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Annual Results 22 nd June 2005

Annual Results 22 nd June 2005. Robert Speirs Chairman. Highlights. Strong set of full year results Headline earnings per share up 34.3% Organic growth in bus and rail operations in UK and overseas

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Annual Results 22 nd June 2005

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  1. Annual Results22nd June 2005

  2. Robert SpeirsChairman

  3. Highlights • Strong set of full year results • Headline earnings per share up 34.3% • Organic growth in bus and rail operations in UK and overseas • Innovative growth ideas fuelling good underlying performance at UK Bus – operating margin maintained • Strong revenue and passenger growth at South West Trains – profits ahead of original expectations • Strong growth in North American operations with operating margin up from 4.4% to 6.7% • Final dividend of 2.3p per share (giving full year dividend of 3.3p (2004: 2.9p) – up 13.8%) • Shortlisted for Greater Western,Thameslink/Great Northern and Integrated Kent rail franchises

  4. Martin GriffithsFinance Director

  5. Financial Highlights • Turnover from continuing businesses up 8.9% • £1,787.6m (2004: £1,641.1m) • Up 9.9% at constant exchange rates • Group operating margin enhancement in continuing divisions* 2005 2004 % % Before goodwill amortisation and restructuring costs 8.8% 8.4% Including goodwill amortisation and restructuring costs 7.5% 7.0% * Excluding disposed Citybus, Road King and Trainline businesses but including all of North America; before exceptional items

  6. Financial Summary 30 April 2005 £m 30 April 2004 £m Turnover - continuing operations Total operating profit* - pre goodwill & exceptionals*(after restructuring costs) Profit before tax - pre goodwill & exceptionals Free cash flow** Adjusted earnings per share Dividend per share 1,794.7 1,787.6 132.8 156.7 108.3 136.8 173.6 9.0p 3.3p 1,792.3 1,641.1 129.7 147.5 95.8 120.2 209.5 6.7p 2.9p * After restructuring costs of £1.4m (2004: £7.2m) ** Free cash flow comprises net cash inflow from operating activities, dividends from joint ventures and associates, net cash (outflow)/inflow from returns on investments and servicing of finance, and taxation.

  7. EBITDA 30 April 2004 £m 30 April 2005 £m UK Bus North America - continuing - discontinued New Zealand Rail Virgin Rail Group Citybus thetrainline Road King Others Overheads & restructuring EBITDA before exceptionals 127.6 30.1 (0.7) 13.3 52.0 12.7 Nil Nil Nil (0.4) 234.6 (10.2) 224.4 117.6 26.0 4.1 14.9 46.4 13.5 3.4 (2.4) 7.0 (0.4) 230.1 (15.4) 214.7 Note: The split of EBITDA between continuing and discontinued for North America is an approximation. The EBITDA from the discontinued element of North America cannot be accurately determined because it is not clearly distinguishable due to certain shared costs that relate to North America as a whole.

  8. Management Action • Strong results reflect benefits of local management actions • Profit and margin improvement • Underlying profit improvements offset above inflation cost pressures: • Fuel costs up approximately £15m* • Pension costs up £5.7m* * In continuing operations

  9. Movement in Net Debt £m Net cash inflow from operating activities Cash received re joint ventures Net interest paid Taxation Net capital expenditure including new hire purchase finance Acquisitions of businesses and other investments Sale of businesses and other investments Token sales and redemptions Foreign exchange Reduction in net debt before cashflows with shareholders Repurchase of ‘B’ shares Equity and non-equity dividends Other share capital movements Increase in net debt Opening net debt Closing net debt 198.5 30.2 (20.9) (27.1) (92.9) (6.1) 15.3 (0.7) 12.2 108.5 (227.4) (37.6) 9.5 (147.0) (67.6) (214.6)

  10. UK Bus Trading Results • Turnover growth 10.8% to £720.3m (2004: £650.2m) • Underlying passenger growth of 1.5% outside London • turnover growth 7.1% • Strong contribution from London companies • turnover growth 21.0% • Maintained operating margin* • Overall operating margin 11.5% • Outside London, 12.2% versus 12.1% in 2004 * References to the operating profit or operating margin of a particular business throughout this presentation mean operating profit (or operating margin) before goodwill amortisation, exceptional items and restructuring costs

  11. UK Bus Profit Analysis 30 April 2005 £m 30 April 2004 £m 720.3 90.4 12.6% (8.3) 3.6 85.7 11.9% (3.2) 82.5 11.5% 650.2 79.6 12.2% (5.0) 2.0 76.6 11.8% (1.8) 74.8 11.5% Turnover Operating profit before lease costs, megabus.com & taxibus Margin Operating lease costs Saving in depreciation arising from operating leases Operating profit before megabus.com & taxibus Margin megabus.com & taxibus Reported operating profit Reported operating margin

  12. North America Trading Results • Turnover £220.8m (2004: £336.8m) • 12.7% increase in US$ turnover from continuing operations • Operating margin up from 4.4% to 6.7% • Operating profit £14.8m (2004: £14.8m) • US$27.4m (2004: US$25.4m) • excellent revenue growth • strict cost control • overhead reduction

  13. North America Continuing Turnover BreakdownBy Product 30 April 2005 US$m 30 April 2004 US$m % Growth Scheduled service/Line run/Commuter Charter Sightseeing & Tour School Bus & Contract Total 162.6 87.6 75.2 70.6 396.0 150.9 74.4 59.5 66.5 351.3 7.8% 17.7% 26.4% 6.2% 12.7%

  14. North America Operating Profit Change US$m Change % 30 April 2005 US$m 30 April 2004 US$m Turnover - continuing - discontinued Operating profit • continuing businesses (normalised) • continuing businesses (revised residual values) • discontinued businesses • Operating margin • - continuing businesses (normalised) 396.0 13.1 409.1 34.0 (5.0) (1.6) 27.4 8.6% 351.3 225.1 576.4 24.5 Nil 0.9 25.4 7.0% 44.7 (212.0) (167.3) 9.5 (5.0) (2.5) 2.0 12.7% (94.2%) (29.0%) 38.8% - (277.8%) 7.9% Note: These numbers are intended to provide an approximate indication of operating margin from continuing businesses. The operating profit from the discontinued element of North America cannot be accurately determined because it is not clearly distinguishable due to certain shared costs that relate to North America as a whole.

  15. New Zealand Trading Results • Turnover £59.0m (2004: £58.3m) • Underlying revenue similar to last year (excluding currency movements) • Operating profit £8.7m (2004: £10.7m) • NZ$23.7m (2004: NZ$29.5m) • Operating margin 14.7% (2004: 18.4%) • Increased rail competition

  16. Rail Trading Results Rail Subsidiaries • First full year of new South West Trains franchise • Turnover £479.4m (2004: £438.9m) • Operating profit £48.6m (2004: £44.1m) • ahead of original expectations • Passenger volumes up 4.8% at SWT • Revenue and profit share to SRA £46.0m (2004: £27.9m)

  17. Virgin Rail Group • Share of turnover £315.2m (2004: £288.4m) • Share of operating profit £12.7m (2004: £13.5m) • Committed to agreeing new long-term commercial arrangements on West Coast • Awaiting decision on SRA’s plans for future of CrossCountry • Budget imposed by SRA for year to 4 March 2006 • Claims for additional subsidy expected

  18. Taxation 2005 Pre-tax £m Tax £m % Pre goodwill and exceptionals Exceptional items Goodwill amortisation Result for the year Cash tax paid (net) 136.8 (6.0) (22.5) 108.3 (32.2) 1.6 1.1 (29.5) 27.1 23.5% 26.7% 4.9% 27.2%

  19. Pensions • Increased employer and employee contributions • £38.6m total pension costs (2004: £32.9m) • £38.0m cash paid (2004: £36.2m) • FRS17 post-tax deficit of £148.0m for UK Bus/Group • Up £32.2m from £115.8m • Rail pension schemes: under IFRS, will recognise only that part of the deficit we are obliged to fund • Financial support in SWT franchise allows for cost of funding the deficit for SWT • Managed as part of overall cost base

  20. Balance Sheet & Financing • Net debt £214.6m (2004: £67.6m) • Excluding redeemed ‘B’ shares, net debt decreased by £80.4m • Outstanding ‘B’ shares £13.9m • Investment grade credit rating • Significant bank funding support and flexibility • EBITDA*/Interest cover 11.3 times • Net Debt/EBITDA* 1.0 times • Progressive dividend policy * Before exceptional items

  21. International Financial Reporting Standards (“IFRS”) • First IFRS results: six months to 31 October 2005, with comparatives • Most significant adjustments will be: • Pensions • Goodwill • Share-based payment • Dividends • ‘B’ Shares • Other financial instruments • Many other less significant areas

  22. Brian SouterChief Executive

  23. Group Strategy Delivering shareholder value through: • Organic growth in UK and overseas bus businesses • New products • New policies with other stakeholders • New people • Railway development strategy • Successful portfolio • Management succession in place • Strong and experienced bid team • Exciting refranchising opportunities

  24. Growth in UK Bus • Products • Minibus strategy • Telemarketing • megabus • Optical guidance • Policies • Targeted investment • Kick Start: Thanet, Chesterfield, Cheltenham • Local Government relations • People • New emphasis on marketing • Company size • Local relationships

  25. Growth in overseas bus North America • Organic revenue growth • Charter • Line run • Product development – investment in New York Sightseeing • Ongoing strategy has potential for further margin development New Zealand • Organic growth in Wellington • Rationalisation in Auckland

  26. Growth in UK rail • New commercial deal on Virgin West Coast on acceptable risk profile • Cost reduction at existing franchises • Retention of SWT and Virgin CrossCountry • Shortlisted for Greater Western,Thameslink/Great Northern and Integrated Kent franchises

  27. Current Trading and Outlook • Strong trading performance across the Group • Current trading in line with our expectations • Fuel cost pressures • Organic growth opportunities • Improving profitability from emerging products such as megabus • Progressive dividend growth • Group’s portfolio offers good potential for further growth

  28. Annual Results22nd June 2005

  29. Appendices

  30. UK Bus Revenue Development London £m % Outwith London £m % UK Bus £m % 2003/04 turnover Passenger volumes Tender wins/ contract amendments Fare increases megabus.com 2004/05 turnover 171.7 Nil 32.7 2.6 0.8 207.8 - 19.0% 1.5% 0.5% 21.0% 478.5 7.2 2.9 19.1 4.8 512.5 1.5% 0.6% 4.0% 1.0% 7.1% 650.2 7.2 35.6 21.7 5.6 720.3 1.1% 5.5% 3.3% 0.9% 10.8%

  31. UK Bus - London/Other 30 April 2005 Operating Operating Turnover Profit Margin £m £m % 30 April 2004 Operating Operating Turnover Profit Margin £m £m % London Other 207.8 512.5 720.3 19.9 62.6 82.5 9.6% 12.2% 11.5% 171.7 478.5 650.2 16.7 58.1 74.8 9.7% 12.1% 11.5%

  32. North AmericaRevenue Development Continuing US$m Discontinued US$m Total US$m 2003/04 turnover Impact of disposals and other movements on discontinued turnover US$/C$ currency impact Underlying growth Acquisitions 2004/05 turnover 351.3 Nil 2.7 39.6 2.4 396.0 225.1 (212.0) Nil Nil Nil 13.1 576.4 (212.0) 2.7 39.6 2.4 409.1

  33. Turnover of North American business by Region and Product 2005 North East US$m 2004 North East US$m 2005 North Central US$m 2004 North Central US$m 2005 Canada US$m 2004 Canada US$m 2005 Total US$m 2004 Total US$m Scheduled service/ Line run/Commuter Charter Sightseeing & Tour School Bus & Contract Total Turnover 118.0 21.3 55.7 27.6 222.6 113.1 20.8 42.6 23.4 199.9 22.4 40.6 17.2 40.0 120.2 18.4 35.4 15.4 40.4 109.6 22.2 25.7 2.3 3.0 53.2 19.4 18.2 1.5 2.7 41.8 162.6 87.6 75.2 70.6 396.0 150.9 74.4 59.5 66.5 351.3 Note: The above figures relate to turnover from the continuing elements of the three core regions of North America

  34. Overseas Bus Revenue Development Citybus £m New Zealand £m Total £m 2003/04 Turnover Disposal of Citybus Currency movements Passenger volumes Fare increases 2004/05 Turnover 17.8 (17.8) - - Nil Nil 58.3 - 0.8 (0.7) 0.6 59.0 76.1 (17.8) 0.8 (0.7) 0.6 59.0

  35. Rail Revenue Development £m % 2003/04 turnover SWT Passenger volumes SWT Fares/yield SWT Other Island Line/Supertram 2004/05 turnover 438.9 20.3 18.4 1.0 0.8 479.4 4.6% 4.2% 0.2% 0.2% 9.2%

  36. Interest/Debt Ratios 30 April 2005 £m 30 April 2004 £m Finance charges (net) EBITDA pre-exceptionals EBITDA pre-exceptionals/finance charges Net Debt/EBITDA 19.9 224.4 11.3 times 1.0 times 27.3 214.7 7.9 times 0.3 times

  37. Finance Charges Average balance* £m Finance charges £m Annual Effective rate % 480 (310) 170 29.2 (12.8) 16.4 (2.4) 0.7 0.8 1.0 3.2 0.2 19.9 6.1% 4.1% 9.6% Gross debt & related derivatives Cash on deposit Joint ventures & associates Non-utilisation/commitment fees Amortisation of bond issue costs/bank charges Insurance letters of credit Discount on insurance provisions Other *Average of month end debt/interest earning £ and $ cash balances

  38. Fuel Hedging Actual 2003/04 Actual 2004/05 Forecast 2005/06 Forecast 2006/07 % of Group fuel hedged/capped at present Average hedge price US$/barrel Average US$/£ rate Average unhedged crude price US$/barrel Crude oil fuel costs of continuing businesses (total volume times crude price) Total Fuel Cost (includes cap premiums/diesel margin/tax/delivery) 100% US$24 1.71 US$32 £25m £58m 97% US$35 1.85 US$50 £35m £72m 85% US$48 1.85 US$55 £49m £88m 0% n/a 1.85 US$55 £55m £95m Continuing Bus divisions use 1.84m barrels of fuel a year (290m litres) Each US$10 per barrel movement in crude oil price impacts variable fuel costs by approximately US$18m if no hedging in place

  39. Fuel Usage and Impact of Crude Price Annual Usage litres Annual Usage barrels US$ variable costs based on $45 a barrel US$ variable costs based on $55 a barrel UK Bus North America New Zealand 193m 75m 22m 290m 1.2m 0.5m 0.14m 1.84m $54.0m $22.5m $6.4m $82.9m $66.0m $27.5m $7.7m $101.2m

  40. Capital Expenditure Capex on new hire purchase £m Impact of capex on net debt £m Disposal proceeds* £m Net £m Cash spent on capex £m UK Bus North America New Zealand Rail 26.2 - - - 26.2 56.4 27.7 10.6 5.3 100.0 (6.0) (0.9) (0.2) - (7.1) 50.4 26.8 10.4 5.3 92.9 30.2 27.7 10.6 5.3 73.8 *Excludes proceeds from selling businesses Note: In addition to the above, vehicles with a capital value of £25.1m were acquired by UK Bus during the year on operating leases (2004: £16.6m)

  41. Exchange Rates April 2005 April 2004 Closing rate Average rate Closing rate Average rate US$ NZ$ C$ 1.9099 2.6088 2.3969 1.8530 2.7240 2.3621 1.7734 2.8350 2.4388 1.7115 2.7600 2.2985

  42. Annual Results22nd June 2005

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