Interim Results

5th Dec 2007 07:00

Stagecoach Group PLC05 December 2007 5 December 2007 Stagecoach Group plc - Interim results for the six months ended 31 October 2007 Business highlights • Strong revenue growth in bus and rail in UK and North America• Continued capital investment to further enhance services• Continuing growth in UK Bus division o Revenue up 8.1% (like-for-like growth** 7.8%) o Operating profit* up 54.0% o Marketing campaigns, investment in fleet and excellent value fares help drive 3.9% estimated passenger growth• Strong revenue growth and excellent operational performance in UK Rail o Revenue up 16.6% (like-for-like growth** 15.2%) o Best ever operational performance at South Western o New East Midlands rail franchise from November 2007 o Good start to 10-year Manchester Metrolink operations and maintenance contract• Continued steady growth in North American bus operations o Revenue growth and operating margin improvement Financial highlights • Revenue from continuing businesses up 9.1% at £820.8m• 62.1% increase in earnings per share* to 9.4p• Interim dividend up 12.5% at 1.35 pence per share• £690m return of value to shareholders completed Six months ended 31 October Results excluding intangible asset Reported results expenses and exceptional items 2007 2006 2007 2006 ---------- --------- ---------- --------- Revenue (£m) 820.8 752.1 820.8 752.1 ---------- --------- ---------- --------- Total operating profit (£m) 100.0 80.7 93.8 101.5Disposal gains/losses (£m) - - 2.0 (0.9)Net finance charges (£m) (15.4) (3.3) (15.4) (3.3) ---------- --------- ---------- ---------Profit before taxation (£m) 84.6 77.4 80.4 97.3 ---------- --------- ---------- --------- Earnings per share (pence) 9.4 5.8 9.0 18.9Interim dividend (pence) 1.35 1.2 1.35 1.2 Commenting on the results, Stagecoach Chief Executive Brian Souter said: "We have achieved further strong growth in our bus and rail operations, leadingthe market with our innovation and strong stakeholder partnerships. "Our bus operations in the UK and North America are performing strongly. Webelieve increasing car congestion, inward migration and a growing focus onenvironmental issues will provide more opportunities to attract passengers toour public transport services in the years ahead. "We are delighted to have started our new East Midlands rail franchise, whichwill deliver a further significant revenue stream for the Group over the nexteight years. We are now also Britain's biggest tram operator and have made anencouraging start to our 10-year Manchester Metrolink contract. "Stagecoach has taken further steps to develop its budget bus and rail brands,megabus.com and megatrain.com, in the UK and North America and we believe thesehave additional growth potential. The Group is well-positioned to deliverfurther value to our shareholders and we are confident in the prospects for therest of the year." Enquiries to: Martin Griffiths, Stagecoach Group +44 (0) 1738 442111John Kiely, Smithfield +44 (0) 20 7360 4900 * Excluding intangible asset expenses and exceptional items (refer to definition of exceptional items contained in note 4 to the condensed financial statements contained in this document) ** Like-for-like revenue growth is derived, on a constant currency basis, by comparing year-to-date revenue with the equivalent prior year period for those businesses and individual operating units that have been part of the Group throughout both periods. Chairman's statement I am delighted to report that Stagecoach Group has achieved another strong setof results and that our strategy has been successful in producing further growthin our bus and rail operations in the UK and North America. These strongfinancial results have been achieved while maintaining our focus on providingsafe, secure and reliable transport services. The safety and security of ourstaff and customers remains of paramount importance to us. We have continued to achieve impressive passenger growth by providing a highquality and "green" alternative to the car. Our commitment to partnership andinnovation has been the platform for further growth in our business. Trading across the Group remains strong. Revenue for the six months ended 31October 2007 was £820.8m (2006: £752.1m). Total operating profit (beforeintangible asset expenses and exceptional items) was £100.0m (2006: £80.7m).Earnings per share before intangible asset expenses and exceptional items wereup 62.1% at 9.4p (2006: 5.8p). Stagecoach is pursuing a highly successful growth strategy in its UK busoperations, where the rate of revenue growth continues to exceed the UK industryaverage. This has been driven by continued investment in our fleet,industry-leading marketing campaigns, excellent value fares and additionaltravel under concessionary fares schemes. Trading in the Group's North American operations remains encouraging and furtherimprovement in operating profit margin has been achieved, reflecting acontinuing focus on revenue growth and the management of controllable costs. In Rail, we have made a strong start to the new 10-year South Western railfranchise, which incorporates the South West Trains and Island Line networks. Weare also delighted that the Group has now taken over responsibility for the EastMidlands rail franchise. Our management teams in both businesses are focused ondelivering the opportunities and commitments presented by the new franchises.While we are disappointed that the CrossCountry franchise operated by our jointventure, Virgin Rail Group ("VRG"), has now ended, we are encouraged by thestrong passenger volume and revenue growth being achieved at VRG's West Coastfranchise and the potential to increase its share of the market on this keytransport corridor. Stagecoach is now Britain's largest tram operator with the addition of a new10-year operation and maintenance contract at Manchester Metrolink. SheffieldSupertram has been transformed under our management and we are confident we candeliver similar success working with the Greater Manchester Passenger TransportExecutive. Reflecting the strong performance of the Group and confidence in its futureprospects, the Directors have declared an interim dividend of 1.35p per share(2006: 1.2p), a 12.5% increase. The interim dividend is payable on 5 March 2008to shareholders on the register at 8 February 2008. Based on continued strongcash flows and profits, we will look to further increase the dividend per shareeach year. Stagecoach has made a promising start to the second half of our financial yearand current trading of the Group remains in line with our expectations. I wouldlike to thank our employees across the Group, whose continued hard work andcommitment to first-class customer service is crucial in growing our business. Putting passengers first is at the heart of what we do every day and we haveclear plans to build on our new and existing operations. We believe the Group iswell placed to benefit from further opportunities for growth in the transportsector and to deliver increased value to our shareholders. Robert SpeirsChairman 5 December 2007 Interim management report The Directors are pleased to present their report on the Group for the sixmonths ended 31 October 2007. Cautionary statement The interim management report has been prepared for the shareholders of theCompany, as a body, and no other persons. Its purpose is to assist shareholdersof the Company to assess the strategies adopted by the Company and the potentialfor those strategies to succeed and for no other purpose. This interimmanagement report contains forward looking statements that are subject to riskfactors associated with, amongst other things, the economic and businesscircumstances occurring from time to time in the countries, sectors and marketsin which the Group operates. It is believed that the expectations reflected inthese statements are reasonable but they may be affected by a wide range ofvariables that could cause actual results to differ materially from thosecurrently anticipated. No assurances can be given that the forward-lookingstatements in this interim management report will be realised. Theforward-looking statements reflect the knowledge and information available atthe date of preparation. Description of the business Stagecoach Group is a leading international public transportation group, withextensive operations in the UK, United States and Canada. The Group employsaround 30,000 people, and operates bus, coach, rail, and tram services. TheGroup has three main divisions - UK Bus, UK Rail and North America. Stagecoach Group plc is a public limited company that is incorporated, domiciledand has its registered office in Scotland. Its ordinary shares are publiclytraded and it is not under the control of any single shareholder. The Companyhas its primary listing on the London Stock Exchange. Throughout this document, Stagecoach Group plc is referred to as "the Company"and the group headed by it is referred to as "Stagecoach" or "the Group". Overview of financial results The Group has achieved continued strong financial and operational performance inthe six months ended 31 October 2007. Revenue by division (excluding the discontinued London bus operations from thecomparative period figures) is summarised below: REVENUE 6 months to 6 months to 6 months to 6 months to 31 October 31 October 31 October 31 October 2007 2006 Currency 2007 2006 Growth £m £m Local currency (m) %Continuing Group operationsUK Bus 367.1 339.6 £ 367.1 339.6 8.1%North America - excluding megabus.com 128.6 134.5 US$ 258.9 251.3 3.0%North America - megabus.com 2.4 1.2 US$ 4.8 2.2 118.2%UK Rail 322.7 276.8 £ 322.7 276.8 16.6% -------- -------- ------- -------- -------- ------Total Group revenue 820.8 752.1 -------- -------- Operating profit by division (excluding the discontinued London bus operationsfrom the comparative period figures) is summarised below: OPERATING PROFIT 6 months to 6 months to 6 months to 6 months to 31 October 31 October 31 October 31 October 2007 2006 Currency 2007 2006 £m £m Local currency (m) % margin % marginContinuing Group operations UK Bus 52.5 14.3% 34.1 10.0% £ 52.5 34.1North America - excluding megabus.com 18.0 14.0% 17.2 12.8% US$ 36.2 32.2North America - megabus.com (1.1) (45.8)% (0.5) (41.7)% US$ (2.2) (1.0)UK Rail 25.3 7.8% 31.4 11.3% £ 25.3 31.4Group overheads (6.2) (5.2)Restructuring costs (1.7) (0.7) ------ ------ 86.8 76.3 Joint ventures - share of profit aftertaxVirgin Rail Group 12.9 3.7Citylink 0.6 0.7New York Splash Tours LLC (0.3) Nil ------ ------Total operating profit before intangibleasset expenses and exceptional items 100.0 80.7Intangible asset expenses (6.2) (7.5)Exceptional items Nil 28.3 ------ ------Total operating profit: Group operatingprofit and share of joint ventures'profit after tax 93.8 101.5 ------ ------ UK Bus Our UK Bus division connects communities in more than 100 towns and citiesacross the UK on networks stretching from the Highlands of Scotland to southwest England. These include major city bus operations in Liverpool, Newcastle,Hull, Manchester, Oxford, Sheffield and Cambridge. Revenue from our continuing UK Bus operations for the six months ended 31October 2007 was up 8.1% to £367.1m, compared to £339.6m in the prior year.Like-for-like revenue growth was 7.8%. Operating profit* was £52.5m (2006:£34.1m). Operating margin was 14.3%, compared to 10.0% in 2006. The improvementin operating margin reflects the continued strong revenue growth, relativelystable year-on-year fuel prices, returns on additional pension contributions anda continued focus on cost control. We have delivered further revenue and organic passenger growth at our UK BusDivision. Our high quality services have attracted additional passengers in bothmetropolitan areas and shire counties. Overall estimated passenger volumes inthe six months were 3.9% higher than the equivalent prior year period. Weestimate that underlying full fare passenger volume growth was around 2.4% withthe remaining growth coming from concessionary travel schemes. We have invested heavily in marketing bus travel and in the past two years havecontacted more than 600,000 people through our telemarketing programme, with anencouraging success rate in converting non-users to the bus. We have beentesting a series of television commercials in the south of England to emphasisethe economic, social and environmental advantages of bus travel and have plansto roll the campaign out to further key regions in the UK. Strong partnerships with local transport authorities continue to be key elementsof our approach, and we are involved in a wide range of Kickstart pump-priminginitiatives in Scotland and England. The concessionary fares schemes funded bythe Department for Transport, Scottish Government, and Welsh Assembly inEngland, Scotland and Wales respectively are also contributing to strong demandfor bus services. The UK Government has placed before Parliament a draft Road Transport Bill thatwe believe contains a number of positive proposals that will allow us to buildon the growth we have achieved in our UK bus operations. We believe the bus canbe at the heart of initiatives to tackle climate change. Stagecoach is wellplaced to benefit from measures to address road congestion and we have alreadyheld detailed discussions with our partner transport authorities in Manchesterand Cambridge on how we can play a part in the delivery of successful road usercharging schemes that promote intelligent car use. In May 2007, we acquired Somerset-based Cooks Coaches, which operates a mix ofcommercial and tendered services and in August 2007, we completed the disposalof our bus operations in Darlington to Arriva. Stagecoach is continuing to invest significantly in its local bus fleets tosustain and grow its highly profitable, cash generative UK bus business. Theyear to 30 April 2008 will see delivery of around 440 new vehicles for the UKbus operations. Vehicle manufacturers Alexander Dennis, Optare, MAN, Plaxton,Scania and Volvo will supply the latest Stagecoach orders, which have a totalvalue of around £55m. --------------------------* References to the operating profit or loss of a particular division in theinterim management report refer to operating profit or loss before restructuringcosts, intangible asset expenses and exceptional items. Further details of thedivisional split of operating profit can be found in note 3 to the condensedfinancial statements contained in this document. North America Stagecoach, principally through its Coach USA and Coach Canada brands, providestransport services in North America. Our businesses include commuter/transitservices, inter-city services, tour and charter, sightseeing and school busoperations. Revenue from our North American operations, excluding megabus.com, for the sixmonths to 31 October 2007 was up 3.0% at US$258.9m (2006: US$251.3m), and theequivalent like-for-like revenue was up by 3.5%. Operating profit excludingmegabus.com was US$36.2m (2006: US$32.2m), resulting in an operating margin of14.0%, compared to 12.8% the previous year. Converted to sterling, revenueexcluding megabus.com for the six months to 31 October 2007 was £128.6m (2006:£134.5m). Operating profit excluding megabus.com for the six months was £18.0m(2006: £17.2m). North American megabus.com operations reported revenue of US$4.8m (2006:US$2.2m) for the six months and an operating loss of US$2.2m (2006: US$1.0m),which included marketing and other start-up costs. This equates to sterlingrevenue of £2.4m (2006: £1.2m) and an operating loss of £1.1m (2006: £0.5m). In the United States, we continue to experience strong revenue growth in oursightseeing and scheduled services. Sightseeing revenue has been particularlystrong and we have had a positive response to our enhanced products and extendedmarketing initiatives. We have achieved an excellent renewal rate for contractservices and there has been a solid performance from our charter businesseswhich have seen revenue similar to last year but with a reduced number ofvehicles. We are also delighted with the progress of megabus.com, our budgetinter-city coach service, which now links around 20 key cities in the Midwestand Western United States following the introduction of franchised operationsfrom a new Los Angeles hub in August 2007. Megabus.com in the US has carriedover 630,000 passengers to date. We have also invested $10m in America's firstinter-city double-decker coaches for megabus.com, with all of the fleet of 17new vehicles due in service by January 2008. In Canada, charter revenue remainsstrong and scheduled service operations have also performed well. UK Rail Our principal wholly-owned rail business during the six-month period wasStagecoach South Western Trains, which operates the South Western railfranchise, incorporating the South West Trains and Island Line networks. SouthWest Trains runs around 1,600 trains a day in south-west England out of LondonWaterloo railway station, while Island Line operates on the Isle of Wight. TheSouth Western franchise is planned to run until February 2017. We also operateSupertram, a 28km light rail network incorporating three routes in the city ofSheffield, on a concession running until 2024. In May 2007, we signed a contractwith Greater Manchester Passenger Transport Executive ("GMPTE") to operate andmaintain the Manchester Metrolink tram network, which commenced in July 2007.From 11 November 2007, we have operated the East Midlands franchise. Thefranchise is made up of all of the existing main line train services running toLondon St Pancras International, regional rail services in the East Midlandsarea and inter-regional services between Norwich and Liverpool. Revenue from our UK Rail subsidiaries for the six months to 31 October 2007 wasup by 16.6% to £322.7m (2006: £276.8m). This includes £3.9m (2006: £Nil) fromour Manchester Metrolink operations. On a like-for-like basis revenue is up15.2%. Operating profit was £25.3m (2006: £31.4m), giving an operating margin of7.8% (2006: 11.3%). We had anticipated that the operating margin of our Raildivision would decrease following the commencement of the new South Westernfranchise reflecting the competitive bidding environment for rail franchises.Whilst the reported margin has fallen, it is better than our originalexpectations for this point in the franchise. The Group has made a strong start to the 10-year South Western rail franchise.As part of the Group's bid for the franchise, the Group planned a number ofspecific revenue-enhancing initiatives. Some of these initiatives have beenintroduced earlier than had been assumed in the original franchise bid and theexceptionally good revenue growth in the UK Rail division in the period partlyreflects the benefits of this. Around 100 extra revenue protection officers havebeen deployed across the franchise to ensure all passengers travel with thecorrect ticket, while our programme to install nearly 200 extra ticket vendingmachines is already underway. The subsidy that the South Western franchisereceives from the Department for Transport will reduce by over £100m over thenext two financial years and changes in the timing of our initiatives may resultin some variability in profits over the life of the franchise. South West Trains' operational performance continues to be amongst the bestachieved by train operating companies in London and the South East, with morethan 90% (as measured by the Department for Transport's Passenger PerformanceMeasure, "PPM") of trains arriving on time. We are well on the way to achievingour planned increases of 20% or more in both mainline and suburban capacitythrough a programme of rolling stock cascades and refurbishments. The measureswe are introducing will better match capacity to demand at key times during theday. We are delighted to have now taken over the East Midlands rail franchise, whichstarted in November 2007, and which will deliver a significant additionalrevenue stream for the Group. East Midlands Trains will operate all of theexisting main line train services running to London St Pancras and the regionalrail services in the East Midlands area. Our plans include significantinvestment in station and train improvements and closer partnership with NetworkRail to improve train performance. We look forward to working closely with localstakeholders to maximise the opportunities for growth from these rail networksand to improve the level of service to passengers. In July 2007, Stagecoach became Britain's biggest tram operator with the startof a 10-year contract to operate and maintain the Manchester Metrolink system onbehalf of the Greater Manchester Passenger Transport Executive ("GMPTE"). Thecontract includes managing a number of special projects sponsored by GMPTE toimprove the trams and infrastructure to benefit passengers. Stagecoach Metrolinkwill also be responsible for operating tram services on the new lines to Oldham,Rochdale, Droylsden and Chorlton. The contract has started well and we havesuccessfully completed the upgrade of the key Bury line. GMPTE has also orderedeight new trams, which are expected to go into service in 2009. Sheffield Supertram, the Group's other tram operation, continues to perform welland is carrying record passenger volumes. Our major three-year project torefresh the livery and interiors of the 25-strong tram fleet is progressing welland should be completed in late summer 2008. Passengers have benefited fromStagecoach's integrated tram and bus network in Sheffield, which offers jointticketing. As previously announced on 10 July 2007 and 14 August 2007 respectively, we weredisappointed our bids with our partners for the New Cross Country and InterCityEast Coast rail franchises were unsuccessful. Nevertheless, we are satisfiedwith our overall rail bidding record over the last eighteen months, havingsecured three new contracts and Virgin Rail Group having renegotiated the WestCoast franchise. Virgin Rail Group Stagecoach Group has a 49% holding in Virgin Rail Group ("VRG"), which operatesthe West Coast Trains rail franchise and operated the CrossCountry Trains railfranchise up until its termination in November 2007. The other shareholder inVRG is the Virgin Group of Companies. The West Coast franchise has been expanded as a result of the restructuring ofthe Cross Country franchise. West Coast now has the use of 21 Super Voyagers forthe expanded network, which will be operating from December 2007. Furthermore,plans are in place to increase the number of services operated by the franchiseby around one-third from December 2008 Our share of VRG's profit after tax for the six-month period amounted to £12.9m(2006: £9.2m). The prior year comparative figure included an exceptional creditof £5.5m in relation to the gain on disposal of Trainline recorded by VRG. Ourshare of operating profit, excluding the exceptional credit from the priorperiod comparative, was £16.3m (2006: £3.9m), our share of finance income was£1.8m (2006: £1.6m) and our share of taxation charges was £5.2m (2006: £1.8m). Passenger volumes increased on West Coast by a further 9.5% in the six months to31 October 2007. Our share of West Coast Trains revenue in the six months was£149.1m (2006: £131.3m). West Coast train performance continued to improve in the period driven largelyby the enhanced reliability of the fleet of Pendolino trains operating the WestCoast services. As previously announced, VRG's contract to operate the CrossCountry franchiseended in November 2007. Since taking over the CrossCountry rail franchise, VRGhas doubled the number of passengers from 12 million to 24 million a year,replaced the entire train fleet and enhanced train service frequencies. We areproud of VRG's record of improving services to passengers and the team hasworked hard to ensure a smooth transition to the new operator. Scottish Citylink Coaches Limited In Scotland, Stagecoach has a joint venture (Scottish Citylink Coaches Limited)with international transport group, ComfortDelGro, to operate megabus.com andScottish Citylink coach services. Stagecoach owns 35% of the share capital ofScottish Citylink Coaches Limited and ComfortDelGro owns the remaining 65%. Thejoint venture is the leading provider of express coach services in Scotland. Our share of Citylink's profit after tax for the six months to 31 October 2007was £0.6m (2006: £0.7m). The business is seasonally strongest over the summerperiod. Citylink has achieved significant passenger growth on its inter-citycoach service in addition to new journeys under the Scottish Government'snational concessionary travel scheme. This has been achieved as a result ofbetter connections, faster services and low fares under the joint venture. Following the Competition Commission's confirmation in May 2007 of its rulingthat some services on the Saltire Cross network should be divested, we have nowreached a provisional agreement that will involve a proportion of our serviceson the Saltire Cross network being sold to another bus operator. We expect thefinal agreement, which requires approval by the Competition Commission, to becompleted in early 2008. Depreciation and intangible asset expenses Earnings from continuing operations before interest, taxation, depreciation,intangible asset expenses and exceptional items (pre-exceptional EBITDA)amounted to £135.1m (2006: £113.5m). Depreciation from continuing businesses forthe period decreased from £32.2m to £31.4m. The income statement charge forintangible assets decreased from £7.5m to £6.2m, of which £2.5m (2006: £2.5m)relates to joint ventures. Pre-exceptional EBITDA can be reconciled to the condensed financial statementsas follows: 6 months to 6 months to 31 October 2007 31 October 2006 £m £m Total operating profit before intangible asset expenses and exceptional items (Consolidated income statement) 100.0 80.7Depreciation - continuing operations (note 15) 31.4 32.2Add back joint venture finance income & tax (note 3(C)) 3.7 0.6 -------------- --------------Pre-exceptional EBITDA 135.1 113.5 -------------- -------------- Exceptional items The Group's Darlington bus operations were disposed of to Arriva in the periodresulting in a gain on disposal of £2.0m. Exceptional items are analysed in note4 to the condensed financial statements. Return of value A return of value of £689.7m to shareholders was completed in June 2007. Thisequated to 63 pence per ordinary share. The return of value was approved byshareholders at an Extraordinary General Meeting on 27 April 2007. Notes 9 and14 to the condensed financial statements include further information on thereturn of value. Net finance costs Net finance costs from continuing operations increased from £3.3m to £15.4m as aresult of an increase in average net debt during the period primarily due to the£689.7m return of value to shareholders. The ratio of pre-exceptional EBITDA tonet finance charges was 8.8 times for the six months ended 31 October 2007(2006: 34.4 times), reflecting the increase in financing costs. Taxation The tax charge, excluding discontinued operations, can be analysed as follows: 6 months to 31 October 2007 6 months to 31 October 2006 Pre-tax Pre-tax profit Tax Rate profit Tax Rate £m £m % £m £m % Excluding intangible asset expenses and exceptional items 90.1 (21.2) 23.5% 79.6 (20.7) 26.0% Intangible asset expenses (6.2) 1.1 17.7% (7.5) 1.5 20.0%Exceptional items 2.0 Nil 0.0% 27.4 (6.4) 23.4% ------- ------- ------- ------- ------- ------- 85.9 (20.1) 23.4% 99.5 (25.6) 25.7%Reclassify joint venture taxation for reporting purposes (5.5) 5.5 (2.2) 2.2 ------- ------- ------- ------- ------- -------Reported on income statement 80.4 (14.6) 18.2% 97.3 (23.4) 24.0% ------- ------- ------- ------- ------- ------- The above tax charge includes a portion of the total tax credit of £2.9mattributable to the restatement of the UK deferred tax liability arising on thereduction in the UK corporation tax rate from 30% to 28%, which will apply fromApril 2008. Earnings per share Earnings per share before intangible asset expenses and exceptional itemsincreased 62.1% to 9.4p, from 5.8p in the prior year reflecting the strongperformance from our core operating divisions and the earnings-enhancing impactof the return of value to shareholders. Shares in issue The weighted average number of ordinary shares used to calculate basic earningsper share for the six months ended 31 October 2007 was 732.9m (31 October 2006:1,090.0m). The number of ordinary shares ranking for dividend at 31 October 2007 was 707.0m(30 April 2007: 1,094.8m), with a further 5.5m (30 April 2007: 6.2m) ordinaryshares held by employee trusts and not ranking for dividend. Net liabilities/assets Net liabilities at 31 October 2007 were £104.8m (30 April 2007: net assets of£512.3m) with the decrease primarily reflecting the return of value of £689.7mthat was completed in June 2007, partly offset by the strong results for the sixmonths. Retirement benefit obligations The reported net liabilities of £104.8m (30 April 2007: net assets of £512.3m)that are shown on the consolidated balance sheet are after taking account of netretirement benefit assets of £23.8m (30 April 2007: net obligations of £36.2m)as analysed in note 18 to the condensed financial statements. The improvedposition includes the effect of a £30.0m special employer contribution to themain Group scheme, Stagecoach Group Pension Scheme ("SGPS"), which was paid tothat scheme in June 2007. Net debt/funds Net debt (as analysed in note 17 to the condensed financial statements)increased from a net funds position of £186.4m at 30 April 2007 to a net debtposition of £494.7m at 31 October 2007. This reflects the completion of ourreturn of value of £693.0m (including costs) to shareholders in June 2007 andspecial pension contributions of £30.0m. Excluding these factors, net debtimproved by £41.9m in the six months. The Group's net debt at 31 October 2007 is further analysed below. Fixed rate Floating rate Total £m £m £mUnrestricted cash Nil 30.7 30.7Cash on deposit excluding train operating companies and restricted cash (matures within two months) Nil 34.5 34.5Cash held within train operating companies Nil 92.8 92.8Restricted cash Nil 33.3 33.3 ---------- ---------- ----------Total cash and cash equivalents Nil 191.3 191.3 Sterling bank borrowings under bi-lateral facilities* (150.0) (184.5) (334.5)US dollar bond (matures November 2009) (160.6) Nil (160.6)Sterling hire purchase and finance leases (9.5) (120.8) (130.3)US dollar hire purchase and finance leases (4.8) Nil (4.8)Canadian dollar hire purchase and finance leases (4.3) Nil (4.3)Loan notes Nil (36.3) (36.3)Preference shares Nil (15.2) (15.2) ---------- ---------- ----------Net debt (329.2) (165.5) (494.7) ---------- ---------- ---------- * Split between fixed rate and floating rate sterling bank borrowings is aftertaking account of the effect of interest rate derivatives that syntheticallyconvert floating rate debt to fixed rate debt. Pre-exceptional EBITDA for the year to 31 October 2007 was £250.5m giving a netdebt to pre-exceptional EBITDA ratio of 2.0 times. Net cash from operating activities for the six months ended 31 October 2007 was£78.2m (2006: £99.4m) and can be further analysed as follows: 6 months to 6 months to 31 October 2007 31 October 2006 £m £m EBITDA of Group companies before exceptionals: - continuing 118.2 108.5 - discontinued Nil 7.7Loss on disposal of property, plant & equipment Nil 0.1Equity-settled share based payment expense 1.6 0.9Working capital movements 7.1 39.1Net interest paid (12.7) (4.0)Dividends from joint ventures 11.0 7.7 -------------- --------------Net cash from operating activities before excess pension contributions 125.2 160.0Pension contributions in excess of pension costs (47.0) (60.6) -------------- --------------Net cash flows from operating activities before taxation 78.2 99.4 -------------- -------------- Excluding the additional pension contributions shown in the table above, netcash flows from operating activities were £125.2m (2006: £160.0m). The prioryear amount included £43.0m of revenue/profit share liabilities due to theDepartment for Transport under the previous South West Trains rail franchise,which were expensed in the period but not paid until the second half of thefinancial year. The net impact of purchases of property, plant and equipment for the six monthson net debt was £43.9m (2006: £54.3m). This primarily related to expenditure onpassenger service vehicles, and comprised cash outflows of £11.8m (2006: £22.1m)and new hire purchase debt of £32.1m (2006: £32.2m). In addition, £2.3m (2006:£1.1m) cash was received from disposals of property, plant and equipment. We expect net debt to increase in the period to 30 April 2008 principallybecause of capital expenditure being more weighted to the second half of thecurrent financial year and lower expected cash generation from the NorthAmerican operations in the second half of the financial year. Fuel hedging The Group currently expects to consume approximately 322 million litres ofdiesel fuel per annum. As a result, the Group's financial performance isaffected by movements in the underlying price of crude oil, which is the majordriver of diesel prices. The Group manages the volatility in its fuel costs witha fuel hedging programme, using derivatives to effectively fix or cap thevariable unit cost of a percentage of anticipated fuel consumption. The fuel hedging levels are summarised below: Year to Year to Year to 30 April 2008 30 April 2009 30 April 2010 Proportion of actual/forecast fuel consumption hedged:- UK Bus 86% 95% Nil- North America 93% 76% Nil- UK Rail 56% 77% 77% Seasonality The Group's North American bus operations typically report higher operatingprofits for the first half of the financial year (i.e. the six months ended 31October) than for the second half. This is because leisure customers generate anelement of the revenue with demand being at its strongest in the summer months.UK Rail operating profits are affected by the commencement and termination ofrail franchises. Principal risks and uncertainties for the six months ending 30 April 2008 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 2007. 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 under "seasonality". Related parties Related party disclosures are given in note 21 to the condensed financialstatements. Current trading and outlook The Group has made a promising start to the second half of its financial year to30 April 2008. In November, we announced that our expectations of the Group'sprofit for the financial year had further increased. The current trading of theGroup remains in line with these revised expectations. The longer term prospects for the Group remain positive, notwithstandingincreasing fuel prices and weaker economic conditions in North America. Weexpect demand for bus and rail services in general to continue to be driven bysupportive government policy, increasing environmental awareness, rising roadcongestion, increased airport security and inward immigration. In addition, ourexperienced management team has demonstrated that it can organically growrevenue at a faster rate than the industry average through good operationalperformance, development of new products, and an entrepreneurial,performance-focused approach. The Group has strong market positions, continues to generate significant cashand is well positioned to benefit from further growth in demand for itsservices. Brian SouterChief Executive 5 December 2007 Responsibility Statement We confirm that to the best of our knowledge: (a) the condensed set of financial statements contained in this document hasbeen prepared in accordance with International Accounting Standard 34 ("IAS34"), "Interim Financial Reporting" as adopted by the European Union; (b) the interim management report contained in this document includes a fairreview of the information required by the Financial Services Authority'sDisclosure and Transparency Rules ("DTR") 4.2.7R (indication of important eventsduring the first six months and description of principal risks and uncertaintiesfor the remaining six months of the year); and (c) this document includes a fair review of the information required by DTR4.2.8R (disclosure of related party transactions and changes therein). By order of the Board Brian Souter Martin GriffithsChief Executive Finance Director 5 December 2007 5 December 2007 Independent review report to Stagecoach Group plc Introduction We have been engaged by the Company to review the condensed set of financialstatements in the interim financial report for the six months ended 31 October2007, which comprises the consolidated income statement, consolidated balancesheet, consolidated statement of recognised income and expense, consolidatedcash flow statement, reconciliation of movements in consolidated equity andrelated notes. We have read the other information contained in the interimfinancial report and considered whether it contains any apparent misstatementsor material inconsistencies with the information in the condensed set offinancial statements. Directors' responsibilities The interim financial report is the responsibility of, and has been approved by,the Directors. The Directors are responsible for preparing the interim financialreport in accordance with the Disclosure and Transparency Rules of the UnitedKingdom's Financial Services Authority. As disclosed in note 1 to the condensed financial statements, the annualfinancial statements of the Group are prepared in accordance with IFRSs asadopted by the European Union. The condensed set of financial statementsincluded in this interim financial report has been prepared in accordance withInternational Accounting Standard 34, "Interim Financial Reporting", as adoptedby the European Union. Our responsibility Our responsibility is to express to the Company a conclusion on the condensedset of financial statements in the interim financial report based on our review.This report, including the conclusion, has been prepared for and only for theCompany for the purpose of the Disclosure and Transparency Rules of theFinancial Services Authority and for no other purpose. We do not, in producingthis report, accept or assume responsibility for any other purpose or to anyother person to whom this report is shown or into whose hands it may come savewhere expressly agreed by our prior consent in writing. Scope of review We conducted our review in accordance with International Standard on ReviewEngagements (UK and Ireland) 2410, 'Review of Interim Financial InformationPerformed by the Independent Auditor of the Entity' issued by the AuditingPractices Board for use in the United Kingdom. A review of interim financialinformation consists of making enquiries, primarily of persons responsible forfinancial and accounting matters, and applying analytical and other reviewprocedures. A review is substantially less in scope than an audit conducted inaccordance with International Standards on Auditing (UK and Ireland) andconsequently does not enable us to obtain assurance that we would become awareof all significant matters that might be identified in an audit. Accordingly, wedo not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believethat the condensed set of financial statements in the interim financial reportfor the six months ended 31 October 2007 is not prepared, in all materialrespects, in accordance with International Accounting Standard 34 as adopted bythe European Union and the Disclosure and Transparency Rules of the UnitedKingdom's Financial Services Authority. PricewaterhouseCoopersChartered Accountants 5 December 2007 Kintyre House209 West George StreetGLASGOWG2 2LW CONDENSED FINANCIAL STATEMENTSCONSOLIDATED INCOME STATEMENT Unaudited Audited -------------------------------- ------------ 6 months to 31 October 2007 6 months to 31 October 2006 Performance Performance pre Intangibles pre Intangibles intangibles and intangibles and and exceptional and exceptional Year to exceptional items Results for the exceptional items Results for the 30 April items (note 4) period items (note 4) period 2007 Notes £m £m £m £m £m £m £m------------------ ------- ------- ------- ------- ------- ------- ------CONTINUING OPERATIONS------------------Revenue 3(A) 820.8 Nil 820.8 752.1 Nil 752.1 1,504.6Operating costs (789.1) (3.7) (792.8) (809.4) 17.8 (791.6) (1,551.7)Other operating income 5 55.1 Nil 55.1 133.6 Nil 133.6 213.5 ------- ------- ------- ------- ------- ------- ------Operating profit of Group companies 3(B) 86.8 (3.7) 83.1 76.3 17.8 94.1 166.4Share of profit ofjoint ventures after finance income andtaxation 3(C) 13.2 (2.5) 10.7 4.4 3.0 7.4 14.5 ------- ------- ------- ------- ------- ------- ------Total operating profit: Group operating profit and share of jointventures'profit after tax 3(B) 100.0 (6.2) 93.8 80.7 20.8 101.5 180.9Gain on sale of properties 4 Nil Nil Nil Nil 0.2 0.2 3.6Gain/(loss) ondisposed operations and sale ofinvestments 4 Nil 2.0 2.0 Nil (1.1) (1.1) (1.1) ------- ------- ------- ------- ------- ------- ------Profit before interest and taxation 100.0 (4.2) 95.8 80.7 19.9 100.6 183.4Finance costs (24.6) Nil (24.6) (9.8) Nil (9.8) (20.7)Finance income 9.2 Nil 9.2 6.5 Nil 6.5 21.4 ------- ------- ------- ------- ------- ------- ------Profit before taxation 84.6 (4.2) 80.4 77.4 19.9 97.3 184.1Taxation 6 (15.7) 1.1 (14.6) (18.5) (4.9) (23.4) (43.6) ------- ------- ------- ------- ------- ------- ------Profit for the period from continuingoperations 68.9 (3.1) 65.8 58.9 15.0 73.9 140.5------------------DISCONTINUED OPERATIONS------------------Profit for the period from discontinuedoperations 8 Nil Nil Nil 4.0 128.5 132.5 136.8------------------ ------- ------- ------- ------- ------- ------- ------TOTAL OPERATIONS------------------Profit after taxation for the periodattributable to equity shareholders of the parent 68.9 (3.1) 65.8 62.9 143.5 206.4 277.3 ------- ------- ------- ------- ------- ------- ------Earnings per sharefrom continuing and discontinued operations- Adjusted/Basic 9 9.4p 9.0p 5.8p 18.9p 25.4p- Diluted 9 9.2p 8.8p 5.7p 18.8p 25.1p ------- ------- ------- ------- ------- ------- ------Earnings per sharefrom continuingoperations- Adjusted/Basic 9 9.4p 9.0p 5.4p 6.8p 12.9p- Diluted 9 9.2p 8.8p 5.3p 6.7p 12.7p ------- ------- ------- ------- ------- ------- ------Dividends perordinary share 7- Interim 1.35p 1.2p 1.2p- Final - - 2.9p ------- ------- ------- ------- ------- ------- ------ The accompanying notes form an integral part of this consolidated income statement. CONSOLIDATED BALANCE SHEET Unaudited Audited -------------------------------- -------------------- Notes As at 31 October As at 31 October As at 30 April 2007 2006 2007 £m £m £m ----------- ----------- ----------ASSETSNon-current assetsGoodwill 10 90.2 96.4 92.8Other intangible assets 11 18.3 12.3 20.9Property, plant and equipment 12 610.2 607.5 599.2Interests in joint ventures 13 39.1 51.7 39.1Interest in associate Nil 1.0 NilAvailable for sale and other investments 1.8 4.3 1.1Derivative instruments at fair value 0.6 Nil NilRetirement benefit assets 18 44.9 Nil 16.6Deferred tax assets 6.8 8.4 6.8Other receivables 3.2 1.3 3.1 ----------- ----------- ---------- 815.1 782.9 779.6 ----------- ----------- ----------Current assetsInventories 12.8 12.6 11.7Trade and other receivables 167.3 179.7 142.1Derivative instruments at fair value 11.7 0.6 1.7Foreign tax recoverable 1.1 Nil 0.3Cash and cash equivalents 191.3 479.1 513.3 ----------- ----------- ---------- 384.2 672.0 669.1 ----------- ----------- ----------Total assets 1,199.3 1,454.9 1,448.7 ----------- ----------- ---------- LIABILITIESCurrent liabilitiesTrade and other payables 383.0 375.7 347.8Current tax liabilities 18.0 38.4 24.6Borrowings 67.7 83.0 70.9Preference shares 15.5 Nil NilDerivative instruments at fair value 1.5 2.4 3.7Provisions 36.4 58.0 50.7 ----------- ----------- ---------- 522.1 557.5 497.7 ----------- ----------- ----------Non-current liabilitiesOther payables 9.1 10.1 9.1Borrowings 617.0 274.2 272.4Derivative instruments at fair value 1.2 7.0 2.6Deferred tax liabilities 62.1 6.6 44.1Provisions 71.5 70.0 57.7Retirement benefit obligations 18 21.1 144.3 52.8 ----------- ----------- ---------- 782.0 512.2 438.7 ----------- ----------- ----------Total liabilities 1,304.1 1,069.7 936.4 ----------- ----------- ---------- Net (liabilities)/assets (104.8) 385.2 512.3 =========== =========== ========== EQUITYOrdinary share capital 14 7.0 6.9 7.0Share premium account 2.3 177.8 179.4Retained earnings (522.9) (32.4) 91.8Capital redemption reserve 403.6 243.0 243.0Own shares (12.6) (7.6) (7.3)Translation reserve 7.6 4.2 3.0Available for sale reserve 0.6 2.0 NilCash flow hedging reserve 9.6 (8.7) (4.6) ----------- ----------- ----------Total equity (104.8) 385.2 512.3 =========== =========== ========== The retained earnings deficit of £522.9m (30 April 2007: surplus of £91.8m) isthe consolidated position. The holding company's distributable reserves as at 31October 2007 under UK GAAP were £185.8m (30 April 2007: £735.4m). The accompanying notes form an integral part of this consolidated balance sheet. CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE Unaudited Audited ----------------------- -------- 6 months to 6 months to Year to 31 October 31 October 30 April 2007 2006 2007 £m £m £m -------- --------- -------- Income and expense recognised directly in equityForeign exchange differences ontranslation of foreign operations (net of hedging) 4.6 0.2 (1.0)Actuarial gains on Group defined benefit pension schemes 13.0 Nil 79.4Share of actuarial gains on joint ventures' defined benefit pension schemes Nil Nil 5.0Net fair value gains/(losses) on cash flow hedges 18.9 (7.9) (9.2)Net fair value gains/(losses) on available for sale investments 0.6 0.1 (1.9) -------- --------- -------- 37.1 (7.6) 72.3 -------- --------- --------Transfers to the income statementCash flow hedges reclassified and reported in profit for the period (4.7) Nil 5.4 -------- --------- -------- Tax on items taken directly to or transferred from equityTax on foreign exchange differences on translation of foreign operations (net of hedging) Nil Nil (0.3)Tax effect of actuarial gains on Group defined benefit pension schemes (3.9) Nil (20.3)Tax effect of share of actuarial gains on joint ventures' defined benefit pension schemes Nil Nil (1.5)Tax effect of share based payments 2.9 0.8 3.8Tax adjustment re change in UK corporation tax rate 0.7 Nil Nil -------- --------- -------- (0.3) 0.8 (18.3) -------- --------- -------- Net income/(expense) not recognised in income statement 32.1 (6.8) 59.4 -------- --------- --------Profit for the financial period attributable to equity 65.8 206.4 277.3shareholders of the parent ======== ========= ========Total recognised income and expense for the period 97.9 199.6 336.7attributable to equity shareholders of the parent ======== ========= ======== CONSOLIDATED CASH FLOW STATEMENT Unaudited Audited ---------------------------- ---------- Notes 6 months to 31 6 months to 31 Year to October 2007 October 2006 30 April 2007 £m £m £m ---------- ---------- ---------- Cash flows from operating activitiesCash generated by operations 15 79.9 95.7 158.0Interest paid (16.8) (8.4) (21.4)Interest received 7.1 6.5 22.0Interest element of hire purchase contracts and finance lease payments (3.0) (2.1) (4.5)Dividends received from joint ventures 11.0 7.7 31.1-------------------------- ------ ---------- ---------- ----------Net cash flows from operating activities 78.2 99.4 185.2Tax paid (4.9) (11.4) (22.9)-------------------------- ------ ---------- ---------- ----------Net cash from operating activities after tax 73.3 88.0 162.3-------------------------- ------ ---------- ---------- ----------Cash flows from investing activitiesAcquisition of subsidiaries, net of cash acquired (1.9) (0.1) (0.1)Disposals and closures of subsidiaries and otherbusinesses, net of cash disposed of 3.3 260.4 267.0Purchases of property, plant and equipment (11.8) (22.1) (44.5)Disposals of property, plant and equipment 2.3 1.1 11.0Purchase of intangible assets Nil (0.1) (1.7)Purchase of other investments (0.2) (0.2) (0.4)Disposal of other investments Nil 0.2 0.2Movement in loans to joint ventures (0.2) 3.3 1.4-------------------------- ------ ---------- ---------- ----------Net cash (outflow)/inflow from investing activities (8.5) 242.5 232.9-------------------------- ------ ---------- ---------- ----------Cash flows from financing activitiesIssue of ordinary shares for cash 2.1 3.0 4.7Return of value to shareholders - Redemption and purchase of 'B' shares (389.9) Nil Nil - Dividends paid on 'C' shares (284.6) Nil Nil - Costs associated with return of value (3.3) Nil NilInvestment in own ordinary shares by employee shareownership trusts (7.7) (1.9) (2.1)Sale of own ordinary shares by employee shareownership trusts 2.4 0.4 0.9Repayments of hire purchase and lease finance (15.1) (18.6) (28.2)Movement in other borrowings 333.1 (1.0) (11.6)Dividends paid on ordinary shares 7 (20.5) (28.4) (41.5)Sale of tokens 1.0 2.2 6.8Redemption of tokens (3.0) (5.0) (9.1)-------------------------- ------ ---------- ---------- ----------Net cash used in financing activities (385.5) (49.3) (80.1)-------------------------- ------ ---------- ---------- ----------Net (decrease)/increase in cash and cash equivalents (320.7) 281.2 315.1Cash and cash equivalents at the beginning of the period 512.5 198.3 198.3Exchange rate effects (0.5) (0.4) (0.9)-------------------------- ------ ---------- ---------- ----------Cash and cash equivalents at the end of the period 191.3 479.1 512.5-------------------------- ------ ---------- ---------- ----------Cash and cash equivalents at the end of the periodcomprises:Cash and cash equivalents included within currentassets 191.3 479.1 513.3Bank overdrafts included within borrowings Nil Nil (0.8)-------------------------- ------ ---------- ---------- ---------- 191.3 479.1 512.5-------------------------- ------ ---------- ---------- ---------- Cash and cash equivalents for the purposes of the consolidated cash flowstatement comprise cash at bank and in hand, overdrafts and other short-termhighly liquid investments with a maturity of three months or less. The accompanying notes form an integral part of this consolidated cash flowstatement. RECONCILIATION OF MOVEMENTS IN CONSOLIDATED EQUITY Unaudited Audited ------------------------- --------- 6 months to 6 months to Year to 31 October 31 October 30 April 2007 2006 2007 £m £m £m --------- --------- --------- Profit for the financial period 65.8 206.4 277.3Equity dividends (20.5) (28.4) (41.5) --------- --------- --------- 45.3 178.0 235.8Other recognised income and expense relating to the period- Foreign exchange differences on translation of foreign operations (net of hedging) 4.6 0.2 (1.0)- Actuarial gains on Group defined benefit pension schemes 13.0 Nil 79.4- Share of actuarial gains on joint ventures' defined benefit pension schemes Nil Nil 5.0- Net fair value gains/(losses) on cash flow hedges 18.9 (7.9) (9.2)- Net fair value gains/(losses) on available for sale investments 0.6 0.1 (1.9)- Cash flow hedges reclassified and reported in profit for the period (4.7) Nil 5.4- Tax on foreign exchange differences on translation of foreign operations Nil Nil (0.3)- Tax effect of actuarial gains on Group defined benefit pension schemes (3.9) Nil (20.3)- Tax effect of share of actuarial gains on joint ventures' defined benefit pension schemes Nil Nil (1.5)- Tax effect of share based payments 2.9 0.8 3.8- Tax adjustment re corporation tax rate change 0.7 Nil NilCredit in relation to equity-settled share based payments 1.6 0.9 2.0Arising on new ordinary share issues 2.1 3.0 4.7Return of value to shareholders (689.7) Nil NilExpenses associated with return of value (3.3) Nil NilOwn ordinary shares purchased (7.7) (1.9) (2.1)Own ordinary shares sold 2.5 0.4 0.9 --------- --------- ---------Net (decrease)/increase in equity (617.1) 173.6 300.7Equity at the start of the period 512.3 211.6 211.6 --------- --------- ---------Equity at the end of the period (104.8) 385.2 512.3 --------- --------- --------- NOTES 1 BASIS OF PREPARATION The condensed financial statements for the six months ended 31 October 2007 havebeen prepared in accordance with the Disclosure and Transparency Rules of theFinancial Services Authority and International Accounting Standard 34, "InterimFinancial Reporting", as adopted by the European Union. The financialinformation has been prepared using the principal accounting policies used toprepare the Group's 2007 Annual Report as described on pages 45 to 52 of thatreport which can be found on the Stagecoach Group website at http://www.stagecoachgroup.com/scg/ir/finanalysis/reports/. The financial information for the six months ended 31 October 2007 has not beenaudited, nor has the comparative financial information for the six months ended31 October 2006 but they have both been reviewed by the auditors. Thecomparative financial information presented in this announcement for the yearended 30 April 2007 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 2007, which were approved by the Board ofDirectors on 27 June 2007, received an unqualified audit report and have beenfiled with the Registrar of Companies. The Board of Directors approved this announcement, including the condensedfinancial statements, on 5 December 2007. The following new standards or interpretations are mandatory for the first timefor the financial year ending 30 April 2008: • International Financial Reporting Interpretations Committee ("IFRIC") 9, 'Reassessment of embedded derivatives', effective for annual periods beginning on or after 1 June 2006. This interpretation has not had a significant impact on the Group's financial performance or financial position. • IFRIC 10, 'Interims and impairment', effective for annual periods beginning on or after 1 November 2006. This interpretation has not had any impact on the timing of recognition of impairment losses as the Group already accounted for such amounts using principles consistent with IFRIC 10. • International Financial Reporting Standard ("IFRS") 7, 'Financial instruments; Disclosures', effective for annual periods beginning on or after 1 January 2007. As this interim report contains only condensed financial statements, full IFRS 7 disclosures are not required at this stage. Appropriate disclosures will be given in the annual financial statements for the year ending 30 April 2008. 2 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 2007 2006 2007 --------- --------- ---------US DollarPeriod end rate 2.0774 1.9073 1.9999Average rate 2.0133 1.8687 1.9103Canadian DollarPeriod end rate 1.9731 2.1370 2.2102Average rate 2.1034 2.0914 2.1738 3 SEGMENTAL ANALYSIS The Group is managed, and reports internally, on a basis consistent with itsthree continuing business segments: UK Bus, North America and UK Rail. TheGroup's IFRS accounting policies are applied consistently, where appropriate toeach 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 segment UK 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 London bus operations were disposed of during the year ended 30April 2007. These operations were formerly part of the UK Bus segment but havebeen reclassified as "discontinued" for the comparative periods shown. Due to the nature of the services the Group provides, the primary and secondarysegments coincide. The Group has interests in three joint ventures: Virgin Rail Group that operatesin UK Rail, Citylink that operates in UK Bus and New York Splash Tours LLC thatoperates in North America. The profits and losses of these joint ventures areshown separately in note 3(C). (A) REVENUE Due to the nature of the Group's business, the origin and destination of revenueis the same in all cases. As the Group sells bus and rail services toindividuals, it has few customers that are individually "major". Its majorcustomers are typically public bodies that subsidise or procure transportservices - such customers include local authorities, transport authorities andthe UK Department for Transport. 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 2007 2006 2007 £m £m £m --------- --------- --------- Continuing operationsUK Bus 367.1 339.6 690.4North America 131.0 135.7 242.7 --------- --------- ---------Total bus continuing operations 498.1 475.3 933.1UK Rail 322.7 276.8 571.5 --------- --------- ---------Group revenue 820.8 752.1 1,504.6 --------- --------- --------- 3 SEGMENTAL ANALYSIS (CONTINUED) (B) OPERATING PROFIT Unaudited Audited -------------------------------- ------------ 6 months to 31 October 2007 6 months to 31 October 2006 Performance Performance pre pre intangibles Intangibles intangibles Intangibles and and and and Year to exceptional exceptional Results for exceptional exceptional Results for 30 April items items the period items items the period 2007 Notes £m £m £m £m £m £m £m ------- ------- ------- ------- ------- ------- -------Continuing operationsUK Bus 52.5 Nil 52.5 34.1 22.8 56.9 113.4North America 16.9 Nil 16.9 16.7 Nil 16.7 18.1 ------- ------- ------- ------- ------- ------- -------Total bus continuingoperations 69.4 Nil 69.4 50.8 22.8 73.6 131.5UK Rail 25.3 Nil 25.3 31.4 Nil 31.4 58.8 ------- ------- ------- ------- ------- ------- -------Total continuingoperations 94.7 Nil 94.7 82.2 22.8 105.0 190.3Group overheads (6.2) Nil (6.2) (5.2) Nil (5.2) (11.1)Intangible assetamortisation Nil (3.7) (3.7) Nil (5.0) (5.0) (9.6)Redundancy/restructuringcosts (1.7) Nil (1.7) (0.7) Nil (0.7) (3.2) ------- ------- ------- ------- ------- ------- -------Total operatingprofit of continuingGroup companies 86.8 (3.7) 83.1 76.3 17.8 94.1 166.4Share of profit ofjoint ventures after finance income andtaxation 3(C) 13.2 (2.5) 10.7 4.4 3.0 7.4 14.5 ------- ------- ------- ------- ------- ------- -------Total operatingprofit: Groupoperating profit and share of jointventures' profit after tax 100.0 (6.2) 93.8 80.7 20.8 101.5 180.9 ------- ------- ------- ------- ------- ------- ------- (C) JOINT VENTURES Unaudited Audited -------------------------------- ------------ 6 months to 31 October 2007 6 months to 31 October 2006 Performance Performance pre pre intangibles Intangibles intangibles Intangibles and and and and Year to exceptional exceptional Results for exceptional exceptional Results for 30 April items items the period items items the period 2007 £m £m £m £m £m £m £m ------- ------- ------- ------- ------- ------- -------ContinuingVirgin Rail Group (UK Rail)Operating profit 16.3 Nil 16.3 3.9 5.5 9.4 17.8Finance income (net) 1.8 Nil 1.8 1.6 Nil 1.6 3.7Taxation (5.2) Nil (5.2) (1.8) Nil (1.8) (2.6) ------- ------- ------- ------- ------- ------- ------- 12.9 Nil 12.9 3.7 5.5 9.2 18.9Goodwill charged oninvestment in continuing joint ventures Nil (2.5) (2.5) Nil (2.5) (2.5) (5.1)-------------------- ------- ------- ------- ------- ------- ------- ------- 12.9 (2.5) 10.4 3.7 3.0 6.7 13.8-------------------- ------- ------- ------- ------- ------- ------- -------Citylink (UK Bus)Operating profit 0.9 Nil 0.9 1.1 Nil 1.1 1.3Taxation (0.3) Nil (0.3) (0.4) Nil (0.4) (0.4)-------------------- ------- ------- ------- ------- ------- ------- ------- 0.6 Nil 0.6 0.7 Nil 0.7 0.9-------------------- ------- ------- ------- ------- ------- ------- -------New York Splash Tours LLC (North America) -------------------- ------- ------- ------- ------- ------- ------- -------Operating loss (0.3) Nil (0.3) Nil Nil Nil (0.2)-------------------- ------- ------- ------- ------- ------- ------- --------------------------- ------- ------- ------- ------- ------- ------- -------Share of profit ofjoint ventures after finance income andtaxation 13.2 (2.5) 10.7 4.4 3.0 7.4 14.5-------------------- ------- ------- ------- ------- ------- ------- ------- 4 EXCEPTIONAL ITEMS AND INTANGIBLE ASSET EXPENSES There is no explicit definition of exceptional items in IFRS. For this purposeexceptional items are items which individually, or if of a similar type, inaggregate, need to be disclosed, by virtue of their nature, size or incidence inorder to allow a proper understanding of the underlying performance of theGroup. The items shown in the column headed "Intangibles and exceptional items" on theface of the consolidated income statement for the six months ended 31 October2007 can be further analysed as follows: Unaudited --------------------- 6 months to 31 October 2007 -------- -------- -------- Exceptional Intangible Intangibles items asset and expenses exceptional items £m £m £m -------- -------- --------Operating costsAmortisation of intangible assets - (3.7) (3.7) -------- -------- -------- Share of profit of joint venturesGoodwill charged on investment in joint ventures - (2.5) (2.5) -------- -------- -------- Gain on disposed operations 2.0 - 2.0 -------- -------- -------- Intangible asset expenses and exceptional items 2.0 (6.2) (4.2)Tax effect Nil 1.1 1.1 -------- -------- --------Intangible asset expenses and exceptional items aftertaxation 2.0 (5.1) (3.1) -------- -------- -------- The gain on disposed operations of £2.0m relates to the sale of the Group'sDarlington bus operations to Arriva. 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 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 £m -------- -------- --------Operating 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 injoint ventures - (2.5) (2.5) -------- -------- -------- 5.5 (2.5) 3.0 -------- -------- -------- Gain on sale of properties 0.2 - 0.2 -------- -------- -------- Loss on disposed operations and sale of investments (1.1) - (1.1) -------- -------- -------- Profit for the period from discontinued operationsGain on sale of London bus business (note 8) 127.9 - 127.9Gain on sale of New Zealand operations (note 8) 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 exceptionalitems after taxation 149.5 (6.0) 143.5 -------- -------- -------- 5 OTHER OPERATING INCOME Unaudited Audited ------------------------- --------- 6 months to 6 months to Year to 31 October 31 October 30 April 2007 2006 2007 £m £m £m --------- --------- --------- Miscellaneous revenue 23.3 25.3 50.3Rail franchise support, excluding incentive payments 31.8 87.5 130.9Rail incentive payments Nil 20.8 32.3 --------- --------- --------- 55.1 133.6 213.5 --------- --------- --------- Miscellaneous revenue comprises revenue incidental to the Group's principalactivities. It includes advertising income, maintenance income and propertyincome. Rail franchise support is the gross amount of financial support receivable fromthe Department for Transport ("DfT"). Rail incentive payments comprise amounts that were receivable from the DfT inrespect of the operational performance of our rail companies measured againstbenchmarks agreed with the DfT. The incentive arrangements have changed sincethe previous year such that no incentive income was received in the six monthsended 31 October 2007 (2006: £20.8m), although performance regime amountscontinue to be payable to Network Rail and such amounts are included withinoperating costs in the consolidated income statement. 6 TAXATION The taxation charge comprises: Unaudited Audited -------------------------------- ------- 6 months to 31 October 2007 6 months to 31 October 2006 Performance Performance pre pre intangibles Intangibles Results intangibles Intangibles Results and and for and and for Year to exceptional exceptional the exceptional exceptional the 30 April items items period items items period 2007 £m £m £m £m £m £m £m ------- ------- ------- ------- ------- ------- -------Group companies- UK tax (11.4) 1.1 (10.3) (17.0) (5.4) (22.4) (41.9)- Overseas tax (4.3) Nil (4.3) (1.5) 0.5 (1.0) (1.7) ------- ------- ------- ------- ------- ------- ------- (15.7) 1.1 (14.6) (18.5) (4.9) (23.4) (43.6) ------- ------- ------- ------- ------- ------- ------- 7 DIVIDENDS Unaudited Audited --------------- -------- 6 months to 6 months to Year to 31 October 2007 31 October 2006 30 April 2007 £m £m £m ---------- ---------- ---------- Amounts recognised as distributions in the periodDividends on ordinary sharesFinal dividend paid of 2.6p per share for the year ended 30 April 2006 - 28.4 28.4Interim dividend paid of 1.2p per share for the year ended 30 April 2007 - - 13.1Final dividend paid of 2.9p per share for the year ended 30 April 2007 20.5 - - -------- -------- --------Amounts recognised as distributions to equity holders in the period 20.5 28.4 41.5 -------- -------- -------- Dividends proposed or declared but not paid or included as liabilities in the financialstatementsDividends on ordinary sharesInterim dividend declared of 1.2p per share for the year ended 30 April 2007 - 13.1 -Final dividend proposed of 2.9p per share for the year ended 30 April 2007 - - 20.4Interim dividend declared of 1.35p per share for the year ending 30 April 2008 9.5 - - -------- -------- -------- 9.5 13.1 20.4 -------- -------- -------- The interim ordinary dividend of 1.35p per ordinary share was approved by theBoard of Directors on 5 December 2007 and has not been included as a liabilityas at 31 October 2007. It is payable on 5 March 2008 to shareholders on theregister at close of business on 8 February 2008. 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. Dividends accrued on 'B' shares of £0.2m (2006: £Nil) are included in financecosts. The one-off dividends paid on 'C' shares of £284.6m (2006: £Nil) are included asa movement in equity. Note 14 provides further information on 'B' and 'C' shares. 8 DISCONTINUED OPERATIONS The Group disposed of its London bus business during the comparative six monthsended 31 October 2006. The business was disposed of on 30 August 2006 toMacquarie Bank Limited. The results of the discontinued London bus operations for the comparativeperiods shown, which have been included in the consolidated income statement,were as follows: Unaudited Audited ------------------ ------------------ 6 months to 6 months to 6 months to Year to 31 October 31 October 31 October 30 April 2006 2006 2006 2007 London New Zealand Total Total £m £m £m £m --------- --------- --------- --------- Revenue 76.1 Nil 76.1 76.1Operating costs (72.0) Nil (72.0) (72.0)Other operating income 1.1 Nil 1.1 1.1 --------- --------- --------- ---------Operating profit 5.2 Nil 5.2 5.2Finance income (net) 0.6 Nil 0.6 0.6Taxation (1.8) Nil (1.8) (1.8) --------- --------- --------- ---------Profit for the period before gain on disposal 4.0 Nil 4.0 4.0Gain on disposal 127.9 0.6 128.5 132.8 --------- --------- --------- ---------Profit for the period from discontinuedoperations 131.9 0.6 132.5 136.8 --------- --------- --------- --------- In the comparative six months ended 31 October 2006 and the comparative yearended 30 April 2007, the London bus operations contributed £13.2m of cashoutflows from operating activities that included £30.0m of one-off pensioncontributions, £0.8m of cash outflows from investment activities and £9.6m ofcash outflows from financing activities. 9 EARNINGS PER SHARE Basic earnings per share ("EPS") have been calculated by dividing the profitattributable to equity shareholders by the weighted average number of ordinaryshares in issue during the period, excluding any ordinary shares held byemployee share ownership trusts and not ranking for dividend. Earnings per share before intangible asset expenses and exceptional items arecalculated after adding back intangible asset expenses and exceptional itemsafter taking account of related taxation. This has been presented to allowshareholders to gain a clearer understanding of the underlying performance. The diluted earnings per share was calculated by adjusting the weighted averagenumber of ordinary shares outstanding to assume conversion of all dilutivepotential ordinary shares in relation to share options and long term incentiveplans. In respect of share options, a calculation was done to determine thenumber of ordinary shares that could have been acquired at fair value(determined based on the average annual market share price of the Company'sordinary shares) based on the monetary value of the subscription rights attachedto outstanding share options. The number of ordinary shares calculated as aboveis compared with the number of ordinary shares that would have been issuedassuming the exercise of the share options. The difference is added to thedenominator as an issue of ordinary shares for no consideration and noadjustment is made to earnings (numerator). On 14 May 2007, the Company issued 277,777,735 redeemable 'B' shares of 63 penceeach and 823,220,972 irredeemable 'C' shares of 63 pence each at the rate of 1'B' or 'C' share for every 1 ordinary share held. The issue of the 'B' and 'C'shares was followed by a share capital consolidation whereby shareholdersreceived 9 new ordinary shares for every 14 existing ordinary shares held. Indetermining the consolidated earnings per share, no adjustment has been made tothe number of ordinary shares outstanding before the event where the issue of'B' and 'C' shares was combined with the share capital consolidation. Theweighted average number of ordinary shares outstanding for the six months ended31 October 2007 has been adjusted for the reduction in the number of ordinaryshares from the date on which the issue of 'B' and 'C' shares and shareconsolidation took place. This treatment is consistent with paragraph 29 ofInternational Accounting Standard 33, "Earnings per share". Unaudited Audited ---------------- --------- 6 months to 6 months to Year to 31 October 2007 31 October 2006 30 April 2007 £m £m £m ---------- ---------- ---------- Basic weighted average ordinary share capital (number of shares, million) 732.9 1,090.0 1,091.7Dilutive ordinary shares (number of shares, million)- Executive Share Option Scheme 5.0 6.6 7.4- Employee SAYE Scheme 3.3 1.0 2.2- Long Term Incentive Plan 4.2 1.8 2.3- Executive Participation Plan 1.8 Nil 1.0 --------- --------- ---------Diluted weighted average ordinary share capital (number of shares, million) 747.2 1,099.4 1,104.6 --------- --------- --------- £m £m £m --------- --------- --------- Profit after taxation including discontinued operations (for basic EPS calculation) 65.8 206.4 277.3Intangible asset expenses (see note 4) 6.2 7.5 14.7Exceptional items (see note 4) (2.0) (155.9) (169.6)Tax effect of intangible asset expenses and exceptional items (see note 4) (1.1) 4.9 5.8 --------- --------- ---------Profit for adjusted EPS calculation 68.9 62.9 128.2 --------- --------- --------- Earnings per Earnings per Earnings per share share share pence pence pence --------- --------- --------- Basic 9.0 18.9 25.4Adjusted basic 9.4 5.8 11.7Diluted 8.8 18.8 25.1Adjusted diluted 9.2 5.7 11.6 --------- --------- --------- 9 EARNINGS PER SHARE (CONTINUED) The basic and diluted earnings per share can be further analysed as follows: Unaudited ----------------------------------- 6 months to 31 October 2007 6 months to 31 October 2006 Weighted Weighted average Earnings average Earnings number of per number of per Earnings shares share Earnings shares share £m Million pence £m Million pence -------- -------- -------- ------- -------- --------Basic- Continuing operations 65.8 732.9 9.0p 73.9 1,090.0 6.8p- Discontinued operations Nil 732.9 Nil 132.5 1,090.0 12.1p --------- -------- -------- ------- -------- -------- 65.8 732.9 9.0p 206.4 1,090.0 18.9p -------- -------- -------- ------- -------- --------Adjusted basic- Continuing operations 68.9 732.9 9.4p 58.9 1,090.0 5.4p- Discontinued operations Nil 732.9 Nil 4.0 1,090.0 0.4p -------- -------- -------- ------- -------- -------- 68.9 732.9 9.4p 62.9 1,090.0 5.8p -------- -------- -------- ------- -------- --------Diluted- Continuing operations 65.8 747.2 8.8p 73.9 1,099.4 6.7p- Discontinued operations Nil 747.2 Nil 132.5 1,099.4 12.1p -------- -------- -------- ------- -------- -------- 65.8 747.2 8.8p 206.4 1,099.4 18.8p -------- -------- -------- ------- -------- --------Adjusted diluted- Continuing operations 68.9 747.2 9.2p 58.9 1,099.4 5.3p- Discontinued operations Nil 747.2 Nil 4.0 1,099.4 0.4p -------- -------- -------- ------- -------- -------- 68.9 747.2 9.2p 62.9 1,099.4 5.7p -------- -------- -------- ------- -------- -------- 10 GOODWILL Unaudited Unaudited Audited 6 months to 6 months to Year to 31 October 2007 31 October 2006 30 April 2007 £m £m £m ---------- ---------- ---------- Cost at beginning of period 92.8 100.1 100.1Translation adjustment (2.6) (3.7) (7.3) ---------- ---------- ----------At end of period 90.2 96.4 92.8 ---------- ---------- ----------Accumulated impairment losses at beginning and end of period Nil Nil Nil ---------- ---------- ----------Net book value at beginning of period 92.8 100.1 100.1 ---------- ---------- ----------Net book value at end of period 90.2 96.4 92.8 ---------- ---------- ---------- 11 OTHER INTANGIBLE ASSETS Unaudited Unaudited Audited 6 months to 6 months to Year to 31 October 2007 31 October 2006 30 April 2007 £m £m £m ---------- ---------- ---------- Cost at beginning of period 43.6 30.5 30.5Additions Nil 0.1 13.3Acquired through businesscombinations 1.1 Nil NilDisposals (8.1) Nil NilTranslation adjustment (0.1) (0.1) (0.2) ---------- ---------- ----------At end of period 36.5 30.5 43.6 ---------- ---------- ---------- Accumulated amortisationat beginning of period (22.7) (13.2) (13.2)Amortisation for period (3.7) (5.0) (9.6)Disposals 8.1 Nil NilTranslation adjustment 0.1 Nil 0.1 ---------- ---------- ----------At end of period (18.2) (18.2) (22.7) ---------- ---------- ---------- Net book value at beginning of period 20.9 17.3 17.3 ---------- ---------- ----------Net book value at end of period 18.3 12.3 20.9 ---------- ---------- ---------- 12 PROPERTY, PLANT AND EQUIPMENT Unaudited Unaudited Audited 6 months to 6 months to Year to 31 October 2007 31 October 2006 30 April 2007 £m £m £m ---------- ---------- ---------- Cost at beginning of period 1,094.3 1,233.1 1,233.1Additions 44.1 53.3 92.6Acquired through businesscombinations 1.4 Nil NilDisposals (24.0) (16.8) (53.5)Sale/closure of subsidiaryundertakings and otherbusinesses Nil (154.5) (154.5)Translation adjustment (1.1) (12.5) (23.4) ---------- ---------- ----------At end of period 1,114.7 1,102.6 1,094.3 ---------- ---------- ---------- Depreciation at beginningof period (495.1) (524.3) (524.3)Charge for period (31.4) (34.7) (70.8)Disposals 20.7 15.7 46.7Sale/closure of subsidiaryundertakings and otherbusinesses Nil 42.3 42.3Translation adjustment 1.3 5.9 11.0 ---------- ---------- ----------At end of period (504.5) (495.1) (495.1) ---------- ---------- ---------- Net book value at beginning of period 599.2 708.8 708.8 ---------- ---------- ----------Net book value at end of period 610.2 607.5 599.2 ---------- ---------- ---------- 13 INTERESTS IN JOINT VENTURES Unaudited Unaudited Audited 6 months to 6 months to Year to 31 October 2007 31 October 2006 30 April 2007 £m £m £m ---------- ---------- ---------- Cost at beginning of period 72.0 79.8 79.8Share of recognised profits 13.5 9.9 19.8Share of actuarial gainson defined benefit pensionschemes net of tax Nil Nil 3.5Dividends received (11.0) (7.7) (31.1) ---------- ---------- ----------At end of period 74.5 82.0 72.0 ---------- ---------- ---------- Amounts written off atbeginning of period (32.9) (27.8) (27.8)Goodwill charged to incomestatement during period (2.5) (2.5) (5.1) ---------- ---------- ----------At end of period (35.4) (30.3) (32.9) ---------- ---------- ---------- Net book value atbeginning of period 39.1 52.0 52.0 ---------- ---------- ----------Net book value at end ofperiod 39.1 51.7 39.1 ---------- ---------- ---------- In addition to the above interest in joint ventures, a loan receivable from NewYork Splash Tours LLC of £1.5m (30 April 2007: £1.9m) is included withinnon-current assets under the caption of 'Other receivables'. Our share of netliabilities in New York Splash Tours LLC totalling £0.5m (30 April 2007: £0.2m),the movement for the period being the loss of £0.3m for the 6 months ended 31October 2007, is included within current liabilities under the caption of 'Tradeand other payables' on the balance sheet. 14 CALLED UP SHARE CAPITAL The ordinary share capital of the Company was as follows: As at 31 October 2007 As at 30 April 2007 £m £m -------------- --------------Authorised936,428,571 (30 April 2007:1,456,666,666) ordinary sharesof 56/57 pence (30 April 2007:12/19 pence) each 9.2 9.2 -------------- -------------- 2007 Number of £m shares -------------- -------------- Allotted, called-up and fully-paidOrdinary shares of 56/57 pence (30 April 2007: 12/19 pence) eachAt 1 May 2007 1,100,998,707 7.0Share capital consolidation (9 for 14 shares) (393,213,824) NilAllotted under share option schemes 4,698,611 - -------------- --------------At 31 October 2007 712,483,494 7.0 -------------- -------------- 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 equity in the Group's financial statements. Other assets andliabilities of the trusts are consolidated in the Group's financial statementsas if they were assets and liabilities of the Group. As at 31 October 2007, theQUEST held 184,683 (30 April 2007: 369,399) ordinary shares in the Company andthe EBT held 5,299,516 (30 April 2007: 5,825,879) ordinary shares in theCompany. On 14 May 2007, a share capital consolidation took place that replaced every 14existing ordinary shares with 9 new ordinary shares. The effect of this sharecapital consolidation changed the par value of an ordinary share from 12/19 pence to 56/57 pence. 14 CALLED UP SHARE CAPITAL (CONTINUED) Also, on 14 May 2007 shareholders received 1 'B' share or 1 'C' share for eachexisting ordinary share held. This was a means of returning cash toshareholders. The 'B' and 'C' shares issued were subsequently dealt with asfollows: • A dividend of 63 pence per 'C' share was paid on 451,806,110 'C' shares, with the dividend paid to holders on 25 May 2007. These 'C' shares were then converted to deferred shares. The deferred shares have been subsequently cancelled. • Employee share ownership trusts received 6,195,278 'C' shares and waived their entitlement to dividends on such shares. These 'C' shares were then converted to deferred shares. The deferred shares have been subsequently cancelled. • 253,584,435 'B' shares were redeemed at 63 pence each with the redemption proceeds paid to holders on 5 June 2007. • 365,219,584 'C' shares were sold to Credit Suisse Securities (Europe) Limited for 63 pence each and the proceeds paid to holders on 5 June 2007. The 'C' shares were subsequently purchased by the Company from Credit Suisse Securities (Europe) Limited at 63 pence each and were cancelled. • 24,193,300 'B' shares remained in issue at 31 October 2007 and may be redeemed at the option of the holder on 30 November and 31 March each year. These retained 'B' shares are entitled to receive a dividend at the rate of 70% of six month LIBOR, payable six-monthly in arrears on the par value of 63 pence per 'B' share. The 'B' shares that remain in issue are classified as liabilities and thedividends payable on such shares are classified in the consolidated incomestatement within finance costs. 15 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 2007 2006 2007 £m £m £m --------- --------- --------- Operating profit of Group companies 83.1 94.1 166.4Operating profit of discontinued operations Nil 5.2 5.2Depreciation- continuing operations 31.4 32.2 68.3- discontinued operations Nil 2.5 2.5Loss on disposal of property, plant andequipment Nil 0.1 0.2Intangible asset expenses 3.7 5.0 9.6Impairment of available for saleinvestment Nil Nil 1.3Equity-settled share based paymentexpense 1.6 0.9 2.0 --------- --------- ---------Operating cashflows before workingcapital 119.8 140.0 255.5(Increase)/decrease in inventories (1.2) (0.2) 0.5(Increase)/decrease in receivables (26.1) (19.3) 14.9Increase/(decrease) in payables 33.2 60.7 (2.8)Increase/(decrease) in provisions 1.2 (2.1) 13.7Non-cash past service pensions adjustment Nil Nil (28.9)Decrease in retirement benefitobligations/increase in retirementbenefit assets (47.0) (83.4) (94.9) --------- --------- ---------Cash generated from operations 79.9 95.7 158.0 --------- --------- --------- 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£33.7m (31 October 2006: £33.9m). After taking account of deposits paidup-front, new hire purchase liabilities of £32.1m (31 October 2006: £32.2m) wererecognised. 16 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 2007 October 2006 2007 £m £m £m ----------- ----------- ----------- (Decrease)/increase in cash (320.7) 281.2 315.1Cash flow from movement in borrowings 356.5 19.6 40.9 ----------- ----------- ----------- 35.8 300.8 356.0Bonus issue of preference shares (693.6) Nil NilHire purchase debt of acquired subsidiaries (0.5) Nil NilNew hire purchase and finance leases (32.1) (32.2) (49.0)Other movements 9.3 8.2 15.3 ----------- ----------- ----------- (681.1) 276.8 322.3Opening net funds/(debt) (see note 17) 186.4 (135.9) (135.9) ----------- ----------- -----------Closing net (debt)/funds (see note 17) (494.7) 140.9 186.4 ----------- ----------- ----------- 17 ANALYSIS OF NET (DEBT)/FUNDS IFRS does not explicitly define "net debt/funds". The analysis provided belowtherefore shows the analysis of net debt/funds as the Company defines it. Theanalysis below further shows the other items classified as borrowings in theconsolidated balance sheet. New hire Preference purchase (Charged)/ Preference shares and Foreign credited to shares liability finance exchange income Opening Cashflows issued waived leases movements Acquisitions statement Closing £m £m £m £m £m £m £m £m £m ------ ------ ------ ------ ------ ------ ------ ------ ------ Cash and cash equivalents 479.1 (320.7) Nil Nil Nil (0.4) Nil Nil 158.0Cash collateral 33.4 Nil Nil Nil Nil (0.1) Nil Nil 33.3Hire purchaseand finance lease obligations (122.3) 15.1 Nil Nil (32.1) 0.4 (0.5) Nil (139.4)Bank loansand loan stock (37.0) (333.1) Nil Nil Nil Nil Nil (0.7) (370.8)Bonds (166.8) Nil Nil Nil Nil 6.2 Nil Nil (160.6)Preferenceshares Nil 674.5 (693.6) 3.9 Nil Nil Nil Nil (15.2) ------ ------ ------ ------ ------ ------ ------ ------ ------UK GAAP netfunds/(debt) 186.4 35.8 (693.6) 3.9 (32.1) 6.1 (0.5) (0.7) (494.7)Accruedinterest onbonds andpreferenceshares (6.6) 7.3 Nil Nil Nil 0.1 Nil (7.5) (6.7)Unamortisedgain on earlysettlement ofinterest rate swaps (9.8) Nil Nil Nil Nil Nil Nil 2.3 (7.5) ------ ------ ------ ------ ------ ------ ------ ------ ------Net funds/(borrowing) 170.0 43.1 (693.6) 3.9 (32.1) 6.2 (0.5) (5.9) (508.9) ------ ------ ------ ------ ------ ------ ------ ------ ------ The net total of cash and cash collateral of £191.3m (30 April 2007: £512.5m) isclassified in the balance sheet as £191.3m (30 April 2007: £513.3m) in cash andcash equivalents and £Nil (30 April 2007: £0.8m) as bank overdrafts withinborrowings. The cash collateral balance as at 31 October 2007 of £33.3m (30April 2007: £33.4m) comprises balances held in trust in respect of loan notes of£32.3m (30 April 2007: £32.3m), £0.4m (30 April 2007: £0.4m) held in Escrow inrelation to the sale of businesses and North America restricted cash balances of£0.6m (30 April 2007: £0.7m). In addition, cash includes train operating companycash of £92.8m (30 April 2007: £96.2m). Under the terms of the franchiseagreements, train operating companies can only distribute cash out of retainedprofits, and subject to meeting specified liquidity ratios. Cash and cash equivalents includes £64.5m (30 April 2007: £Nil) of amountsdeposited in money market accounts that are due to mature between 30 November2007 and 7 December 2007. 18 RETIREMENT BENEFIT ASSETS/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"); • The Strathtay Scottish Omnibuses Limited Pension and Life Assurance Scheme("SSO"); and • From 11 November 2007, the East Midlands Trains section of the RailwaysPension Scheme ("RPS"). 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 relevant franchise. Therefore, the asset (or liability)recognised for the relevant sections of RPS only represents that part of the netsurplus (or deficit) of the sections that the employer is expected to recover(or obliged to fund) over the life of the franchise to which each sectionrelates. In addition, the Group contributes to a number of defined contribution schemescovering UK and non-UK employees. The movements for the six months ended 31 October 2007 in the net pre-tax assets/(liabilities) recognised in the balance sheet were as follows: Unfunded SGPS RPS LGPS YTC SSO Other Plans Total £m £m £m £m £m £m £m £m ------- ------- ------- ------- ------- ------- -------- -------At 1 May 2007 (27.3) 4.8 1.8 (8.3) (2.9) (0.8) (3.5) (36.2)Current service cost (5.0) (6.7) (1.6) (0.7) (0.2) Nil Nil (14.2)Defined contributioncosts Nil Nil Nil Nil Nil (0.5) Nil (0.5)Interest cost (16.1) (6.8) (6.9) (1.4) (0.2) (0.1) (0.1) (31.6)Expected return onplan assets 22.4 9.9 9.0 1.3 0.2 Nil Nil 42.8One-off employers'contributions 30.0 Nil Nil Nil Nil Nil Nil 30.0Other employers'contributions 8.7 7.6 2.3 1.0 0.3 0.5 0.1 20.5Actuarial gains 3.4 7.6 0.1 1.6 0.1 0.2 Nil 13.0 ------- ------- ------- ------- ------- ------- -------- -------At 31 October 2007 16.1 16.4 4.7 (6.5) (2.7) (0.7) (3.5) 23.8 ------- ------- ------- ------- ------- ------- -------- -------- Assets 16.1 16.4 12.4 - - - - 44.9 ------- ------- ------- ------- ------- ------- -------- -------- Liabilities - - (7.7) (6.5) (2.7) (0.7) (3.5) (21.1) ------- ------- ------- ------- ------- ------- -------- ------- The net pension assets before deferred tax of £23.8m (30 April 2007: netliabilities of £36.2m) is classified in the balance sheet as £44.9m (30 April2007: £16.6m) of assets and £21.1m (30 April 2007: £52.8m) of liabilities. Therelated net deferred tax liabilities on the net assets is £7.1m (30 April 2007:net deferred tax assets on the net liabilities of £10.9m) resulting in post-taxretirement benefit net assets of £16.7m (30 April 2007: net liabilities of£25.3m). 19 CONTINGENT LIABILITIES (i) At 31 October 2007, the following bonds and guarantees were in placerelating to the Group's rail operations: Unaudited Audited ----------------- ----------- As at As at As at 31 October 31 October 30 April 2007 2006 2007 £m £m £m Performance bonds backed by bankfacilities- Stagecoach South Western 10.7 10.7 10.7- East Midlands Trains 18.2 Nil Nil- South West Trains Nil 44.3 44.3Season ticket bonds backed by bankfacilities:- Stagecoach South Western 34.3 Nil 34.5- East Midlands Trains (£4.6m from Nil Nil NilNovember 2007)- South West Trains Nil 32.9 NilInter-company loan facilities/guarantees- Stagecoach South Western 25.0 25.0 25.0- East Midlands Trains 35.0 Nil Nil- South West Trains Nil 15.7 15.7 ---------- ---------- ---------- (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 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 2007, theaccruals in the consolidated financial statements for such claims total £3.1m(30 April 2007: £2.6m). (v) The Group provides details of guarantees and other financial commitments inits Annual Report. 20 CAPITAL COMMITMENTS Capital commitments are as follows: Unaudited Audited ----------------- ---------- As at As at As at 31 October 31 October 30 April 2007 2006 2007 £m £m £m ---------- ---------- ----------Contracted for but notprovided: for delivery withinone year 50.2 39.2 74.3 ---------- ---------- ---------- 21 RELATED PARTY TRANSACTIONS Details of major related party transactions during the six months ended 31October 2007 are provided below, except for those relating to the remunerationof the Directors and management. (i) 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 2007, the Group earnedfees of £15,417 (six months ended 31 October 2006: £12,500) from Virgin RailGroup Holdings Limited in this regard. (ii) 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 2007 amounted to £10,000 (six monthsended 31 October 2006: £10,000). At 31 October 2007, Noble Grossart InvestmentsLimited, a subsidiary of Noble Grossart Limited, held 4,084,999 (30 April 2007:6,354,443) ordinary shares in the Company, representing 0.6% (30 April 2007:0.6%) of the Company's issued ordinary share capital. (iii) Alexander Dennis Limited On 21 May 2004, Brian Souter and Ann Gloag together gained control of 39.3% ofthe shares and voting rights in Alexander Dennis Limited. They now collectivelyhold 37.7% (30 April 2007: 37.2%) of the shares and voting rights. NobleGrossart Investments Limited (see (ii) above) controls a further 28.3% (30 April2007: 27.9%) of the shares and voting rights of Alexander Dennis Limited. Noneof Brian Souter, Ann Gloag or Ewan Brown is a director of Alexander DennisLimited nor do they have any involvement in the management of Alexander DennisLimited. Furthermore, they do not participate in deciding on and negotiating theterms and conditions of transactions between the Group and Alexander DennisLimited. For the six months ended 31 October 2007, the Group purchased £19.1m (six monthsended 31 October 2006: £24.7m) of vehicles from Alexander Dennis Limited and £1.3m (six months ended 31 October 2006: £2.5m) of spare parts and otherservices. For new vehicle orders placed with Alexander Dennis Limited for vehicles, theGroup has consulted with the UK Listing Authority and taken the appropriatemeasures to ensure that the transactions with Alexander Dennis Limited complywith the Listing Rules. (iv) Pension Schemes Details of employer contributions made to pension schemes are contained in note18 to the condensed financial statements. (v) Robert Walters plc Martin Griffiths became a non-executive director of Robert Walters plc in July2006 and received £18,833 in respect of his services for the 6 months ended 31October 2007 (£12,500 from 12 July 2006 to 31 October 2006). (vi) Loan to New York Splash Tours LLC An interest bearing long-term loan of £1.5m was outstanding from New York SplashTours LLC as at 31 October 2007 (30 April 2007: £1.9m). 22 POST BALANCE SHEET EVENTS Details of the interim dividend declared are given in Note 7. On 11 November 2007, the Group commenced operation of the East Midlands railfranchise. On 30 November 2007, the Group redeemed 11,409,623 B shares at 63 pence each,leaving 12,783,677 B shares in issue.--------------------------* References to the operating profit or loss of a particular division in theinterim management report refer to operating profit or loss before restructuringcosts, intangible asset expenses and exceptional items. Further details of thedivisional split of operating profit can be found in note 3 to the condensedfinancial statements contained in this document. This information is provided by RNS The company news service from the London Stock Exchange

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