26th Jul 2007 07:01
National Express Group PLC26 July 2007 National Express Group PLC Interim Results For the six months ended 30 June 2007 National Express Group PLC, a leading international public transport group, today announces interim results Financial Highlights • Revenue up 5% to £1,309.3 million (2006: £1,252.7 million)• Group operating profit up 60% to £77.0 million (2006: £48.0 million)• Operating cash flow* of £77.7 million (2006: £67.3 million)• Normalised operating profit** up 8% to £90.6 million (2006: £84.0 million)• Normalised profit before tax** up 18% to £79.0 million (2006: £67.2 million)• Normalised diluted earnings per share** from continuing operations up 17% to 38.1 pence (2006: 32.5 pence)• Interim dividend increased by 7.5% to 11.56 pence (2006: 10.75 pence)• Net debt of £412.7 million (31 December 2006: £438.4 million) * operating cash flow as defined in the Finance Review** excluding profit or loss on the sale of non-current assets and businesses and charges for goodwill impairment, intangible amortisation, exceptional items and tax relief on qualifying exceptional items. Half Year Highlights • Acquisition of Continental Auto, one of Spain's leading coach and bus operators, for €659.3 million, subject to approval by the Spanish competition authorities• Strong trading across all divisions• Integration of UK operations releasing £11 million of annualised savings• Another record North American bid season with over $38 million of new business won and over 95% of existing business retained• Official travel supplier to Wembley Stadium and launch of partnership with the Football Association and Team England• Industry leading operational performance in Trains• Placement of £69 million coach and bus order for UK operations. Commenting on current trading and prospects, David Ross, Chairman, said: "The first half of the year has delivered a strong trading performance acrossall our operations driven primarily by sustained passenger growth and theintroduction of new initiatives. The high quality of earnings in our overseasoperations will be enhanced through the acquisition of Continental Auto. Thiscomplements Alsa, our Spanish coach and bus business, where trading has beenencouraging over the past six months. In North America, continued success at thebid table demonstrates the strength of relationships we have with our keycustomers and provides a great platform for our future growth plans. Our UKoperations continue to perform well. We are particularly pleased with theprogress made by UK coaches to attract new customers and also generate repeatbusiness. We are very proud of our track record in trains. Whilst we have beendisappointed by the recent franchise announcements, we are confident that ourbids are ambitious, deliverable and structured to generate shareholder valueover the long term. We await the outcome of the Inter-City East Coast bid inearly Autumn. We have today announced the integration of our UK operations into one businessgroup which will enable us to respond more effectively to changes whilstensuring we deliver our vision of a customer focused, innovative and profitableprovider of transport and travel services. As we enter the second half we areencouraged by the Group's prospects, underpinned by a clear and straightforwardstrategy to make travel simpler for all our customers." For further information, please contact: Richard Bowker, Chief ExecutiveAdam Walker, Finance DirectorNicola Marsden, Director of Group CommunicationsNational Express Group PLC 020 7529 2000 Neil Bennett/Suzanne Bartch/Brian HudspithMaitland 020 7379 5151 • There will be an analyst and investor meeting at 0900 hours on 26 July 2007 at City Presentation Centre, 4 Chiswell Street, Finsbury Square, London EC1Y 4UP.• A webcast of the analyst and investor presentation will be available on our website www.nationalexpressgroup.com at 0900 hours on 26 July 2007.• High resolution images are available for the media to view and download, free of charge, from www.vismedia.co.uk or telephone 020 7613 2555. Chairman's Statement I am pleased to report the Group's interim results for the six month periodended 30 June 2007. Over the last six months the Group has traded well with alldivisions providing strong contributions. This improved trading position isparticularly encouraging as it is underpinned by strong passenger growth. We are particularly delighted with the performance of our high margin overseasdivisions which contributed almost half of the Group's operating profit. InSpain, Alsa's operations went from strength to strength with its financialperformance supported by the opening of new coach stations as well as triallingnew products and services to its customer base. In North America our approach tobidding and retention of contracts has resulted in the division reportinganother record bid season. We are also pleased that we are starting to see morecontract conversions from the public to private sector. We see conversionsbecoming an important feature of the market over the coming years. At the end of April, we announced the acquisition of Continental Auto, a highlyrespected, well established Spanish coach and bus operator, providing anextensive north-south long distance coach network complementing Alsa's existingoperations. Continental Auto has a strong financial track record, underpinned bylong-term, predictable concessions. It is a quality business and we aredelighted that it will join the Group as the transaction fits perfectly with ourstated strategy of utilising our balance sheet to acquire businesses in our coremarkets. The acquisition is subject to the approval of the Spanish competitionauthorities. We expect to complete the transaction in the final quarter of theyear. Trading in the UK has also been encouraging. Our coach division performedstrongly whilst consolidating its Superbrand status for the second year running.The equity in this brand positions the business well for partnerships whichenhance and build on our core offering. As announced in April, our coachdivision is now the official travel supplier to Wembley Stadium. We believesimilar opportunities exist with other venues across the UK and have recentlyentered into a partnership with the Rugby Football Union to support Twickenham. Our West Midlands bus business has seen its first passenger growth in a numberof years. Both Centro and ourselves are fully committed to our new PartnershipAgreement which we look forward to signing in early Autumn. We have seen sustained growth in our trains division with our 'one' franchisedelivering a much improved performance. Our operational performance leads theindustry. We are very proud of this record and believe it reflects our focus ongetting things right and delivering for the passenger. We have been disappointedby the recent franchise announcements but are confident that our bids areambitious, deliverable and structured to generate shareholder value over thelong term. We await the outcome of the Inter-City East Coast bid in earlyAutumn. In February, after a review of the Group's activities the Board decided tore-orientate the Group to deliver customer focused revenue growth initiativesleveraging off the Group's unique brand. Today we have announced a major step inreshaping the Group with the integration of our three UK businesses under asingle UK business group. The new UK operation will be headquartered inBirmingham under the leadership of Ray O'Toole who will continue as a main boarddirector with the priority of leading and completing the integration. Thecompletion of the integration, planned for the first quarter of 2008, isexpected to produce annualised cost savings of £11 million. The one-off costsassociated with this move are expected to be £8.5 million. As highlighted at the preliminary results, the Group continues to develop itsoperations with a greater focus on its customers and wider marketing of itsservices. With the issue of climate change becoming increasingly important,public transport is a very practical way in which consumers can reduce theircarbon footprint. We are developing a number of products to satisfy thisappetite including a Carbon Club incentive scheme that will encourage repeattravel on public transport whilst rewarding customers for making choices thatare more environmentally sustainable. In addition, our operations are evaluatingthe benefits of the numerous alternative vehicle technologies available withinthe market, with a number of trials already underway. National Express is a company focused on growth through investment. We areinvesting in the quality of our operations and in May announced a new £69million order for up to 480 buses and coaches for our UK operations,incorporating the latest in European low exhaust emissions standards andproviding fuel economy. This order is phased over the next three years and willresult in a sustained improvement in the quality of our bus and coach fleetswhere the average fleet age is already below the industry average. Results Revenue for the six months to 30 June 2007 was up 5% to £1,309.3 million (2006:£1,252.7 million). Group operating profit was up 60% to £77.0 million (2006:£48.0 million) and profit before tax increased to £65.4 million (2006: £5.5million). After taxation, the diluted earnings per share was 31.4 pence (2006:loss per share 5.9 pence). 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 non-current assets and businesses and charges for goodwillimpairment, intangible amortisation, exceptional items and tax relief onqualifying exceptional items. Normalised operating profit was up 8% to £90.6 million (2006: £84.0 million).Normalised profit before tax increased to £79.0 million (2006: £67.2 million). Normalised diluted earnings per share were up 17% to 38.1 pence (2006: 32.5pence). Operating cash flow during the first six months was £77.7 million (2006:£67.3 million). Net debt at 30 June 2007 was £412.7 million (31 December 2006: £438.4 million). An interim dividend of 11.56 pence per share, an increase of 7.5% over lastyear's interim dividend of 10.75 pence per share, will be paid on 28 September 2007 to shareholders on the register by 14 September 2007. Current trading and prospects The first half of the year has delivered a strong trading performance across allour operations driven primarily by sustained passenger growth and theintroduction of new initiatives. The high quality of earnings in our overseasoperations will be enhanced through the acquisition of Continental Auto. Thiscomplements Alsa, our Spanish coach and bus business, where trading has beenencouraging over the past six months. In North America, continued success at thebid table demonstrates the strength of relationships we have with our keycustomers and provides a great platform for our future growth plans. Our UKoperations continue to perform well. We are particularly pleased with theprogress made by UK coaches to attract new customers and also generate repeatbusiness. We are very proud of our track record in trains. Whilst we have beendisappointed by the recent franchise announcements, we are confident that ourbids are ambitious, deliverable and structured to generate shareholder valueover the long term. We await the outcome of the Inter-City East Coast bid inearly Autumn. We have today announced the integration of our UK operations into one businessgroup which will enable us to respond more effectively to changes whilstensuring we deliver our vision of a customer focused, innovative and profitableprovider of transport and travel services. As we enter the second half we areencouraged by the Group's prospects, underpinned by a clear and straightforwardstrategy to make travel simpler for all our customers. Operating Review 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 £121.7 million (2006: £117.1 million) and normalised operatingprofit was £18.9 million (2006: £18.1 million). The results were achieveddespite a weakening of the euro with normalised operating profit in localcurrency improving 6% to €28.0 million (2006: €26.3 million). In the first half Alsa's operations experienced passenger growth of 3% despitecompetitive pressure from rail and low cost airlines. The introduction ofpromotional fares, the use of differentiated product offerings and improvementsto network services have all contributed to the growth achieved to date. We aredeveloping our network on key routes with improvements to travel facilitiesaround key hubs such as Barcelona and Seville. These encouraging results wereachieved despite experiencing a reduction in passenger journeys in May due tounseasonal weather. Alsa has focused on improving its relationship and information provision tocustomers on the back of sharing best practice with the UK coach division. InJanuary "InfoSMS" was launched providing real-time information to customersthrough mobile phone text messages. In May, the new Alsa customer loyalty cardcalled "BUS Plus" was launched incorporating cutting edge technology which givescustomers a pre pay cash system combined with a smartcard. This has been wellreceived with 30,000 members signed up in three months. In addition, payment oftickets via mobile phone and additional web capability are also underdevelopment. The bus business saw good growth and we recently signed a new 15 year buscontract in Leon. With environmental credentials being a key criteria forprocuring organisations, we have been improving them in our bus fleet and areundertaking trials of alternative technologies. We have increased our bus fleetin Marrakech, Morocco and look forward to news with respect to our recentlysubmitted bid for a new 400 bus contract in Rabat. In May the new light railroute in Madrid commenced operation and has achieved anticipated passengertargets. With the summer being a key trading period for the division, we are encouragedby the prospects across our operations and look forward to working withContinental Auto management later in the year. Coaches The Coach division provides Britain's only scheduled national coach network andservices to almost 1,000 destinations. Eurolines offers value for money Europeantravel by coach. Revenue was £103.5 million (2006: £94.8 million) and normalised operating profitwas £6.1 million (2006: £5.3 million). Overall revenue has grown by 9% and wehave maintained our first half margins. Our coach division experienced a strongstart to the year particularly on our airport and short distance routes withpassenger growth of 3%. In addition we saw an improvement in yields as fewerpromotional fares were offered than in 2006. We experienced strong internetgrowth driven by the success of our funfares which will be rolled out to otherkey routes later in the year. Although the first six months of the year is traditionally quieter than thesecond, some important trends are becoming clear. Coach travel is becomingrelevant to a far greater proportion of the population. We target thosecustomers for whom value for money travel is a priority and who have anincreased awareness of the role the coach can play in reducing an individual'scarbon footprint. We are developing new products for coaches to address anincreasingly diverse and segmented market. We continue to lobby the HighwaysAgency to allow coaches to use the proposed High Occupancy Vehicle Lanes onBritain's motorways. We are also talking to Transport for London to promote thecoach as a key part of Greater London's transport infrastructure. In addition,we are reviewing our network to ensure our assets are deployed to maximumeffect, without compromising the strength of our network overall. As increasing demand is placed on transport infrastructure around our majorcities, we are looking for new ways to meet this demand and grow our business byoffering the motorist and other commuters real choice. At the end of this month,we are launching a pilot commuter coach service between Milton Keynes and CanaryWharf with dedicated vehicles fitted with wi-fi and power points amongst otherfacilities. We have plans to introduce further routes during 2007 and 2008. Through our Wembley sponsorship we have supported eleven events at the venue todate with over 12,500 people travelling on our services. Our Wembley networkfrom 43 UK towns is encouraging new customers to use our services. Outline planning permission has been agreed to build a new landmark purposebuilt coach station in the centre of Birmingham incorporating a wide range ofcustomer amenities as well as being an important interchange for the WestMidlands. Detailed discussions with Birmingham City Council are now wellunderway and work is expected to start by the end of the year with completionanticipated in 2010. The transition of operations to a neighbouring temporarysite is already underway. We anticipate this new coach station will provideenhanced customer facilities and make coach travel more appealing to a widercustomer base. To support our network, we have invested in new services such asa sales desk at Luton Airport and improved customer amenities at our NorthLondon hub at Golders Green and Leicester Bus Station. We are also working withthe local councils to offer improved customer facilities in Brighton and MiltonKeynes. Eurolines has benefited from the increased movement of passengers to the UK fromacross Eastern Europe with a total of 88 destinations now available as "throughtickets" for our Polish customers. Passenger growth has also been strong on theLondon to Paris route following the introduction of new coaches and revisedfares. When the Eurolines routes are combined with the international routes inAlsa, we are one of the leading coach providers across Europe. We see this as afuture opportunity for growth given the flows of migrant travel, the benefits ofcoach as an environmentally friendly form of travel and our sustained value formoney pricing structure. 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 £157.0 million (2006: £147.5 million) with normalisedoperating profit of £19.8 million (2006: £19.0 million). We have experienced a2% increase in passenger growth in the West Midlands across both farepaying andconcessionary fare passengers, reflecting the first concerted growth for severalyears. This was achieved despite the challenging weather conditions in the earlypart of the year and without a significant change in the terms of the localconcessionary fare scheme. This trend was assisted by the introduction of anumber of initiatives to increase the attractiveness of season tickets andmaking our tickets easier to purchase. We have focused on improving the quality of our services with new cleaningregimes for the fleet. A greater focus on training employees has resulted in ourCoventry business receiving the Investors in People accreditation in June. Travel London performed well. Significant contracts were won including the EastLondon rail replacement service as well as retention of key contracts withSurrey County Council. Working in partnership with Transport for London toreduce further the environmental impact of the fleet, we are introducing fivehybrid single deck vehicles into the fleet on trial. Our Dundee operation had a good first half with passenger growth of over 4%,despite Dundee having seen an 11% increase in car ownership over the past fewyears. We expect further progress in the West Midlands in the second half of 2007. Anew bus order will see 125 double and single deck vehicles enter the fleet fordeployment on key Birmingham routes. We have been active in supporting thepartnership themes within the Local Transport Bill and believe that ourforthcoming Partnership Agreement with Centro illustrates that working togetheris by far the most effective route to deliver passenger growth and benefits. North America We operate a bus fleet entirely focused on school bus services both in theUnited States (27 states) and Canada (2 provinces), with a fleet of 14,000buses. Revenue was £162.8 million (2006: £155.0 million) and normalised operatingprofit was £24.1 million (2006: £26.6 million). In local currency, North Americamaintained normalised operating profit at US$47.6 million (2006: US$ 47.6million) which is a strong result despite absorbing the anticipated increase inannual fuel costs of $13 million. Our North American operations performed strongly with a revenue increase of 16%in local currency. This success has been achieved on the back of goodoperational delivery, increased focus on the needs of our customers andinvestment in our people. To reinforce this, we are investing in new streamlinedsystems and processes for our operations which will significantly enhance thequality of our business information. Our business transformation project remains on schedule and detailed workcommences during the second half of this year. Pilot studies in four of ourcustomer service centres will take place during 2008 and we expect to seesignificant bottom line contribution from 2009 onwards. In the current bid season we won over $38 million of net new business atimproved margins, making this our best ever bid season. This success wascomplemented by the retention of over 98% of our existing business andconversions were secured in Illinois, Iowa, Texas and Mississippi. We haverecently won new contracts in Tennessee and South Carolina and now operate in 27states. Operating in a market of 475,000 buses, our approach combines the power of amajor international organisation with the detailed knowledge of localmanagement. This allows us to invest time and resource with the school boards tolisten to their requirements and ensure that, despite our overall scale, we areable to get close to our customers at a local level. The sale of the Stewart airport lease for $78.5 million to the New York PortAuthority was signed on 17 July 2007. The disposal remains subject to approvalby the Federal Aviation Administration and the New York State Authorities. 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 £771.1 million (2006: £744.0 million)and normalised operating profit of £28.7 million (2006: £20.0 million). Despitean increase in energy costs of £10 million, margins have been improved. Bidcosts of £7.5 million (2006: £2.0 million) have been included within thenormalised operating profit result. Our Trains division continues to deliver the best operational performance withinthe industry. This has contributed to passenger growth of 6%. On the back of ajoint improvement plan with Network Rail and customer focused adjustments to thetimetable, the operational performance of 'one' has been substantially improved.This has experienced double digit growth arising from increased leisure travel,the roll-out of revenue protection initiatives at key stations includingLondon's Liverpool Street and a number of station upgrades. On-board servicescontinue to be a focus and we were awarded a National Customer Service award forour on-board catering on the London to Norwich route at the 2007 Rail InnovationAwards. c2c continues to be at the top of the national performance leagueholding the title of Britain's best performing railway, a position it has heldfor more than two years. We continue to use technology to drive our business. Our yield management systemis working well and currently 40,000 bookings a week are being taken through theMidland Mainline website, boosting off peak travel. We are pleased with ourprogress in improving the quality of our customer relationship marketingdatabase and are looking at ways that this can be further developed. Technologyis increasingly being used to simplify the customer experience with increaseduse of e-ticketing, mobile ticketing and car parking payments made using amobile phone. We have been investigating practical ways to address increased energy costswithin the division. In June, c2c introduced regenerative braking and wesubsequently introduced it at 'one', Silverlink and Central Trains where we havenew trains. Throughout our rail business, we are working hard to reduce ourcarbon footprint and bring down our energy costs. During 2006 we achieved a 17%reduction in our site energy costs. Earlier this month we launched our new shared service centre for our trainoperations, providing a one-stop shop for back office processes for ourLondon-based train companies, 'one' and c2c. This will provide improvedefficiency and cost savings for the division. In June, the Department for Transport confirmed that the current Gatwick Expressfranchise will end in June 2008 and be incorporated into the Southern franchise.We have recently submitted our bid for the Inter-City East Coast franchise andawait a decision from the DfT in the Autumn. Finance Review Seasonality As a result of seasonality, the Group does not generate operating profit evenlybetween the first half and the second half of the year. In UK Coach and, to alesser extent, Alsa, the higher volumes over the summer holiday months weightoperating profit towards the second half of the year. Underlying operatingprofit in UK Trains is weighted towards the second half of the year because ofthe phasing of passenger revenue in a relatively fixed cost business. The actualweighting of profits is also affected by the commencement and termination offranchises. Offsetting this, the North America school bus business primarilyearns revenue by operating contracts on behalf of school boards, and thereforegenerates less operating profit in the second half of the year because of schoolsummer holidays. Operating profit in UK Bus is broadly weighted evenly betweenthe first half and the second half of the year. Foreign exchange The weakening of the US and Canadian dollar has reduced the normalised operatingprofit by £2.4 million compared to 2006. If the results for the six months to 30June 2007 were retranslated at the average exchange rates for the six months to30 June 2006, North America would have achieved normalised operating profit of£26.5 million on revenue of £179.6 million. The adverse impact of currency on Alsa's results is £0.4 million and if theresults for the six months to 30 June 2007 were retranslated at the averageexchange rates for the six months to 30 June 2006 the division would haveachieved normalised operating profit of £19.3 million on revenue of £124.0million. Joint ventures and associates The share of profit from the joint ventures and associates within Alsa was £0.5million (2006: £nil). In 2006, the total charge for associates and joint ventures was £29.5 million,which comprised our share of the post tax results from the Group's Eurostarassociate, Inter-Capital and Regional Rail Limited ("ICRRL"), of £3.8 millionand a £25.7 million exceptional charge for the designation of the contract withICRRL as an onerous contract. Finance cost Net interest payable decreased to £12.1 million (2006: £13.0 million),reflecting the lower levels of net debt in the first half of the year whencompared to 2006 offset by the £1.0 million charge for the unwind of thediscounting on the ICRRL onerous contract provision. Continuing normalised operating profit before depreciation and other non-cashitems ("EBITDA") was £128.7 million (2006: £122.9 million) and continuing EBITDAfinance cover before discounting increased to 12.1 times (2006: 9.9 times). Intangibles, goodwill and exceptional items Intangible asset amortisation of £13.6 million (2006: £14.3 million) comprises£10.0 million (2006: £10.1 million) on contracts acquired in Alsa, £2.4 million(2006: £2.4 million) on contracts acquired in North America, £0.6 million (2006:£0.8 million) on contracts acquired in UK Bus and £0.6 million (2006: £1.0million) on the intangible asset that arises from the Group's right to operateits rail franchises. The goodwill impairment charge in 2006 comprised £19.3 million on the goodwillarising from the acquisition of Prism Rail PLC in September 2000 and £0.9million on the acquisition of the remaining share capital of Altram. No exceptional costs were incurred in the period. Exceptional costs of £1.5million in 2006 were incurred in relation to the Alsa integration project. Tax Our normalised tax rate has increased from the 2006 full year rate of 25.1% to26.4%. The total tax charge includes a tax credit on exceptional items of £3.4million (2006: £3.5 million) which includes the deferred tax impact of theGroup's non-deductible intangible asset amortisation. Cash flow The Group continues to generate strong cash flow with an operating cash flow of£77.7 million (2006: £67.3 million). Operating Cash Flow North Central Buses Coaches Trains America Alsa functions Total £m £m £m £m £m £m £m ------ ------- ------- ------- ------ ------- ------Normalisedoperatingprofit 19.8 6.1 28.7 24.1 18.9 (7.0) 90.6Depreciation 8.3 2.3 8.1 12.6 6.6 0.3 38.2Amortisationof property,plant andequipmentgrants - - (0.3) - (0.1) - (0.4)Profit ondisposal - (0.1) 0.1 (0.4) (0.3) - (0.7)Share basedpayments 0.1 0.1 0.2 0.1 0.1 0.4 1.0 ------ ------- ------- ------- ------ ------- ------EBITDA 28.2 8.4 36.8 36.4 25.2 (6.3) 128.7Workingcapitalmovement (10.2) 5.1 (10.6) 7.0 (1.9) 0.3 (10.3) ------ ------- ------- ------- ------ ------- ------Net cashinflow fromoperations 18.0 13.5 26.2 43.4 23.3 (6.0) 118.4Net capitalexpenditure (6.8) 1.0 (2.6) (15.6) (13.5) - (37.5) ------ ------- ------- ------- ------ ------- ------Operating cashflow beforeone-offs 11.2 14.5 23.6 27.8 9.8 (6.0) 80.9 ------ ------- ------- ------- ------ ------- ------Other cash flows- Franchise exits (3.2) ------Operating cashflow 77.7 Operating cash flow is intended to be the cash flow equivalent to normalisedoperating profit. To reconcile the operating cash flow to the statutory cashflow the following items are included: "Cash generated from operations" plus"Proceeds from the disposal of property, plant and equipment" less "Purchase ofproperty, plant and equipment" as set out in the cash flow statement.Non-operating items are then excluded which comprises the £8.4m payment inrespect of the ICRRL liability. The working capital outflow in UK Bus reflects payments to the defined benefitpension schemes in excess of the income statement charge and the lossesassociated with the onerous contracts in our acquired London business. In UKTrains a timing difference has contributed to the working capital outflow. Net capital expenditure was £37.5 million (2006: £32.5 million) including £9.7million (2006: £3.8 million) proceeds from disposals. The net inflow in UK Coachcomprises the proceeds from the sale of vehicles. More than two thirds of theGroup's capital expenditure program is projected to occur in the second half ofthe year. Reconciliation of net debt 2007 2006 £m £m ------ ------Operating cash flow 77.7 67.3Exceptional cash flow - (0.9)Payments to associates (8.4) (8.4)Net interest (12.2) (13.6)Non-equity dividends paid (0.2) -Taxation 0.1 5.9Share buy back - (11.6)Share proceeds 4.8 13.3Acquisitions and disposals (3.6) (10.5)Dividends (36.3) (33.4) ------ ------Net funds flow 21.9 8.1Foreign exchange 3.8 8.8 ------ ------Funds flow post exchange 25.7 16.9Opening net debt (438.4) (563.4) ------ ------Closing net debt (412.7) (546.5) Payments to associates of £8.4 million represent the annual outflow in respectof the ICRRL onerous contract. Net interest paid of £12.2 million (comprising cash outflow of £11.8 millionplus loan fee amortisation of £0.4 million) is in excess of the net finance costbefore discounting of £10.6 million due to the payment of interest in respect of2006. The timing of tax receipts in Spain has resulted in a net rebate in the sixmonths to June. The cash flow in relation to acquisitions comprises £2.5 million for thepurchase of subsidiaries and £1.1 million of deferred consideration paid inrespect of 2006 acquisitions. NATIONAL EXPRESS GROUP PLCGROUP INCOME STATEMENT For the six months ended 30 June 2007 Unaudited six months to 30 June Audited Total before Total before goodwill Goodwill goodwill Goodwill impairment, impairment, impairment, impairment, intangible intangible intangible intangible amortisation & amortisation & amortisation & amortisation & Year to exceptional exceptional exceptional exceptional 31 Dec items items Total items items Total Total 2007 2007 2007 2006 2006 2006 2006 Note £m £m £m £m £m £m £m ------- -------- ------- -------- -------- ------ ------ContinuingoperationsRevenue 3 1,309.3 - 1,309.3 1,252.7 - 1,252.7 2,525.5 ------- -------- ------- -------- -------- ------ ------Operatingcosts beforegoodwillimpairment,intangibleamortisation &exceptionalitems (1,218.7) - (1,218.7) (1,168.7) - (1,168.7) (2,340.7)Goodwillimpairment 4 - - - - (20.2) (20.2) (20.2)Intangibleamortisation 4 - (13.6) (13.6) - (14.3) (14.3) (27.8)Exceptionalitems 5 - - - - (1.5) (1.5) 4.8 ------- -------- ------- -------- -------- ------ ------Totaloperatingcosts (1,218.7) (13.6) (1,232.3) (1,168.7) (36.0) (1,204.7) (2,383.9) ---- ------- -------- ------- -------- -------- ------ ------Groupoperatingprofit 90.6 (13.6) 77.0 84.0 (36.0) 48.0 141.6Profit ondisposal ofnon-currentassets - - - - - - 16.9 ---- ------- -------- ------- -------- -------- ------ ------Profit fromoperations 90.6 (13.6) 77.0 84.0 (36.0) 48.0 158.5Share of posttax resultsfromassociates andjoint venturesaccounted forusing theequity method 0.5 - 0.5 (3.8) (25.7) (29.5) (29.5)Finance income 6 6.7 - 6.7 5.6 - 5.6 12.4Finance costs 6 (18.8) - (18.8) (18.6) - (18.6) (37.3) ---- ------- -------- ------- -------- -------- ------ ------Profit beforetax 79.0 (13.6) 65.4 67.2 (61.7) 5.5 104.1Tax expense 7 (20.8) 3.4 (17.4) (17.5) 3.5 (14.0) (23.6) ---- ------- -------- ------- -------- -------- ------ ------ Profit/(loss)after tax forthe periodfromcontinuingoperations 58.2 (10.2) 48.0 49.7 (58.2) (8.5) 80.5Loss for theperiod fromdiscontinuedoperations - - - - - - (3.2) ---- ------- -------- ------- -------- -------- ------ ------ Profit/(loss)for the period 58.2 (10.2) 48.0 49.7 (58.2) (8.5) 77.3 ------- -------- ------- -------- -------- ------ ------Profit/(loss)attributableto equityshareholders 58.0 (10.2) 47.8 49.4 (58.2) (8.8) 76.5Profitattributableto minorityinterests 0.2 - 0.2 0.3 - 0.3 0.8 ------- -------- ------- -------- -------- ------ ------ 58.2 (10.2) 48.0 49.7 (58.2) (8.5) 77.3 ---- ------- -------- ------- -------- -------- ------ ------ Earnings/(loss)per share:- basicearnings/(loss)per share 9 31.5p (5.9p) 50.7p- dilutedearnings/(loss)per share 9 31.4p (5.9p) 50.4p Normalised earnings per share:- basicearnings pershare 9 38.3p 32.8p 77.0p- diluted earnings pershare 9 38.1p 32.5p 76.5p Earnings/(loss) per share fromcontinuing operations:- basic earnings/(loss) per share 9 31.5p (5.9p) 52.8p- dilutedearnings/(loss)per share 9 31.4p (5.9p) 52.5p ---- ------- -------- ------- -------- -------- ------ ------ Dividends perordinary share:- interim2007/2006 8 11.56p 10.75p 10.75p- final 2006 8 - - 24.00p ------- ------ ------- 11.56p 10.75p 34.75p Dividends of £36.4m were due during the period (2006 interim: £33.9m; 2006 fullyear: £50.1m). Dividends of £17.6m were proposed for approval during the period(2006 interim: £16.2m; 2006 full year: £52.5m). NATIONAL EXPRESS GROUP PLCGROUP BALANCE SHEET At 30 June 2007 Note Unaudited Unaudited Audited 30 June 30 June 31 December 2007 2006 2006 £m £m £m ----- --------- --------- ---------Non-current assetsIntangible assets 687.4 730.9 697.6Property, plant and equipment 499.3 499.9 501.9Financial assets - Available for sale 11 13.5 22.2 13.5Financial assets - Derivativefinancial instruments 11 6.1 2.1 0.3Investments accounted for using theequity method 9.2 8.7 8.7Other receivables 4.4 32.4 4.1Deferred tax asset - 15.2 10.6 ----- --------- --------- --------- 1,219.9 1,311.4 1,236.7 ----- --------- --------- ---------Current assetsInventories 16.9 16.4 15.5Trade and other receivables 231.0 236.4 272.3Financial assets - Derivativefinancial 11 5.4 6.8 8.1instrumentsCurrent tax assets 5.3 13.5 26.4Cash and cash equivalents 14 155.1 105.3 143.6 ----- --------- --------- --------- 413.7 378.4 465.9Disposal group assets classified asheld for sale 20.0 - 20.1 ----- --------- --------- ---------Total assets 1,653.6 1,689.8 1,722.7 ----- --------- --------- ---------Non-current liabilitiesFinancial liabilities - Borrowings 14 (544.0) (595.6) (538.4)Financial liabilities - Derivativefinancial instruments 11 (4.0) (4.1) (8.3)Deferred tax liability (84.7) (82.0) (84.3)Other non-current liabilities (3.0) (1.7) (3.0)Defined benefit pension liability 12 (43.9) (94.1) (52.8)Provisions (57.5) (54.9) (61.3) ----- --------- --------- --------- (737.1) (832.4) (748.1) ----- --------- --------- ---------Current liabilitiesTrade and other payables (463.0) (459.6) (518.4)Financial liabilities - Borrowings 14 (23.8) (57.2) (43.6)Financial liabilities - Derivativefinancial instruments 11 (2.5) (4.0) (6.4)Current tax liabilities (33.5) (36.6) (40.9)Provisions (14.7) (26.4) (17.4) ----- --------- --------- --------- (537.5) (583.8) (626.7) ----- --------- --------- ---------Liabilities directly associated withdisposal group assets classified asheld for sale (2.1) - (2.4) ----- --------- --------- ---------Total liabilities (1,276.7) (1,416.2) (1,377.2) ----- --------- --------- ---------Net assets 376.9 273.6 345.5 ----- --------- --------- ---------Shareholders' equityCalled up share capital 13 7.7 7.7 7.7Share premium account 13 194.6 187.3 189.8Capital redemption reserve 13 0.2 0.2 0.2Own shares 13 (16.4) (16.7) (16.7)Other reserves 13 20.7 22.1 7.9Retained earnings 13 166.8 70.0 153.3 ----- --------- --------- ---------Total shareholders' equity 373.6 270.6 342.2Minority interest in equity 13 3.3 3.0 3.3 ----- --------- --------- ---------Total equity 376.9 273.6 345.5 NATIONAL EXPRESS GROUP PLCGROUP STATEMENT OF CASH FLOWS For the six months ended 30June 2007 Note Unaudited Unaudited Audited six months to six months to year to 30 June 30 June 31 December 2007 2006 2006 £m £m £m ----- --------- --------- ---------Cash generated from operations 15 106.8 86.0 254.5Tax received/(paid) 0.1 5.9 (9.0) ----- --------- --------- ---------Net cash from operatingactivities 106.9 91.9 245.5 ----- --------- --------- ---------Cash flows from investingactivitiesPayments to acquirebusinesses, net of cash acquired 10 (2.5) (8.2) (19.8)Deferred consideration forbusinesses acquired (1.1) 0.3 (3.0)Purchase of property, plantand equipment (47.2) (35.8) (73.5)Proceeds from disposal ofproperty, plant and equipment 9.7 8.3 24.3Payments to acquire investments - - (4.6)Payments to acquire associates - - (1.5)Receipts from disposal ofinvestments - - 13.2Receipts from disposal ofintangible assets - - 1.5Interest received 6.7 5.6 12.4Non-equity dividends paid (0.2) - - ----- --------- --------- ---------Net cash used in investingactivities (34.6) (29.8) (51.0) ----- --------- --------- ---------Cash flows from financingactivitiesProceeds from issue ofordinary shares 4.8 13.3 15.8Purchase of treasury shares - (11.6) (11.6)Interest paid (18.5) (18.4) (32.1)Finance lease principal payments (12.4) (10.5) (21.5)Net loans repaid - (33.7) (89.9)Loans receivable repaid - - 1.0Dividends paid (36.3) (33.4) (49.7) ----- --------- --------- ---------Net cash used in financingactivities (62.4) (94.3) (188.0) ----- --------- --------- ---------Increase/(decrease) in cashand cash equivalents 9.9 (32.2) 6.5 ----- --------- --------- ---------Opening cash and cash 14 143.6 140.0 140.0equivalentsIncrease/(decrease) in cashand cash equivalents 9.9 (32.2) 6.5Foreign exchange 1.6 (2.5) (2.9) ----- --------- --------- ---------Closing cash and cash equivalents 14 155.1 105.3 143.6 NATIONAL EXPRESS GROUP PLCGROUP STATEMENT OF RECOGNISED INCOME AND EXPENSE For the six months ended 30 June 2007 Unaudited Unaudited Audited six months to six months to year to 30 June 30 June 31 December 2007 2006 2006 £m £m £m --------- --------- ---------Income and expense recogniseddirectly in equityExchange differences onretranslation of foreign operations 2.7 (19.8) (55.3)Exchange differences onretranslation of foreign currencyborrowings (1.0) 11.0 46.8Actuarial gains/(losses) on definedbenefit pension plans 3.2 (8.9) 20.6Gains on valuation of available forsale assets - 10.8 -Gain/(loss) on cash flow hedgestaken to equity 13.0 8.9 (12.1) --------- --------- --------- 17.9 2.0 - --------- --------- --------- Transfers to the income statementOn cash flow hedges 3.1 (2.9) 1.6 --------- --------- --------- 3.1 (2.9) 1.6 --------- --------- --------- Tax on exchange differences onretranslation of foreign currencyborrowings (0.1) 2.2 (1.3)Tax on share based payments (1.0) (1.0) 2.4Deferred tax on actuarial(gains)/losses (0.8) 2.8 (6.2)Deferred tax on cash flow hedges (4.9) (1.8) 3.7 --------- --------- ---------Tax on items taken directly to ortransferred from equity (6.8) 2.2 (1.4) --------- --------- --------- Net gains recognised directly inequity 14.2 1.3 0.2Profit/(loss) for the financialperiod 47.8 (8.8) 76.5Profit attributable to minorityinterests 0.2 0.3 0.8 --------- --------- ---------Total recognised income/(expense)for the period 62.2 (7.2) 77.5 --------- --------- ---------Income/(expense) attributable toequity shareholders 62.0 (7.5) 76.7Income attributable to minorityinterests 0.2 0.3 0.8 --------- --------- --------- 62.2 (7.2) 77.5 NATIONAL EXPRESS GROUP PLCNOTES TO THE INTERIM ACCOUNTS For the six months ended 30 June 2007 1. Basis of preparation These accounts have been prepared using the accounting policies set out in theGroup's 2006 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. Thefigures for the year to 31 December 2006 have been extracted from the AnnualReport and Accounts 2006 which has been filed with the Registrar of Companies.The audit report on the Annual Report and Accounts 2006 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 Six months to 30 June 2007 2006 Year to 31 Dec 2006 Closing rate Average rate Closing rate Average rate Closing rate Average rate --------- --------- --------- --------- --------- ---------US dollar 2.01 1.98 1.85 1.79 1.96 1.85Canadian 2.14 2.23 2.06 2.03 2.28 2.09dollarEuro 1.48 1.48 1.44 1.45 1.48 1.47 If the results for the six months to 30 June 2007 had been retranslated at theaverage exchange rates for the six months to 30 June 2006, North America wouldhave achieved normalised operating profit of £26.5m on revenue of £179.6m, andAlsa would have achieved normalised operating profit of £19.3m on revenue of£124.0m. 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 are treated as revenue. During the half year to 30 June 2007,franchise agreement receipts amounted to £191.4m (2006 interim: £179.0m; 2006full year: £377.1m). Unaudited six months to Audited year to 30 June 31 December Analysis by class and Operating Operating Operatinggeography of business Revenue result Revenue result Revenue result 2007 2007 2006 2006 2006 2006 £m £m £m £m £m £m ------- ------- ------- ------- ------- -------UK Bus 157.0 19.8 147.5 19.0 300.8 40.7UK Trains 771.1 28.7 744.0 20.0 1,497.6 49.1UK Coach 103.5 6.1 94.8 5.3 207.3 23.7Intercompanyelimination (6.8) - (5.7) - (13.2) - ------- ------- ------- ------- ------- -------UK operations 1,024.8 54.6 980.6 44.3 1,992.5 113.5North AmericanBus 162.8 24.1 155.0 26.6 283.7 39.1European Coach& Bus (Alsa) 121.7 18.9 117.1 18.1 249.3 44.3Centralfunctions - (7.0) - (5.0) - (12.1) ------- ------- ------- ------- ------- -------Result fromcontinuingoperations 1,309.3 90.6 1,252.7 84.0 2,525.5 184.8Goodwillimpairment - (20.2) (20.2)Intangibleassetamortisation (13.6) (14.3) (27.8)Exceptionalitems - (1.5) 4.8 ------- ------- ------- ------- ------- -------Groupoperatingprofit 77.0 48.0 141.6Profit ondisposal ofnon-currentassets - - 16.9 ------- ------- ------- ------- ------- -------Profit fromoperations 77.0 48.0 158.5Share of posttax resultsfromassociates andjoint ventures 0.5 (29.5) (29.5)Net financecosts (12.1) (13.0) (24.9) ------- ------- ------- ------- ------- -------Profit beforetax 65.4 5.5 104.1Tax expense (17.4) (14.0) (23.6) ------- ------- ------- ------- ------- -------Profit/(loss)for the periodfromcontinuingoperations 48.0 (8.5) 80.5Loss on saleofdiscontinuedoperations - - (3.2) ------- ------- -------Profit/(loss)for the period 48.0 (8.5) 77.3 Intercompany sales only occur between the Group's UK Divisions. Inter-segmenttrading is undertaken on standard arm's length commercial terms. 4. Goodwill impairment and intangible asset amortisation Intangible assets in UK Trains are subject to amortisation, which is charged ona straight-line basis to the end of the franchise, of £0.6m (2006 interim:£1.0m; 2006 full year: £1.6m). Intangible assets representing customer contractshave been subject to an amortisation charge in Alsa of £10.0m (2006 interim:£10.1m, 2006 full year: £20.1m), North America of £2.4m (2006 interim: £2.4m;2006 full year: £4.5m) and in UK Bus of £0.6m (2006 interim: £0.8m; 2006 fullyear: £1.6m). The goodwill impairment charge in 2006 related to the UK Trains' goodwill andgoodwill arising on the acquisition of Altram, both of which are now fullywritten off. 5. Exceptional items and exceptional charge for associates Exceptional items are material items of income or expenditure which due to theirnature and infrequency require separate identification on the face of the incomestatement to allow a better understanding of the financial performance in theperiod, in comparison to prior periods. The exceptional items can be analysed as follows: Six months to Six months to Year to 30 June 2007 30 June 2006 31 Dec 2006 £m £m £m ---------- ---------- ----------UK Bus - - (4.9)UK Coach - - (1.3)European Coach & Bus (Alsa) - 1.5 1.9Central functions - - (0.5) ---------- ---------- ----------Total exceptional charge/(credit) - 1.5 (4.8) No exceptional costs were incurred in the six months to June 2007. In the six months to 30 June 2006 and the year to 31 December 2006 exceptionalcosts were incurred in Spain in respect of integrating Alsa. Exceptional incomein the year to 31 December 2006 comprised income arising from the release ofbalance sheet pension liabilities in UK Bus, UK Coach and Central functions. Nocash was received in respect of this exceptional income. In the six months to 30 June 2006 and the year to 31 December 2006 anexceptional charge of £25.7m was incurred for the designation of the Group'sEurostar contract with Inter-Capital and Regional Rail Limited ("ICRRL") as anonerous contract. This was included within share of results from associates andjoint ventures. 6. Net finance costs Six months to Six months to Year to 30 June 2007 30 June 2006 31 Dec 2006 £m £m £m ---------- ---------- ----------Bank interest payable (14.6) (14.9) (28.2)Finance lease interest payable (2.7) (3.1) (7.0)Unwind of provision discounting (1.5) (0.6) (2.1) ---------- ---------- ----------Finance costs (18.8) (18.6) (37.3)Finance income: Bank interestreceivable 6.7 5.6 12.4 ---------- ---------- ----------Net finance costs (12.1) (13.0) (24.9) 7. Taxation Tax on profit on ordinary activities for the six months to 30 June 2007 has beencalculated on the basis of the estimated annual effective rate for the yearending 31 December 2007. The tax charge of £20.8m (2006 interim: £17.5m; 2006full year: £39.2m) represents an effective tax rate on normalised profit beforetax, for continuing and discontinued operations, of 26.4% (2006 interim: 26.0%;2006 full year: 25.1%). The total tax charge of £17.4m (2006 interim: £14.0m;2006 full year: £23.6m) includes overseas current taxation of £5.8m (2006interim: £3.4m; 2006 full year: £8.6m), and total deferred taxation of £4.2m(2006 interim: £8.9m; 2006 full year: £9.8m). 8. Dividends paid and proposed Six months to Six months to Year to 30 June 2007 30 June 2006 31 Dec 2006 £m £m £m --------- --------- ---------Declared and paid during the period:Ordinary final dividend for 2005paid of 22.25p per share - 33.9 33.9Ordinary interim dividend for 2006paid of 10.75p per share - - 16.2Ordinary final dividend for 2006paid of 24.00p per share 36.4 - - --------- --------- --------- 36.4 33.9 50.1 --------- --------- ---------Proposed for approval and notrecognised as a liability as atperiod end:Ordinary interim dividend for 2006of 10.75p per share - 16.2 -Ordinary final dividend for 2006of 24.00p per share - - 36.3Ordinary interim dividend for 2007of 11.56p per share 17.6 - - 9. Earnings per share Six months to Six months to Year to 30 June 2007 30 June 2006 31 Dec 2006 --------- --------- ---------Basic earnings/(loss) per share -continuing operations 31.5p (5.9p) 52.8pBasic loss per share -discontinued operations - - (2.1p) --------- --------- ---------Basic earnings/(loss) per share -total 31.5p (5.9p) 50.7p --------- --------- ---------Normalised basic earnings pershare - continuing operations 38.3p 32.8p 77.0p --------- --------- ---------Diluted earnings/(loss) per share- continuing operations 31.4p (5.9p) 52.5pDiluted loss per share -discontinued operations - - (2.1p) --------- --------- ---------Diluted earnings/(loss) per share- total 31.4p (5.9p) 50.4p --------- --------- ---------Normalised diluted earnings pershare - continuing operations 38.1p 32.5p 76.5p Basic earnings per share is calculated by dividing the profit attributable toequity shareholders of £47.8m (2006 interim: loss of £8.8m; 2006 full year:profit of £76.5m) by the weighted average number of ordinary shares in issueduring the period, excluding those held by employees' share ownership trusts andheld as own shares which are both 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 share is identical tothat 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 2007 30 June 2006 31 Dec 2006 --------- --------- ---------Basic weighted average shares 151,529,606 150,706,759 150,847,303Adjustment for dilutive potentialordinary shares 820,212 1,252,945 915,923 --------- --------- ---------Diluted weighted average shares 152,349,818 151,959,704 151,763,226 The normalised basic and normalised diluted earnings per share have beencalculated in addition to the basic and diluted earnings per share 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 2007 30 June 2006 31 Dec 2006 £m £m £m --------- --------- ---------Profit/(loss) attributable toequity shareholders 47.8 (8.8) 76.5Loss from discontinued operations - - 3.2 --------- --------- ---------Profit/(loss) from continuingoperations attributable to equityshareholders 47.8 (8.8) 79.7Goodwill impairment on continuingoperations - 20.2 20.2Intangible asset amortisation 13.6 14.3 27.8Exceptional items - 1.5 (4.8)Exceptional associates charge - 25.7 25.7Profit on disposal of non-currentassets - - (16.9)Tax relief on goodwill andexceptional items (3.4) (3.5) (15.6) --------- --------- ---------Normalised profit attributable toequity shareholders 58.0 49.4 116.1 Six months to Six months to Year to 30 June 2007 30 June 2006 31 Dec 2006 ------ ------- ------ ------ ------ ------ Basic Diluted Basic Diluted Basic Diluted eps eps eps eps eps eps p p p p p p ------ ------- ------ ------ ------ ------Profit/(loss)attributable to equityshareholders 31.5 31.4 (5.9) (5.9) 50.7 50.4Loss from discontinuedoperations - - - - 2.1 2.1 ------ ------- ------ ------ ------ ------Profit/(loss) fromcontinuing operationsattributable to equityshareholders 31.5 31.4 (5.9) (5.9) 52.8 52.5Dilutive effect - - - 0.1 - -Goodwill impairment oncontinuing operations - - 13.4 13.3 13.4 13.3Intangible assetamortisation 9.0 8.9 9.5 9.4 18.5 18.3Exceptional items - - 1.0 1.0 (3.2) (3.1)Exceptional associatescharge - - 17.1 16.9 17.0 16.9Profit on disposal ofnon-current assets - - - - (11.2) (11.1)Tax relief on goodwilland exceptional items (2.2) (2.2) (2.3) (2.3) (10.3) (10.3) ------ ------- ------ ------ ------ ------Normalised profitattributable to equityshareholders 38.3 38.1 32.8 32.5 77.0 76.5 10. Business combinations In the period ended 30 June 2007 the Group acquired the entire share capital oftwo school bus operators in Canada. Dundas Bus Service Limited was acquired on30 March 2007 and Hogan Bus Service Limited was acquired on 31 May 2007. On 31March 2007 the Group also acquired the entire share capital of Hotelink Limited,a UK based business which transports customers between hotels in central Londonand Heathrow and Gatwick airports. Total consideration for these acquisitions was £2.7m and £0.2m of cash wasacquired with the business, resulting in net payments to acquire businesses of£2.5m. On 26 April 2007 the Group agreed to acquire the entire share capital ofContinental Auto S.L., a coach and bus operator in Spain, for €659.3m. Theacquisition is subject to approval by the Spanish competition authorities and isexpected to complete in the final quarter of the year. 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 programme 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 interest rate swaps are in place to hedge the cash flow risk in relation tochanges in interest rates. The fuel price swaps are in place to hedge thechanges in price of the different types of fuel used in each division. Theforeign exchange forward contracts are in place to hedge the foreign exchangerisk on translation of net assets and on earnings denominated in foreigncurrency. At 30 June At 30 June At 31 Dec 2007 2006 2006 £m £m £m --------- --------- --------Non-currentInterest rate swaps 5.5 - 0.3Fuel price swaps 0.6 2.1 - --------- --------- --------Derivative financial assets 6.1 2.1 0.3 --------- --------- -------- CurrentInterest rate swaps 2.2 - 1.5Fuel price swaps 1.7 6.8 -Foreign exchange forward contracts 1.5 - 6.6 --------- --------- --------Derivative financial assets 5.4 6.8 8.1 --------- --------- -------- Non-currentFuel price swaps - - 2.6Interest rate swaps 4.0 4.1 5.7 --------- --------- ---------Derivative financial liabilities 4.0 4.1 8.3 --------- --------- --------- CurrentForeign exchange forward contracts 0.4 0.8 -Fuel price swaps - - 4.3Interest rate swaps 2.1 3.2 2.1 --------- --------- ---------Derivative financial liabilities 2.5 4.0 6.4 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 -Available for sale' of £13.5m (30 June 2006: £22.2m; 31 December 2006: £13.5m)which represent the Group's available for sale investments in unlistedcompanies. 12. Pensions and other post-employment benefits The UK Bus and UK Coach divisions operate funded defined benefit pension schemesand there is a single defined contribution scheme for the two Divisions. Themajority of employees of the UK Train companies are members of the appropriateshared-cost section of the Railways Pension Scheme, a funded defined benefitscheme. Central Functions staff are included in the Group's UK Coach pensionscheme. The assets of all schemes are held separately from those of the Group.Contributions to the schemes are determined by independent professionallyqualified actuaries. Subsidiaries in North America and Alsa contribute to a number of definedcontribution plans. The Group also provides certain additional post-employmentbenefits to employees in North America, which are categorised as 'Other' below. The total pension cost for the period was £14.7m (2006 interim: £15.7m; 2006full year: £23.9m), of which £13.6m (2006 interim: £14.0m; 2006 full year:£20.5m) relates to the defined benefit schemes and £1.1m (2006 interim: £1.7m;2006 full year: £3.4m) 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 2007 2006 2006 £m £m £m --------- -------- ---------UK Bus (18.1) (46.0) (17.3)UK Coach (12.8) (15.5) (12.7)UK Train (12.1) (30.7) (21.1)Other (0.9) (1.9) (1.7) --------- -------- ---------Total (43.9) (94.1) (52.8) --------- -------- --------- The UK Train defined pension liability is net of the franchise adjustment of£35.8m (30 June 2006: £47.5m; 31 December 2006: £44.4m). Details of thefranchise adjustment are included in note 35 to the Annual Report and Accounts2006. 13. Reconciliation of movements in equity Share Share Capital Own Other Retained Total Minority Total capital premium Redemption shares reserves earnings £m interests £m £m £m reserve £m £m £m £m £m ------ ------ ------- ------ ------ ------ ------ ------ -----At 1 Jan 2007 7.7 189.8 0.2 (16.7) 7.9 153.3 342.2 3.3 345.5Shares issued - 4.8 - - - - 4.8 - 4.8Own sharesreleased tosatisfyemployeeshare schemes - - - 0.3 - (0.3) - - -Totalrecognisedincome - - - - 12.8 49.2 62.0 0.2 62.2Share-basedpayments - - - - - 1.0 1.0 - 1.0Dividends - - - - - (36.4) (36.4) (0.2) (36.6) ------ ------ ------- ------ ------ ------ ------ ------ -----At 30 June 7.7 194.6 0.2 (16.4) 20.7 166.8 373.6 3.3 376.92007 14. Net debt At At At 1 Jan Acquisitions/ Exchange Other 30 June 30 June 2007 Cash flow Disposals differences movements 2007 2006 £m £m £m £m £m £m £m ------- ------- ------- ------- ------- ------- -------Cash andcash equivalents 143.6 9.9 - 1.6 - 155.1 105.3Other debtreceivable - - - - - - 1.0Loan notes (0.8) - - - - (0.8) (0.8)Bank loans (478.1) - - 1.1 (0.4) (477.4) (555.1)Financelease obligations (103.1) 12.4 - 1.1 - (89.6) (96.9) ------- ------- ------- ------- ------- ------- -------Net debt (438.4) 22.3 - 3.8 (0.4) (412.7) (546.5) Current 'Financial liabilities - Borrowings' of £23.8m (30 June 2006: £57.2m; 31December 2006: £43.6m) comprises £0.8m of loan notes (30 June 2006: £0.8m; 31December 2006: £0.8m), £20.2m of finance lease obligations (30 June 2006:£32.6m; 31 December 2006: £22.7m) and £2.8m of bank loans (30 June 2006: £23.8m;31 December 2006: £20.1m). Non-current 'Financial liabilities - Borrowings' of £544.0m (30 June 2006:£595.6m; 31 December 2006: £538.4m) comprises £69.4m of finance leases (30 June2006: £64.3m; 31 December 2006: £80.4m) and £474.6m of bank loans (30 June 2006:£531.3m; 31 December 2006: £458.0m). Included in cash and cash equivalents are restricted balances of £52.3m (30 June2006: £36.2m; 31 December 2006: £33.5m) held by the Train Operating Companiesand £nil (30 June 2006: £25.1m; 31 December 2006: £nil) held by NBC Pty Ltd inAustralia. Other non cash movements in net debt represent finance lease additions of £nil(2006 interim: £0.5m; 2006 full year: £20.7m) and amortisation of loanarrangement fees of £0.4m (2006 interim: £0.8m; 2006 full year: £0.9m). 15. Cash flow statement Reconciliation of Group operating profit to cash generated from operations Six months to Six months to Year to 30 June 2007 30 June 2006 31 Dec 2006 £m £m £m --------- --------- ---------Net cash inflow from operatingactivitiesGroup operating profit 77.0 48.0 141.6Depreciation of property, plantand equipment 38.2 41.5 81.7Amortisation of leasehold propertyprepayment - 0.4 0.6Goodwill impairment - 20.2 20.2Intangible asset amortisation 13.6 14.3 27.8Amortisation of property, plantand equipment grants (0.4) (1.5) (2.0)Profit on disposal of property,plant and equipment (0.7) (2.4) (3.1)Share-based payments 1.0 0.9 2.0(Increase)/decrease in inventories (1.4) 2.1 2.9Decrease in receivables 41.1 57.2 27.3Decrease in payables (48.6) (88.8) (21.1)Decrease in provisions and definedbenefit pension liability (13.0) (5.9) (23.4) --------- --------- ---------Cash generated from operations 106.8 86.0 254.5 The Interim Report 2007 will be sent to all shareholders. Copies can also beobtained from the Company Secretary at 75 Davies Street, London, W1K 5HT. - ENDS - This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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