Restatement of financial information under IFRS

FirstGroup plc

Restatement of financial information under International Financial Reporting
Standards

Under EU regulations, FirstGroup Plc is required to report its half year and
full year result for 2005/06 under International Financial Reporting Standards
('IFRS'). The results for the year ended 31 March 2006 will form the first set
of report and accounts produced under IFRS, with comparatives restated for the
year ended 31 March 2005. The date of transition to IFRS is therefore 1 April
2004.

This report comprises a narrative explanation of the significant changes and
the impact of adopting IFRS for the first time. Full details of the accounting
policies adopted under IFRS, with reconciliations for the Balance sheets and
Income statements of the movement from UK GAAP to IFRS for the half year ended
30 September 2004 and for the year ended 31 March 2005 are available on our
website www.firstgroup.com.

The following financial information is unaudited. It represents our current
best estimates and has been prepared on the basis of financial reporting
standards expected to be applicable at 31 March 2006. This is subject to
ongoing review and may be impacted by changes to IFRS or the interpretation
thereof and is therefore still subject to change.

Overview of impact:

  * 2004/05 Group net cash flow remains unchanged
   
  * 2004/05 Group profit before tax of £155.7m (UK GAAP: £128.9m)
   
  * Net assets at 31 March 2005 of £216.3 m (UK GAAP: £358.2m)
   
  * 2004/05 adjusted basic EPS of 28.9p (UK GAAP: 28.2p)
   
Group profit before tax has increased by £26.8m. This is due to three factors:
the reversal of the amortisation of goodwill prohibited by IFRS 3; a reduction
in the IAS 19 pensions charge compared to the SSAP 24 charge and; the
recognition of a charge for share-based equity payments.

As at 31 March 2005, net assets have decreased under IFRS by £141.9m. The most
significant factors are : the recognition of defined benefit pension
liabilities, the recognition of of deferred tax on gains on property disposals;
the derecognition of the final dividend proposed after year end and; the
reversal of the amortisation of goodwill net of tax.

First time adoption

.

The Group has applied IFRS 1 `First-time Adoption of International Financial
Reporting Standards' to provide a starting point for reporting under IFRS. The
Group's date of transition to IFRS is 1 April 2004 and all comparative
information in the financial statements is restated to reflect the Group's
adoption of IFRS, except where otherwise required or permitted under IFRS 1.

IFRS 1 `First-time adoption of International Financial Reporting Standards'
offers exemptions from full retrospective application of certain standards.

The Group has applied the mandatory exceptions and certain of the optional
exemptions from full retrospective application of IFRS as follows:

  * Business combinations exemption - under IFRS 1, the Group has elected not
    to apply IFRS 3 `Business Combinations' retrospectively to transactions
    occurring prior to the date of transition to IFRS.
   
  * Cumulative translation differences exemption - the Group has elected to set
    cumulative translation differences to nil at the 1 April 2004 transition
    date
   
  * Financial instruments - IAS 32 `Financial Instruments: Disclosure and
    Presentation' and IAS 39 `Financial Instruments: Recognition and
    Measurement' will be applied from 1 April 2005
   
  * Employee benefits - the Group has elected in accordance with IAS 19
    `Employee benefits' to recognise all cumulative actuarial gains and losses
    on defined benefit schemes at the date of transition to be charged or
    credited to the Statement of Recognised Income and Expense in the period in
    which they arise.
   
  * Share based payments - the Group has applied IFRS 2 `Share-based payments'
    to equity-settled awards not vested at 1 April 2005 and granted on or after
   
7 November 2002.

  * Deemed cost - the Group has taken the option to measure individual items of
    land and buildings at the previous UK GAAP revaluation. This value is then
    deemed cost at date of transition.
   
Key Changes

Employee benefits - IAS 19

Previously under UK GAAP, the Group applied SSAP 24 when accounting for
pensions, with additional FRS 17 disclosures provided in the notes to the
accounts in accordance with the transitional provisions of FRS 17.

Defined benefit schemes

IAS 19 requires that all assets and liabilities of the Group's defined benefit
schemes are recognised on the balance sheet. SSAP 24 balances previously
recognised have been reversed. The IAS 19 pre-tax deficit recognised at 1 April
2004 was £241.3m. The SSAP 24 prepayment of £59.1m and SSAP 24 creditor of £
6.4m were reversed at 1 April 2004.

The pension deficit will be recalculated at each year end. The income statement
will be charged with current service costs, the expected return on scheme
assets, and the interest on pension scheme liabilities. Movements in the
pension deficit relating to changes in actuarial assumptions or actuarial gains
or losses from experience adjustments will be taken to the statement of
recognised income and expense in the period in which they arise.

Railways Pension Scheme

The Railways Pension Scheme ('RPS') is an industry-wide defined benefit scheme
for employees of companies previously owned by British Railways Board. Great
Western Trains Company, First ScotRail Limited, First Great Western Link
Limited, GB Rail and TransPennine Express have sections in the RPS. Each
Franchisee and train operating subsidiary is responsible for funding pension
obligations whilst it holds the relevant franchise, however all pension
obligations to the relevant section of the scheme will cease on expiration of
the franchise. Consequently, only the Franchisee's and train operating
company's obligation to fund the defined benefit scheme over the term of the
franchise is recognised. A `franchise adjustment' is made to the pension
obligation to reflect this.

Furthermore, on commencement of a franchise, an intangible asset has been
recognised which represents the economic value derived from the franchise
agreement that is attributable to our share of the rail pension deficit. At 1
April 2004, the Group recognised an intangible asset of £4.1m in respect of the
TransPennine Express franchise. During the year ended 31 March 2005, an
additional £16.9m was recognised as an intangible in respect of the ScotRail
franchise. These intangible assets are being amortised over the terms of the
franchises.

For the year ended 31 March 2005, the income statement charge was £40.9m under
IFRS, £6.1m less than the SSAP 24 charge.

Financial Instruments - IAS 32 and 39

The exemption available under IFRS 1 `First-time adoption' has been taken in
respect of IAS 32 `Financial Instruments: Disclosure and Presentation' and IAS
39 `Financial Instruments: Recognition and Measurement', which will be applied
from 1 April 2005. As permitted by this exemption, the year ended 31 March 2005
and the six months ended 30 September 2004 have not been restated under IAS 32
and IAS 39.

The Group uses derivative contracts to manage interest rate, currency and fuel
risks.

These derivative contracts will be recorded on the balance sheet at fair value
from 1 April 2005.

Hedge accounting

IAS 39 recognises three types of hedges for which hedge accounting is
permitted, these being a cash flow hedge, a fair value hedge and a hedge of
currency exposure from a net investment in a foreign operation.

These three types of hedges have been applied from 1 April 2005. A fully
effective hedge is one where the changes in cash flows, fair value or foreign
currency value of the hedged item are offset exactly by changes in cash flows,
fair value or foreign currency value of the hedging instrument respectively. A
fully effective hedge will remove volatility from the income statement. Any
ineffectiveness is recorded in the income statement during the period when it
arises.

Interest rate swaps

At 1 April 2005, interest rate swaps with a fair value of £6m, used to hedge
fair value movements in the £250m Sterling fixed rate bond, will be recognised
as a liability and treated as a fair value hedge. Other interest rate swaps
treated as cash flow hedges with a value of £1.6m will also be recognised as a
liability.

Fuel Derivatives

At 1 April 2005 fuel derivatives of £31.4m will be recognised as an asset on
the balance sheet and are treated as cash flow hedges.

Cross currency interest rate swaps

Cross currency swaps are treated as hedges of foreign currency exposure in
relation to part of the Group's US investments and recognised separately as an
asset on the balance sheet at 1 April 2005. At 31 March 2005, under UK GAAP, a
£16.8m benefit of these swaps was included in the value of the £250m bond and
this is therefore reclassified on adoption of IAS 39. In addition, accrued
interest of £3.5m will be recognised in the value of the swaps on 1 April 2005.

Long term Sterling bonds

On adoption of IAS 32 and IAS 39, the bonds with a par value of £300m and £250m
will be valued at amortised cost using the effective interest rate method and
the related accrued interest (£23.0m) is included in the bond values on the
balance sheet. In addition, the £250m bond value is adjusted for movements in
the fair value of LIBOR interest rate risk.

Business combinations - IFRS 3, IAS 36, IAS 38

IFRS prohibits amortisation of goodwill, which is instead subject to annual
impairment review, or more frequently where there are indications of
impairment. The Group has undertaken impairment reviews in accordance with IAS
36 `Impairment of assets' at a cash generating unit level. Where the cash flows
do not support the carrying value of the intangible assets attributed to the
cash generating unit, there will be impairment. For the year ended 31 March
2005, no impairments were identified. The goodwill amortised during the year
ended 31 March 2005 (£25.8m) under UK GAAP was reversed.

The Group has elected to utilise the exemption available under IFRS 1, not to
apply IFRS 3 `Business combinations' retrospectively, prior to 1 April 2004.
Consequently, at 1 April 2004 the value of goodwill has been retained at the UK
GAAP amounts.

Adoption of IFRS 3 and IAS 38 `Intangible assets' results in intangible assets
separately recognised on the balance sheet. Previously these would have been
subsumed within goodwill. Intangibles are amortised on a straight-line basis
over their estimated useful economic life.

Intangibles identified on contracts acquired during the year of £10.6m were
recognised and are being amortised over the expected life of the contracts.

Share-based payments - IFRS 2

Under IFRS 2 `Share-based payments', the Group is required to charge the income
statement with the cost of share-based equity payments based on fair value.
FirstGroup has recognised a charge to income representing the fair value of
outstanding employee and executive share options awarded since 7 November 2002.
The fair value has been calculated using the Black-Scholes and Monte Carlo
option valuation models and is charged to the income statement over the
relevant vesting periods, adjusted at each reporting date to reflect actual and
expected levels of vesting. The income statement charge for the year ended 31
March 2005 was £2.9m before tax.

Events after balance sheet date - IAS 10

Under IAS 10, only dividends declared before year end are presented as a
liability at the balance sheet date. Therefore at 31 March 2005, the 2004/05
proposed final dividend of £34m was derecognised, as this was not declared
until after the year end.