Preliminary Results

25 June 2014

Stagecoach Group plc - Preliminary results for the year ended 30 April 2014

Financial results in line with expectations

· Adjusted earnings per share* up 5.7% to 26.0 pence (2013 restated: 24.6 pence)

· Full year dividend per share up 10.5% to 9.5 pence (2013: 8.6 pence)

· Net debt+ down £76.4m to £461.6m (2013: £538.0m)

· Current trading in line with management expectations

UK Bus

· Market-leading financial performance and customer satisfaction

· Orders for over £110m of new greener buses for 2014/15

· New contract wins in London driven by good cost control and operational performance

UK Rail

· New West Coast Trains franchise agreed

· Extension of South West Trains-Network Rail Alliance

· £9m invested in pursuing new rail franchise opportunities

North America

· Over 80% increase in operating profit

· megabus.com inter-city services driving growth in revenue and operating profit

· Progress in resolving legal cases at Twin America sightseeing joint venture

Growth opportunities ahead

· Focus on customer service improvements to support modal shift

· Development of megabus.com product and footprint

· Planned extensions or direct awards of South West and East Midlands rail franchises

· Shortlisted for InterCity East Coast rail franchise in partnership with Virgin, with pipeline of other new rail opportunities in UK

Financial summary

Commenting on the results, Chief Executive, Martin Griffiths, said:

"We have met our expectations for the year. Across the Group, we have a strong set of locally-managed businesses which are improving services for our customers, supporting the economy and communities, and adding value for our investors.

"For many years, we have built a sustainable business and attracted more people to greener public transport through a successful combination of low fares, continued investment, innovation, financial discipline and high customer satisfaction. By working together, we believe the public and private sector can best provide high quality bus and rail travel.

"In the UK, we have placed record orders for new vehicles at our regional bus networks in 2014/15, which is a sign of our confidence in continuing to get people out of their cars and back on board the bus. We have the lowest fares of any national bus operator and the highest customer satisfaction. In London, we are winning and retaining contracts on the right terms and our customers are benefitting from improved operational performance.

"Stagecoach is one of the UK's premier rail operators and we see new franchising opportunities ahead. While we were disappointed not to secure the new Thameslink, Southern and Great Northern rail franchise, we are very pleased that Virgin Rail Group has agreed a new West Coast rail franchise and that we have extended our innovative alliance with Network Rail at South West Trains. Positive discussions are continuing with the Department for Transport with a view to agreeing franchise extensions or direct awards at South West Trains and East Midlands Trains. Our objective is to achieve agreements which will collectively benefit customers, taxpayers and our shareholders.

"Our growing megabus.com business is continuing to expand and is leading a resurgence in good value, high quality inter-city travel options for people in the UK, mainland Europe and North America. In North America, in particular, we have significantly extended our footprint with new hubs, including in Florida. We believe there is a huge opportunity to encourage motorists to switch from the car, and our expansion plans are well on track. Our other wholly-owned operations in North America are performing satisfactorily and we are also pleased to have made progress in resolving the way forward for our Twin America sightseeing joint venture.

"The fantastic response of our professional and committed people to the prolonged extreme winter weather in parts of the UK and North America illustrates how central they are to our success. The Group itself has a strong financial foundation. I am confident we have new ideas and new opportunities ahead to deliver further sustainable growth in our business."

Copies of this announcement are available on the Stagecoach Group website at http://www.stagecoach.com/investors/financial-analysis/reports/2014.aspx

For further information, please contact:

Stagecoach Group plc www.stagecoachgroup.com

Investors and analysts

Ross Paterson, Finance Director 01738 442111

Bruce Dingwall, Group Financial Controller 01738 442111

Media

Steven Stewart, Director of Corporate Communications 01738 442111 or 07764 774680

John Kiely, Smithfield Consultants 020 7360 4900

Notes to Editors

Stagecoach Group

· Stagecoach Group is a leading international public transport group, with extensive operations in the UK, continental Europe, United States and Canada. The Group employs around 35,000 people, and operates bus, coach, train, and tram services.

· Stagecoach is one of the UK's biggest bus and coach operators with around 8,300 buses and coaches. Around 2.8 million passenger journeys are made on Stagecoach's buses every day on a network stretching from south-west England to the Highlands and Islands of Scotland. The Group's business includes major city bus operations in London, Liverpool, Newcastle, Hull, Manchester, Oxford, Sheffield and Cambridge. Low-cost coach service, megabus.com, operates a network of inter-city services across the UK and continental Europe.

· Stagecoach is a major UK rail operator, running the South West Trains, Island Line and East Midlands Trains networks. It has a 49% shareholding in Virgin Rail Group, which operates the West Coast rail franchise.

· Stagecoach also operates the Supertram light rail network in Sheffield.

· In North America, Stagecoach operates around 2,400 buses and coaches in the United States and Canada. Megabus.com links around 130 key locations in North America. Stagecoach is also involved in operating commuter, transit, contracted, charter and sightseeing services.

Chairman's statement

The Group has delivered on our expectations for the financial year ended 30 April 2014. We have further grown our businesses in the UK and North America, adapting to changing circumstances, improving services for our customers and adding value for our shareholders.

The Group achieved further revenue and profit growth in the year. Revenue was up 4.5% at £2,930.0m (2013: £2,804.8m). Total operating profit (before intangible asset expenses and exceptional items) was up 1.2% at £223.3m (2013 restated: £220.7m). Earnings per share before intangible asset expenses and exceptional items were 5.7% higher at 26.0p (2013 restated: 24.6p).

In line with the Group's performance, the Directors have proposed a final dividend of 6.6p per share. This gives a total dividend for the year up 10.5% at 9.5p (2013: 8.6p). The proposed final dividend is payable to shareholders on the register at 29 August 2014 and will be paid on 1 October 2014.

Our businesses have a focus on delivering our services commercially and growing organically. They have been able to manage the implications of reduced public sector investment in transport services and absorb the impact of extended severe winter weather.

We believe passionately in the benefits of the public and private sector working in partnership to improve bus and rail services. As public sector budgets continue to be squeezed, innovative, efficient and customer-focused commercial operators are key to securing the future of our public transport networks.

Stagecoach has built a sustainable business through low fares, continued investment, financial discipline, rising customer satisfaction and passenger growth. We believe the lessons from this approach can help governments and local authorities develop appropriate policies to tackle the inter-connected issues around travel costs, road congestion, rail capacity and investment in our road and rail infrastructure. We are finalising a new five-year sustainability strategy to further improve our environmental performance and reduce costs.

Across the Group, each of our divisions has delivered further revenue growth and we continue to invest in better bus and rail services for our customers. We are committed to maintaining the Group's strong financial position and our success is providing good returns to shareholders.

In the UK, our regional bus services have performed well, with both passenger volumes and revenue growing year-on-year. We have placed orders for over £90m of new greener buses for our regional bus services in England, Scotland and Wales for 2014/15, which is a sign of our confidence in our ability to continue to get people back on board the bus. In London, where we are also investing in our bus fleet, we are seeing the benefit of our focus on efficiencies and cost control flow through into new contract wins and improved profitability.

Our growing megabus.com business is continuing to expand in the UK, mainland Europe and North America. We are also continuing to innovate and our new inter-city sleepercoach services in the UK are achieving good load factors.

In North America, trading has been satisfactory, despite the prolonged period of adverse winter weather across the United States. Megabus.com in North America is the fastest-growing part of the Group and we have significantly expanded our footprint. New services have been added in Florida and North and South Carolina, while our Texas and California networks are performing well. We believe there is a large market for high quality, good value inter-city coach travel.

Trading in the increasingly competitive New York sightseeing market remains challenging and we anticipate that our share of profit from Twin America will further reduce in the year ending 30 April 2015. However, we are pleased that we have made progress in resolving the current litigation involving Twin America and are working to seek a full resolution of the cases.

Our UK Rail division has performed in line with expectations in the face of severe weather which affected the UK rail network over several months. We are pleased that we have extended our innovative alliance with Network Rail at South West Trains, which is planned to operate until April 2019. We are continuing to work closely with government to improve services, deliver better value for rail users and taxpayers, and address capacity and infrastructure challenges. We are working closely with Network Rail to ensure our passengers benefit from the £38bn programme of planned infrastructure investment between 2014 and 2019.

Our Virgin Rail Group joint venture has reached an agreement with the UK Department for Transport to return its West Coast rail franchise to more normal commercial terms following an 18-month management contract. Under the new agreement, the West Coast rail franchise is now planned to run until at least March 2017. We are continuing our discussions with the Department for Transport regarding the terms for our continued operation of our two wholly-owned franchises. The South West Trains franchise is currently due to expire in February 2017 but the Department for Transport plans to extend our tenure to April 2019. The East Midlands Trains franchise is due to expire in October 2015 and it is planned we would operate it for a further two years to October 2017.

We submitted what we considered to be a compelling yet deliverable bid for the complex Thameslink, Southern and Great Northern franchise. While we were disappointed not to secure the franchise, we continue to pursue other new opportunities. We are one of three bidders shortlisted for a new Docklands Light Railway franchise, and we expect Transport for London to announce the winner soon. We have also recently submitted a bid with Virgin for the new East Coast franchise and we expect the Department for Transport to announce later in 2014 which one of the three bidders has been awarded the franchise.

On behalf of the Board, I would like to congratulate Sir Ewan Brown, one of our non-executive directors, on being awarded a knighthood in the recent Queen's Birthday honours list for his service to business, public life and philanthropy in Scotland.

I would like to thank our employees for the huge contribution they make to our Group, often in challenging circumstances, as shown by their response to the extreme weather in the UK and North America during the year. Recent independent research has shown we are leading the way in delivering high levels of customer satisfaction in the bus sector, with high levels of passenger endorsement also achieved in our rail and tram operations. These results and our financial performance are driven by the hard work of our bus and rail teams who serve the many customers who travel with us every day.

Stagecoach has made a satisfactory start to trading in the financial year ending 30 April 2015. The Group is in a strong financial position, with investment grade credit ratings, and I believe the prospects for our customers, employees and our shareholders are positive.

Sir Brian Souter

Chairman

25 June 2014

Preliminary management report

The Directors of Stagecoach Group plc are pleased to present their report on the Group for the year ended 30 April 2014.

Overview of financial results

The Group has achieved continued good financial and operational performance in the year ended 30 April 2014.

Revenue by division is summarised below:

Operating profit by division is summarised below:

UK Bus (regional operations)

Financial performance

The financial performance of the UK Bus (regional operations) division for the year ended 30 April 2014 is summarised below:

Our bus businesses are built on a successful commercial formula of low fares, investment and high customer service which has delivered continued passenger volume growth nearly every year for more than ten years. The Division's results reflect a continuation of our successful strategy to grow revenue and passenger volumes organically, as well as pursuing targeted small bolt-on acquisitions.

The previous year's financial results to 30 April 2013 included revenue of £18.8m and operating profit of around £4m arising from the successful delivery of contracts to provide transport for the media and athletes at the London 2012 Olympic and Paralympic Games. Excluding that £4m operating profit, the division has increased operating profit by £8.2m or 5.9% in the year ended 30 April 2014.

Passenger volume and revenue growth

Like-for-like revenue was built up as follows:

The like-for-like revenue growth of 4.6% shown above for the year ended 30 April 2014 is in line with our expectations. We had previously reported like-for-like revenue growth of 4.8% for the forty eight weeks ended 30 March 2014. The lower growth for April 2014 reflects the timing of Easter. Bus revenue is generally lower than normal around Easter and in 2014, Easter weekend fell in the second half of April whereas in 2013, it fell around the end of March.

Overall like-for-like passenger volume growth for the year was 1.3%.

An increase in our commercial revenue has contributed most to the overall revenue growth, with concessionary, tendered and school revenue also continuing to grow. The growth in concessionary revenue is principally a result of an increase in the volume of concessionary journeys during the year, which we believe reflects more benign weather conditions. Although severe weather adversely affected our North America and South West Trains operations in the year, the weather across the UK was generally better than in the previous year. In addition to underlying growth, we benefitted from the division providing additional bus services to replace train services that were affected by planned railway resignalling work in the Nottingham area, and this is reflected in the increased contract revenue.

Continuing pressure on public sector budgets has, however, resulted in further reductions in central and local government investment in bus services. This has been particularly acute in Wales where we were recently forced to announce a 10% reduction in our fleet, the planned closure of our Brynmawr depot and a number of service reductions, following a succession of Welsh Government bus investment cuts.

Profitability

The decrease in operating margin was built up as follows:

The main changes in the operating margin shown above are:

· The Olympics contracts in the prior year earned an operating margin in excess of the average operating margin for the division. The non recurrence of those contracts this year results in a slight decrease in margin.

· Continuing the trend seen in the first half of the year just ended, insurance and claims costs have reduced as we remain focussed on minimising claims.

· Operating lease costs fell due to a combination of additional lease costs in the prior year to cover for vehicles redeployed on Olympics work, vehicles reaching the end of their lease terms and lower charges on vacant properties.

· In April 2012, the proportion of fuel duty that is rebated to bus operators in the form of Bus Service Operators' Grant ("BSOG") was cut. Since April 2012, the rate of BSOG has remained stable meaning that the total BSOG received by the division has fallen as a percentage of revenue.

Acquisition

In December 2013, we acquired Norfolk Green, an award-winning independent bus operator in the east of England. It will allow us to expand our operations in the east of England, where we have achieved good passenger volume growth by focusing on good value fares, investing in our networks and delivering punctual and reliable services.

Investment

We have now placed orders worth more than £90m for around 534 new greener vehicles for the UK Bus regional operations, benefitting communities in regions across England, Scotland and Wales. Most of the buses and coaches will be produced in the UK, supporting British manufacturing jobs and smaller businesses in the supply chain. It takes the Group's total orders of new buses and coaches for its regional bus operations in the UK to over £550m in the last seven years.

Customer service and smart ticketing

Customer service is central to our growth plans. The latest independent research by Passenger Focus shows that our customers are more satisfied with their service than those using other national UK bus operators for the second year in a row. Some 90% of Stagecoach bus passengers were either very or fairly satisfied with their overall service, which is higher than the national average of 88%. We are working hard to further improve the passenger experience, by for example, expanding our use of social media site, Twitter. We are also making a multi-million-pound investment in a nationwide automatic vehicle location system for our regional bus fleet in the UK. It will allow real time service information to be provided to customers via smartphone apps and the Internet, and help local authorities deliver real time passenger information.

We are continuing to invest and roll-out smarter ticketing across the UK to make travel easier for our customers. Nearly all of our bus companies in England offer customers our StagecoachSmart travel cards and we have now extended this benefit to passengers in Scotland and Wales. We were the first major operator to accept concessionary smartcard transactions on every one of our buses outside London. More than 240 million journeys are now made each year on Stagecoach bus and rail services using smartcards and that figure will grow further as we complete our roll out programme. In addition, we are testing smartphone ticketing using near-field communications technology.

Partnership

Strong partnerships with local authorities are continuing to deliver improved services for customers and support our growth plans. As well as building good relationships in shire counties, partnerships are either in place or have been proposed by bus operators in each of the metropolitan areas in England outside London. Successful, award-winning partnerships, such as that in Sheffield between South Yorkshire Passenger Transport Executive and several operators, have helped improve bus reliability and punctuality, increase customer satisfaction and generate passenger volume growth. In Oxford, our partnership with Oxfordshire County Council and other operators has delivered coordinated high-frequency bus services and an improved urban environment, whilst maintaining high levels of bus use in the city.

In Tyne and Wear, as previously reported, there has been consideration of a potential bus contracting system. Bus operators have put forward alternative better partnership proposals to the transport authority, offering investment in new vehicles, ticketing, network and customer service improvements, and guaranteed financial savings for the public sector. Tyne and Wear has one of the most used bus networks and recent research found it has the highest customer satisfaction of any metropolitan area in England. Responsibility for deciding on the merits of the respective partnership and bus contracting proposals has passed from the now dissolved Tyne and Wear Integrated Transport Authority to a new Combined Authority, which includes councils in County Durham and Northumberland, with a decision expected in September 2014. We believe that our extensive engagement with customers, bus employees and other stakeholders suggests significant backing for partnership as the best way forward for bus services and communities.

Inter-city coach services

Inter-city coach services operated under the megabus.com brand continue to grow in the UK and in mainland Europe. Our megabus.com network in mainland Europe is performing well and we have invested in new left-hand drive coaches to serve these locations. We have built on our initial services linking London with Paris, Brussels, Amsterdam and Boulogne to offer several new destinations. In October 2013, we entered the German market for the first time with a new route from London to Cologne. We have also added new services to Ghent, Lille, Rotterdam and Antwerp. Most recently, in June 2014, we extended our network into Spain and also widened our footprint in France, with a new route linking London, Paris, Toulouse and Barcelona. We continue to explore opportunities for the further expansion of the Group's inter-city coach services in continental Europe.

Outlook

We do not expect significant short-term growth in concessionary and tendered revenue as local authorities look to minimise concessionary reimbursement amounts and bus tenders in light of their budget constraints. This is exemplified by the Welsh Government's cuts in concessionary reimbursement rates for bus operators in Wales. Our focus is therefore to seek to continue to deliver good growth in commercial revenue to offset inflationary cost pressures.

Our assessment of the longer term outlook for our UK Bus (regional operations) remains as before: the market conditions are positive with a combination of a rising population, increasing road congestion, the cost of running a car and widespread concern for the natural environment providing good potential for increased bus usage across the UK. Furthermore, our business is well positioned to outperform the market with its low fares, high customer satisfaction and continued investment.

UK Bus (London)

Financial performance

The financial performance of the UK Bus (London) division for the year ended 30 April 2014 is summarised below:

Our UK Bus (London) operations have already surpassed the expectations we had when we reacquired the business in 2010, reflecting the progress made in restructuring the cost base, winning new profitable contracts and improving operational performance. The operating profit for the year ended 30 April 2014 exceeds our expectations from the start of the year reflecting the further positive progress made in the turnaround of the business.

Revenue growth

From 1 October 2013, the business no longer receives BSOG but this is offset by a corresponding uplift in the contract prices paid to the business by Transport for London. The impact of this change (all other things being equal) is an increase in both our reported revenues and costs, and a decline in profit margin but no overall change to profit. Excluding the effect of this change, revenue increased by 2.1%. As we anticipated, the underlying decline in revenue that was reported in the first half of the financial year was more than offset by growth in the second half as we benefitted from the nine new contracts won last financial year.

Profitability

The further progress in improving both operational and financial performance is reflected in the improvement in operating margin, which was built up as follows:

The results for the year ended 30 April 2013 included a net cost of £0.8m as a result of the agreement reached between London bus operators, Transport for London and trade unions to pay additional amounts to bus operators' employees in connection with the 2012 London Olympics. This payment did not recur in the current financial year contributing to the improved operating margin shown above. In addition and consistent with the trend seen in the first half of the year, other staff costs continue to reduce as a proportion of revenue reflecting the steps previously taken to reduce unit costs to ensure that the business can compete effectively for new contracts.

During the second half of the year ended 30 April 2014, we benefitted from falling fuel prices with only around half of our anticipated fuel consumption hedged by financial derivatives against price movements. This unanticipated saving is reflected in the reduction in fuel costs as a percentage of revenue.

As we expected, insurance and claims costs increased in the second half of the year ended 30 April 2014 because the equivalent costs in the prior year included a benefit from reassessing the level of insurance provisions held in respect of historic claims.

The reduction in other costs as a percentage of revenue mainly arises from lower maintenance and other expenses relating to the return of leased buses to lessors.

Operational performance and investment

We are pleased to have made further steady progress in improving our operational performance. Transport for London closely monitors the delivery of its contractors across a range of indicators. Since we acquired the UK Bus (London) division in 2010, we have improved the standing of the business in Transport for London's league tables significantly and are now among the leading operators on key measures.

We have announced orders for around £21m of hybrid electric buses for London to be delivered in 2014/15.

Current contract portfolio

The current, contracted, annualised revenue base (excluding contingent quality incentive income and any miscellaneous income) of the Group's London bus operations is estimated at £257.4m (which compares to £239.2m of such revenue for the year ended 30 April 2014) and can be analysed by contract expiry date as follows:

Outlook

Having surpassed the expectations we had for the London Bus business when we reacquired it in 2010, the focus now remains on keeping costs under control and aiming to retain and win contracts on acceptable terms. Given the competitive environment in which our London Bus business operates, we believe that delivering further improvement in reported operating margin would be challenging but we do see potential for growth in absolute revenue and profit over time.

North America

Financial performance

The financial performance of the North America division for the year ended 30 April 2014 is summarised below:

The increase in revenue and operating profit shown above includes the full year effect of the businesses acquired from Coach America in July 2012 and further growth in like-for-like revenue as analysed below.

Revenue growth

Despite the impact of severe weather during the year, further like-for-like revenue growth has been delivered. Megabus.com continues to be the fastest growing part of the North American business, with the growth reflecting both the full year effect of the new networks launched in Texas and California in 2012/13 as well as further growth on more established networks.

Like-for-like charter revenue declined as we continued to adjust our charter fleet size to reflect changes in demand and the decline in contract revenue reflects the expiry of certain contracts previously operated by the Group.

The like-for-like growth in scheduled service and commuter revenue includes declines in revenue on certain airport express services that we have restructured with a view to improving their profitability. The like-for-like growth in sightseeing and tour revenue included good growth in revenue at our Chicago sightseeing operations.

Profitability

The increase in operating margin was built up as follows:

Growth in our North America division is continuing to be driven by our inter-city megabus.com services where we have further expanded our growing megabus.com coach network We have achieved our objective for the year, which was to deliver a significant increase in the division's operating profit compared to 2012/13.

Overall, the financial performance of the non-megabus businesses remains satisfactory and the integration of the businesses acquired from Coach America in July 2012 has been successfully completed.

The changes in operating margin partly reflect the shift in the mix of business with a full year of the businesses acquired in 2012 and as megabus.com continues to grow at faster rate than the other businesses. As revenue and yield improves on megabus.com, staff and fuel costs grow to a lesser extent and therefore fall as a proportion of revenue. Additional claims costs were recorded in the year to reflect our latest assessment of the required provision for claims on major incidents. Less megabus.com work has been sub-contracted to third parties resulting in lower sub-contracting costs.

Megabus.com expansion

We have further expanded our growing megabus.com coach network in North America during the year. It now serves around 130 cities in the United States and Canada. We have also created more than 1,000 new jobs over the past seven years as a result of the success of the product. In April 2014, we announced a 14th North America hub, located in Orlando, Florida. Across Florida, megabus.com now serves a total of six metro areas - Gainesville, Jacksonville, Miami, Orlando, Tallahassee and Tampa. We also launched a new route connecting Orlando and New Orleans. This followed the addition of new destinations in North and South Carolina in February 2014 and routes between Baton Rouge and Houston and New Orleans in September 2013. In July 2013, we relaunched daily services between Cleveland and eight cities.

Recent research by the Chaddick Institute for Metropolitan Development of DePaul University found travellers in the United States saved $1.1 billion last year by taking megabus.com and other inter-city bus operators rather than the train or plane. We believe the market to encourage people to switch from the car to the bus is significant.

Investment and customer improvements

The North America division continues to invest in new vehicles and other improvements in customer service. Our megabus.com expansion in 2013/14 has been supported by a US$10.5m investment in new double-decker coaches. We have further improved the megabus.com website to better provide customer alerts and exchange of trips during periods of weather disruption. We are also seeking to further improve the safety and fuel-efficiency of our services through the introduction of the same eco-driving technology we have introduced in the UK.

Canada

We have been working with other bus operators in Ontario on a campaign to encourage greater customer choice through changes to the current licensed system in the province, which is controlled by government. The Premier of Ontario and the Minister of Transportation have previously publicly supported a change to the system, but as yet the regulation has not been modified. Research published by Ipsos Reid found that 80% of Ontarians polled believed change should be a priority for the Ontario government.

Disposals

In October 2013, we completed two small disposals of businesses as part of our strategic focus on commercial intercity, commuter and scheduled services. RAZ was purchased by DMC Transport, LLC for US$0.8m. The business, located in the North West of the United States, provides charter services and operating contracts for the transportation of construction workers to and from work sites. In Canada, we sold several small operations to Pacific Western Transportation Ltd for C$4.6m. This included the last of our remaining school bus operations, based in Peterborough and Whitby, a local transit contract business, and services providing transport to and from Pearson International Airport in Toronto.

Outlook

Revenue growth in North America remains the highest of any of our divisions, reflecting the successful expansion of megabus.com services. We expect this to continue with the further expansion of the megabus.com inter-city services, including the new Florida network where operations began in May 2014. Although we would not expect the level of increase in operating profit in the year ended 30 April 2014 to be repeated in the new financial year, we remain positive on the prospects for the North America Division.

UK Rail

Financial performance

The financial performance of the UK Rail division for the year ended 30 April 2014 is summarised below:

Revenue growth

The Group's two wholly-owned rail franchises, South West Trains and East Midlands Trains, continue to receive "revenue support" which partly offsets the extent to which actual revenue falls short of the revenue that was forecast as part of the successful bids for the franchises. As a result of the revenue support arrangements, the profit of our UK Rail Division is less sensitive to changes in revenue than it would otherwise be.

The Division reported good revenue growth for the year ended 30 April 2014 even after allowing for the adverse effect on revenue of severe winter weather, particularly at South West Trains.

Profitability

The decrease in operating margin was built up as follows:

The financial performance of our rail businesses is in line with our expectations and there is continuing good passenger revenue growth at our South West and East Midlands rail franchises. Expected increases in the franchise payments to the Department for Transport ("DfT") resulted in a reduced operating margin for the year.

Our efficient financial stewardship of the railway and our ability to generate continued growth is benefitting taxpayers. Recent data published by the Office of the Rail Regulator shows that our South West Trains franchise made the largest net return to the taxpayer of any UK train operator in 2012/13, providing a significant premium which the government can choose to invest in public services and improvements for passengers.

Franchise opportunities and negotiations

We are pleased that the rail franchising programme is again moving. We believe it is important to move quickly in restoring the competitive award of franchises and taking steps to agree commercial contracts to ensure passengers and taxpayers fully benefit. There are several opportunities ahead and we will bid for franchises where we believe we can improve services for passengers and add value to our shareholders. In the year ended 30 April 2014, we invested around £9m in pursuing new rail franchise opportunities.

We continue to discuss with the DfT the planned direct awards of new South West Trains and East Midlands Trains franchises. The DfT has previously announced that it plans to extend our tenure at South West Trains from February 2017 to April 2019, the end of Network Rail's regulatory Control Period 5. In March 2014, the DfT exercised the pre-contracted extension of the East Midlands rail franchise through to October 2015. The Group is continuing discussions with the DfT on a planned direct award at East Midlands Trains, subject to agreement of commercial terms, from October 2015 through to October 2017.

In December 2013, we submitted our bid for the Thameslink, Southern and Great Northern franchise with clear plans to manage the substantial, complex changes the franchise will face in the coming years. We were disappointed not to win the franchise but see further opportunities for franchise wins. We are one of three bidders shortlisted for a new Docklands Light Railway franchise, and we expect Transport for London to soon announce who has been awarded that franchise. We have also recently submitted a bid with Virgin for the new East Coast franchise and we expect the DfT to announce later in 2014 which of the three bidders has been awarded the franchise.

Our Alliance between South West Trains and Network Rail, where one management team manages both trains and track, is helping deliver a more integrated and customer-focused railway for passengers. We believe our hard work over the past two years has given us an invaluable insight, which we can leverage as part of our franchising strategy. We are pleased that South West Trains and Network Rail have entered into a new agreement that extends the duration of their alliance and will build on the successes that the Alliance has achieved over the last two years. The new agreement contemplates that the single, joint Alliance management team will continue to have responsibility for both train and infrastructure operations for the next five years to April 2019.

Investment in trains, stations, infrastructure and customer service

Strong operational performance has been underpinned by consistently high levels of customer satisfaction across our UK rail division over several years. The latest National Passenger Survey, published in June 2014, shows more than eight in ten customers at our South West Trains and East Midlands Trains networks are satisfied with their services.

Expanding capacity and improving the resilience of the track and signalling infrastructure is a key priority, particularly on busy commuter services into London. Around £360m is being spent to renew and enhance the infrastructure to provide more reliable journeys at our South West Trains franchise, Europe's busiest commuter network. The first of 108 extra carriages have been introduced on the network as part of a £65m programme to provide an additional 23,000 peak time seats every weekday. Platform 20 at the former Waterloo International Terminal ("WIT") has been opened ahead of schedule to help accommodate trains during disruption. The Alliance is also working with the DfT on significant proposals to re-open the remaining four WIT platforms and to extend platforms 1 to 4 at London Waterloo to create extra capacity at the UK's busiest station.

East Midlands Trains has been the UK's most punctual long distance train operator for the past four years and we are committed to improving services further for our customers. We worked in partnership with Network Rail over the summer to deliver a successful £100m resignalling improvement scheme in the Nottingham area. It included one of the largest bus rail replacement operations and we offered affected passengers a 15% discount on rail fares during the works. Station improvement schemes have been completed at the key Derby and Leicester transport hubs and we are rolling out free wi-fi to 30 stations. East Midlands Trains is creating more than 1,000 extra cycle spaces at stations throughout the network, to deliver greener and more integrated travel. New changing facilities and a cycle repair shop are being introduced at Sheffield and Leicester stations.

Customer service and improved communication and engagement are among our top priorities across our rail businesses. South West Trains, which has won a national "Putting Passengers First" award for keeping customers informed, has launched a new Passenger Forum. East Midlands Trains has launched a new customer contact centre with extended opening hours. It has also become the first train company in the UK to offer a 24-hour, 7-day-a-week point of contact for its customers within its control centre. The team is available to book passenger assistance, answer help-point calls, help to track lost property and deal with any urgent enquiries, as well as engaging with customers via social media.

Light rail

The Sheffield Supertram network is benefitting from a five-year multi-million-pound track improvement project, which will safeguard the future of Sheffield's tram network for the long-term. During the year, we launched a commercial smart ticketing scheme, which allows customers to store their tickets electronically on a StagecoachSmart travel card. It means passengers can access integrated smart ticketing across Stagecoach's bus and tram operations in Sheffield. Recent Passenger Focus research showed that 94% of Supertram customers in Sheffield were satisfied with their overall service, above the average score of 90% for the five UK light rail networks covered in the survey.

Outlook

As we approach the end of the existing period of our two wholly-owned franchises, the financial performance of the businesses becomes more challenging compared to that forecast in the original bids for the franchises. The existing franchise periods end in 2015 for East Midlands Trains and in 2017 for South West Trains. South West Trains and East Midlands Trains face further substantial increases in the amounts they are due to pay to the DfT as franchise premia amounts in the year ahead. While we remain focussed on growing revenue and controlling costs to offset these increased premia payments, to the extent possible, the greater opportunities to add value in UK Rail lie in the planned direct awards of new South West Trains and East Midlands Trains franchises and in the opportunities to secure other new franchises.

Joint Ventures

Virgin Rail Group

Financial performance

The financial performance of the Group's Virgin Rail Group joint venture (excluding intangible asset expenses and exceptional items) for the year ended 30 April 2014 is summarised below:

Until December 2012, Virgin Rail Group ("VRG") operated the West Coast rail franchise under a commercial agreement where it was at risk for variations in revenue and cost, and earned a commensurate return. To ensure the continued operation of the franchise following the DfT's failure to properly conclude its re-letting of the franchise during 2012, a temporary commercial arrangement was entered into in December 2012. Since then until June 2014, VRG has earned a pre-tax profit equivalent to 1% of revenue from the West Coast rail franchise with the DfT taking virtually all of the risk that revenue and/or costs differ from those expected.

VRG has now reached an agreement with the DfT to return its West Coast rail franchise to more normal commercial terms. Under the new agreement, the West Coast rail franchise is now planned to run until at least March 2017. VRG will look to build on its industry-leading customer satisfaction by delivering a range of further enhancements to the customer experience, including, high bandwidth wi-fi, a partnership with the Nectar loyalty scheme, additional standard class seating capacity, more ticket vending machines, an upgraded website and the planned new train services from London to Blackpool and Shrewsbury. The new franchise has a "GDP sharing" agreement that is intended to ensure that the DfT bears most of the risk of variances in the West Coast Trains' revenue resulting from UK GDP differing from that expected at the time of the June 2014 franchise agreement. A profit share arrangement also applies whereby a share of the profit above certain pre-determined thresholds is payable to the DfT.

Business developments

VRG introduced a new timetable in December 2013 following investment in four new 11-car Pendolino trains and 62 extra standard train carriages, which has delivered significant extra capacity. The new timetable provides new through journey opportunities between the Midlands, North West England and Scotland. Network Rail has delivered a £7.6m investment in improvements to overhead power lines on the busiest section of the West Coast Main Line between London and Rugby. The work is designed to improve operational performance and reduce delays for passengers. VRG is also working closely to ensure the West Coast franchise is effectively integrated with the Government's planned HS2 network.

Further investment is being made by VRG in customer service improvements for passengers, including a new First Class lounge at London Euston station and accessibility enhancements at other stations. VRG's West Coast franchise has achieved consistently high customer satisfaction and in the most recent National Passenger Survey, customer satisfaction was 90%.

Outlook

The new West Coast Trains franchise that Virgin Rail Group has now agreed enables it to deliver a range of benefits to customers. The franchise also has the potential to deliver higher levels of profitability than were earned in the year ended 30 April 2014 under the management contract then in force.

Twin America

Financial performance

The financial performance of the Group's Twin America joint venture (excluding intangible asset expenses and exceptional items) for the year ended 30 April 2014 is summarised below:

Trading remains challenging as a result of an increasingly competitive New York sightseeing market, among other factors, and we anticipate that our share of profit from Twin America will further reduce in the year ending 30 April 2015.  Major international bus operators such as Big Bus and RATP have entered the New York sightseeing market in recent months adding to an already highly competitive New York Tourist market.

Litigation

We have made progress in resolving the previously reported litigation regarding Twin America.

The US Department of Justice and the New York Attorney General (together, "the Government plaintiffs") initiated litigation against Twin America and its joint venture partners ("the Defendants", which include two Stagecoach US subsidiaries) in 2012. The litigation alleges that the formation of the Twin America joint venture in 2009 was anti-competitive. Separately, private plaintiffs brought a claim based on the same allegations on behalf of a proposed class of customers.

The Defendants have not admitted any liability but have agreed a cash settlement of US$19m (c£11.9m) with the private plaintiffs to fully resolve the private litigation. That settlement has received preliminary court approval. Final court approval is anticipated in approximately six to nine months following a period for class notification and claims administration.

The Government action remains pending at this time. Until the Government action concludes, the total financial cost of the various actions cannot be determined.

The Group has recorded exceptional pre-tax costs of US$14.8m (£9.2m) in its consolidated financial statements for the year ended 30 April 2014 in respect of its share of financial costs connected with the litigation. The ultimate cost to the Group may differ from this as it remains dependent on court approval of the settlement with private plaintiffs and also, the outcome of the Government action.

Scottish Citylink

Our Scottish Citylink joint venture with Comfort DelGro is the leading inter-city coach operator in Scotland. The megabusGold and sleepercoach services, launched in 2012/13, have performed well. During the year, we launched a dedicated website to market these services. We are already achieving good load factors and are now focused on effective yield management and refinements to our customer service offer.

EBITDA, depreciation and intangible asset expenses

Earnings from continuing operations before interest, taxation, depreciation, intangible asset expenses and exceptional items (pre-exceptional EBITDA) amounted to £340.2m (2013 restated: £333.9m). Pre-exceptional EBITDA can be reconciled to the condensed financial statements as follows:

The income statement charge for intangible assets decreased from £16.1m to £14.0m. Of the charge, none (2013: £1.0m) related to joint ventures.

Exceptional items

The following exceptional items were recognised in the year ended 30 April 2014:

· The share of profit of joint ventures includes a pre-tax charge of £9.2m in respect of the Group's share of the financial costs associated with the Twin America litigation. Further details are provided in the section earlier headed "Twin America".

· Virgin Rail Group received a further £2.0m from the DfT during the year ended 30 April 2014 in respect of the refund of bid and related legal costs incurred on the West Coast rail franchise. The Group's £1.0m share of this is included within the share of profit of joint ventures as is the related £0.2m tax charge in respect of the refund.

· A net pre-tax loss of £0.2m in respect of the disposal of certain North American businesses is recognised within non-operating exceptional items.

· £0.1m of pre-tax costs incurred in connection with the acquisition of businesses during the year ended 30 April 2014 are reported within non-operating exceptional items.

Net Finance costs

Net finance costs for the year ended 30 April 2014 were £42.6m (2013 restated: £43.3m) and can be further analysed as follows:

Taxation

The effective tax rate for the year ended 30 April 2014, excluding exceptional items, was 16.8% (2013 restated: 21.4%). The effective rate is lower than the standard rate of UK corporation tax for the year of 22.8% due primarily to adjustments in respect of prior years, the utilisation of previously unrecognised tax losses and the impact of the reduction in the rate at which deferred tax is calculated (following the reduction in the corporation tax rate from 23% to 20%). The tax charge for continuing operations can be analysed as follows:

Fuel costs

The Group's operations as at 30 April 2014 consume approximately 399.5m litres of diesel fuel per annum. As a result, the Group's profit is exposed to movements in the underlying price of fuel. The Group's fuel costs include the costs of delivery and duty as well as the costs of the underlying product. Accordingly, not all of the cost varies with movements in oil prices.

The proportion of the Group's projected fuel usage that is now hedged using fuel swaps is as follows:

The Group has no fuel hedges in place for periods beyond 30 April 2018.

Cash flows

Net cash from operating activities before tax for the year ended 30 April 2014 was £268.5m (2013: £329.2m) and can be further analysed as follows:

The net working capital outflow for the year ended 30 April 2014 of £42.3m (2013: inflow of £27.9m) was principally attributable to the timing of cash flows in the UK Rail division. Excluding the cash held within train operating companies, net debt reduced £102.5m in the year.

Net cash from operating activities before tax was £268.5m (2013: £329.2m) and after tax was £248.3m (2013: £313.1m). Net cash outflows from investing activities were £121.8m (2013: £241.1m), which included £5.5m (2013: £106.7m) in relation to the acquisition of businesses. Net cash used in financing activities was £146.3m (2013: £52.4m).

Net debt

Net debt (as analysed in note 17 to the condensed financial statements) decreased from £538.0m at 30 April 2013 to £461.6m at 30 April 2014, due to the Group's continued strong cash generation. The Group's net debt at 30 April 2014 is further analysed below:

The split between fixed and floating rate debt shown above takes account of the effect of interest rate swaps in place as at 30 April 2014.

The net impact of purchases of property, plant and equipment for the year on net debt was £160.9m (2013: £208.7m). This primarily related to expenditure on passenger service vehicles, and comprised cash outflows of £154.2m (2013: £181.9m) and new hire purchase and finance lease debt of £6.7m (2013: £26.8m). In addition, £42.0m (2013: £53.4m) cash was received from disposals of property, plant and equipment.

Liquidity

The Group's financial position remains strong and is evidenced by:

· The ratio of net debt at 30 April 2014 to pre-exceptional EBITDA for the year ended 30 April 2014 was 1.4 times (2013 restated: 1.6 times).

· Pre-exceptional EBITDA for the year ended 30 April 2014 was 8.0 times (2013 restated: 7.8 times) net finance charges (including joint venture net finance costs).

· Undrawn, committed bank facilities of £342.1m at 30 April 2014 (2013: £303.8m) were available to be drawn as bank loans with further amounts available only for non-cash utilisation. In addition, the Group continues to have available asset finance lines.

· The three main credit rating agencies continue to assign investment grade credit ratings to the Group.

The Group's main bank facilities are committed through to 2016.

Capital expenditure

Additions to property, plant and equipment for the year were:

The differences between the amounts shown above and the impact of capital expenditure on net debt arose from movements in fixed asset deposits and creditors.

Net assets

Net assets at 30 April 2014 were £79.3m (2013 restated: £16.3m).

Retirement benefits

The reported net assets of £79.3m (2013 restated: £16.3m) that are shown on the consolidated balance sheet are after taking account of net pre-tax retirement benefit liabilities of £115.8m (2013 restated: £109.6m), and associated deferred tax assets of £23.1m (2013 restated: £25.2m).

The Group recognised pre-tax actuarial losses of £Nil in the year ended 30 April 2014 (2013 restated: £29.2m) on Group defined benefit schemes.

Related parties

Details of significant transactions and events in relation to related parties are given in note 19 to the condensed financial statements.

Principal risks and uncertainties

Like most businesses, there is a range of risks and uncertainties facing the Group. A brief summary of the principal risks and uncertainties is given below. The principal risks and uncertainties facing the Group have not changed substantially since the publication of the Group's 2013 Annual Report, where a more detailed explanation of the risks and uncertainties can be found on pages 8 to 12. Further information and updates will be provided in the 2014 Annual Report. These matters are not intended to be an exhaustive list of all possible risks and uncertainties.

The focus below is on those specific risks and uncertainties that the Directors believe could have the most significant impact on the Group's performance.

· Catastrophic events- there is a risk that the Group is involved (directly or indirectly) in a major operational incident.

· Terrorism - there is a risk that the demand for the Group's services could be adversely affected by a significant terrorist incident.

· Economy - the economic environment in the geographic areas in which the Group operates affects the demand for the Group's bus and rail services.

· Rail cost base- a substantial element of the cost base of the UK Rail division is essentially fixed as under its UK rail franchise agreements, the Group is obliged to provide a minimum level of train services and is less able to flex supply in response to changes in demand.

· Sustainability of rail profit - there is a risk that the Group's revenue and profit could be significantly affected (either positively or negatively) as a result of the Group winning new UK rail franchises or failing to retain its existing franchises.

· Breach of franchise- if the Group fails to comply with certain conditions as part of its rail franchise agreements it may be liable to penalties including potential termination of one or more of the rail franchise agreements.

· Pension scheme funding - the Group participates in a number of defined benefit pension schemes, and there is a risk that the cash contributions required increase or decrease due to changes in factors such as investment performance, discount rates and life expectancies.

· Insurance and claims environment - there is a risk that the cost to the Group of settling claims against it is significantly higher or lower than expected.

· Regulatory changes and availability of public funding - there is a risk that changes to the regulatory environment or changes to the availability of public funding could affect the Group's prospects. Such changes may arise as a result of the outcomes of the September 2014 referendum on Scottish independence and/or the 2015 UK general election.

· Management and Board succession - there is a risk that the Group does not recruit and retain sufficient directors and managers with the skills important to the operation of the business.

· Disease - there is a risk that demand for the Group's services could be adversely affected by a significant outbreak of disease.

· Information technology- there is a risk that the Group's capability to make Internet sales either fails or cannot meet levels of demand. There are also risks associated with IT systems failures and potential malicious attacks on systems

· Treasury risks- the Group is affected by changes in fuel prices, interest rates and exchange rates.

Current trading and outlook

The Group has made a satisfactory start to its financial year ending 30 April 2015 and overall trading for the financial year to date is in line with our expectations.

We continue to see positive long-term prospects for public transport in the markets in which we operate. There is a large market opportunity for modal shift in both the UK and North America to capitalise on rising road congestion, higher car operating costs and increasing environmental awareness. Our successful strategy of offering good value travel, investment and high levels of operational performance and customer service means we are well placed to achieve further sustainable growth. We are progressing discussions to reach commercial agreements with the Government to extend our current rail franchises. In addition, under the DfT's franchising programme, there are several opportunities ahead to expand our rail portfolio and we are focused on developing bids which will benefit customers and deliver value for money to government. We believe our track record of innovation and partnership working can benefit passengers and taxpayers and give us a competitive advantage which can generate good returns for our shareholders.

Martin Griffiths

Chief Executive

25 June 2014

Cautionary statement

The preceding preliminary management report and Chairman's statement have been prepared for the shareholders of the Company, as a body, and no other persons. Their purpose is to assist shareholders of the Company to assess the strategies adopted by the Company and the potential for those strategies to succeed and for no other purpose. The preliminary management report and Chairman's statement contain forward-looking statements that are subject to risk factors associated with, amongst other things, the economic and business circumstances occurring from time to time in the countries, sectors and markets in which the Group operates. It is believed that the expectations reflected in these statements are reasonable but they may be affected by a wide range of variables that could cause actual results to differ materially from those currently anticipated. No assurances can be given that the forward-looking statements will be realised. The forward-looking statements reflect the knowledge and information available at the date of preparation. Nothing in the Chairman's statement or in the preliminary management report should be considered or construed as a profit forecast for the Group. Except as required by law, the Group has no obligation to update forward-looking statements or to correct any inaccuracies therein.

CONDENSED FINANCIAL STATEMENTS

CONSOLIDATED INCOME STATEMENT

The accompanying notes form an integral part of this consolidated income statement.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED BALANCE SHEET (STATEMENT OF FINANCIAL POSITION)

The retained earnings deficit of £310.0m (2013 restated: £391.0m) is the consolidated position. The holding company's distributable reserves as at 30 April 2014 under UK GAAP were £499.9m (2013: £274.3m).

The accompanying notes form an integral part of this consolidated balance sheet.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

The accompanying notes form an integral part of this consolidated statement of changes in equity.

CONSOLIDATED STATEMENT OF CASH FLOWS

Cash and cash equivalents for the purposes of the consolidated statement of cash flows comprise cash at bank and in hand, overdrafts and other short-term highly liquid investments with maturities at the balance sheet date of twelve months or less.

The accompanying notes form an integral part of this consolidated statement of cash flows.

NOTES

These results are extracts of consolidated financial statements that have been prepared in accordance with International Financial Reporting Standards ("IFRS") and International Financial Reporting Interpretations Committee ("IFRIC") interpretations as adopted by the European Union (that therefore comply with Article 4 of the EU IAS Regulation), and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. Except to the extent described below, the accounting policies and methods of computation adopted are consistent with those used in the last set of published financial statements.

New standards, amendments to standards and interpretations that are mandatory for the first time for the financial year beginning 1 May 2013, do not have any significant effect on the consolidated financial statements of the Group, with the exception of the revised version of International Accounting Standard 19 ("IAS 19R"), which is explained below.

The Board of Directors approved this announcement on 25 June 2014.

In June 2011, the International Accounting Standards Board ("IASB") issued an amended version of IAS 19 'Employee Benefits', which brings in various changes relating to the recognition and measurement of post-retirement defined benefit expense and termination benefits, and to the disclosures for all employee benefits. The IAS 19 change that has the most significant effect on the Group's reported profit is that the Group's annual expense for defined benefit schemes now includes net interest expense or income calculated by applying the discount rate to the net defined benefit asset or liability. The net interest expense or income replaces the finance charge on scheme liabilities and the expected return on scheme assets and results in a higher annual expense. Applying IAS 19R to the consolidated financial statements had no impact on revenue or the consolidated statement of cash flows previously reported. Its impact on the segmental operating profit and profit from continuing operations was as follows:

The restated profit shown above reflects:

· The inclusion of the pensions current service cost within the operating profit of each division in the consolidated income statement.

· The inclusion of investment administration costs and taxes, such as amounts levied by the UK Pension Protection Fund, in the actual return on investment, with the difference between the actual return on investment and the discount rate applied to the scheme assets being reflected in other comprehensive income.

· The inclusion of net interest expense on the net defined benefit liability within finance charges (net) in the consolidated income statement.

The liability (or asset) recognised for the relevant sections of the Railways Pension Scheme reflects that part of the net deficit (or surplus) of each section that the employer is expected to fund (or expected to recover) over the life of the franchise to which the section relates. The determination of those amounts includes considering the expected return on assets in the relevant sections over the life of the related franchises. The new version of IAS 19 in effect applies a lower expected return on assets and so results in a change in the liability recognised for the relevant sections of the Railways Pension Scheme. The consolidated balance sheets as at 30 April 2013 and 30 April 2012 have been restated as follows:

The principal rates of exchange used to translate the results of foreign operations are as follows:

The Group is managed, and reports internally, on a basis consistent with its four continuing operating segments, being UK Bus (regional operations), UK Bus (London), North America and UK Rail. The Group's IFRS accounting policies are applied consistently, where appropriate, to each segment.

The segmental information provided in this note is on the basis of four operating segments as follows:

The basis of segmentation is consistent with the Group's last annual financial statements for the year ended 30 April 2013.

The Group has interests in three joint ventures: Virgin Rail Group that operates in UK Rail, Citylink that operates in UK Bus (regional operations) and Twin America that operates in North America. The results of these joint ventures are shown separately in note 3(c).

Due to the nature of the Group's business, the origin and destination of revenue (i.e. United Kingdom or North America) is the same in all cases, except in respect of an immaterial amount of revenue for services operated by UK Bus (regional operations) between the UK and mainland Europe. As the Group sells bus and rail services to individuals, it has few customers that are individually "major". Its major customers are typically public bodies that subsidise or procure transport services - such customers include local authorities, transport authorities and the UK Department for Transport.

Revenue split by segment was as follows:

Operating profit split by segment was as follows: