28th Jul 2005 07:03
National Express Group PLC28 July 2005 28 July 2005 NATIONAL EXPRESS GROUP PLC Interim Results For the six months ended 30 June 2005 Financial Highlights • Revenue of £1,077.7m (2004: £1,157.9m*) • Normalised operating profit** up 26.5% to £67.3m (2004: £53.2m*) • Normalised profit before tax** up 47.5% to £58.1m (2004: £39.4m*) • Normalised diluted earnings per share** up 44.9% to 31.3 pence (2004: 21.6 pence*) • Interim dividend up 7% to 10 pence per share (2004: 9.35 pence*) • Operating cash flow*** before one-off items of £106.2m (2004: £127.8m) • Net debt of £143.3m (31 December 2004: £136.6m) • Normalised Group margin** increased to 6.2% (2004: 4.6%*) • £29.3 million returned to shareholders through share buy-back Operational Highlights • Continued growth in coach patronage • Successful roll-out of coach best value fare promotions • Improved operational bus performance through recruitment initiatives • Doubling of bus market share in London through acquisition of Tellings Golden Miller bus division • Operator of 7 of the UK's top 9 performing train companies • Shortlisted for Greater Western and Thameslink / GN rail bids • Successful student bus bid season in North America • Conditional disposal of US public transit operations to Connex. * as restated for the transition to IFRS ** excluding goodwill impairment, intangible amortisation, exceptional items and tax relief thereon as appropriate *** operating cash flow as defined in the Finance Director's Review Commenting on the results, David Ross, Chairman said: "Today's results reflect the excellent progress the Group has made over the sixmonth period. We are focused on improving the quality and performance of ourbusinesses. We will continue to invest in the facilities, fleet and customerservice initiatives that underpin our strategy of attracting more people to ourservices through our improved service offering. It is too early to assess any impact recent terrorist activity may have on thediscretionary travel market. Given our financial resilience and excellent cashgeneration, we remain confident in our prospects for the year. Our track recordof consistent growth and our low debt level place us in a strong position tocontinue to invest in our businesses. Shareholder value will continue to beenhanced through a combination of our dividend policy, the buyback programme andcareful investment in acquisitions." - E N D S - For further information, please contact: Phil White, Chief ExecutiveAdam Walker, Finance DirectorNicola Marsden, Director of Group CommunicationsNational Express Group PLC 020 7529 2000 Andrew Dowler/Ben FosterFinancial Dynamics 020 7831 3113 • There will be an analyst and investor meeting at 1100 hours on 28 July 2005 at Financial Dynamics, Holborn Gate, London. • A webcast of the analyst presentation will be available on website www.nationalexpressgroup.com at 1100 hours on 28 July 2005. For further details, contact Sara Freeman at Financial Dynamics on 020 7269 7134. • Photographs are available through Vismedia at www.vismedia.co.uk or telephone 020 7436 9595. NATIONAL EXPRESS GROUP PLC Interim Results For the six months ended 30 June 2005 Chairman's Statement I am pleased to report on the Group's interim results for the six month periodended 30 June 2005. First of all, I would like to express my sympathy to all those who lost lovedones and were affected by the tragic events in London on 7 July. Many of ourpassengers and people were involved in these events. I would like to thank allof our employees for their outstanding efforts in very difficult circumstancesand our passengers for their continued patronage and vigilance during this time.I would like to reassure both customers and our employees that their safetyand security are a priority and will remain so. The year has started well. Our coach division is fully focused on innovation andquality. We currently run 7 of the UK's top 9 performing train companies and weare launching new initiatives generating passenger growth in our bus division.In North America, we have experienced our best ever bidding season. Following a strategic review of our North American operations, we are announcingthe conditional sale of our public transit services. We have concluded that ourpublic transit operations are no longer core to the Group's North Americanstrategy. We aim to make public transport the preferred choice for travel and believethere is a strong correlation between the quality of service we provide to ourcustomers and the morale of our employees. We regularly seek the views of ourcustomers and employees to help us improve the quality of the services offeredto our customers. We will be working closely with the Department for Transport ("DfT") andTransport for London on their bus and rail strategy. Following the announcementthat London is to host the Olympics in 2012, we look forward to working with thenewly formed Olympic Transport Authority to develop a comprehensive transportstrategy for this event. Board Changes After four years on the Board, Tim Stevenson will be retiring in September. Iwould like to thank Tim for his contribution over this period. He has broughtgreat counsel and strategic input to the Board and on behalf of all mycolleagues I wish him well for the future. Barry Gibson will be taking over therole of senior independent director. Results Revenue for the six months to 30 June 2005 was £1,077.7 million (2004: £1,157.9million*). Normalised operating profit was £67.3 million (2004: £53.2 million*). Normalised profit before tax increased to £58.1 million (2004: £39.4 million*). Normalised diluted earnings per share were up 44.9% to 31.3 pence (2004: 21.6pence*). Operating cash flow before one-off items during the first six monthswas £106.2 million (2004: £127.8 million). Net debt at 30 June was £143.3million (31 December 2004: £136.6 million). An interim dividend of 10 pence per share, an increase of 7% over last year'sinterim dividend of 9.35 pence per share, will be paid on 7 October 2005 toshareholders on the register on 9 September 2005. Current trading Today's results reflect the excellent progress the Group has made over the sixmonth period. We are focused on improving the quality and performance of ourbusinesses. We will continue to invest in the facilities, fleet and customerservice initiatives that underpin our strategy of attracting more people to ourservices through our improved service offering. It is too early to assess any impact recent terrorist activity may have on thediscretionary travel market. Given our financial resilience and excellent cashgeneration, we remain confident in our prospects for the year. Our track recordof consistent growth and our low debt level place us in a strong position tocontinue to invest in our businesses. Shareholder value will continue to beenhanced through a combination of our dividend policy, the buyback programme andcareful investment in acquisitions. Chief Executive's Review of Operations Coaches The coach division provides Britain's only scheduled national coach network andservices to more than 1,200 destinations. Eurolines offers value for moneyEuropean travel by coach. Revenue was £91.7 million (2004: £87.8 million*) and normalised operatingprofit was £4.1 million (2004: £2.1 million*.) Our coach division goes from strength to strength. Passenger numbers rose byover 5% as we have enhanced the overall coach network. We have improved thequality of our fleet through the introduction of state-of-the-art vehicles whichcurrently operate on the Birmingham, Bristol, Cheltenham and Gloucester routes.We will continue to roll out our "Wow" coaches to other areas of the network. We have extended the use of dynamic pricing. We have repeated successfulinitiatives such as our £9 'Go Anywhere' promotion and also introduced newpricing offers such as the 'Million Seat Sale'. These initiatives have beenpromoted by national advertising campaigns. One in four tickets is now sold via the internet. Our m-Ticket solution enablespassengers to receive ticket reservations directly on their mobile phones. Good progress has been made in the development of a new landmark coach stationin Birmingham and construction is expected to commence in 2006. Working inpartnership with BAA, construction has already started on improving the HeathrowCentral Bus Station which will include improved waiting and refreshmentfacilities. We will be taking over the management of this new facility. We have been working closely with vehicle manufacturers and the Mobility andInclusion Unit of the DfT to develop a coach which complies with the newDisability Discrimination Act ("DDA") legislation. In September we will launchour new bespoke DDA compliant vehicle with a front end lift for wheelchairs.These vehicles will be the first of their kind in Europe and will be trialledduring Autumn on a number of routes before going into full service in 2006. Thiswill mark the introduction of the first wheelchair accessible coaches in the UK. Buses The bus division operates over 1,800 buses in the West Midlands, Dundee andLondon. We also operate the Midland Metro, the light rail service in the WestMidlands. Revenue was £127.0 million (2004: £115.5 million*) with operating profit of£18.2 million (2004: £19.6 million*). This division incurred a one-off £2.1million charge as a result of the introduction of IFRS. We have experienced a reduction in the number of concessionary travellersthrough changes in the scheme. However, we welcome the announcement by theChancellor in March this year of the new national concessionary fare schemewhich was introduced early in the West Midlands on 24 July. The closure of theRover plant at Longbridge has also impacted on our performance in the firsthalf. New initiatives such as Premier Bus and Saver Bus have been successful ingrowing patronage. Premier Bus, a high quality limited stop commuter busservice, has experienced double digit growth after six months. On the back ofsignificant growth, our Saver Bus service will be extended to North Solihull.Working in partnership with Birmingham City Council, we are developing furthernew initiatives to improve the quality of services in the West Midlands toattract more people to public transport. To improve our quality of service, we have centralised our customer after-salesteam and implemented a series of passenger research initiatives. We continue toinvest in new technology; automatic vehicle location technology has beeninstalled on over 300 Birmingham buses, enabling the provision of real-timeinformation for our passengers. In addition we continue to invest in the safetyand security of our employees and passengers through the installation of 'crystaleyes', which monitors on-board behaviour and further development of theOperation Safer Travel initiative. Our recruitment drive in Poland has resulted in 300 drivers joining ourworkforce which has significantly improved the reliability of our services. Afurther 50 will be joining our team shortly. Nearly 70% of all our bus driversare NVQ2 qualified or currently in training to achieve the qualification. In London, the Travel London Walworth bus garage was opened by the Mayor ofLondon in February. In June, we extended our London bus operations through theacquisition of the bus division of Tellings Golden Miller. This added a further181 buses to the Travel London fleet and increases our London market share tonearly 5%. We look forward to growing this business further. In Dundee, a new cross city link was funded by the Scottish Executive through£1.3 million of "Kickstart" funding. Travel Dundee continues to perform well. Trains We operate c2c, Central Trains, Gatwick Express, Midland Mainline, 'one'including the Stansted Express, Silverlink, Great Northern and Wessex Trainsfranchises. The Trains division achieved revenue of £739.3 million (2004: £842.0 million*)and operating profit of £27.1 million (2004: £15.0 million*). These resultshave been achieved on the back of continued passenger growth resulting from theimproved punctuality and reliability of our services. We are pleased to reportpassenger growth of 4% for the period. Our concerted focus on improving operational performance has resulted in theGroup currently running 7 of the UK's top 9 performing train operatingcompanies. In the SRA's latest Quarterly Performance Figures, Midland Mainline("MML") and 'one' intercity were placed first and second amongst long distanceoperators. In addition, we ran 4 of the top 5 peak-time operators in London andthe South East. We continue to work closely with Network Rail on improving the operatingenvironment through joint performance improvement plans and integrated controlcentres. This has already led to significantly better performance at MML andWagn. At MML, our new Meridian four-car trains have continued to perform well and arecurrently the most reliable diesel fleet on the UK network. At the beginning ofJuly the first of the nine-car Meridian trains were introduced into service.Recent National Passenger Survey results have confirmed that MML has increasedcustomer satisfaction levels from 74% to 85% year-on-year. With Sheffield beinga major terminal for MML, we are working with major stakeholders in the regionon the redevelopment of Sheffield station, including a new Travel Centre. We continue to integrate the operations of 'one' and have achieved improvedpunctuality and reliability scores on the franchise. We have started to delivera major train refurbishment programme, provided new timetables and introducednew ticketing technology. During the coming months, a new Customer ServiceAcademy will be opened in Stratford, east London. Our c2c, Silverlink and Wagn franchises have all seen good revenue growth,despite Silverlink County losing its services north of Northampton to allow WestCoast Modernisation work to be completed. Gatwick Express had a good six months with increased traffic at the airport.For the fourth time running, Gatwick was awarded top place in the SRA's NationalPassenger Survey Spring 2005 customer satisfaction scores. Despite being an operationally complex franchise to run, Central Trains hasachieved its best performance since July 2000, through closer working withNetwork Rail and greater collaboration on the new Midlands integrated controlcentre. Our Wessex Trains franchise continues to perform well and build on itsexcellent local stakeholder relationships. Following receipt in early June of the Invitations to Tenders for both theGreater Western and Thameslink/GN franchises, we are preparing our bids forsubmission in September. We are focused on delivering bids which meet the DfT'sobjective of value for money and quality performance. We continue to work closely with the DfT on the franchise remapping,particularly the future of the Central Trains, MML and Silverlink franchises. North America Following a strategic review of our North American operations, we have concludedthat our public transit operations ("ATC") are no longer core to the Group'sNorth American strategy. Today, we are announcing the conditional sale of ATC toConnex for cash consideration of US$93 million, before working capital and othercompletion adjustments. ATC provides public transit passenger services operatingin 50 cities and 18 American states. In the year ended 31 December 2004, ATCmade a normalised operating profit of £7.1 million (US$13.1 million) on turnoverof £152.1 million (US$279.9 million). Net assets as at that date were £115.5million (US$221.8 million). The impairment charge at 30 June 2005 is £60.0million (US$112.6 million). Connex are looking to expand further in the publictransit market and we believe that these operations will continue to bedeveloped under their ownership. We would like to take this opportunity tothank ATC's employees for their commitment to the Group during our ownership.The sale proceeds will be used to fund the future development of the Group'sNorth American school bus operations. The transaction is expected to becompleted in September. Revenue was £123.8 million (2004: £115.9 million*) and operating profit was£22.6 million (2004: £20.6 million*). During the period we experienced good growth in our student transport divisionwhilst maintaining operating margins. This was achieved following a successfulbid season in 2004 and further organic growth from the development of existingcontracts. During this year's bidding season we won 9 new contracts andsignificantly extended a number of other contracts. In addition we were awardeda conversion in Iowa. We entered new markets in Rhode Island, Massachusetts andConnecticut. At the beginning of July, we extended our presence in Ontario through theacquisition of Aboutown Transportation which added an additional 140 routes toour business. We believe that proposed changes to the funding for transport bythe Canadian Government will prove beneficial in the future. We are activelyseeking further school bus acquisitions in both Canada and the United States aswe focus on the growth of our student bus division. We continue to improve efficiency in the business through our re-engineeringinitiative to increase both productivity and service quality. During the secondhalf of the year we will be relocating our school bus headquarters from Austin,Texas to Chicago, Illinois as we continue to grow our operations in the northeast region of the country. Phil White, Chief Executive28 July 2005 - ENDS - Finance Director's Review Half year at a glance I am pleased to report that the Group has produced another strong set ofresults. The Group achieved 26.5% growth in normalised** operating profit, up to£67.3m (2004: £53.2m*). Normalised** diluted earnings per share were 31.3p(2004: 21.6p*), an increase of 44.9%. The Group continued to generate strongoperating cash flow across all its divisions and in the six months to 30 June2005, net debt increased by only £6.7m to £143.3m despite buying back shares forconsideration of £29.3m. * As restated for the transition to IFRS ** Where we refer to a normalised result, this is defined as the statutory result before the following as appropriate: charges for goodwill impairment, intangible amortisation, exceptional items and tax relief on certain North American goodwill amortisation and exceptional items. UK Coach Our coach operations continue to deliver strong growth, with normalised**operating profit increasing to £4.1m (2004: £2.1m*). Innovative promotions andcompetitive pricing, illustrated by the 'Million Seat' promotion and best valuefares respectively, drove patronage up by over 5%. Reducing costs through theincreased use of direct sales and the disposal of our low margin HeathrowAirport airside operation helped increase the margin to 4.5% (2004: 2.4%*). Theseasonality of this operation means that the majority of the profit is earned inthe second half of the year. UK Bus Patronage growth in our UK Bus division remains challenging, with concessionaryfare passengers falling year-on-year. Revenue excluding Travel London increasedby £2.3m but was offset by increased driver costs, pension contributions andaccident claims costs. Normalised** operating profit reduced by £1.4m to £18.2m(2004: £19.6m*) primarily because of a £2.1m share based payment charge in 2005for the final appropriation of shares from the WMT Share Incentive Plan. Drivercosts rose as we invested in our workforce to maintain our high frequencynetwork though the recruitment of 300 drivers from Poland. The Travel Londonoperations acquired from Connex in February 2004 are trading ahead of ourexpectations. The acquisition on 17 June 2005 of the London bus operations ofTellings Golden Miller doubles our market share and will make a solidcontribution in the second half of the year. We are in negotiations with our twojoint venture partners to acquire all the shares in Altram, the company whichowns our light rail operation Midland Metro. UK Trains Normalised** operating profit in UK Trains increased significantly to £27.1m(2004: £15.0m*) as we benefited from the changes to our portfolio that haveoccurred over the past 15 months. We commenced operation of the 'one' franchiseon 1 April 2004 and both Central Trains and ScotRail were loss making in thethree months to 31 March 2004, whereas Central is now generating a profit underits franchise extension. Normalised operating margin improved to 3.7% (2004:1.8%*). Our franchises have consistently been at the top of the TOC leaguetables in terms of performance, which helps drive passenger growth. Due to theblockade that was in place at St Pancras until May 2005, growth remainedchallenging at Midland Mainline. Nevertheless, patronage growth of 4% across thedivision has enabled us to offset increases in the cost of diesel, franchise bidcosts and the costs of introducing new fleets at Midland Mainline, CentralTrains and Silverlink. North America In local currency terms, Student Transportation increased normalised** operatingprofit to US$42.5m (2004: US$37.5m*). We have successfully grown our revenue byUS$21.8m year on year to US$232.7m. This was achieved whilst maintaining pricinglevels and, as a result, our normalised operating margin improved to 18.3%(2004: 17.8%*). We continue to focus on driving down costs, particularly inmaking more effective use of the fleet. The school summer holiday means thatthis operation earns the majority of its profit in the first half of the year. Our Public Transit business produced normalised** operating profits of US$5.1m(2004: US$5.6m*). We have reviewed the future strategy of the Group and haveconcluded that our US Public Transit operations are non core and will bedisposed of to Connex for cash consideration of $93.0m (before working capitaladjustments). In accordance with IFRS5, "Non-current assets held for sale anddiscontinued operations", the trading results for Public Transit have beenreclassified into one line in the income statement, and the assets andliabilities disclosed as held for sale. Central functions The cost of the Group's Central Functions increased to £4.7m (2004: £4.1m*) as aresult of increased charges for share based payments and professional fees. Share of operating losses of associates The Group's share of operating losses from associates was £4.4m (2004: £4.3m). Eurostar UK has maintained its strong year-on-year revenue growth following theopening of the first section of the high speed Channel Tunnel Rail Link. Howeverthe outturn continues to lag behind the benchmark set in our operating contract,and our share of the operating loss was £4.3m (2004: £4.2m). Our share of the operating loss at Midland Metro remained £0.1m (2004: £0.1m). Finance cost Interest payable benefited from the lower levels of net debt and the terminationof a US$200m interest rate swap as reported in our Annual Report and Accounts2004. Together this reduced the finance cost to £4.8m (2004: £9.5m*). EBITDAfinance cover before discounting improves to 22.4 times (2004: 9.4 times),compared to the full year 2004 figure of 12.4 times. Goodwill, Intangibles and Exceptional items The impairment charge for the six months on the goodwill arising from theacquisition of Prism Rail PLC in December 2000 was £16.6m (2004: £16.5m).Although IFRS3, 'Business Combinations' prohibits the amortisation of goodwill,the train franchises acquired with Prism have finite lives, and therefore thegoodwill will be impaired over the remaining cash flows. Amortisation of £1.7m (2004: £0.7m) was charged on the intangible asset thatarises from the Group's right to operate its rail franchises and on contractsacquired in UK Bus and North America. Exceptional costs of £0.3m arose in the North America Bus division, where wehave started the relocation of our head office functions from Austin, Texas toChicago, Illinois in a program that will be completed in the second half of theyear. The exceptional costs of £5.3m in 2004 arose in the UK Trains division. Discontinued operations As disclosed in the Annual Report and Accounts 2004, the Group's remaining busoperations in Australia are now in administration and are no longer controlledby the Group. The division was cash neutral for the Group on an operating cashflow basis in the six months to 30 June 2005. Our Public Transit business has been reclassified as discontinued in the firsthalf of 2005. The charge to the income statement of £57.5m comprises the profitbefore tax for the six months ended 30 June 2005 of £2.5m, offset by theimpairment charge on the goodwill arising on the acquisition of £60.0m. The netassets of £47.4m have been disclosed as non current assets and liabilitiesclassified as held for sale. Tax The tax charge on normalised profit before tax of £58.1m (2004: £39.4m) was£14.8m (2004: £9.5m). Before the reclassification of the results for thediscontinued Public Transit and Australia Bus businesses, this represents aneffective tax rate of 24.5% (2004: 22.2%). This tax rate principally reflectsthe benefit of low effective tax rates on overseas earnings and the utilisationof brought forward losses. Cash flow The Group generated £106.2m of operating cash flow before one-offs (2004:£127.8m) from normalised operating profit of £67.3m (2004: £53.2m). Divisional cash flow North UK UK UK American Central Coach Bus Trains Bus functions Total £m £m £m £m £m £m Normalised operating profit 4.1 18.2 27.1 22.6 (4.7) 67.3Normalised operating profit from discontinued - - - 2.7 - 2.7operationsShare based payments - 2.1 0.1 - 0.8 3.0Depreciation and profit/ (loss) on disposal 2.4 5.5 6.7 10.9 0.2 25.7Amortisation of fixed asset grants - - (0.3) - - (0.3)EBITDA 6.5 25.8 33.6 36.2 (3.7) 98.4Working capital movement 1.1 (0.1) 20.1 2.9 12.9 36.9Eurostar - - - - (1.7) (1.7)Net cash inflow from operations 7.6 25.7 53.7 39.1 7.5 133.6Net capital expenditure (0.6) (2.1) (13.1) (12.6) 1.0 (27.4)Operating cash flow before one-offs 7.0 23.6 40.6 26.5 8.5 106.2Other items (1.1)Operating cash flow 105.1 Operating cash flow represents "Net cash inflow from operating activities", plus"Receipts from the sale of tangible assets", less "Finance lease additions" and"Payments to acquire tangible assets". All divisions generated on-going operating cash flow in excess of theirnormalised operating profit. The working capital in UK Trains benefited from thefact that in the first half year we receive seven of the year's thirteen subsidyreceipts and from delays in settling performance payments with the SRA. The cashinflow for Central Functions is caused by the cash settlement of foreignexchange swaps and fuel swaps. Net capital expenditure was £27.4m (2004: £18.1m), including £7.3m (2004: £6.3m)of additions purchased under finance leases. In UK Trains, £5.0m of the capitalexpenditure was invested in our 'one' franchise which commenced in 2004. InNorth America, £12.2m of the capital expenditure arose on the acquisition of 670vehicles for student transportation. Other items give rise to a net outflow of £1.1m comprising the North Americanreorganisation costs charged in the period and certain UK Trains exceptionalcosts that were charged to the income statement in 2004. After other investing activities, financing and tax, the net funds inflow was£5.7m, before a foreign exchange translation effect of £12.4m. Even afterforeign exchange, net debt increased by only £6.7m to £143.3m. We anticipate the second half of the year will see an increase in the Group'snet debt. Firstly, around two-thirds of the Group's capital expenditure programis projected to occur in the second half of the year. There will be an intake ofapproximately 490 vehicles (£16.0m) in North America for the new school year andwe will continue to invest in fleet and other facilities in both our UK Bus andUK Trains divisions. Additionally, the UK Trains division is expected to settleoutstanding performance payments and profit share monies with the SRA. Rail franchises The Group is on the shortlist for the Thameslink/GN franchise and the GreaterWestern franchise, and we will be submitting bids in the second half of theyear. Contractually two more of the Group's existing rail franchises could bere-franchised in 2006. Whilst it is therefore difficult to predict the level ofprofit beyond 2006, our financial position will remain robust whatever theoutcome. Accounting policies The Group's Interim Report for the six months to 30 June 2005 has been preparedusing accounting policies that comply with International Accounting Standards ("IAS") and International Financial Reporting Standards ("IFRS"). These accountingpolicies were used for the preparation of the restated IFRS financialinformation for the year ended 31 December 2004, issued in a press release on 27June 2004. The accounting policies and the IFRS restatement of the 2004 resultsare both available on the group's website, www.nationalexpressgroup.com. We expect to use consistent accounting policies for the preparation of theresults for the year ending 31 December 2005. However, there is a possibilitythat the accounting policies may need to be updated because interpretations maybe issued by the International Financial Reporting Interpretations Committee ("IFRIC") that will be mandatory, new standards may yet be issued by theInternational Accounting Standards Board ("IASB") that will be mandatory, or theinterpretation of existing IFRS may evolve. Adam Walker Finance Director 28 July 2005 NATIONAL EXPRESS GROUP PLCGROUP INCOME STATEMENTFor the six months ended 30 June 2005 Unaudited six months to 30 June Unaudited Total before Total before goodwill, Goodwill, goodwill, Goodwill, intangible & intangible & intangible intangible & Year to exceptional exceptional & exceptional exceptional 31 Dec items items Total items items Total Total 2005 2005 2005 2004* 2004* 2004* 2004* Note £m £m £m £m £m £m £mRevenue 4 1,077.7 - 1,077.7 1,157.9 - 1,157.9 2,354.5Operating costs before (1,010.4) - (1,010.4) (1,104.7) - (1,104.7) (2,211.2)goodwill, intangibleamortisation & exceptionalitemsGoodwill impairment 5 - (16.6) (16.6) - (16.5) (16.5) (33.3)Intangible amortisation 5 - (1.7) (1.7) - (0.7) (0.7) (2.4)Exceptional items 6 - (0.3) (0.3) - (5.3) (5.3) (7.7)Total operating costs (1,010.4) (18.6) (1,029.0) (1,104.7) (22.5) (1,127.2) (2,254.6)Group operating profit 67.3 (18.6) 48.7 53.2 (22.5) 30.7 99.9Loss on disposal of - - - - - - (0.9)non-current assetsProfit from operations 67.3 (18.6) 48.7 53.2 (22.5) 30.7 99.0Share of post tax results (4.4) - (4.4) (4.3) - (4.3) (3.4)from associatesFinance income 7 6.0 - 6.0 5.1 - 5.1 13.2Finance costs 7 (10.8) - (10.8) (14.6) - (14.6) (30.9)Profit before tax 58.1 (18.6) 39.5 39.4 (22.5) 16.9 77.9Tax expense 8 (14.8) 0.1 (14.7) (9.5) 2.3 (7.2) (22.8) Profit for the period from 43.3 (18.5) 24.8 29.9 (20.2) 9.7 55.1continuing operations(Loss)/profit for the 9 2.5 (60.0) (57.5) 4.1 0.5 4.6 3.5period from discontinuedoperations (Loss)/profit for the 45.8 (78.5) (32.7) 34.0 (19.7) 14.3 58.6period(Loss)/profit attributable 45.8 (78.5) (32.7) 34.9 (19.7) 15.2 62.2to equity shareholdersLoss attributable to - - - (0.9) - (0.9) (3.6)minority interests 45.8 (78.5) (32.7) 34.0 (19.7) 14.3 58.6 (Loss)/earnings per share:- basic (loss)/earnings (24.0p) 11.3p 45.7p per share- diluted (loss)/earnings per (23.7p) 11.0p 45.0p share Earnings per share from continuingoperations:- basic earnings per share 18.2p 7.2p 40.5p- diluted earnings per 17.9p 7.0p 39.9p share *Results are restated for the impact of transition to International FinancialReporting Standards (IFRS). See note 1. In addition, results for the six monthsended 30 June 2004 are restated for change in revenue recognition. See note 2. Dividends of £28.1m were paid during the period (six months to 30 June 2004:£23.6m; year to 31 December 2004: £36.4m). Dividends of £13.5m were proposedfor approval during the period (six months to 30 June 2004: £12.8m; year to 31December 2004: £40.9m). NATIONAL EXPRESS GROUP PLC GROUP BALANCE SHEETAt 30 June 2005 Note Unaudited Unaudited Unaudited 30 June 30 June 31 Dec 2005 2004* 2004* £m £m £mAssetsNon-current assetsGoodwill 253.0 379.9 338.7Intangible assets 17.1 11.7 14.1Property, plant and equipment 369.9 383.4 354.9Financial assets/Other investments 13 15.3 10.2 10.5Other receivables 9.6 2.7 9.1Deferred tax asset 11.6 18.8 18.3 676.5 806.7 745.6Current assetsInventories 14.8 18.5 16.1Trade and other receivables 233.0 260.4 309.7Financial assets - Other 13 6.8 - -Cash and cash equivalents 135.3 182.5 143.1 389.9 461.4 468.9Disposal group assets classified as held for sale 9 72.8 - 33.8Total assets 1,139.2 1,268.1 1,248.3Non-current liabilitiesFinancial - Borrowings (257.5) (296.0) (251.8)liabilities - Other 13 (10.9) - -Deferred tax liability (6.5) (2.6) (4.5)Other non-current liabilities (2.7) (4.3) (3.0)Retirement benefit obligations 14 (40.9) (68.5) (65.1)Provisions (54.3) (56.5) (47.2) (372.8) (427.9) (371.6)Current liabilitiesTrade and other payables (468.0) (543.0) (510.9)Financial - Borrowings (22.1) (29.4) (30.3)liabilities - Other 13 (11.0) - -Current tax liabilities (31.5) (18.6) (36.8)Provisions (12.1) (15.6) (25.0) (544.7) (606.6) (603.0)Liabilities directly associated with disposal group 9 (25.4) - (6.9)assets classified as held for saleTotal liabilities (942.9) (1,034.5) (981.5)Net assets 196.3 233.6 266.8Shareholders' equityOrdinary shares 6.8 6.9 7.0Share premium account 15 49.6 45.8 47.5Own shares 15 (5.1) (5.3) (5.1)Treasury shares 15 (3.5) - -Other reserves 15 15.8 16.2 15.4Cumulative translation adjustments 15 1.9 (0.1) (2.1)Retained earnings 15 130.8 166.6 203.2Total shareholders' equity 196.3 230.1 265.9Minority interest in equity - 3.5 0.9Total equity 196.3 233.6 266.8 *Results are restated for the impact of transition to International FinancialReporting Standards (IFRS). See note 1. In addition, results for the six monthsended 30 June 2004 are restated for change in revenue recognition. See note 2. NATIONAL EXPRESS GROUP PLC GROUP STATEMENT OF CASH FLOWSFor the six months ended 30 June 2005 Note Unaudited Unaudited Unaudited six months to six months to year to 30 June 30 June 31 Dec 2005 2004* 2004* £m £m £mNet cash inflow from operating activitiesNet (loss)/profit (32.7) 15.2 62.2Minority interest - (0.9) (3.6)Loss/(profit) from discontinued operations (excluding op 60.2 (0.1) 5.9profit)Tax expense 14.7 7.2 22.8Net finance cost 4.8 9.5 17.7Loss on disposal of non-current assets - - 0.9Depreciation of property, plant & equipment 26.1 33.6 64.2Goodwill amortisation and impairment 16.6 16.5 33.3Intangible asset amortisation 1.7 0.7 2.4Amortisation of fixed asset grants (0.3) (5.6) (6.5)Profit on disposal of fixed assets (0.4) (0.3) (0.6)Share of operating losses of associates 4.4 4.3 3.4Share-based payments 3.0 0.4 0.6Movement in pension liabilities (2.0) 0.3 (1.1)(Increase)/decrease in inventories - (1.0) 0.7Decrease in receivables 72.0 87.5 18.7(Decrease)/increase in payables (35.7) 6.5 34.7Increase/(decrease) in provisions 0.1 (3.2) (1.6)Cash generated from operations 132.5 170.6 254.1Tax paid (10.3) (3.1) (3.2)Net cash from operating activities 122.2 167.5 250.9Cash flows from investing activitiesPayments to acquire businesses, net of cash acquired (18.6) 18.9 12.6Deferred consideration for businesses (acquired)/disposed (0.3) (4.5) (4.5)Purchase of property, plant and equipment (23.1) (16.0) (69.2)Proceeds from disposal of property, plant and equipment 3.0 1.7 18.8Payments in respect of businesses disposed/closed - (0.8) (1.5)Receipts from disposal of businesses, net of cash disposed (1.5) - 24.7Interest received 6.0 5.3 13.1(Payments for) /receipts from (purchase) /sale of shares - (0.1) 0.1for employee schemesNet cash (used in)/from investing activities (34.5) 4.5 (5.9)Cash flows from financing activitiesProceeds from issue of ordinary shares 2.1 0.7 2.5Purchase of treasury shares (3.5) - -Share buy back (25.8) - -Interest paid (19.8) (15.1) (31.6)Receipt/(repayment) of maintenance bond at ScotRail - 24.0 (18.7)Finance lease principal (payments)/receipts (7.9) 29.7 (15.8)Repayment of loan notes (6.5) (0.9) (0.9)Loans repaid (11.5) (100.6) (93.1)Dividends paid (28.1) (23.6) (36.4)Net cash used in financing activities (101.0) (85.8) (194.0)(Decrease)/increase in cash and cash equivalents (13.3) 86.2 51.0Opening cash and cash equivalents 147.2 96.8 96.8(Decrease)/increase in cash and cash equivalents (13.3) 86.2 51.0Exchange 1.4 (1.4) (0.6)Closing cash and cash equivalents 16 135.3 181.6 147.2 *Results are restated for the impact of transition to International FinancialReporting Standards (IFRS). See note 1. In addition, results for the six monthsended 30 June 2004 are restated for change in revenue recognition. See note 2. GROUP STATEMENT OF RECOGNISED INCOME AND EXPENSE For the six months ended 30 June 2005 Unaudited Unaudited Unaudited six months to six months to year to 30 June 30 June 31 Dec 2005 2004* 2004* £m £m £mNet exchange adjustments offset in reserves net of tax 4.0 (0.1) (2.1)Balances recognised on adoption of IAS 39 net of tax (12.8) - -Cash flow hedges net of tax- net fair value gains 8.6 - -- reclassified and reported in profit (2.2) - -- reclassified and reported in translation reserve (0.3) - -Deferred tax on share based payments 2.0 0.3 0.8Actuarial gains/(losses) 22.2 (4.9) (2.3)Tax on actuarial gains/(losses) (6.1) 1.5 (0.2)Net gains/(losses) not recognised in income statement 15.4 (3.2) (3.8)(Loss)/profit for the financial period (32.7) 15.2 62.2Total recognised (expense)/income for the period (17.3) 12.0 58.4 *Results are restated for the impact of transition to International FinancialReporting Standards (IFRS). See note 1. In addition, results for the six monthsended 30 June 2004 are restated for change revenue recognition. See note 2. SEGMENTAL ANALYSIS For the six months ended 30 June 2005 Unaudited six months to Unaudited year to 30 June 31 DecemberAnalysis by class and geography of Revenue Operating Revenue Operating Revenue Operatingbusiness result result result 2005 2005 2004* 2004* 2004* 2004* £m £m £m £m £m £mUK Bus 127.0 18.2 115.5 19.6 239.8 41.6UK Trains 739.3 27.1 842.0 15.0 1,712.1 61.3UK Coach 91.7 4.1 87.8 2.1 195.6 19.3Intercompany sales elimination (4.1) - (3.3) - (6.2) -UK operations 953.9 49.4 1,042.0 36.7 2,141.3 122.2North America Bus 123.8 22.6 115.9 20.6 213.2 29.6Central functions - (4.7) - (4.1) - (8.5)Normalised profit from continuing 1,077.7 67.3 1,157.9 53.2 2,354.5 143.3operationsGoodwill impairment (16.6) (16.5) (33.3)Intangible amortisation (1.7) (0.7) (2.4)Exceptional items (0.3) (5.3) (7.7)Group operating profit 48.7 30.7 99.9Loss on disposal of non-current assets - - (0.9)Profit from operations 48.7 30.7 99.0Share of post tax results from associates (4.4) (4.3) (3.4)Net finance costs (4.8) (9.5) (17.7)Profit before tax 39.5 16.9 77.9Tax expense (14.7) (7.2) (22.8)Profit for the year from continuing 24.8 9.7 55.1operations(Loss)/profit from discontinued operations (57.5) 4.6 3.5(Loss)/profit for the period (32.7) 14.3 58.6 *Results are restated for the impact of transition to International FinancialReporting Standards (IFRS). See note 1. In addition, results for the six monthsended 30 June 2004 are restated for change in revenue recognition. See note 2. Revenues include £3.4m property rentals receivable (2004 interim: £4.5m; 2004full year: £8.5m). Intercompany sales only occur between the Group's UKDivisions. NATIONAL EXPRESS GROUP PLC NOTES TO THE INTERIM ACCOUNTS For the six months ended 30 June 2005 1. Basis of preparation As an EU-listed company National Express Group PLC has been required to adoptInternational Financial Reporting Standards ("IFRS") with effect from 1 January2005. The results for the six months ended 30 June 2005 represent the Group'sfirst interim financial statements prepared in accordance with its accountingpolicies under IFRS. The Group's first IFRS Annual Report and Accounts will befor the year ended 31 December 2005. Previously the Group reported under UKgenerally accepted accounting policies ("UK GAAP"). Detailed UK GAAP to IFRSreconciliations of equity for the date of transition, 31 December 2004, 30 June2004 and 1 January 2005, and of profit for the six months ended 30 June 2004 andfor the year ended 31 December 2004 were issued on 27 June 2005 and areavailable on the Group's website. A revised summary of the Group's accountingpolicies under IFRS is also published on the Group's website. These interim financial statements have been prepared by the Group using thosestandards it expects to be endorsed and applicable when the IFRS accounts areprepared for the year ending 31 December 2005, specifically the amendment to IAS19, 'Employee Benefits', allowing actuarial gains and losses to be recognised infull through reserves. These standards are subject to ongoing review andendorsement by the European Union or possible amendment by interpretive guidancefrom the International Accounting Standard Board ("IASB") and the InternationalFinancial Reporting Interpretations Committee ("IFRIC") and are therefore stillsubject to change. The interim results are unaudited but have been reviewed by the auditors. Thefinancial information herein does not amount to full statutory accounts withinthe meaning of Section 240 of the Companies Act 1985 (as amended). The figuresfor the year to 31 December 2004 or 1 January 2005 have been extracted from theIFRS restatements issued on 27 June 2005 which were themselves based on theAnnual Report and Accounts 2004 which has been filed with the Registrar ofCompanies. The audit report on the Annual Report 2004 was unqualified and didnot contain a statement under Section 237 (2) or (3) of the Companies Act 1985. 2. Change in UK GAAP accounting policy for revenue recognition (asdisclosed in 2004 Annual Report and Accounts) The 30 June 2004 UK GAAP balance sheet prior to IFRS transition has beenrestated for a change in revenue recognition accounting policy resulting in anadditional £8.2m recognised as deferred income, and a £2.4m reduction in thecorporation tax liability. After a reduction in revenue and operating profit of£2.3m, and a reduction in the tax charge of £0.7m, the net effect is to reducethe Group's profit after tax by £1.6m from £7.8m to £6.2m in the six monthsended 30 June 2004. Net assets and reserves have been reduced by £5.8m at 30June 2004 and £4.2m at 1 January 2004. This restatement is included in the IFRSreconciliations issued on 27 June 2005 and is available on the Group's website. 3. Exchange rates The most significant exchange rates to the pound for the Group are as follows: Six months to 30 June 2005 Six months to 30 June 2004 Year to 31 Dec 2004 Closing rate Average rate Closing rate Average rate Closing rate Average rateUS dollar 1.79 1.88 1.82 1.82 1.92 1.84Canadian dollar 2.20 2.31 2.43 2.43 2.31 2.38Australian dollar 2.35 2.42 2.60 2.46 2.45 2.48 If the results for the six months to 30 June 2004 were retranslated at theaverage exchange rates for the six months to 30 June 2005, North America wouldhave achieved normalised operating profit of £20.4m on revenue of £114.0m. 4. Revenue The revenue of the Group comprises revenue from road passenger transport, trainpassenger services, airport operations and related activities in the UK andNorth America. Within the UK Trains division, franchise agreement receipts fromthe Strategic Rail Authority and local Passenger Transport Executives within theWest Midlands region and Scotland are treated as revenue. During the half yearto 30 June 2005, franchise agreement receipts amounted to £157.2m (2004 interim:£275.7m; 2004 full year: £497.0m). 5. Goodwill impairment and intangible amortisation Goodwill in UK Trains is subject to an annual impairment charge reflecting thefinite life of the rail franchises. The charge for the six months to 30 June2005 is £16.6m (2004 interim restated: £16.5m; 2004 full year restated: £33.3m). Other intangible assets in UK Trains are subject to amortisation, which ischarged on a straight-line basis to the end of the franchise, of £1.2m (2004interim restated: £0.7m; 2004 full year restated: £1.9m). Intangible assets inNorth America (representing customer contracts on a school bus acquisition in2004) have been subject to an amortisation charge of £0.5m (2004 interimrestated: £nil; 2004 full year restated: £0.5m). 6. Exceptional items Exceptional items are those items of financial performance that the Groupbelieves should be separately disclosed to assist in the understanding of thefinancial performance achieved by the Group and in making projections of futureresults. 6. Exceptional items (continued) The exceptional items can be analysed as follows: Six months to Six months to Year to 30 June 2005 30 June 2004 31 Dec 2004* £m £m £mUK Trains - 5.3 7.2UK Bus - - 0.4North America 0.3 - 0.1Total exceptional charge 0.3 5.3 7.7 *Results are restated for the impact of transition to International FinancialRelated Shares:
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