) Nil (0.5)Interest cost (20.6) (6.9) (6.9) (1.4) (0.2) Nil Nil (36.0)Expected return on plan assets 22.8 9.7 8.9 1.6 0.2 Nil Nil 43.2Unwinding of franchise adjustment Nil 0.2 Nil Nil Nil Nil Nil 0.2One-off employers' contributions 57.0 Nil Nil Nil Nil Nil Nil 57.0Other employers' contributions 8.4 7.5 2.2 0.9 0.2 0.4 Nil 19.6Disposal (5.5) Nil Nil Nil Nil Nil Nil (5.5)At 31 October 2006 (103.3) (3.4) (21.5) (8.9) (3.0) (0.6) (3.6) (144.3) The related deferred tax on the liabilities is £40.9m (30 April 2006: £64.3m)resulting in post-tax retirement benefit obligations of £103.4m (30 April 2006:£157.9m). The amounts shown in the above table include discontinued operations for theperiod for which they were part of the Group. In particular, the incomestatement items include the London bus business up until its disposal in August2006. 17 CONTINGENT LIABILITIES (i) A performance bond backed by a bank facility for £44.3m (30 April 2006:£44.3m), a season ticket bond backed by a bank facility for £32.9m (30 April2006: £33.7m) and a holding company guarantee of £15.7m (30 April 2006: £15.7m)have been provided to the UK's Department for Transport in support of theGroup's franchise obligations at South West Trains Limited at 31 October 2006. At 31 October 2006, a performance bond backed by a bank facility for £10.7m (30April 2006: £Nil) and a holding company guarantee of £25.0m (30 April 2006:£Nil) have been provided to the UK's Department for Transport in support of theGroup's franchise obligation in relation to the Stagecoach South Western TrainsLimited obligations under the new South Western franchise which will commence on4 February 2007. These contingent liabilities are not expected to crystallise. (ii) The Group and its joint venture, Virgin Rail Group Holdings Limited, havein the normal course of business, entered into a number of long term supplycontracts. The most significant of these relate to track, station and depotaccess facilities, together with new train lease and maintenance arrangements. (iii) Under UK Rail franchise agreements, the Group and its joint venture,Virgin Rail Group Holdings Limited, have agreed with the UK's Department forTransport annual amounts receivable or payable in respect of the operation ofrail franchises for future periods. Under these agreements, there is arequirement to comply with a number of obligations. Failure to comply with theseobligations would be a breach of the relevant franchise. (iv) The Group and the Company are from time to time party to legal actionsarising in the ordinary course of business. Liabilities have been recognised inthe financial statements for the best estimate of the expenditure required tosettle obligations arising under such legal actions. As at 31 October 2006, theaccruals in the consolidated financial statements for such claims total £3.3m(30 April 2006: £4.4m).(v) The Group provides details of guarantees and other financial commitments inits Annual Report. 18 CAPITAL COMMITMENTS Capital commitments are as follows: Unaudited Audited As at As at As at 31 October 31 October 30 April 2006 2005 2006 £m £m £mContracted for but not provided: for 39.2 29.0 55.4delivery in one year 19 RELATED PARTY TRANSACTIONS Details of major related party transactions during the six months ended 31October 2006 are provided below, except for those relating to the remunerationof the Directors and management. (i) Loan to Virgin Rail Group Limited At 30 April 2006, the Group had loan notes receivable of £3.3m from Virgin RailGroup Limited, which is a wholly owned subsidiary undertaking of Virgin RailGroup Holdings Limited. The Group holds approximately 49% of the share capitalof Virgin Rail Group Holdings Limited and accounts for its investment in VirginRail Group Holdings Limited as an interest in a joint venture. During the six months ended 31 October 2006, Virgin Rail Group Limited settledall of the outstanding loan notes together with all accrued interest. The Groupearned interest of £0.1m on the loan notes in the period from 1 May 2006 tosettlement (six months ended 31 October 2005: £0.2m.) (ii) Virgin Rail Group Holdings Limited - Non-Executive Directors Two of the Group's managers are non-executive directors of Virgin Rail GroupHoldings Limited. During the six months ended 31 October 2006, the Group earnedfees of £12,500 (six months ended 31 October 2005: £12,500) from Virgin RailGroup Holdings Limited in this regard. (iii) ScotAirways Group Ltd Until September 2006, Brian Souter (Chief Executive) and Ann Gloag(Non-Executive Director) controlled 93.8% of the shares of ScotAirways GroupLtd. Brian Souter was also Chairman of ScotAirways Group Ltd. Brian Souter andAnn Gloag disposed of their entire interests in ScotAirways Group Ltd inSeptember 2006 and Brian Souter stepped down as Chairman at that time.ScotAirways Group Ltd therefore ceased to be a related party of the Group inSeptember 2006. During the period from 1 May 2006 to the time ScotAirways Group Ltd ceased to bea related party of the Group, the Group purchased airline flights fromScotAirways Group Ltd totalling £43,871 (six months ended 31 October 2005:£35,576). (iv) Noble Grossart Limited Ewan Brown (Non-Executive Director) is a former executive director and currentnon-executive director of Noble Grossart Limited that provided advisory servicesto the Group during the period. Total fees payable to Noble Grossart Limited inrespect of the six months ended 31 October 2006 amounted to £10,000 (six monthsended 31 October 2005: £10,050). At 31 October 2006, Noble Grossart InvestmentsLimited, a subsidiary of Noble Grossart Limited, held 6,354,443 (30 April 2006:6,354,443) ordinary shares in the Company, representing 0.6% (30 April 2006:0.6%) of the Company's issued ordinary share capital. 19 RELATED PARTY TRANSACTIONS (CONTINUED) (v) Alexander Dennis Limited Brian Souter and Ann Gloag together control 39.3% of the shares and votingrights in Alexander Dennis Limited. Noble Grossart Investments Limited (see (iv)above) controls a further 29.5% of the shares and voting rights of AlexanderDennis Limited. None of Brian Souter, Ann Gloag or Ewan Brown is a director ofAlexander Dennis Limited nor do they have any involvement in the management ofAlexander Dennis Limited. Furthermore, they do not participate in deciding onand negotiating the terms and conditions of transactions between the Group andAlexander Dennis Limited. For the six months ended 31 October 2006, the Group purchased £24.7m (six monthsended 31 October 2005: £20.1m) of vehicles from Alexander Dennis Limited and£2.5m (six months ended 31 October 2005: £1.6m) of spare parts and otherservices. For new orders placed with Alexander Dennis Limited for vehicles, the Group hasconsulted with the UK Listing Authority and taken the appropriate measures toensure that the transactions with Alexander Dennis Limited comply with theListing Rules. (vi) Pension Schemes Details of contributions made to pension schemes are contained in note 16 to theinterim financial information. APPENDIX 1 Stagecoach Group plc Interim Report for the six months ended 31 October 2006 Consolidated Unaudited Unaudited Audited Chairman's StatementIncome Statement 6 months 6 months Year toFor the six to to 30 April I am pleased to report that Stagecoachmonths to 31 31 Oct 31 Oct 2006 Group has achieved another strong setOctober 2006 2006 2005 £m of results and has delivered further £m £m growth in its bus and rail operationsCONTINUING in the UK and North America.OPERATIONSRevenue 752.1 653.3 1,343.9 Trading across the Group was strongOperating costs (791.6) (693.1) (1,429.6) with revenue for the six months endedOther operating 133.6 101.2 205.7 31 October 2006 at £752.1m (2005:income £653.3m). Total operating profitOperating profit 94.1 61.4 120.0 (before intangible asset expenses andof Group exceptional items) was £80.7m (2005:companies £68.5m). Earnings per share beforeShare of profit/ 7.4 (6.1) (7.5) intangible asset expenses and(loss) of joint exceptional items were up 7.4% at 5.8pventures after (2005: 5.4p).finance incomeand taxation The Group's results include netTotal operating 101.5 55.3 112.5 exceptional gains before taxation ofprofit: Group and £155.9m, principally arising from theshare of joint profit on the sale of the Group'sventures and London bus operations to Macquarieassociates Bank Limited, which was completed inGain/(loss) on 0.2 (0.2) 0.8 August 2006. As a result, basicsale of earnings per share increased sharplyproperties from 4.1p to 18.9p.Loss on disposed (1.1) (3.8) (5.9)operations and Reflecting the strong performance ofsale of the Group and confidence in its futureinvestments prospects, the Board of Directors hasProfit before 100.6 51.3 107.4 declared an interim dividend of 1.2pinterest and per share (2005: 1.1p), a 9.1%taxation increase. The interim dividend isFinance costs (9.8) (13.0) (23.6) payable on 7 March 2007 toFinance income 6.5 2.4 7.7 shareholders on the register at 9Profit before 97.3 40.7 91.5 February 2007. Based on continuedtaxation strong cash flows and profits, we willTaxation (23.4) (6.8) (20.3) look to continue to increase theProfit for the 73.9 33.9 71.2 dividend per share each year.period fromcontinuing At 31 October 2006, the Group had netoperations funds of £140.9m compared to net debtDISCONTINUED of £135.9m at 30 April 2006, being aOPERATIONS reduction in net debt of £276.8m. ThisProfit for the 132.5 9.7 44.2 reduction is expected to partiallyperiod from reverse in the second half of thediscontinued financial year as a result of theoperations settlement of £59.9m of accruals heldTOTAL OPERATIONS at 31 October 2006 in relation toProfit after 206.4 43.6 115.4 South West Trains' revenue and profittaxation for the share arrangements. We believe that byperiod adjusting the mix of equity and debtattributable to in the business, the Group can lowerequity its overall cost of capital andshareholders of generate further shareholder value.the parent With this in mind the Board proposesEarnings per to return no less than £400m of fundsshare from to shareholders in order to achieve acontinuing and more efficient capital structure. Thediscontinued Group has also reached agreement inoperations principle with pension scheme trustees- Adjusted 5.8p 5.4p 10.6p for plans to make a further one-off(before 18.9p 4.1p 10.7p contribution of up to £50m to theintangible asset 18.8p 4.0p 10.6p Stagecoach Group Pension Scheme asexpenses and part of an agreed funding plan.exceptionalitems) As a Group, we will continue to- Basic innovate, invest and develop strong- Diluted partnerships across our businesses. WeEarnings per believe we are well placed to benefitshare from from further opportunities for organiccontinuing growth in our bus operations and theoperations expansion of our rail portfolio, both- Adjusted 5.4p 4.5p 8.5p of which can deliver increased value(before 6.8p 3.2p 6.6p to our shareholders.intangible asset 6.7p 3.1p 6.5pexpenses and Stagecoach has made a promising startexceptional to the second half of its financialitems) year and current trading of the Group- Basic remains in line with our expectations.- DilutedDividends per Robert Speirs, Chairmanordinary share 6 December 2006- Interim 1.2p 1.1p 1.1p- Final - - 2.6p Basis of preparation Consolidated Unaudited Unaudited Audited The financial information containedBalance Sheet 31 Oct 31 Oct 30 April within this report, and whichAs at 31 October 2006 2005 2006 comprises the Consolidated Income2006 £m As £m Statement, the Consolidated Balance restated Sheet, the Consolidated Cash Flow £m Statement and the Reconciliation ofASSETS Movements in Consolidated Equity, hasNon-current been prepared in accordance with theassets Listing Rules of the FinancialGoodwill 94.4 109.4 100.1 Services Authority. The financialOther intangible 12.3 7.8 17.3 information has been prepared usingassets the principal accounting policies usedProperty, plant 609.5 711.6 708.8 to prepare the Group's 2006 Annualand equipment Report as described on pages 41 to 48Interests in 51.7 47.0 52.0 of that report which can be found onjoint ventures the Stagecoach Group website at http:/Interest in 1.0 2.0 1.0 /www.stagecoachgroup.com/scg/ir/associate finanalysis/reports/.Financial assets: 4.3 5.0 4.2Available for The Group has chosen not to adopt IASsale and other 34 'Interim Financial Statements' ininvestments preparing the financial information.Deferred tax 8.4 4.3 8.4asset The financial information for the sixOther receivables 1.3 5.1 1.6 months ended 31 October 2006 has not 782.9 892.2 893.4 been audited, nor has the comparativeCurrent assets financial information for the sixInventories 12.6 14.1 13.2 months ended 31 October 2005 but theyTrade and other 179.7 181.4 179.9 have both been reviewed by thereceivables auditors. The comparative financialFinancial assets: 0.6 11.0 3.7 information presented in thisDerivative announcement for the year ended 30instruments at April 2006 does not constitutefair value statutory accounts as defined inCash and cash 479.1 157.7 198.5 section 240 of the Companies Act 1985equivalents and does not reflect all of the 672.0 364.2 395.3 information contained in the Company'sTotal assets 1,454.9 1,256.4 1,288.7 annual financial statements. TheLIABILITIES annual financial statements for theCurrent year ended 30 April 2006 received anliabilities unqualified audit report and have beenTrade and other 375.7 358.3 341.3 filed with the Registrar of Companies.payablesCurrent tax 38.4 30.4 29.0 Prior period adjustmentsliabilitiesFinancial 83.0 135.8 66.3 The comparatives for the six monthsliabilities: ended 31 October 2005 have beenBorrowings restated. This restatement reflectsFinancial 2.4 2.1 2.8 the removal of an intangible assetliabilities: that had been previously recognised asDerivative at 31 October 2005 in relation toinstruments at Virgin Rail Group ("VRG"), whichfair value represented the right to operate bothProvisions 58.0 49.9 63.2 the West Coast and CrossCountry 557.5 576.5 502.6 franchises. This results in a decreaseNon-current of £6.0m to the net assets previouslyliabilities reported at 31 October 2005. TheOther payables 10.1 8.2 9.2 restatement has no impact on theFinancial 274.2 260.0 291.2 profit previously reported for the sixliabilities: months ended 31 October 2005. ThisBorrowings change had already been effected inFinancial 7.0 Nil Nil the Stagecoach results for the yearliabilities: ended 30 April 2006 and, as mentionedDerivative in the 2006 Annual Report, resultedinstruments at from further analysis undertaken byfair value VRG and its auditors with respect toDeferred tax 6.6 3.4 5.2 the application of IFRS to theliabilities contractual arrangements in respect ofProvisions 70.0 48.3 46.7 VRG's franchises.Retirement 144.3 220.2 222.2benefit In addition, provisions as at 31obligations October 2005 have been restated to 512.2 540.1 574.5 separately classify the current andTotal liabilities 1,069.7 1,116.6 1,077.1 non-current elements. This change hasNet assets 385.2 139.8 211.6 no impact on previously reported netEQUITY assets or profits.Ordinary share 6.9 6.8 6.9capital Independent review report toShare premium 177.8 166.7 174.8 Stagecoach Group plcaccountRetained earnings (32.4) (289.0) (212.1) IntroductionCapital 243.0 243.0 243.0redemption We have been instructed by the Companyreserve to review the financial informationOwn shares (7.6) (6.1) (6.1) for the six months ended 31 OctoberTranslation 4.2 7.9 4.0 2006 which comprises the Consolidatedreserve Income Statement, Consolidated BalanceAvailable for 2.0 1.7 1.9 Sheet, Consolidated Cash Flowsale reserve Statement and Reconciliation ofCash flow hedging (8.7) 8.8 (0.8) Movements in Consolidated Equity. Wereserve have read the other informationTotal equity 385.2 139.8 211.6 contained in the interim report and(attributable to considered whether it contains anyequity holders of apparent misstatements or materialthe parent) inconsistencies with the financial information.Consolidated Cash Unaudited Unaudited AuditedFlow Statement 6 months 6 months Year to Directors' responsibilitiesFor the six to to 30 Aprilmonths to 31 31 Oct 31 Oct 2006 The interim report, including theOctober 2006 2006 2005 financial information contained £m £m £m therein, is the responsibility of, andCash flows from has been approved by, the Directors.operating The Listing Rules of the Financialactivities Services Authority require that theCash generated 99.4 120.2 203.0 accounting policies and presentationfrom operations applied to the interim figures shouldTax paid (11.4) (14.0) (27.5) be consistent with those applied inNet cash from 88.0 106.2 175.5 preparing the preceding annualoperating financial statements except where anyactivities changes, and the reasons for them, areNet cash inflow/ 242.5 (35.5) (9.9) disclosed.(outflow) frominvesting This interim report has been preparedactivities in accordance with the basis set outNet cash used in (49.3) (52.7) (106.3) in the basis of preparation.financingactivities Review work performedNet increase in 281.2 18.0 59.3cash and cash We conducted our review in accordanceequivalents with guidance contained in BulletinCash and cash 198.3 138.5 138.5 1999/4 issued by the Auditingequivalents at Practices Board for use in the Unitedthe beginning of Kingdom. A review consists principallythe period of making enquiries of management andExchange rate (0.4) 0.8 0.5 applying analytical procedures to theeffects financial information and underlyingCash and cash 479.1 157.3 198.3 financial data and, based thereon,equivalents at assessing whether the disclosedthe end of the accounting policies have been applied.period A review excludes audit proceduresCash and cash such as tests of controls andequivalents at verification of assets, liabilitiesthe end of the and transactions. It is substantiallyperiod comprises: less in scope than an audit andCash and cash 479.1 157.7 198.5 therefore provides a lower level ofequivalents assurance. Accordingly we do notincluded within express an audit opinion on theCurrent Assets financial information. This report,Bank overdrafts Nil (0.4) (0.2) including the conclusion, has beenincluded within prepared for and only for the CompanyFinancial for the purpose of the Listing RulesLiabilities: of the Financial Services AuthorityBorrowings and for no other purpose. We do not, 479.1 157.3 198.3 in producing this report, accept or assume responsibility for any otherReconciliation of Unaudited Unaudited Audited purpose or to any other person to whomMovements in 6 months 6 months Year to this report is shown or into whoseConsolidated to to 30 April hands it may come save where expresslyEquity 31 Oct 31 Oct 2006 agreed by our prior consent inFor the six 2006 2005 writing.months to 31 AsOctober 2006 restated Review conclusion £m £m £mProfit for the 206.4 43.6 115.4 On the basis of our review we are notfinancial period aware of any material modificationsEquity dividends (28.4) (24.6) (36.6) that should be made to the financial 178.0 19.0 78.8 information as presented for the sixOther recognised (6.8) 0.3 3.0 months ended 31 October 2006.income andexpense relatingto the period PricewaterhouseCoopers LLP, CharteredCredit in 0.9 1.1 2.2 Accountants, Glasgowrelation to share 6 December 2006based paymentsArising on new 3.0 3.3 11.5ordinary shareissuesOwn ordinary (1.9) Nil Nilshares purchasedOwn ordinary 0.4 0.7 0.7shares soldNet increase in 173.6 24.4 96.2equityEquity at the 211.6 115.4 115.4start of theperiodEquity at the end 385.2 139.8 211.6of the period This information is provided by RNS The company news service from the London Stock Exchange

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