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

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

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

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  1. Interim ResultsFor the six months ended 31 October 20083 December 2008

  2. 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.

  3. Robert SpeirsChairman

  4. 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

  5. Martin GriffithsFinance Director

  6. Financial summary 31 Oct 08 31 Oct 07 Change Revenue - continuing operations Operating profit* - continuing operations Adjusted earnings per ordinary share* Basic earnings per ordinary share Net debt Dividend per ordinary share £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 27.3% 19.8% 28.7% 7.8% 25.2% 33.3% * Excluding exceptional items and intangible asset expenses

  7. Summary income statement 31 Oct 08 £m 31 Oct 07 £m Change £m 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 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 8.4 2.2 0.7 6.4 2.4 (0.3) 0.8 (3.2) 17.4 (13.8) 3.6

  8. UK Bus 31 Oct 08 31 Oct 07 Change 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) 410.4 395.0 60.9 14.8% 325.2 157.4 367.1 361.6 52.5 14.3% 312.4 154.4 11.8% 9.2% 16.0% 0.5% 4.1% 2.0% • 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

  9. North America (excluding megabus) 31 Oct 08 31 Oct 07 Change Revenue (US$m) Like-for-like revenue (US$m) Operating profit (US$m) Operating margin 267.7 267.9 38.0 14.2% 258.9 257.0 36.2 14.0% 3.4% 4.2% 5.0% 0.2% • Further margin improvement • Further expansion of megabus.com

  10. UK Rail (wholly-owned) 31 Oct 08 31 Oct 07 Change Revenue (£m) Like-for-like revenue (£m) Operating profit (£m) Operating margin South Western Trains estimated passenger miles (millions) 486.4 345.0 31.7 6.5% 1,675.6 322.7 318.8 25.3 7.8% 1,619.0 50.7% 8.2% 25.3% (1.3)% 3.5% • 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

  11. Virgin Rail Group 31 Oct 08 31 Oct 07 Change 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 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 (29.5%) 6.8% 0.0% 19.0% 5.0% 76.4% 7.3% • 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

  12. Miscellaneous income statement items 31 Oct 08 31 Oct 07 Change Citylink joint venture (£m) Splash Tours joint venture (£m) Intangible asset expenses (£m) Group overheads (£m) Restructuring costs (£m) Post-tax exceptional items (£m) 0.7 (0.2) (6.5) (7.2) (1.0) (11.5) 0.6 (0.3) (6.2) (6.2) (1.7) 2.0 16.7% 33.3% (4.8)% (16.1)% 41.2% (675.0)% • 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

  13. Finance charges and credit ratios 31 Oct 08 31 Oct 07 Change 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) (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 5.2% 4.4% 15.6% 20.8% 25.2% (0.8)x 2.1x * excluding exceptional items

  14. 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

  15. Taxation 31 Oct 2008 Pre-tax Profit £m Tax £m Rate % Excluding intangible asset expenses and exceptional items - Before joint ventures - Joint ventures Intangible asset expenses Exceptional items Reclassify joint venture taxation for reporting purposes Reported in income statement Cash tax paid (net) 89.6 21.6 (6.5) 104.7 2.0 106.7 (6.0) 100.7 (18.9) (6.0) 1.1 (23.8) (13.5) (37.3) 6.0 (31.3) 0.7 21.1% 27.8% 16.9% 22.7% 35.0% 31.1%

  16. Movement in net debt 31 Oct 08 £m EBITDA from Group companies before exceptionals Loss on disposal of plant and equipment Equity-settled share based payment Dividends from joint ventures Movement in retirement benefit obligations Working capital movements Net interest paid Tax paid Net cash from operating activities Net capital expenditure including new hire purchase and finance leases Acquisitions of businesses, intangibles and investments Disposals of businesses and investments Movement in loans to joint ventures Token sales and redemptions Foreign exchange/other Increase in net debt before cash flows with shareholders Equity dividends Share capital movements Increase in net debt Opening net debt Closing net debt • 136.2 • 0.6 • 1.2 • 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)

  17. Capital expenditure New hire purchase and finance leases £m Impact of capex on net debt £m Disposal proceeds** £m Net £m Cash spent on capex* £m UK Bus North America UK Rail 28.2 7.7 Nil 35.9 54.2 13.1 15.9 83.2 (3.5) (0.5) (0.1) (4.1) 50.7 12.6 15.8 79.1 26.0 5.4 15.9 47.3 • Significant capital expenditure planned for second half of year to 30 April 2009 * Excludes capitalised intangible assets of £3.1m (2007: £1.1m) and assets acquired through business combinations ** Excludes proceeds from selling businesses

  18. Fuel Hedging UK Bus North America UK Rail 2007/8 - average effective price (per litre) 2008/9 - % of forecast consumption hedged - average hedge price (per litre) 2009/10 - % of forecast consumption hedged - average hedge price (per litre) 2010/11 - % of forecast consumption hedged - average hedge price (per litre) Market price (per litre) 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 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

  19. Fuel costsLatest forecasts Fuel costs Volumes 2007/08 Actual £m 2008/09 Forecast £m 2009/10 Forecast £m 2010/11 Forecast £m 2008/9 Forecast Litres m 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 (150.1) 68.5 (81.6) (25.1) (5.3) (112.0) - (10.9) (122.9) (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) 189.8 - 189.8 74.8 12.0 276.6 5.5 50.5 332.6 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

  20. Brian SouterChief Executive

  21. 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

  22. 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

  23. 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

  24. 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

  25. London Employment and Peak Arrivals Rail Trends 1988-1997Passenger Volumes Sources: Central London employment – Greater London Authority South West peak arrivals – South Western Trains National Rail peak arrivals – National Rail Trends

  26. 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

  27. 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

  28. Interim ResultsFor the six months ended 31 October 20083 December 2008

  29. Appendices

  30. UK Bus Revenue 31 Oct 2008 £m 31 Oct 2007 £m Change % 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 395.0 3.6 2.6 1.3 0.3 5.3 Nil Nil 2.3 410.4 361.6 Nil Nil Nil Nil 3.0 0.9 1.6 Nil 367.1 9.2% 11.8% * Existing Inverness operations integrated with and now not distinguishable from Highland so Inverness excluded from like-for-like comparison

  31. North America Revenue Operating Profit 31 Oct 2008 US$m 31 Oct 2007 US$m 31 Oct 2008 US$m 31 Oct 2007 US$m Excluding megabus megabus • Midwest • California • North East 267.7 9.4 0.4 5.6 283.1 258.9 4.4 0.4 Nil 263.7 38.0 1.8 Nil (2.6) 37.2 36.2 (0.5) (1.7) Nil 34.0

  32. North America revenue breakdown 31 Oct 08 US$m 31 Oct 07 US$m % Growth 103.7 60.8 57.9 45.5 267.9 (0.2) 267.7 15.4 283.1 100.3 60.8 54.9 41.0 257.0 1.9 258.9 4.8 263.7 3.4% Nil 5.5% 11.0% 4.2% n/a 3.4% 220.8% 7.4% Scheduled service/line run/commuter Sightseeing & tour Charter School bus & contract Like-for-like revenue excl megabus Closed operations and foreign exchange movements Total North America excl megabus megabus Total North America

  33. Divisional income statements Six months ended 31 October 2008 UK Bus £m North America £m UK Rail £m VRG (100%) £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) 19.8 486.4 70.3 31.7 (133.2) (15.1) (2.6) (0.8) (86.2) (3.6) (207.6) (14.4) (15.0) (78.2) 31.7 325.0 152.4 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

  34. Rail subsidy/(premium) profiles South Western £m East Midlands £m West Coast £m Year to 31 March: 2009 2010 2011 2012 2013 2014 2015 2016 2017 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 291.6 264.4 226.0 195.0 n/a n/a n/a n/a n/a 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.

  35. Exchange rates October 2008 October 2007 Closing rate Average rate Closing rate Average rate US$ C$ 1.6158 1.9645 1.8811 1.9767 2.0774 1.9731 2.0133 2.1034

  36. Interim ResultsFor the six months ended 31 October 20083 December 2008

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