28th Sep 2006 07:04
National Express Group PLC28 September 2006 28 September 2006 National Express Group PLC Interim Results For the six months ended 30 June 2006 Financial Highlights • Revenue up 16.2% to £1,252.7 million (2005: £1,077.7 million) • Group operating profit of £48.0 million (2005: £48.7 million) • Operating cash flow** before one-off items of £79.8 million (2005: £106.2 million) • Normalised operating profit* up 24.8% to £84.0 million (2005: £67.3 million) • Normalised profit before tax* up 15.7% to £67.2 million (2005: £58.1 million) • Normalised diluted earnings per share* from continuing operations up 3.8% to 32.5 pence (2005: 31.3 pence) • Interim dividend increased by 7.5% to 10.75 pence (2005: 10.0 pence) • Net debt of £546.5 million (31 December 2005: £563.4 million) • Year-on-year fuel impact in UK divisions of £7.6 million * excluding profit or loss on the sale of businesses and charges for goodwill impairment, intangible amortisation, exceptional items and tax relief on qualifying exceptional items. ** operating cash flow as defined in the Finance Director's review Operational Highlights • New franchise extensions awarded for Central Trains and Silverlink • Pre-qualified for East Midlands and the New Cross Country rail franchises to be awarded in 2007 • Continued strong operational performance in Trains division • Introduction of yield management systems on intercity rail services • Continued innovation and organic growth in UK Coaches • New contract wins at Travel London • $30 million of new business won in North American bid season • Alsa awarded Madrid Metro Light Rail concession in Spain as part of bidding consortium Commenting on current trading and prospects, David Ross, Chairman, said: "The Group has continued to trade well over the summer and we approach the finalquarter of the year with confidence. We are delighted to have pre-qualified forthe East Midlands and New Cross Country rail franchises and look forward toreceipt of the Invitations to Tender. We are well advanced in our preparationfor the London Rail Concession and will be submitting our bid in October. In particular, overseas our performance has been strong. We have experiencedsignificant organic growth in North America and I am delighted with theperformance of Alsa during its first six months in the Group. We look forwardto pursuing a number of new growth opportunities across the Group." For further information, please contact: Richard Bowker, Chief ExecutiveAdam Walker, Finance DirectorNicola Marsden, Director of Group CommunicationsNational Express Group PLC 020 7529 2000 Andrew Dowler/ Ben FosterFinancial Dynamics 020 7831 3113 • There will be an analyst and investor meeting at 0900 hours on 28 September 2006 at Financial Dynamics, Holborn Gate, 26 Southampton Buildings, London WC2A 1PB. • A web-cast of the analyst presentation will be available on our website www.nationalexpressgroup.com at 0900 hours on 28 September 2006. For further details, contact Helen MacAlister at Financial Dynamics on 020 7831 3113. • High resolution images are available for the media to view and download, free of charge, from www.vismedia.co.uk or telephone 020 7436 9595. Chairman's Statement I am pleased to report the Group's interim results for the six month periodended 30 June 2006. In the UK our Trains division saw excellent passenger growth and high levels ofsustained performance, whilst our UK Coach division continues to lead the way inproduct innovation and quality. Our UK Bus division has performed well, withadditional contract wins and extensions in London and improved passengersatisfaction in the West Midlands. Overseas, we experienced a very promisingfirst six months trading in Spain. We are delighted with the integration of Alsaand are working on sharing best practice in the areas of operations, marketing,procurement and information technology. In North America, we continue to growour school bus operations and had another strong bid season resulting in newcontract wins generating $30 million annualised revenue. Like all major transport companies, we face the challenge posed by rising fuelprices. We continue to implement initiatives that mitigate these increasesalthough it is difficult to predict where oil prices will sit in the mediumterm. The Group is fully hedged for the remainder of this year and 2007. Inaddition, the rail industry is currently facing prospective significantincreases in the cost of traction electricity. We are working on initiatives toreduce the severity where possible and are also leading an industry group whichis discussing energy costs with the Department for Transport. In order to attract more passengers to our services we continue to invest in newfacilities, use technology to provide innovative solutions and take the hassleout of travel. We are focused on delivering our passengers the best qualitytravel solutions and are looking at ways to develop our proposition further.Safety continues to be a key priority across our operations, particularly giventhe on-going threats of terrorism. Board Changes Richard Bowker joined the Group as Chief Executive on 12 September following theretirement of Phil White from the Board as announced on 24 May. Richard brings awealth of public and private sector experience combined with transport andcommercial expertise. The Board looks forward to working with him. Results Revenue for the six months to 30 June 2006 was up 16.2% to £1,252.7 million(2005: £1,077.7 million). Normalised operating profit was up 24.8% to £84.0million (2005: £67.3 million). Normalised profit before tax increased to £67.2million (2005: £58.1 million). The Group's profit before taxation reduced to £5.5 million (2005: £39.5 million)as a result of increased intangible amortisation charges and the onerouscontract provision relating to the Eurostar operations. After taxation, thebasic loss per share was 5.9 pence (2005: loss per share 24.0 pence). Normalised diluted earnings per share were up by 3.8% to 32.5 pence (2005: 31.3pence). Operating cash flow before one-off items during the first six months was£79.8 million (2005: £106.2 million). Net debt at 30 June was £546.5 million (31December 2005: £563.4 million). An interim dividend of 10.75 pence per share, an increase of 7.5% over lastyear's interim dividend of 10 pence per share, will be paid on 20 October 2006to shareholders on the register by 6 October 2006. Current trading and prospects The Group has continued to trade well over the summer and we approach the finalquarter of the year with confidence. We are delighted to have pre-qualified forthe East Midlands and New Cross Country rail franchises and look forward toreceipt of the Invitations to Tender. We are well advanced in our preparationfor the London Rail Concession and will be submitting our bid in October. In particular, overseas our performance has been strong. We have experiencedsignificant organic growth in North America and I am delighted with theperformance of Alsa during its first six months in the Group. We look forwardto pursuing a number of new growth opportunities across the Group. Chief Executive's Review of Operations Following the announcement of my appointment back in May, I am delighted to havejoined the Group. National Express is a company I have long admired and for goodreason - it has a proven tradition of innovation and delivery. We offer a uniquecombination - a strong brand combined with a focus on local delivery to ourcustomers. Moving forward, my key priorities will be to develop a clear strategyfor sustained growth and maintain a strong focus on the cost base of thebusiness. We must ensure we have excellent relationships with all our keystakeholders whether public or private sector whilst ensuring our peoplestrategy is focused on embedding a culture of delighting our customers as Ibelieve this will drive top line growth. I look forward to working with the teamto build a company that delivers for our customers, our shareholders and ourwider stakeholders. Trains We operate six train franchises in the UK: c2c, Central Trains, Gatwick Express,Midland Mainline, 'one' and Silverlink. The Trains division achieved revenue of £744.0 million (2005: £739.3 million)and normalised operating profit of £20.0 million (2005: £27.1 million),following changes to our franchise portfolio with the loss of Wessex and GreatNorthern in March. During the period, franchise extensions for Central Trains and Silverlink toNovember 2007 were agreed with the Department for Transport. We are well advanced in our planning for the East Midlands and New Cross Countryrail franchises for which we pre-qualified last week. We have a renewed focus toour bidding and believe that we can combine our operational excellence with someinnovative and creative new ideas to produce highly competitive bids. Across our Trains division, we continue to lead the industry in terms ofreliability and punctuality resulting in passenger growth of 4%. During theperiod, Midland Mainline topped the punctuality tables for long distanceoperators and c2c was the best performing train operating company in the UK. Our considerable efforts to put our customers at the heart of everything we dois reflected in the opening in February of our third Customer Service Academy inStratford, London. Gatwick Express continues to lead the way in the NationalPassenger Survey tables, achieving 94% overall passenger satisfaction. Excellentprogress has been made on punctuality and reliability at Central Trains,particularly given the franchise geography and complexity of its operations. Our 'one' franchise has experienced some revenue weakness on certain routesincluding the Stansted Express which has taken longer than expected to recoverfrom last year's terrorist attacks. To improve customer service levels, we havecompleted a £25 million refurbishment of our rolling stock on the Norwich toLondon mainline which has improved reliability across the network. We have introduced yield management systems on our intercity routes to provide abetter customer offering and attract more capacity to our off-peak services. Forexample, we now offer headline fares as low as £6 tickets from the Midlands toLondon on Midland Mainline. As a result of this initiative, passenger numbershave increased by 7%. On 7 September we were delighted that Midland Mainline won "Passenger Operatorof the Year" at the National Rail Awards. We will be submitting our bid for the London Rail Concession to Transport forLondon ("TfL") on 9 October which will lead the way for a new railway forLondon. Coaches The Coach division provides Britain's only scheduled national coach network andservices to more than 1,200 destinations. Eurolines offers value for moneyEuropean travel by coach. Revenue was £94.8 million (2005: £91.7 million) and normalised operating profitwas £5.3 million (2005: £4.1 million), up 29.3% on the same period last year. The division experienced a very strong first half with patronage growth of 2% onthe back of utilising more yield management and a greater focus on providingservices to support major UK leisure events. We continue to see good growth on city to city routes including services betweenLondon and Bristol, Cardiff and Brighton. Yield managed funfares are nowavailable on over 30 of the division's key routes. Airport services,particularly out of Stansted airport, also saw good growth and we continue toseek ways to develop our airport services outside of the London market. Paperless ticketing now represents 50% of all ticket sales, reflecting ourflexibility to cater for the changing preferences of our customers. Over 90% ofall tickets booked on-line are distributed either as e- or m-tickets. We alsolaunched new self service fast issue ticket machines at Heathrow, Birmingham andManchester coach stations. We are fully committed to making our coach network accessible to all and haveintroduced our first fleet of fully accessible "Levante" coaches. We aim to bethe first coach operator to have a fully accessible fleet in preparation for the2012 Olympics. We have been working closely with the Alsa team to share best practice onsystems, vehicle procurement and customer information. It is anticipated thatthere are more benefits to come next year. At Eurolines, we experienced double digit growth on the Paris and Amsterdamroutes which underpinned a successful first half. Buses The Bus division operates over 2,000 buses in the West Midlands, Dundee andLondon. We also operate the Midland Metro, the light rail service in the WestMidlands. Revenue for the period was £147.5 million (2005: £127.0 million) with annormalised operating profit of £19.0 million (2005: £18.2 million). Travel London continued to extend itsoperations through the award of new contracts and enhancements to existingcontracts. The Travel London fleet now totals over 400 buses. We are workingwith TfL on the planned redevelopment of our Battersea depot to give us furthercapacity. Passenger numbers have benefited from the launch of the national concessionaryfare scheme, equalising the age of entry back to 60. We await the outcome of thediscussions between Centro and the DfT regarding the reimbursement methodologyunder this scheme. During the period we concluded a new two year pay deal for our Travel WestMidlands ("TWM") business which has assisted in the recruitment and retention ofdrivers. At the beginning of the year we introduced driver quality monitoringand are developing plans to further improve driver retention. In the first half of the year, we invested in on-board real-time informationtechnology across a number of key routes and, in conjunction with Centro, havelaunched a full SMS text messaging service to 2,000 stops in the region,providing real-time and scheduled information. Over 350 TWM buses are now fittedwith automatic vehicle location equipment which provides increased servicequality and operational control. We aim to roll-out further across the WestMidlands. In Coventry, joint working with the Passenger Transport Executive hasled to the ongoing success of the extensive PrimeLines network of quality busroutes. Travel Coventry has now spent over £10 million during the last fiveyears upgrading its fleet. In Dundee, our successful partnership working with the city council has led tocontinued strong performance. We are working towards the commencement of aStatutory Quality Partnership. In March we acquired the remaining shares inAltram, the operator of Midland Metro. North America We operate a large network of school bus services both in the United States andCanada, with a fleet of 13,000 buses. Revenue was £155.0 million (2005: £123.8 million) and normalised operatingprofit was £26.6 million (2005: £22.6 million). In local currency, North Americaincreased normalised operating profit to US$47.6 million (2005: US$42.5million). Our North American division has made another strong start to the year. In theUnited States we have just completed a record bid season for the second yearrunning. Duval, in Florida, is the largest of our new wins but we also securednew business in Connecticut and Illinois as well as conversions in Alabama andLouisiana. As importantly, we maintained our contract retention rate of over95%. In June we completed a small but strategically important acquisition inPennsylvania. We continue to work closely with the school boards with the aim of providing theultimate "hassle-free" service which, in part, helps to maintain our highretention levels. In Canada, local operators have secured some extra funds fromthe government to compensate for high fuel costs. The acquisitions completedlast year in Canada have integrated well. Work is progressing well on our re-engineering initiative as we aim to useimproved technology to provide an even better service to our customers. Thiswork will play a part in our strategy for next year's bid season, our approachto conversion and will be rolled out across existing contracts in 2007. We are looking at a number of potential acquisition opportunities across NorthAmerica as we continue to grow our student bus division. Over the past two months we have received a number of expressions of interest inStewart airport, our leased facility, based in New York State. With our strategyfocused on growing our student bus operations, we have commenced negotiationsregarding a potential disposal. Alsa Alsa is Spain's largest private coach and bus operator, with a high qualitynetwork of long distance and regional coach routes. It also operates urban busnetworks in Spain, Portugal and Morocco. Revenue was £117.1 million and normalised operating profit was £18.1 million. Weare delighted with the progress that Alsa has made in its first full six monthsas part of the Group. We have experienced an increase in passenger numbers of 5%across the business. In long distance, a new contract was won at Madrid's newairport terminal and we introduced promotional fares on the network for thefirst time, targeting off-peak capacity. In addition, investment has taken placeto increase the proportion of direct sales and provide our customers with abetter travelling experience. Our urban operations have been strengthened by securing additional work inOviedo, Cartagena, Palencia and Marrakech and we have extended our geographicalpresence with a 25% strategic stake in Bilbobus, the largest private operator inBilbao which operates a fleet of over 270 buses. This gives us an importantfoothold in the Basque region. In conjunction with Madrid Metro and Caja Madrid bank, Alsa has been awarded the30 year concession to operate and maintain Madrid's newly constructed light railroute. This may open up the possibility of further opportunities in light railacross Spain. The operations are expected to commence in May 2007. We remain excited by the numerous growth opportunities we are pursuing in theSpanish and North African markets. Finance Director's Review Half Year at a glance We have achieved another strong set of results increasing revenue by 16.2% to£1,252.7 million (2005: £1,077.7 million). The Group has achieved a 24.8%increase in normalised operating profit to £84.0 million (2005: £67.3 million),resulting in an increased margin of 6.7% (2005: 6.2%). Operating profit hasdecreased by £0.7 million to £48.0 million (2005: £48.7 million). Normalisedprofit before tax increased by 15.7% to £67.2 million (2005: £58.1 million)resulting in improved normalised diluted earnings per share from continuingoperations of 32.5 pence (2005: 31.3 pence), up 3.8%. After intangibleamortisation, goodwill impairment, exceptional items and tax thereon, the lossfor the period was £8.5 million (2005: loss £32.7 million). Net debt decreasedby £16.9 million to £546.5 million. The interim dividend has been increased by7.5% to 10.75 pence (2005 - 10.0 pence). Divisional Review In this review, we will refer to normalised results, which we feel reflect theperformance of the business more appropriately. Normalised results are definedas the statutory results before the following as appropriate: profit or loss onthe sale of businesses and charges for goodwill impairment, intangibleamortisation, exceptional items and tax relief on qualifying exceptional items. Trains Normalised operating profit decreased to £20.0 million (2005: £27.1 million) asa result of changes in our portfolio, with the Wessex and Great Northernfranchises leaving the Group on 31 March 2006. This resulted in a decrease inmargin to 2.7% (2005: 3.7%). Our franchises continue to appear at the top of the league tables forperformance and customer satisfaction, which has contributed to our ability tostimulate customer demand. Revenue improvements enabled us to offset increasesin fuel costs of £3.6 million in the first half, although the revenue at 'one',which is our largest train franchise, is not growing as fast as the other Londonand South East franchises. Bid costs remain a significant investment for this Division with the majority ofthis year's expenditure likely to fall in the second half of the year. New financial arrangements have been agreed for our profitable Central Trainsand Silverlink franchises which will run until November 2007. Coaches Our UK Coach operations produced a strong result with normalised operatingprofit increasing from £4.1 million to £5.3 million, boosted by patronage growthof 2%. The operating margin increased to 5.6% (2005: 4.5%) because of ourcontinued focus on reducing the cost base. Direct sales have increased,including a 15% increase in web-based ticket sales. We continue to grow therange of services provided, focusing recently on dedicated services to majorsporting and music events. The seasonality of these operations means that themajority of the profit is earned in the second half of the year. Buses Revenue is up 16.1% to £147.5 million (2005: £127.0 million) and the operationsgenerated £19.0 million (2005: £18.2 million) of normalised operating profit.The divisional operating margin has been diluted to 12.9% (2005: 14.3%) by theincreased size of the London business as a result of the acquisition of TellingsGolden Miller's London bus operations in 2005. We have seen a welcome return togrowth amongst our concessionary fare passengers resulting from the introductionof the national concessionary fares scheme. Higher fuel costs have added £3.4 million to the cost base of the business.This increase has been partially mitigated through our fares policy and closemanagement of our cost base. On 2 March 2006, we received clearance from the Office of Fair Trading regardingour acquisition of the outstanding 67% share holding in Altram LRT Limited ("Altram"). Completion occurred on 14 March 2006 and the results of Altram havebeen fully consolidated from this date. A normalised operating loss of £0.3m isincluded in the divisional result. North America In local currency, North America increased normalised operating profit toUS$47.6 million (2005: US$42.5 million). Revenue has increased by US$44.9million (19.3%) to $277.6 million (2005: US$232.7 million). One significantaccident claim in the US and additional legal costs in Canada contributed to a1.1% decline in the North America margin to 17.2% (2005: 18.3%). We have had a strong bid season, winning new business with net annualisedrevenue of US$30 million. Historic fuel hedges continue to the end of 2006 whichat current prices will lead to a US$13 million increase in the cost base nextyear. Recent increases in fuel costs have been factored into our bids. Theacquisition of Reliance in Pennsylvania in June consolidates the Group'sposition in the student transportation market and will contribute US$4 millionto revenue for the full year. Alsa We have experienced patronage growth of 5% with a particularly good performancein our long distance division on the routes from Madrid and the north of Spainand growth in our urban business in Leon and Marrakech. During the period wewere awarded a one year contract to operate coach services at Barajas Airport,Madrid. During the past six months, we have spent a lot of time focussing on thefinancial integration of Alsa. This has progressed according to plan, with thevaluation work on intangibles and key assets now completed and monthly reportingtimetables in line with Group requirements. There has been no requirement tochange any of Alsa's accounting systems. Normalised operating profit of £18.1million was achieved on revenue of £117.1 million, an operating margin of 15.5%. Joint Ventures and Associates The total charge for associates was £29.5 million (2005: £4.4 million), whichcomprises our share of the post tax results from associates of £3.8 million(2005: £4.4 million) and a £25.7 million exceptional charge for the designationof the Group's Eurostar contract with Inter-Capital and Regional Rail Limited asan onerous contract. Over the past two to three years the partners at Eurostar have looked at ways ofconsolidating the operations. This may or may not have led to our exit from thecontract, at a cost which was never determined or agreed. Earlier this yearthere was considerable speculation and subsequent activity around a potentialsale of London and Continental Railways which underwrites the debts of EurostarUK. Now that these discussions have ceased we believe it is possible to make areliable estimate of the amount of our obligation to contribute to the losses ofEurostar. Consequently, we have provided for these losses to the end of thecontract in 2010. The net present value of the expected losses is £25.7million. Our share of the operating profit for Altram for the period to 14 March 2006 was£0.1 million (2005: loss of £0.1 million). The results of the joint venturesand associates acquired with Alsa were immaterial for the period. Finance Cost Net interest payable increased to £13.0 million (2005: £4.8 million), reflectingthe higher levels of net debt in the first half of the year when compared to2005, due to the Alsa acquisition at the end of 2005. Normalised operating profit before depreciation and other non-cash items ("EBITDA") was £122.9m (2005: £98.4 million) and EBITDA finance cover decreased to9.9 times (2005: 22.4 times). Intangibles, Goodwill & Exceptional Items The goodwill and intangible assets arising on the Alsa acquisition in 2005 wereprovisionally classified as goodwill at 31 December 2005. They have now beenreallocated as the intangible asset valuation work is complete. This hasresulted in £174.2 million reclassified as intangible assets representing thecontracts acquired with the business. The balance of £294.1 million, afterfurther fair value adjustments, remains within goodwill. Intangible asset amortisation of £14.3 million (2005: £1.7 million) comprises£10.1m (2005: £nil) on contracts acquired in Alsa, £2.4m (2005: £0.5m) oncontracts acquired in North America, £0.8m (2005: £nil) on contracts acquired inUK Bus and £1.0m (2005: £1.2m) on the intangible asset that arises from theGroup's right to operate its rail franchises. The impairment charge for the period on the goodwill arising from theacquisition of Prism Rail PLC in September 2000 was £19.3m (2005: £16.6m).Although IFRS 3, 'Business Combinations', prohibits the amortisation ofgoodwill, the train franchises acquired with Prism have finite lives, andtherefore the goodwill is impaired in line with the remaining cash flows. A goodwill impairment charge of £0.9m has been charged on goodwill acquired withthe remaining share capital of Altram. Exceptional costs of £1.5m were incurred in relation to the ongoing Alsaintegration project. Exceptional costs of £0.3m in 2005 arose in the NorthAmerica Bus division, as a result of the relocation from Austin, Texas toChicago, Illinois. On 4 July 2006, the Group disposed of its 14% shareholding in Trainline HoldingsLimited ("Trainline"). The profit on disposal will be included in the incomestatement in the full year financial statements, but as the disposal had notcompleted at 30 June 2006 the excess of the disposal proceeds, before costs,over the net book value is included in reserves as a revaluation of ouravailable for sale assets. Tax Our normalised tax rate increased to 26.0% (2005: 24.5%) to reflect the higherrates of tax in overseas jurisdictions. The normalised operating profit of Alsa(2006: £18.1m; 2005: £nil) predominantly arises in Spain where thejurisdictional rate is 35% compared to 30% in the UK. Cash Flow The Group continues to generate strong cash flow with a cash inflow fromoperations before exceptional items and franchise revisions of £79.8m (2005:£106.2m). Operating cash flow represents "Cash generated from operations" plus "Proceedsfrom disposal of property, plant and equipment" less "Finance lease additions"and "Purchase of property, plant and equipment" as set out in note 14 and thecash flow statement. Operating Cash Flow UK UK UK North Alsa Central Total Bus Coach Train America £m functions £m £m £m £m Bus £m £m Normalised operating profit 19.0 5.3 20.0 26.6 18.1 (5.0) 84.0Depreciation 7.6 2.6 12.1 12.8 6.2 0.2 41.5Amortisation of leasehold property prepayment - - - 0.4 - - 0.4Amortisation of property, plant and equipment grants - - (1.4) - (0.1) - (1.5)Profit on disposal of property, plant and equipment 0.1 - (2.2) (0.4) 0.1 - (2.4)Share based payments 0.2 0.1 0.1 - - 0.5 0.9EBITDA 26.9 8.0 28.6 39.4 24.3 (4.3) 122.9Working capital movement (13.3) 0.8 0.4 2.5 (1.7) 9.1 (2.2)Eurostar - - - - - (8.4) (8.4)Net cash inflow from operations 13.6 8.8 29.0 41.9 22.6 (3.6) 112.3Net capital expenditure (6.5) (1.0) (9.7) (6.5) (8.7) (0.1) (32.5)Operating cash flow before one-offs 7.1 7.8 19.3 35.4 13.9 (3.7) 79.8Other cash flows - Exceptional items (0.9) - Franchise revisions (20.9)Operating cash flow 58.0 Net capital expenditure was £32.5m (2005: £27.4m) including £0.5m (2005: £7.3m)of additions purchased under finance leases offset by £3.8m (2005: £3.0m)proceeds from disposals. The net outflow of £20.9m following the transfer of the Great Northern andWessex franchises comprises an inflow of £4.5m in proceeds for the sale ofproperty, plant and equipment and £25.4m of cash outflows to fund the workingcapital position in the franchises. Around two thirds of the Group's capital expenditure program is projected tooccur in the second half of the year. These outflows will be partially offsetby the receipt of £13.7m for the disposal of the Trainline investment. During the first half of the year, we refinanced our two existing bank debtfacilities into one new £800m five year revolving credit facility maturing inJune 2011. As at 30 June 2006, the headroom under the facility was £194.6m. NATIONAL EXPRESS GROUP PLCGROUP INCOME STATEMENTFor the six months ended 30 June 2006 Unaudited six months to 30 June Audited Total before Total before Goodwill goodwill Goodwill goodwill impairment, impairment, impairment, impairment, intangible intangible intangible intangible amortization amortization amortization amortization & & & Year to & exceptional exceptional exceptional 31 Dec exceptional items Total items items Total Total items 2006 2006 2006 2005 2005 2005 2005 Note £m £m £m £m £m £m £m Revenue 3 1,252.7 - 1,252.7 1,077.7 - 1,077.7 2,216.0Operating costs beforegoodwill impairment,intangible amortisation &exceptional items (1,168.7) - (1,168.7) (1,010.4) - (1,010.4) (2,060.5)Intangible amortisation 4 - (14.3) (14.3) - (1.7) (1.7) (4.9)Goodwill impairment 4 - (20.2) (20.2) - (16.6) (16.6) (33.3)Exceptional items 5 - (1.5) (1.5) - (0.3) (0.3) (7.8)Total operating costs (1,168.7) (36.0) (1,204.7) (1,010.4) (18.6) (1,029.0) (2,106.5)Group operating profit 84.0 (36.0) 48.0 67.3 (18.6) 48.7 109.5Share of post tax resultsfrom associates and jointventures accounted for using the equity method (3.8) (25.7) (29.5) (4.4) - (4.4) (8.8)Finance income 6 5.6 - 5.6 6.0 - 6.0 10.8Finance costs 6 (18.6) - (18.6) (10.8) - (10.8) (22.2)Profit before tax 67.2 (61.7) 5.5 58.1 (18.6) 39.5 89.3Tax expense 7 (17.5) 3.5 (14.0) (14.8) 0.1 (14.7) (27.5) Profit after tax for theperiodfrom continuingoperations 49.7 (58.2) (8.5) 43.3 (18.5) 24.8 61.8Loss for the period fromdiscontinued operations - - - 2.5 (60.0) (57.5) (64.5) Loss for the period 49.7 (58.2) (8.5) 45.8 (78.5) (32.7) (2.7)Loss attributable toequityshareholders 49.4 (58.2) (8.8) 45.8 (78.5) (32.7) (2.8)Profit attributable tominority interests 0.3 - 0.3 - - - 0.1 49.7 (58.2) (8.5) 45.8 (78.5) (32.7) (2.7) Loss per share:- basic loss per share 10 (5.9) (24.0p) (2.0p)- diluted loss per share 10 (5.9) (23.7p) (2.0p) (Loss)/earnings per share fromcontinuing operations:- basic (loss)/earnings per share 10 (5.9) 18.2p 45.2p- diluted (loss)/earnings per share 10 (5.9) 17.9p 44.5p Dividends of £33.9m were due during the period (2005 interim: £28.1m; 2005 fullyear: £41.6m). Dividends of £16.2 m were proposed for approval during the period(2005 interim: £13.5m; 2005 full year: £47.0m) NATIONAL EXPRESS GROUP PLCGROUP BALANCE SHEETAt 30 June 2006 Note Unaudited Unaudited Audited 30 June 30 June 31 Dec 2006 2005 2005 £m £m £mAssetsNon-current assetsIntangible assets 730.9 270.1 719.4Property, plant and equipment 499.9 347.9 507.2Financial assets - Other investments 11 22.2 10.2 11.4Financial assets - Derivative financial instruments 11 2.1 4.8 0.6Investments accounted for using the equity method 8.7 - 4.8Other receivables 32.4 31.6 26.2Deferred tax asset - 11.6 23.0 1,296.2 676.2 1,292.6Current assetsInventories 16.4 14.8 18.7Trade and other receivables 236.4 223.4 301.8Financial assets - Derivative financial instruments 11 6.8 6.8 6.7Current tax assets 13.5 - 11.3Cash and cash equivalents 14 105.3 135.3 145.5 378.4 380.3 484.0Disposal group assets classified as held for sale - 72.8 -Total assets 1,674.6 1,129.3 1,776.6Non-current liabilitiesFinancial liabilities - Borrowings 14 (595.6) (257.5) (495.5)Financial liabilities - Derivative financial instruments 11 (4.1) (10.9) (8.3)Deferred tax liability (66.8) (6.5) (27.1)Other non-current liabilities (1.7) (2.7) (6.1)Defined benefit pension liability 12 (94.1) (41.6) (88.8)Provisions (54.9) (41.2) (41.3) (817.2) (360.4) (667.1)Current liabilitiesTrade and other payables (459.6) (472.3) (533.1)Financial liabilities - Borrowings 14 (57.2) (22.1) (214.4)Financial liabilities - Derivative financial instruments 11 (4.0) (11.0) (13.4)Current tax liabilities (36.6) (31.5) (24.0)Provisions (26.4) (10.3) (12.3) (583.8) (547.2) (797.2)Liabilities directly associated with disposal group assets - (25.4) -classified as held for saleTotal liabilities (1,401.0) (933.0) (1,464.3)Net assets 273.6 196.3 312.3Shareholders' equityCalled up share capital 13 7.7 6.8 7.5Share premium account 13 187.3 49.6 174.2Capital redemption reserve 13 0.2 0.2 0.2Own shares 13 (16.7) (8.6) (5.1)Other reserves 13 22.1 17.5 24.5Retained earnings 13 70.0 130.8 108.1Total shareholders' equity 270.6 196.3 309.4Minority interest in equity 3.0 - 2.9Total equity 273.6 196.3 312.3 NATIONAL EXPRESS GROUP PLCGROUP STATEMENT OF CASH FLOWSFor the six months ended 30 June 2006 Note Unaudited Unaudited Audited six months to six months to year to 30 June 30 June 31 Dec 2006 2005 2005 £m £m £m Cash generated from operations 15 86.0 132.5 181.1Tax received/(paid) 5.9 (10.3) (26.7)Net cash from operating activities 91.9 122.2 154.4Cash flows from investing activitiesPayments to acquire businesses, net of cash acquired (8.2) (18.6) (218.8)Deferred consideration for businesses acquired 0.3 (0.3) (0.3)Purchase of property, plant and equipment (35.8) (23.1) (61.7)Proceeds from disposal of property, plant and equipment 8.3 3.0 8.1Receipts from disposal of businesses, net of cash disposed - (1.5) 71.3Interest received 5.6 6.0 10.8Receipts from sale of shares for employee share schemes 13.3 - 3.5Net cash used in investing activities (16.5) (34.5) (187.1)Cash flows from financing activitiesProceeds from issue of ordinary shares - 2.1 4.9Purchase of own shares (11.6) (29.3) (29.3)Interest paid (18.4) (19.8) (32.6)Finance lease principal payments (10.5) (7.9) (20.0)Repayment of loan notes - (6.5) (6.7)Loans (repaid)/advanced (33.7) (11.5) 148.1Dividends paid (33.4) (28.1) (41.6)Net cash (used in)/from financing activities (107.6) (101.0) 22.8Decrease in cash and cash equivalents (32.2) (13.3) (9.9)Opening cash and cash equivalents 140.0 147.2 147.2Decrease in cash and cash equivalents (32.2) (13.3) (9.9)Foreign exchange (2.5) 1.4 2.7Closing cash and cash equivalents 14 105.3 135.3 140.0 GROUP STATEMENT OF RECOGNISED INCOME AND EXPENSEFor the six months ended 30 June 2006 Unaudited Unaudited Audited six months to six months to year to 30 June 30 June 31 Dec 2006 2005 2005 £m £m £mIncome and expense recognised directly in equityExchange differences on retranslation of foreign operations (19.8) 25.9 50.3Exchange differences on retranslation of foreign currencyborrowings 11.0 (25.3) (45.5)Actuarial (losses)/gains on defined benefit pension plans (8.9) 22.2 (32.0)Gains on valuation of available for sale assets 10.8 - -Gains on cash flow hedges taken to equity 8.9 12.3 14.5 2.0 35.1 (12.7) Transfers to the income statementExchange differences on disposal of foreign operations - - 1.5On cash flow hedges (2.9) (3.3) (9.4) (2.9) (3.3) (7.9) Tax on exchange differences on retranslation of foreignoperations 2.2 3.4 7.1Deferred tax on share based payments (1.0) 2.0 1.4Deferred tax on actuarial (losses)/gains 2.8 (6.1) 9.0Deferred tax on cash flow hedges (1.8) (2.9) (1.4)Tax on items taken directly to or transferred from equity 2.2 (3.6) 16.1 Net gains/(losses) recognised directly in equity 1.3 28.2 (4.5)Loss for the financial period (8.8) (32.7) (2.8)Profit attributable to minority interests 0.3 - 0.1Total recognised expense for the period (7.2) (4.5) (7.2) Expense attributable to equity shareholders (7.5) (4.5) (7.3)Income attributable to minority interests 0.3 - 0.1 (7.2) (4.5) (7.2) NATIONAL EXPRESS GROUP PLCNOTES TO THE INTERIM ACCOUNTSFor the six months ended 30 June 2006 1. Basis of preparation These accounts have been prepared using the accounting policies set out in theGroup's 2005 statutory accounts. The interim results are unaudited but have been reviewed by the auditors. Thefinancial information presented herein does not amount to full statutoryaccounts within the meaning of Section 240 of the Companies Act 1985 (asamended). The figures for the year to 31 December 2005 have been extracted fromthe Annual Report and Accounts 2005 which has been filed with the Registrar ofCompanies. The audit report on the Annual Report 2005 was unqualified and didnot contain a statement under Section 237 (2) or (3) of the Companies Act 1985. 2. Exchange rates The most significant exchange rates to the pound for the Group are as follows: Six months to 30 June 2006 Six months to 30 June 2005 Year to 31 Dec 2005 Closing rate Average rate Closing rate Average rate Closing rate Average rate US dollar 1.85 1.79 1.79 1.88 1.72 1.82Canadian dollar 2.06 2.03 2.20 2.31 2.00 2.20Euro 1.44 1.45 n/a n/a 1.45 1.47 If the results for the six months to 30 June 2005 were retranslated at theaverage exchange rates for the six months to 30 June 2006, North America wouldhave achieved normalised operating profit of £24.2m on revenue of £131.7m. 3. Segmental analysis The revenue of the Group comprises income from road passenger transport, trainpassenger services, airport operations and related activities in the UK, NorthAmerica and Europe. Within the UK Trains division, franchise agreement receiptsfrom the Department for Transport Rail Division and local Passenger TransportExecutives (and the Strategic Rail Authority in 2005) are treated as revenue.During the half year to 30 June 2006, franchise agreement receipts amounted to£179.0m (2005 interim: £157.2m; 2005 full year: £337.0m). Unaudited six months to Audited year to 30 June 31 DecemberAnalysis by class and geography of business Operating Operating Operating Revenue result Revenue result Revenue result 2006 2006 2005 2005 2005 2005 £m £m £m £m £m £m UK Bus 147.5 19.0 127.0 18.2 268.6 41.5UK Trains 744.0 20.0 739.3 27.1 1,497.2 64.2UK Coach 94.8 5.3 91.7 4.1 200.5 21.5Inter-company elimination (5.7) - (4.1) - (10.3) -UK operations 980.6 44.3 953.9 49.4 1,956.0 127.2North American Bus 155.0 26.6 123.8 22.6 241.8 35.0European Coach & Bus (Alsa) 117.1 18.1 - - 18.2 2.6Central functions - (5.0) - (4.7) - (9.3)Result from continuing operations 1,252.7 84.0 1,077.7 67.3 2,216.0 155.5Goodwill impairment (20.2) (16.6) (33.3)Intangible asset amortisation (14.3) (1.7) (4.9)Exceptional items (1.5) (0.3) (7.8)Group operating profit 48.0 48.7 109.5Share of post tax results from associatesand joint ventures accounted for using theequity method (29.5) (4.4) (8.8)Net finance costs (13.0) (4.8) (11.4)Profit before tax 5.5 39.5 89.3Tax expense (14.0) (14.7) (27.5)Profit for the period from continuing (8.5) 24.8 61.8operationsLoss from discontinued operations - (57.5) (64.5)Loss for the period (8.5) (32.7) (2.7) Revenues include £3.9m property rentals receivable (2005 interim: £3.4m; 2005full year: £7.2m). Inter-company sales only occur between the Group's UKDivisions. 4. Goodwill impairment and intangible asset amortisation Goodwill in UK Trains is subject to an annual impairment charge reflecting thefinite life of the rail franchises. The charge for the six months to 30 June2006 is £19.3m (2005 interim: £16.6m; 2005 full year: £33.3m). In addition animpairment charge of £0.9m has been charged on goodwill acquired with Altram. Other intangible assets in UK Trains are subject to amortisation, which ischarged on a straight-line basis to the end of the franchise, of £1.0m (2005interim: £1.2m; 2005 full year: £2.4m). Intangible assets representing customercontracts have been subject to an amortisation charge in Alsa of £10.1m (2005interim: £nil, 2005 full year: £nil), North America of £2.4m (2005 interim:£0.5m; 2005 full year: £1.6m) and in UK Bus of £0.8m (2005 interim: £nil; 2005full year: £0.9m). 5. Exceptional items and exceptional charge for associates Exceptional items are those items of financial performance that the Groupbelieves should be separately disclosed to assist in the understanding of thefinancial performance achieved by the Group and in making projections of futureresults. The exceptional items can be analysed as follows: Six months to Six months to Year to 30 June 2006 30 June 2005 31 Dec 2005 £m £m £m UK Trains - - 3.5UK Bus - - 1.5North American Bus - 0.3 2.8European Coach & Bus (Alsa) 1.5 - -Total exceptional charge 1.5 0.3 7.8 In the six months to 30 June 2006, exceptional costs of £1.5m have been incurredin relation to the Alsa integration. In the six months to 30 June 2005 and the year to 31 December 2005 exceptionalcosts were incurred in North America for business reorganisation costs inrespect of the divisional head office relocation. The balance of exceptionalitems comprised the cost of reorganisations at UK Bus (£1.5m) and staffredundancy programmes and business reorganisations at UK Trains (£3.5m). The total charge for associates of £29.5m (2005 interim: £4.4m; 2005 full year:£8.8m) comprises our share of the post tax results from associates of £3.8m(2005 interim: £4.4m; 2005 full year: £8.8m) and a £25.7m exceptional charge forthe designation of the Group's Eurostar contract with Inter-Capital and RegionalRail Limited ("ICRRL") as an onerous contract in the first half of 2006. 6. Net finance costs Six months to Six months to Year to 30 June 2006 30 June 2005 31 Dec 2005 £m £m £m Bank interest payable (14.9) (8.4) (16.3)Finance lease interest payable (3.1) (1.9) (4.7)Other interest payable - (0.1) (0.3)Unwind of insurance provision discounting (0.6) (0.4) (0.9)Finance costs (18.6) (10.8) (22.2)Finance income: Bank interest receivable 5.6 6.0 10.8Net finance costs (13.0) (4.8) (11.4) 7. Taxation Tax on profit on ordinary activities for the six months to 30 June 2006 has beencalculated on the basis of the estimated annual effective rate for the yearending 31 December 2006. The tax charge of £17.5m (2005 interim: £14.8m; 2005full year: £29.5m) represents an effective tax rate on normalised profit beforetax, for continuing and discontinued operations, of 26.0% (2005 interim: 24.5%;2005 full year: 21.8%). It includes overseas current taxation of £3.4m (2005interim: £4.6m; 2005 full year: credit of £1.4m), and deferred taxation of £8.9m(2005 interim: £2.9m; 2004 full year: £18.7m). 8. Business combinations Alsa fair value adjustments The project to allocate the consideration paid to acquire Alsa to the fair valueof assets acquired was completed in the first half of the year. The fair valuesof the assets acquired have now been updated. Alsa Alsa Alsa Alsa Fair value at Fair value Final fair 31 December 2005 adjustments value total £m £m £m Intangible assets - 174.2 174.2Property, plant and equipment 73.6 7.2 80.8Available for sale investments 1.2 - 1.2Investments accounted for under the equity method 4.8 - 4.8Inventories 3.1 - 3.1Trade and other receivables 49.0 - 49.0Current tax 0.8 - 0.8Cash and cash equivalents 10.0 - 10.0Trade and other payables (55.4) 0.3 (55.1)Retirement benefit obligations (1.1) - (1.1)Provisions (1.0) - (1.0)Financial liabilities - Borrowings (211.8) - (211.8)Deferred tax liability (6.1) (54.8) (60.9)Net assets (132.9) 126.9 (6.0)Less minority interest (15.5) - (15.5)Group's share of net assets (148.4) 126.9 (21.5)Goodwill on acquisition 421.4 (127.3) 294.1Total consideration 273.0 (0.4) 272.6 Other acquisitions The Group acquired the remaining 67% of the share capital of Altram LRT Limited(Altram) on 14 March 2006. In Canada the Group acquired the entire sharecapital of M & O Bus Lines (Handicab) Limited (M&O) a school bus operator, on 11April 2006. The Group also acquired the entire share capital of Reliance MotorCoach Company Inc. (Reliance) on 1 June 2006, a school bus operator in theUnited States. Total consideration for these acquisitions was £12.3m and £5.4m of cash wasacquired with the businesses. Investments in associates of £1.3m, comprises thebalance of the £8.2m outflow for payments to acquired businesses, in the cashflow statement. 9. Dividends paid and proposed Six months to Six months to Year to 30 June 2006 30 June 2005 31 Dec 2005 £m £m £mDeclared and paid during the period:Ordinary final dividend for 2004 paid of 20.65p per share - 28.1 28.1Ordinary interim dividend for 2005 paid of 10.0p per share - - 13.5Ordinary final dividend for 2005 paid of 22.25p per share 33.9 - - 33.9 28.1 41.6Proposed for approval (not recognised as liability as at periodend):Ordinary interim dividend for 2005 of 10.0p per share - 13.5 -Ordinary final dividend for 2005 of 22.25p per share - - 33.5Ordinary interim dividend for 2006 of 10.75p per share 16.2 - - 10. Earnings per share Six months to Six months to Year to 30 June 2006 30 June 2005 31 Dec 2005 Basic (loss)/earnings per share - continuing operations (5.9p) 18.2p 45.2pBasic loss per share - discontinued operations - (42.2p) (47.2p)Basic loss per share - total (5.9p) (24.0p) (2.0p)Normalised basic earnings per share - continuing operations 32.8p 31.8p 77.4pDiluted (loss)/earnings per share - continuing operations (5.9p) 17.9p 44.5pDiluted loss per share - discontinued operations - (41.6p) (46.5p)Diluted loss per share - total (5.9p) (23.7p) (2.0p)Normalised diluted earnings per share - continuing operations 32.5p 31.3p 76.3p Basic loss per share is calculated by dividing the loss attributable to equityshareholders of £8.8m (2005 interim: £32.7m; 2005 full year: £2.8m) by theweighted average number of ordinary shares in issue during the period, excludingthose held by employees' share ownership trusts and held as own shares which areboth treated as cancelled. For diluted earnings per share, the weighted average number of ordinary sharesin issue is adjusted to include the weighted average number of ordinary sharesthat would be issued on the conversion of all the dilutive potential ordinaryshares into ordinary shares. In the six months to 30 June 2006, the weighted average number of ordinaryshares for the purpose of calculating the diluted loss per shares is identicalto that used for the basic loss per share. This is because the adjustment fordilutive potential ordinary shares would have the effect of reducing the lossper ordinary share and is therefore not dilutive under the terms of IAS 33, 'Earnings per share'. The reconciliation of weighted average number of ordinary shares is detailed asfollows: Six months to Six months to Year to 30 June 2006 30 June 2005 31 Dec 2005 Basic weighted average shares 150,706,759 136,140,675 136,591,474Adjustment for dilutive potential ordinary shares 1,252,945 2,054,305 2,017,744Diluted weighted average shares 151,959,704 138,194,980 138,609,218 The normalised basic and normalised diluted earnings per share have beencalculated in addition to the basic and diluted earnings per shares required byIAS 33, 'Earnings per Share' since, in the opinion of the Directors, theyreflect the underlying performance of the business's operations moreappropriately. Normalised profits for the financial period are: Six months to Six months to Year to 30 June 2006 30 June 2005 31 Dec 2005 £m £m £m Loss attributable to equity shareholders (8.8) (32.7) (2.8)Loss from discontinued operations - 57.5 64.5(Loss)/profit from continuing operations attributable to equityshareholders (8.8) 24.8 61.7Goodwill impairment on continuing operations 20.2 16.6 33.3Intangible asset amortisation 14.3 1.7 4.9Exceptional items 1.5 0.3 7.8Exceptional associates charge 25.7 - -Tax relief on goodwill and exceptional items (3.5) (0.1) (2.0)Normalised profit attributable to equity shareholders 49.4 43.3 105.7 Loss from discontinued operations includes profit attributable to minorityinterests of £nil in the six months to 30 June 2005 and £0.1m in the year to 31December 2005. Six months to Six months to Year to 30 June 2006 30 June 2005 31 Dec 2005 Basic Diluted Basic Diluted Basic Diluted eps eps eps eps eps eps p p p p p p Loss attributable to equity shareholders (5.9) (5.9) (24.0) (23.7) (2.0) (2.0)Loss from discontinued operations - - 42.2 41.6 47.2 46.5Dilutive effect - 0.1 - - - -(Loss)/profit from continuing operations attributableto equity shareholders (5.9) (5.8) 18.2 17.9 45.2 44.5Goodwill impairment on continuing operations 13.4 13.3 12.2 12.0 24.4 24.1Intangible asset amortisation 9.5 9.4 1.2 1.2 3.6 3.5Exceptional items 1.0 1.0 0.2 0.2 5.7 5.6Exceptional associates charge 17.1 16.9 - - - -Tax relief on goodwill and exceptional items (2.3) (2.3) - - (1.5) (1.4)Normalised profit attributable to equity shareholders 32.8 32.5 31.8 31.3 77.4 76.3 11. Financial assets and liabilities The group's multi-national transport operations and debt financing expose it toa variety of financial risks, including the effects of changes in foreigncurrency exchange rates, interest rates and fuel prices. The group has in placea risk management program that seeks to limit the adverse effects of thesefinancial risks on the financial performance of the group by using financialinstruments, including foreign currency debt and fuel price and interest rateswaps. These financial instruments are held in the balance sheet at fair value,as determined by the third party financial institution with whom the Group holdsthe instrument. The 'Financial assets - Derivative financial instruments' represent the fairvalue of the fuel price swaps, which are in place to hedge the changes in priceof the different types of fuel used in each division. They are analysed asnon-current financial assets of £2.1m (30 June 2005: £4.8m; 31 December 2005:£0.6m) and current financial assets of £6.8m (30 June 2005: £6.8m; 31 December2005: £6.7m) based on the date of the fuel purchases being hedged. The 'Financial liabilities - Derivative financial instruments' represent thefair value of the interest rate swaps and the foreign exchange forwardcontracts. The interest rate swaps are in place to hedge the cash flow risk inrelation to changes in interest rates. The non-current financial liabilitiessolely comprise interest rate swaps of £4.1m (30 June 2005: £10.9m; 31 December2005: £8.3m). The current financial liabilities represent interest rate swaps of£3.2m (30 June 2005: £3.3m; 31 December 2005: £4.1m) and foreign exchangeforward contracts of £0.8m (30 June 2005: £7.7m; 31 December 2005: £9.3m). The foreign currency borrowings are included in 'Financial liabilities -Borrowings' which are analysed in note 14. Included in bank loans are foreigncurrency denominated borrowings which hedge the foreign currency denominated netassets of the Group. The remaining financial assets in the balance sheet are the 'Financial assets -Other investments' of £22.2m (30 June 2005: £10.2m; 31 December 2005: £11.4m)which represent the Group's available for sale investments in unlistedcompanies. The Group does not hold any financial instruments that would be classified asheld for trading under IAS 39. 12. Retirement benefit obligations The UK Bus and UK Coach divisions operate two and one funded defined benefitschemes respectively and a single defined contribution scheme for the twoDivisions. The majority of employees of the UK Train companies are members ofthe appropriate shared-cost section of the Railways Pension Scheme, a fundeddefined benefit scheme. Central Functions staff are included in the Group's UKCoach pension scheme. The assets of all schemes are held separately from thoseof the Group. Contributions to the schemes are determined by independentprofessionally qualified actuaries. Subsidiaries in North America contribute to a number of defined contributionplans. The Group also provides certain additional post-employment benefits toemployees in North America and Spain, which are disclosed in the Other categorybelow. The total pension cost for the period was £15.7m (2005 interim: £14.3m; 2005full year: £27.5m), of which £14.0m (2005 interim: £14.3m; 2005 full year:£25.0m) relates to the defined benefit schemes and £1.7m (2005 interim: £1.2m;2005 full year: £2.5m) relates to the defined contribution benefit schemes. The defined benefit pension liability included in the balance sheet is asfollows: At 30 June At 30 June At 31 Dec 2006 2005 2005 £m £m £m UK Bus (46.0) (20.2) (37.8)UK Coach (15.5) (10.0) (14.9)UK Train (30.7) (10.7) (34.2)Other (1.9) (0.7) (1.9)Total (94.1) (41.6) (88.8) The UK Train defined pension liability is net of the franchise adjustment of£47.5m (30 June 2005: £61.8m; 31 December 2005: £71.0m). Details of thefranchise adjustment are included in note 36 to the 2005 Annual Report andAccounts. 13. Reconciliation of movements in equity During the six months ended 30 June 2006 the Group has repurchased 1,425,000shares for consideration of £11.6m. All the shares repurchased have beenretained as treasury shares within the own share classification of equity, forfuture issue under the Group's various share schemes. Details of these schemesare included the 2005 Annual Report and Accounts. Capital Share Share Redemption Own Other Retained Minority capital premium reserve shares reserves earnings Total interests Total £m £m £m £m £m £m £m £m £m At 1 Jan 2006 7.5 174.2 0.2 (5.1) 24.5 108.1 309.4 2.9 312.3Shares issued 0.2 13.1 - - - - 13.3 - 13.3Shares purchased - - - (11.6) - - (11.6) - (11.6)Total recognised income/ - - - - (2.4) (5.1) (7.5) 0.3 (7.2)(expense)Share based payments - - - - - 0.9 0.9 - 0.9Dividends - - - - - (33.9) (33.9) (0.2) (34.1)At 30 June 2006 7.7 187.3 0.2 (16.7) 22.1 70.0 270.6 3.0 273.6 14. Net debt At 1 Jan Acquisitions Exchange Other At 30 June At 30 June 2006 Cash flow /Disposals differences movements 2006 2005 £m £m £m £m £m £m £m Cash and cash equivalents 145.5 (37.7) - (2.5) - 105.3 135.3Bank overdraft (5.5) 5.5 - - - - - 140.0 (32.2) - (2.5) - 105.3 135.3Other debt receivable 1.0 - - - - 1.0 1.0Loan notes (0.8) - - - - (0.8) (1.0)Bank loans (594.5) 33.7 (2.6) 9.1 (0.8) (555.1) (216.3)Finance lease obligations (109.1) 10.5 - 2.2 (0.5) (96.9) (62.3)Net debt (563.4) 12.0 (2.6) 8.8 (1.3) (546.5) (143.3) Current 'Financial liabilities - Borrowings' of £57.2m (30 June 2005: £22.1m; 31December 2005: £214.4m) comprises £0.8m of loan notes (30 June 2005: £1.0m; 31December 2005: £0.8m), £32.6m of finance lease obligations (30 June 2005:£21.1m; 31 December 2005: £23.6m), £23.8m of bank loans (30 June 2005: £nil; 31December 2005: £184.5m) and £nil bank overdrafts (30 June 2005: £nil; 31December 2005: £5.5m). Non-current 'Financial liabilities - Borrowings' of £595.6m (30 June 2005:£257.5m; 31 December 2005: £495.5m) comprises £64.3m of finance leases (30 June2005: £41.2m; 31 December 2005: £85.5m) and £531.3m of bank loans (30 June 2005:£216.3m; 31 December 2005: £410.0m). Included in cash and cash equivalents are restricted balances of £36.2m (30 June2005: £105.2m; 31 December 2005: £79.5m) held by the Train Operating Companiesand £25.1m (30 June 2005: £nil; 31 December 2005: £25.6m) held by NBC Pty Ltd inAustralia which cannot be distributed by means of a dividend or loaned to otherGroup companies. Other non cash movements in net debt represent finance lease additions of £0.5m(2005 interim: £7.3m; 2005 full year: £57.0m) and amortisation of loanarrangement fees of £0.8m (2005 interim: £0.1m; 2005 full year: £0.2m). 15. Cash flow statement Reconciliation of Group operating profit to cash generated from operations Six months to Six months to Year to 30 June 30 June 31 Dec 2006 2005 2005 £m £m £mNet cash inflow from operating activitiesGroup operating profit 48.0 48.7 109.5Operating loss of discontinued operations - (57.3) (56.4)Depreciation of property, plant & equipment 41.5 25.7 56.8Amortisation of leasehold property prepayment 0.4 0.4 0.8Goodwill impairment 20.2 76.6 93.3Intangible asset amortisation 14.3 1.7 4.9Amortisation of property, plant and equipment grants (1.5) (0.3) (0.9)Profit on disposal of property, plant and equipment (2.4) (0.4) (2.0)Share-based payments 0.9 3.0 3.6Decrease/(increase) in inventories 2.1 - (0.7)Decrease in receivables 57.2 72.0 22.4Decrease in payables (88.8) (35.7) (37.2)Decrease in provisions (5.9) (1.9) (13.0)Cash generated from operations 86.0 132.5 181.1 The Interim report 2006 will be sent to all shareholders in October. Copies canalso be obtained from the Company Secretary at 75 Davies Street, London, W1K5HT. - ENDS - This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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