interim results 6 december 2006

Interim Results 2006

Interim ResultsInterim Results6 December 20066 December 2006

2 Interim Results 2006

Robert SpeirsChairman


Highlights Strong set of results for six months ended 31 October 2006

Revenue from continuing businesses+: +10.0% Earnings per share*: +7.4% Interim dividend: +9.1%

UK Bus: partnership and innovation driving revenue and passenger growth

Rail: further revenue growth and excellent operational performance North America: increased operating profit** and margin 10-year South Western franchise secured Disposal of London bus operations in August 2006 for c.£265m Proposal to return no less than £400m of funds to shareholders

+ Excluding acquisitions of Glenvale and Traction, and disposed operations.* Excluding intangible asset expenses and exceptional items.** References to the operating profit (or operating margin) of a particular business throughout this presentation mean

operating profit (or operating margin) before intangible asset expenses, exceptional items and restructuring costs.


Martin GriffithsFinance Director


Financial highlights Revenue+* from continuing businesses up 10.0%

- £711.1m (2005: £646.5m)

- Up 10.5% at constant exchange rates

Operating profit* pre intangibles and exceptionals £80.7m (2005: £68.5m)

EBITDA* (pre exceptionals) up 15.2% at £113.5m (see slide 8)

Adjusted EPS up 7.4% to 5.8p

Net debt of £135.9m converted to net funds of £140.9m

+ excluding acquisitions of Glenvale and Traction.* excluding disposed operations.


Revenue*

- continuing operations, excluding Glenvale and Traction

Total operating profit*

- pre intangibles & exceptionals*

Profit before tax*

- pre intangibles & exceptionals*

Cash generated from operations

- pre £57.0m one-off pension contribution

Adjusted earnings per share

Interim dividend per share

October 2006£m

October2005£m

752.1

711.1

101.5

80.7

97.3

77.4

99.4

156.4

5.8p

1.2p

653.3

646.5

55.3

68.5

40.7

57.9

120.2

120.2

5.4p

1.1p

Financial summary

* excluding disposed operations


Revenue bridge

Businesses held throughout both

periods

UK Bus

Coach USA

Rail

Business units closed

Coach USA

Businesses acquired during

year ended 30 April 2006

UK Bus

Businesses disposed

UK Bus – London

New Zealand

28.5

13.3

31.2

73.0

(5.2)

67.8

34.2

102.0

-

-

102.0

10.6%

10.8%

12.7%

298.6

136.5

276.8

711.9

11.4%

2.4

714.3

10.5%

41.0

755.3

-

-

755.3

-

(3.1)

-

(3.1)

(0.1)

(3.2)

-

(3.2)

-

-

(3.2)

298.6

133.4

276.8

708.8

10.9%

2.3

711.1

10.0%

41.0

752.1

-

-

752.1

October 2006 before re-translation(Sub total)

£m

Changes in foreign

currency exchange

rates£m

October 2006(Total)

£m

270.1

123.2

245.6

638.9

7.6

646.5

6.8

653.3

111.0

28.7

793.0

October 2005previously Reported

£m

Revenuereclassified

as“discontinued”

£m

Constant currency revenue growth in continuing businesses

£m

-

-

-

-

-

-

-

-

(111.0)

(28.7)

(139.7)


Revenue and margin growth

* Constant currency revenue growth excluding impact of businesses acquired, sold and closed** Operating margin before intangible asset expenses, exceptional items and restructuring costs, excluding impact of businesses

acquired and discontinued operations

Operating margin growth in all 3 divisions

11.3%

12.3%

11.3%11.2%

12.0%

9.9%

8.0%

9.0%

10.0%

11.0%

12.0%

13.0%

UK Bus North America UK Rail

Divisions

Mar

gin

as

% o

f re

ven

ue*

*

6 mths ended 31 Oct 2006

6 mths ended 31 Oct 2005

Double-digit revenue growth in all 3 divisions

12.7%

10.8%

10.6%

5.0% 6.0% 7.0% 8.0% 9.0% 10.0% 11.0% 12.0% 13.0% 14.0%

1

Div

isio

ns

% revenue growth year on year*

UK Bus

North America

UK Rail


EBITDA

UK Bus - excluding Glenvale/Traction- Glenvale/Traction

North AmericaRailGroup overheads & restructuring costsEBITDA from Group companies before exceptionals*Virgin Rail Group (share of EBIT)Other joint ventures and associates (share of EBIT)Total EBITDA before exceptionals*

October2006£m

October2005£m

52.03.2

24.634.6(5.9)

108.53.91.1

113.5

48.0(0.5)23.527.0(5.6)92.4

6.1 Nil

98.5

* excluding disposed operations

+17.4%

+15.2%


EBITDA from continuing Group companies before exceptionals (slide 8)EBITDA from discontinued operationsMovement in pension deficitWorking capital and other operating cash movementsNet interest paidTax paid

Net capital expenditure including new hire purchase (slide 35)Acquisitions of businesses, intangibles and investments Disposals of businesses and investmentsToken sales and redemptionsDividends and loan repayments from joint venturesForeign exchangeNet movement in bond issue costsReduction in net debt before cash flows with shareholdersEquity dividendsOther share capital movementsReduction in net debtOpening net debtClosing net funds

October 2006£m

108.57.7

(60.6)40.1(4.0)

(11.4)80.3

(53.2)(0.4)

260.6(2.8)11.0

8.3(0.1)

303.7(28.4)

1.5276.8

(135.9)140.9

Movement in net debt


UK Bus trading results

Revenue growth 22.6% to £339.6m (2005: £276.9m)

revenue growth 10.6%, excluding acquisitions of Glenvale and Traction

new concessionary fare schemes

Like-for-like passenger volume growth 6.1% (see slide 11)

includes impact of new concessionary fare schemes

Operating margin 11.3% (2005: 11.2%), excluding acquisitions of Glenvale and Traction

Glenvale and Traction operating profit £0.5m (2005: operating loss £0.8m)

Disposal of London bus completed August 2006


UK Bus revenue development

2005 revenue as previously reported

Traction

Disposals in year

Passenger volumes (incl impact of new concessionary fare schemes)

Tender wins/ contract amendments

Fare increases

megabus.com (incl impact of services transferred out to Citylink JV)

Timing impact of prior year acquisition

2006 revenue

n/a

n/a

6.1%

0.6%

4.5%

(0.6)%

n/a

10.6%

Continuing

£m %

6.8

30.3

Nil

Nil

Nil

Nil

Nil

3.9

41.0

445.6%

n/a

n/a

n/a

n/a

n/a

57.3%

502.9%

111.0

Nil

(111.0)

Nil

Nil

Nil

Nil

Nil

Nil

n/a

(100.0)%

n/a

n/a

n/a

n/a

n/a

(100.0)%

270.1

Nil

Nil

16.4

1.7

12.1

(1.7)

Nil

298.6

Glenvale/Traction

£m %

Discontinued

£m %

387.9

30.3

(111.0)

16.4

1.7

12.1

(1.7)

3.9

339.6

7.8%

(28.6)%

4.2%

0.4%

3.1%

(0.4)%

1.0%

(12.5)%

Total

£m %


UK Bus revenue growth

Stagecoach UK Bus: 10.6% like-for-like revenue growth Growing share of UK Bus market Consistent like-for-like revenue growth

UK Bus like-for-like revenue growth (excl. London)

3.0%

5.2%6.1%

7.3%

10.6%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

2002/3 2003/4 2004/5 2005/6 2006/7 (sixmonths to

date)

Lik

e-fo

r-li

ke r

even

ue

gro

wth


North America trading results

Revenue £135.7m (2005: £130.8m)

10.8% increase in constant currency revenue excluding closed/disposed business units

Operating margin 12.3% (2005: 12.0%)

Deploying assets to maximise returns

Excluding Megabus, operating margin up from 12.0% to 12.8%

Operating profit £16.7m (2005: £15.7m)

US$31.2m (2005: US$28.3m)

excellent revenue growth

strict cost control


MegabusScheduled service/Line run/CommuterCharterSightseeing & TourSchool Bus & ContractBefore closed business unitsClosed business unitsTotal

October 2006

US$m

October2005

US$m

2.293.953.355.943.9

249.24.3

253.5

-87.347.151.935.3

221.613.8

235.4

% Growth

n/a7.6%

13.2%7.7%

24.4%12.5%

7.7%

North America revenue breakdown

by product


Rail trading results

Rail subsidiaries

Revenue £276.8m (2005: £245.6m), up 12.7%

Operating profit £31.4m (2005: £24.4m)

Passenger volumes up 8.5% at SWT

Revenue and profit share to Department for Transport £43.0m (2005: £27.8m)

Bid costs £8.0m (2005: £6.9m)


Virgin Rail Group (“VRG”)

Share of profit after finance income and tax £3.7m (2005: £4.5m)

Significant progress on agreeing long-term commercial arrangements for West Coast

CrossCountry

Current contract ends on 10 November 2007

VRG invited to tender for New CrossCountry franchise


Taxation

Pre intangibles and exceptionals*Exceptional itemsIntangible asset expensesResults for the period*

Cash tax paid (net)

Pre-taxProfit£m

Tax£m

79.627.4(7.5)99.5

(20.7)(6.4)1.5

(25.6)

11.4

EffectiveRate

%26.0%23.4%20.0%25.7%

October 2006

* Adjusted for share of VRG’s tax, classified within operating profit under IFRSExcludes discontinued operations and any exceptional items relating to these discontinued operations


Pensions

Significant reduction in retirement benefit obligations

£144.3m (30 April 2006: £222.2m)

£22.8m exceptional past service credit reduces IAS19 pension liability

£57.0m of additional contributions reduces IAS19 pension liability

Rail pension schemes: under IFRS, only the part of the deficit that we expect to fund is recognised

Changes to schemes


Balance sheet & financing Net funds+ £140.9m ( October 2005: net debt £208.9m)

EBITDA*/finance charges cover 32.9 times (2005: 8.7 times)

Continuing management objective to optimise capital structure

Proposed return of value of no less than £400m

Shareholders to participate pro-rata to ordinary shareholdings

Ordinary share consolidation

£50.0m pension contribution agreed in principle+ UK GAAP definition* from continuing group companies, before exceptional items


Brian SouterChief Executive


Group strategic objectives

Key 5 year strategic objectives achieved

– Restructuring of North American operations

– Repositioning of UK Bus

– Retention of South Western rail franchise

– Organic growth in core operations


Group strategyQuality operations driving strong results

Excellent operational

performance

Strong financial results

Bus operator of the Year – second year running South West Trains punctuality consistently

above 90% Improved punctuality at Virgin Rail Group UK Bus reliability 99.5%*

Adjusted EPS up 7.4% Revenue from continuing operations* up 10.0% Absorbing increased fuel costs Interim dividend up 9.1%

↓

* excluding acquired Glenvale and Traction operations


UK BusDrivers of continued strong performance

Entrepreneurial expertise and investment focused on regional bus operations

Strong partnerships with public sector (e.g. Kickstart successes)

Marketing strategies generating growth

Acquisition integration on target at Glenvale and Traction Group

Concessionary travel schemes

Strong like-for-like volume growth


Group strategyUK Bus passenger volume growth

Passenger volume growth by operating company – excluding London

October 2006 v October 2005

Overall passenger growth 6.1%

> 10%

6 - 10%

0 - 5%


Group strategy – Rail

Deliver on commitments and opportunities in South Western and West Coast Mainline franchises

Opportunities to expand rail portfolio

– East Midlands

– New CrossCountry franchise (at Virgin Rail Group)

Further development of megatrain.com


Group strategy – North America

Revenue and margin growth– Core scheduled services– Contract wins– Capitalise on continued strong leisure bounce-

back New product development and improved marketing

– megabus.com– Launch of New York Duck Tours– Web-based sales


Current trading and outlook

Current trading in line with our expectations Continued focus on organic growth and bolt-on acquisitions

in UK and North American bus markets Evaluate opportunities for new rail franchises Good potential for further growth


Appendices


North America revenue development

2005 revenue

Year on year impact of closed/disposed business units

US$/C$ currency impact

Underlying growth

2006 revenue

Closed/disposed units

US$mTotalUS$m

13.8

(9.5)

Nil

Nil

4.3

Ongoing business units

US$m

221.6

Nil

3.7

23.9

249.2

235.4

(9.5)

3.7

23.9

253.5


Rail revenue development

2005 revenue

SWT Passenger volumes

SWT Fares/yield

SWT Other

Island Line/Supertram

2006 revenue

£m %

245.6

20.4

8.2

1.8

0.8

276.8

8.3%

3.3%

0.7%

0.3%

12.7%


Finance charges ratios

Finance charges (net)*

EBITDA from continuing Group companies, pre-exceptionals* (slide 8)

EBITDA from continuing Group companies, pre-exceptionals*/finance charges*

October2006£m

October2005£m

3.3

108.5

32.9 times

10.6

92.4

8.7 times

* UK GAAP definition


Gross debt & related derivativesInterest bearing cash balances

Non-utilisation/commitment feesAmortisation of bond issue costs/bank chargesInsurance letters of creditDiscount on insurance provisionsOther

Finance charges

£m

Annualeffective rate

%

8.0(6.5)1.50.50.10.41.4

(0.6)3.3

4.7%4.9%

Finance charges

Average balance*

£m

337.0265.0

*Average of month end debt/cash balances


Fuel hedging

% of Group fuel hedged - fixed

- cap/floor

Average hedge price (crude price US$/barrel) - fixed

- cap/floor

6 months to 30 April

2007

19%

77%

US$60

US$83/US$54

• The Group’s UK Bus and North American bus operations consume the equivalent of 1.6m barrels of fuel a year

• Each US$10 per barrel movement in crude oil price impacts variable fuel costs by approximately US$16m if no hedging in place

• Amounts shown for future periods exclude London bus operations

Forecast2007/08

Nil

52%

n/a

US$83/US$54

Forecast2008/09

Nil

45%

n/a

US$83/US$54

6 months to 31 October

2006

20%

76%

US$50

US$83/US$54


32.2--

32.2

43.98.51.9

54.3

(0.7)(0.4)

-(1.1)

43.28.11.9

53.2

11.78.51.9

22.1

Capital expenditure

UK BusNorth AmericaRail

Capex on new hire purchase

£m

Impact ofcapex onnet debt

£m

Disposalproceeds**

£mNet£m

Cash spent on capex*

£m

* Excludes capitalised intangible assets of £0.1m and additions made as part of business combinations

** Excludes proceeds from selling businesses


Exchange rates

US$NZ$C$

Closing rate Average rate

1.77032.52952.0881

1.79892.57062.1836

October 2005

Closing rate Average rate

1.9073 n/a

2.1370

1.8687 n/a

2.0914

October 2006

interim results 6 december 2006

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