Interim Results 2008 1 Interim Results For the six months ended 31 October 2008 3 December 2008

Interim Results 20081

Interim ResultsInterim ResultsFor the six months ended 31 October 2008For the six months ended 31 October 2008

3 December 20083 December 2008


Definitions Like-for-like amounts are derived, on a constant currency basis, by comparing

the relevant year-to-date amount with the equivalent prior year period for those businesses and individual operating units that have been part of the Group throughout both periods.

Operating profit for a particular business unit or division within the Group refers to profit before net finance income/charges, taxation, intangible asset expenses, exceptional items and restructuring costs.

Operating margin for a particular business unit or division within the Group means operating profit as a percentage of revenue.

Exceptional items means items which individually or, if of a similar type, in aggregate need to be disclosed by virtue of their nature, size or incidence in order to allow a proper understanding of the underlying financial performance of the Group.

Net debt (or net funds) is the net of cash and borrowings as reported on the consolidated balance sheet, adjusted to exclude any accrued interest and deferred gains on derivatives.


Robert SpeirsRobert Speirs

ChairmanChairman


Highlights

Good underlying revenue growth in all core divisions

Interim dividend of 1.8p, up 33.3%

Adjusted earnings per ordinary share up 28.7%

Challenging short-term outlook in UK Rail; decisive management action in anticipation of this


Martin GriffithsMartin Griffiths

Finance DirectorFinance Director


Financial summary

* Excluding exceptional items and intangible asset expenses

Revenue - continuing operations

Operating profit* - continuing operations

Adjusted earnings per ordinary share*

Basic earnings per ordinary share

Net debt

Dividend per ordinary share

31 Oct 08 31 Oct 07

£1,045.0m

£119.8m

12.1p

9.7p

£(370.2)m

1.8p

£820.8m

£100.0m

9.4p

9.0p

£(494.7)m

1.35p

Change

27.3%

19.8%

28.7%

7.8%

25.2%

33.3%


Summary income statement

UK Bus operating profit

North America operating profit excl megabus

megabus North America operating loss

UK Rail operating profit

Share of joint ventures’ profit after tax

Restructuring and group overheads

Finance charges (net)

Tax

Profit excluding intangibles and exceptionals

Intangibles and exceptionals, net of tax

Reported profit from continuing operations

31 Oct 08£m

31 Oct 07£m

60.9

20.2

(0.4)

31.7

15.6

(8.2)

(14.6)

(18.9)

86.3

(16.9)

69.4

52.5

18.0

(1.1)

25.3

13.2

(7.9)

(15.4)

(15.7)

68.9

(3.1)

65.8

Change£m

8.4

2.2

0.7

6.4

2.4

(0.3)

0.8

(3.2)

17.4

(13.8)

3.6


UK Bus

Revenue and journeys benefiting from marketing campaigns, investment in fleet, excellent value fares and concessionary fare schemes

Acquisitions of small, complementary businesses

Continued underlying revenue and volume growth

Revenue (£m)

Like-for-like revenue (£m)

Operating profit (£m)

Operating margin

Estimated like-for-like passenger journeys (m)

Like-for-like vehicle miles operated (m)

31 Oct 08 31 Oct 07

410.4

395.0

60.9

14.8%

325.2

157.4

367.1

361.6

52.5

14.3%

312.4

154.4

Change

11.8%

9.2%

16.0%

0.5%

4.1%

2.0%


North America (excluding megabus)

Further margin improvement

Further expansion of megabus.com

Revenue (US$m)

Like-for-like revenue (US$m)

Operating profit (US$m)

Operating margin

31 Oct 08 31 Oct 07

267.7

267.9

38.0

14.2%

258.9

257.0

36.2

14.0%

Change

3.4%

4.2%

5.0%

0.2%


UK Rail (wholly-owned)

Continued like-for-like revenue growth and good profitability Risk and opportunities

Challenging economic environment New timetable at East Midlands Trains Two new stations at East Midlands Trains Automatic ticket gates at London Waterloo and four major East Midlands Trains stations

East Midlands revenue up 14.1% compared to equivalent predecessor businesses in prior year

Revenue (£m)

Like-for-like revenue (£m)

Operating profit (£m)

Operating margin

South Western Trains estimated passenger miles (millions)

31 Oct 08 31 Oct 07

486.4

345.0

31.7

6.5%

1,675.6

322.7

318.8

25.3

7.8%

1,619.0

Change

50.7%

8.2%

25.3%

(1.3)%

3.5%


Virgin Rail Group

2007 includes CrossCountry franchise that ended November 2007

Plans to increase number of services by approximately one-third starting December 2008

Recent performance and revenue adversely affected by infrastructure work, however overall profitability not adversely affected

Revenue - 49% share (£m)

- West Coast

- West Coast like-for-like

Operating profit - 49% share (£m)

Operating margin

Dividends received (£m)

Estimated Passenger miles (millions) - West Coast

31 Oct 08 31 Oct 07

159.3

159.2

149.1

19.4

12.2%

19.4

1,378.0

225.8

149.1

149.1

16.3

7.2%

11.0

1,284.7

Change

(29.5%)

6.8%

0.0%

19.0%

5.0%

76.4%

7.3%


Miscellaneous income statement items

Increased group overheads includes higher share based payment expenses

Exceptional items include

£13.5m exceptional tax charge in relation to the abolition of UK Industrial Buildings Allowances

a gain of £2.2m in relation to resolution of acquisition & disposal liabilities

Citylink joint venture (£m)

Splash Tours joint venture (£m)

Intangible asset expenses (£m)

Group overheads (£m)

Restructuring costs (£m)

Post-tax exceptional items (£m)

31 Oct 08 31 Oct 07

0.7

(0.2)

(6.5)

(7.2)

(1.0)

(11.5)

0.6

(0.3)

(6.2)

(6.2)

(1.7)

2.0

Change

16.7%

33.3%

(4.8)%

(16.1)%

41.2%

(675.0)%


Finance charges and credit ratios

Net Group finance charges (£m)

Net finance charges, including net finance income from joint ventures (£m)

EBITDA from continuing operations and joint ventures* (£m)

- last six months

- last twelve months

Period-end net debt (£m)

Net Debt/EBITDA (12 months)*

EBITDA*/Net finance charges (including net finance income from joint ventures)

31 Oct 08 31 Oct 07

(14.6)

(13.0)

156.2

302.7

370.2

1.2x

12.0x

(15.4)

(13.6)

135.1

250.5

494.7

2.0x

9.9x

Change

5.2%

4.4%

15.6%

20.8%

25.2%

(0.8)x

2.1x

* excluding exceptional items


Liquidity & interest rate risk Excellent liquidity

c.£500m of undrawn committed bank facilities

Sufficient bank facilities to refinance US$ bond in November 2009

Key refinancing required by 2012

Other undrawn available credit lines – e.g. asset finance

Operating well within bank covenants

Cash generative

Upward pressure on debt pricing

Significantly higher margins for new UK asset finance

Likely step up in bank margins for refinancing


Taxation

Excluding intangible asset expenses and exceptional items- Before joint ventures- Joint venturesIntangible asset expenses

Exceptional items

Reclassify joint venture taxation for reporting purposesReported in income statement

Cash tax paid (net)

Pre-taxProfit£m

Tax£m

89.621.6(6.5)

104.72.0

106.7(6.0)

100.7

(18.9) (6.0)

1.1(23.8)(13.5)(37.3)

6.0(31.3)

0.7

Rate%

21.1% 27.8%

16.9%22.7%

35.0%

31.1%

31 Oct 2008


EBITDA from Group companies before exceptionals Loss on disposal of plant and equipmentEquity-settled share based paymentDividends from joint venturesMovement in retirement benefit obligationsWorking capital movementsNet interest paidTax paidNet cash from operating activitiesNet capital expenditure including new hire purchase and finance leasesAcquisitions of businesses, intangibles and investmentsDisposals of businesses and investmentsMovement in loans to joint venturesToken sales and redemptionsForeign exchange/otherIncrease in net debt before cash flows with shareholdersEquity dividendsShare capital movementsIncrease in net debtOpening net debtClosing net debt

31 Oct 08£m

136.20.61.2

19.4(15.5)(19.6)(14.5)

(0.7)107.1(79.1)

(9.6)0.3

(0.1)(1.8)

(38.7)(21.9)(28.9)

0.3(50.5)

(319.7)(370.2)

Movement in net debt


28.27.7

Nil 35.9

54.213.115.9 83.2

(3.5)(0.5)(0.1)

(4.1)

50.712.615.8

79.1

26.05.4

15.9 47.3

Capital expenditure

UK BusNorth AmericaUK Rail

New hire purchase

and finance leases

£m

Impact ofcapex onnet debt

£m

Disposalproceeds**

£mNet£m

Cash spent on capex*

£m

* Excludes capitalised intangible assets of £3.1m (2007: £1.1m) and assets acquired through business combinations

** Excludes proceeds from selling businesses

Significant capital expenditure planned for second half of year to 30 April 2009


Fuel Hedging

2007/8 - average effective price (per litre)

2008/9 - % of forecast consumption hedged

- average hedge price (per litre)





Market price (per litre)

UK BusNorth

America

26.5p

91.6%

33.6p

78.3%

49.2p

6.0%

41.9p

31.6p

56.3 cents

75.7%

61.5 cents

63.3%

90.8 cents

4.7%

67.9 cents

45.9 cents

UK Rail

30.7p

76.1%

31.6p

74.7%

31.6p

74.7%

31.6p

30.7p

Market prices are as at 26 November 2008

Prices exclude premia payable on fuel caps, delivery margins, duty, taxes and Bus Services Operators Grant


(167.1)

73.7

(93.4)

(33.6)

(6.7)

(133.7)

(4.5)

(20.6)

(158.8)

(183.6)

73.8

(109.8)

(43.4)

(5.4)

(158.6)

(5.8)

(22.0)

(186.4)

(158.5)

73.8

(84.7)

(30.1)

(5.4)

(120.2)

(5.1)

(22.0)

(147.3)

Fuel costsLatest forecasts

UK Bus, excluding BSOG*

UK Bus, BSOG*

UK Bus, including BSOG*

North America

South Western Trains

2008/9 UK Bus Acquisitions (Bullocks, Highland)

East Midlands Trains

Total

2008/09Forecast

£m

2009/10Forecast

£m

2010/11Forecast

£m

Fuel costs

(150.1)

68.5

(81.6)

(25.1)

(5.3)

(112.0)

-

(10.9)

(122.9)

2007/08Actual

£m

Market prices are as at 26 November 2008, when Brent Crude was US$50 per barrel

Forecast costs for the unhedged element of fuel are based on 26 November 2008 spot prices

Above costs include delivery margins, duty and taxes (duty forecast at current levels)

* Bus Services Operators Grant (“BSOG”) represents a rebate of an element of fuel duty costs in respect of certain UK Bus Services

189.8

-

189.8

74.8

12.0

276.6

5.5

50.5

332.6

2008/9ForecastLitres m

Volumes


Brian SouterBrian Souter

Chief ExecutiveChief Executive


Overview

Good growth in bus and rail services Consumer demand for good value products and

services Planning for challenging economic conditions in

2009/10 Decisive management action now in UK Rail


UK Bus

Excellent performance – like-for-like revenue up 9.2%

Further increase in like-for-like passenger volumes – 4.1%

Consumer demand for good value transport options

Successful discount ticketing strategy

Resilient and flexible business model


UK Rail

Growing commuter and inter-city Strong operational performance and delivery on franchise

commitments Planning for significant drop in Central London Employment Decisive management action plan to minimise risk and maximise

opportunities– Cost reduction programme– Revenue generation: new timetables, new stations, gating,

off-peak travel


UK Rail/Virgin Rail GroupManagement action plan

Critical review of cost base Emphasis on sustainable savings at South Western Trains &

West Coast Trains Headcount reductions Reduction in management and staff headcount and overhead

costs Significant improvement in staff productivity and ongoing

investment in technology driven savings Focus on maximising revenue generation from new initiatives –

e.g. gates


London Employment and Peak Arrivals Rail Trends 1988-1997

Passenger Volumes

0.60

0.70

0.80

0.90

1.00

1.10

1.20

1.30

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

Ind

ex (

1988

= 1

)

Total Central London employment

South West peak arrivals

National Rail peak arrivals

Sources: Central London employment – Greater London AuthoritySouth West peak arrivals – South Western TrainsNational Rail peak arrivals – National Rail Trends


North America

Solid growth across diverse portfolio

Commuter services benefiting from modal shift

Successful contract renewal season

Weaker leisure demand in United States

megabus.com ahead of expectations

– Increased product investment

– Expansion to new locations

– Attractive recession product


Current trading and outlook

Current trading in line with management expectations Further growth expected in UK Bus and American

businesses Challenging environment for UK Rail 2009/10 BUT management action plan to address cost base

and maximise revenue opportunities Robust and diverse portfolio of businesses with strong

cash generation





Appendices


UK Bus Revenue

Like-for-like

Acquisitions:Highland excluding Inverness (acquired 16 May 2008)Fens (acquired 28 March 2008)Rennies (acquired 14 March 2008)Bullocks (acquired 10 August 2008)

Stagecoach in Inverness*

Disposals:Darlington (disposed August 2007)Huddersfield (disposed April 2008)

Start-ups:Rail replacement (started May 2008)

Total reported

Change%

9.2%

11.8%

31 Oct 2008£m

31 Oct 2007£m

395.0

3.62.61.30.3

5.3

Nil Nil

2.3

410.4

361.6

Nil Nil Nil Nil

3.0

0.91.6

Nil

367.1

* Existing Inverness operations integrated with and now not distinguishable from Highland so Inverness excluded from like-for-like comparison


North America

Excluding megabusmegabus- Midwest- California- North East

31 Oct 2008US$m

31 Oct 2007US$m

38.0

1.8 Nil

(2.6)37.2

36.2

(0.5)(1.7)

Nil34.0

Operating Profit

31 Oct 2008US$m

31 Oct 2007US$m

267.7

9.40.45.6

283.1

258.9

4.40.4

Nil263.7

Revenue


Scheduled service/line run/commuterSightseeing & tourCharterSchool bus & contractLike-for-like revenue excl megabusClosed operations and foreign exchange movementsTotal North America excl megabusmegabusTotal North America

31 Oct 08US$m

31 Oct 07US$m

103.760.857.945.5

267.9(0.2)

267.715.4

283.1

100.360.854.941.0

257.01.9

258.94.8

263.7

% Growth

3.4% Nil

5.5%11.0%

4.2% n/a

3.4%220.8%

7.4%

North America revenue breakdown


Divisional income statementsSix months ended 31 October 2008

UK Rail£m

486.4

70.3

31.7

(133.2)

(15.1)

(2.6)

(0.8)

(86.2)

(3.6)

(207.6)

(14.4)

(15.0)

(78.2)

31.7

UK Bus£m

North America£m

410.4

Nil

6.4

(206.4)

(53.7)

(13.9)

(22.5)

Nil

(4.3)

Nil

Nil

(17.3)

(37.8)

60.9

150.5

Nil

1.9

(60.6)

(18.6)

(9.0)

(8.7)

Nil

(2.2)

Nil

Nil

(11.1)

(22.4)

19.8

VRG (100%)£m

325.0

152.4

61.7

(69.8)

(1.5)

(1.9)

(0.2)

(106.0)

Nil

(242.7)

(10.0)

Nil

(67.4)

39.6

Revenue

Rail franchise support

Other operating income

Staff costs

Fuel costs (i.e. diesel)

Insurance and claims costs

Depreciation

Rolling stock costs – lease & maintenance

Other operating leases

Network Rail

Electricity for trains

Material & consumables

Other costs

Operating profit


Rail subsidy/(premium) profiles

2009

2010

2011

2012

2013

2014

2015

2016

2017

South Western

£m

East Midlands

£m

20.9

(42.4)

(89.6)

(149.7)

(224.8)

(294.6)

(358.1)

(425.1)

(419.0)

117.4

89.2

54.7

12.8

(18.6)

(38.3)

(93.3)

n/a

n/a

West Coast£m

291.6

264.4

226.0

195.0

n/a

n/a

n/a

n/a

n/a

Year to 31 March:

The above amounts are subject to adjustment for: (1) various inflation measures (2) risks borne by the Department for Transport (3) called options and (4) changes in Regulated Network Rail charges. The amounts shown above are based on estimated inflation and options called to date.


Exchange rates

US$C$

Closing rate Average rate

2.07741.9731

2.01332.1034

October 2007

Closing rate Average rate

1.61581.9645

1.88111.9767

October 2008




Documents

Interim Results 2008 1 Interim Results For the six months ended 31 October 2008 3 December 2008