Final Results

National Express Group PLC 20 March 2002 20 March 2002 National Express Group PLC Preliminary Results for the year ended 31 December 2001 Financial Highlights - Turnover from continuing operations up 25% to £2.5bn (2000: £2bn) - Operating profit from continuing operations before exceptionals and goodwill up 10.4% to £156.7m (2000: £142m) - Operating cash flow of £185.5m (2000: £167.5m) - Normalised profit before tax increased by 8.3% to £129.2m (2000: £119.3m) - Normalised fully diluted EPS up 14.3% to 72.8p (2000: 63.7p restated) - Total dividend per share up 6.3% to 22.0p (2000:20.7p) - Sale of UK airports for £241m - Net debt reduced to £315m (2000: £556.6m) - EBITDA interest cover increased to 8 times (2000: 5.3 times) - Australian train and tram interim funding agreement - New terms with the Strategic Rail Authority ('SRA') for our Central Trains and ScotRail franchises. Operational Highlights - Sustained bus patronage and launch of two new Showcase routes in the Midlands - Focus on restoring rail performance by working with Railtrack and industry parties - UK train passenger numbers continue to be affected by network disruption - £160m new train order for Midland Mainline signed in March 2002 - Launch of e-ticketing by GoByCoach.com - Continued growth in the USA - Improvements in Australian train and tram punctuality and reliability - Continuing to address high levels of fare evasion in Melbourne - £93m capital investment across our businesses. Commenting on current trading and prospects, Phil White, Chief Executive said: '2001 was a challenging year for the Group particularly within our UK and Australian train and tram operations. We were pleased to announce after the year end that agreements were reached with the SRA in the UK and the Victorian Government in Australia which help address some of our areas of concern. The agreements, which have been achieved through a partnership approach, give us greater confidence to develop these businesses further. We are continuing to work with the Victorian Government to reach a successful conclusion for the long term viability of the franchises. UK train patronage has recovered to pre-Hatfield levels but there is still no real evidence of growth returning. However, we intend to play an integral part in rebuilding consumer confidence in UK rail. Our bus businesses worldwide continue to perform well and we intend to grow these operations both organically and by acquisition. Current trading for the Group is in line with market expectations.' For further information, please contact: Phil White, Chief Executive William Rollason, Finance Director Nicola Marsden, Director of Group Communications National Express Group PLC 020 7529 2000 Steve Jacobs/Andrew Dowler/Ben Foster Financial Dynamics 020 7831 3113 - An analyst presentation will take place at 0900 hours on 20 March 2002 at Financial Dynamics, Holborn Gate, 26 Southampton Buildings, London WC2 - A copy of the analyst presentation will be available on our website www.nationalexpressgroup.com at 0900 hours on 20 March 2002. For further information contact 020 7529 2035 - Photos are available through Newscast on tel: 020 7608 1000. Preliminary Results for the year ended 31 December 2001 The year presented a number of significant challenges for our businesses as described in our October 2001 trading statement. The tragic events of 11 September, operational issues within our Australian train and tram businesses and the continuing reduction in train subsidies all affected our performance for the year. At the same time our UK trains business continued to be impacted by network disruption. We are, however, pleased to report that since the year end we have reached agreement with both the Victorian Government in Australia and the Strategic Rail Authority in the UK to address some of these issues as follows: - In February, we announced that we had reached an interim agreement with the Victorian Government in Australia, which resulted in a payment to the Group of £16.5m. This settles outstanding contractual claims and disputes arising from the privatisation of the Victorian transport system in 1999 and provides for the development of patronage recovery proposals over the next 18 months. The agreement has put our train and tram franchises on a stronger financial platform. More importantly, we continue discussions with the Victorian Government about the long term viability of our franchises with the aim of completing these by the autumn. - Early in March, we announced that we had agreed new terms with the SRA for our Central and ScotRail franchises. Under this agreement these franchises will receive an extra £115m in grant until March 2004 in exchange for a payment to the SRA of £59m. Based on the increased subsidy, these franchises are currently forecast to break-even until the end of their franchise periods in early 2004. Results and dividends Turnover from continuing operations increased by 25% to £2.5bn (2000: £2.0bn) and normalised operating profit from continuing operations rose by 10.4% to £156.7m (2000: £142.0m) benefiting from the full year effect of acquisitions made in 2000. After interest and the Group's share of losses from associated undertakings, normalised profit before tax increased by 8.3% to £129.2m (2000: £119.3m). Normalised fully diluted earnings per share, restated to exclude discontinued activities, increased by 14.3% to 72.8p (2000: 63.7p restated). We are recommending that a final dividend of 14.7p per ordinary share (2000: 14.2p), an increase of 3.5%, be paid on 3 May 2002 to shareholders on the register at 5 April 2002. Including the interim dividend, the proposed total dividend for the year is up 6.3% at 22.0p per share (2000: 20.7p). Operating cash flow remained strong at £185.5m (2000: £167.5m) before interest, tax and dividends, which enabled the Group to fund net capital investment in existing businesses of £92.8m (2000: £100.4m). During the year we sold our UK airports for £241m and Bronckaers, our small bus business in Belgium, for £3.7m. These disposals generated net proceeds of £237.6m and net debt was reduced from £556.6m at the start of the year to £315.0m at 31 December 2001. As a result EBITDA interest cover from continuing operations increased to 8 times (2000: 5.3 times). Net assets increased by 9.7% to £413.9m (2000: £377.3m) and gearing at the year end was 76.1% (2000: 147.5%). Trading Overview In the UK, we were pleased with the consistency in performance of our bus business and its ability to adjust services to meet changing passenger needs. In view of its lack of critical mass, we sold Bronckaers, our Belgian bus business, in October. Our UK train operations continue to be impacted by the underperformance of Railtrack. We had and still have a disproportionate number of emergency speed restrictions ('ESRs') on our network which have a negative impact on the punctuality and reliability of our services. Whilst we are working with Railtrack and their contractors to address this, we have developed a range of internal initiatives designed to improve passenger journeys. In September, we received £16m from Railtrack in full and final settlement to mitigate the revenue shortfall incurred as a result of the ESRs following Hatfield. In addition, the late delivery and poor performance of our new trains over the last 18 months has been offset by liquidated damages from the manufacturers. Our GoByCoach.com brand continues to drive the progress of the coach division. The growth in internet sales has been encouraging, with nearly 10% of total bookings now on-line. Also over 50% of our sales are now direct through our customer contact centre and our own sales outlets. We completed the integration of the businesses acquired during the last couple of years, particularly within the USA where since 1999 we have increased turnover from £65m to £400m. We are pleased with the progress of this division and see further opportunities for growth, both organically and through acquisition. Our Australian bus operations continue to progress well. In December we acquired the Glenorie Bus Company in Australia for A$23.5m (£8.5m). This well established business, based in the north-west of Sydney, brings the Westbus fleet to around 500 buses and gives Westbus greater critical mass and exposure to a key growth market. As highlighted in October, following 11 September our insurance premia have doubled to £30m for the year ending 31 October 2002. Safety The safety of our passengers and people is of paramount importance. We aim to ensure that all of our operations embrace safety as a key component of their culture. Health and safety performance continues to be reviewed by the Board Safety Committee at its quarterly meetings. During 2001 we developed measures to be applied across the Group as follows: - The approval of a new policy on health and safety management, setting out our expectations for health and safety management standards; - The establishment of safety systems which will enable us to benchmark our performance both against other operators and within our own operations; - The communication of good practice across all operations; and - Regular safety tours. Board changes since the last Annual General Meeting In May Sue Lyons OBE joined the Board as a Non Executive Director. Sue has spent her career in engineering and manufacturing culminating in her appointment as Managing Director, Defence (Europe) at Rolls Royce. She brings valuable industrial experience to the Board. At the beginning of December Richard Brown resigned as a Director of the Group. He had played an important role in the development of the Group's trains division and we thank him for his contribution over the years. Outlook and current trading 2001 was a challenging year for the Group particularly within our UK and Australian train and tram operations. We were pleased to announce after the year end that agreements were reached with the SRA in the UK and the Victorian Government in Australia which help address some of our areas of concern. The agreements, which have been achieved through a partnership approach, give us greater confidence to develop these businesses further. We are continuing to work with the Victorian Government to reach a successful conclusion for the long term viability of the franchises. UK train patronage has recovered to pre-Hatfield levels but there is still no real evidence of growth returning. However, we intend to play an integral part in rebuilding consumer confidence in UK rail. Our bus businesses worldwide continue to perform well and we intend to grow these operations both organically and by acquisition. Current trading for the Group is in line with market expectations. Review of Operations Despite the difficult trading that we experienced this year, I am pleased to report that considerable progress was made within all of our businesses. We continued to invest further to deliver the improvements which we know our customers expect from public transport. Buses Travel West Midlands is the leading bus operator in the West Midlands. Incorporating Travel Midland Metro and Travel Dundee, it employs over 5,600 people and has a fleet of 2,000 buses operating over 600 routes. Turnover was up by 4.1% to £208.3m (2000: £200.1m) and operating profit before goodwill and exceptional items was up 4.3% to £52.8m (2000: £50.6m). Margins were maintained at 25.3%. The public transport market in the West Midlands remained buoyant despite the major construction work in Birmingham city centre. We are adapting our services to respond to the investment in retail and leisure facilities in both city centre and out of town destinations and as a result patronage levels were sustained. Driver training and recruitment continues to be an area for focus. We implemented a package of recruitment and retention measures to tackle the tight local labour market. Investment in driver training enabled nearly 700 new drivers to be trained over the year and 1,200 have been awarded a NVQ (II). A further 800 drivers are currently in the NVQ programme. Early in the year we also agreed a unique five year pay deal with the drivers at TWM which has improved the terms and conditions and removed the annual pay bargaining negotiations. All of these measures have improved retention rates during the year. We introduced 140 'state of the art' environmentally friendly easy access double deck buses with delivery of a further 140 due in the first six months of 2002. These buses are Euro III compliant and additionally are being fitted with particulate traps ensuring that they are the 'greenest' buses operating in the UK. These buses are being used to upgrade services on some of the West Midlands' busiest routes. Two major Showcase routes both serving large regional hospitals were launched during the year. The Birmingham Heartlands Hospital is a key destination within a major corridor, linking Birmingham and North Solihull. In Wolverhampton the first stage of a partnership with the city and the NHS Trust has greatly improved access to and around a major hospital complex. We are committed to further investment in Quality Partnerships as experience has shown that since their inception these initiatives have increased patronage by more than 30%. In partnership with the West Midlands local authorities, Centro, the passenger transport executive, and other local bodies we aim to improve service quality for our passengers through investment, innovation and better provision of information. We are an integral partner in the delivery of the local transport plan and the development of the accompanying bus, ticketing and information strategies. Trains We are the largest operator of train franchises in the UK with nearly 1,000 trains. We run c2c, Central Trains, Gatwick Express, Midland Mainline, ScotRail, Silverlink, WAGN including the Stansted Express, Wales & Borders and Wessex franchises. The division employs 12,600 people. Turnover was up 37.7% to £1.5 billion (2000: £1.1 billion). This included a full year's contribution from Prism. Operating profit before goodwill and exceptional items increased by 19.1% to £40.6m (2000: £34.1m). 2001 proved to be a challenging year for the UK train network. The large number of ESRs imposed on the network following the Hatfield accident in October 2000 continued to impact on the punctuality and reliability of our services. Extended and unpredictable travelling times discouraged passengers from travelling by train. The situation was compounded by the outbreak of foot and mouth disease at Easter and the events of 11 September after which there was a severe reduction in international travel. Our Gatwick Express service was significantly affected by the reduction of in-bound USA flights. In September, we received £16m in compensation from Railtrack in full and final settlement to mitigate the revenue shortfall incurred as a result of the ESRs following Hatfield. In addition, the late delivery and poor performance of our new trains over the last 18 months has been offset by liquidated damages from the manufacturers. We continued to invest in multiple distribution channels for the sale and distribution of train tickets. Our retailing strategy was expanded through the launch of Qjump.co.uk, our fast and easy ticket-buying site for UK train travel, and with the roll-out of the internet retailing system on all our train company websites. In October, the Qjump service was launched on third party websites including GNER. In addition, we have invested £10m in technology which prints rail tickets to and from anywhere in the UK as well as providing a portable database of up-to-date rail network timetabling and fare information. In April 2002, our new Customer Service Academy in Derby will open and provide a multi-purpose centre for recruitment, induction, customer service and skill development for rail staff. Following the appointment of Ian Buchan as Chief Executive of the Trains Division in May we are reorganising the division into three market sectors: London and the South East, Long Distance/Intercity and Regional Services. London and the South East - Turnover for the year was £516.4m (2000: £264.2m) with an operating profit of £46.7m (2000: £32.7m). In March we launched the London Lines organisation to encompass the support functions of our c2c, Silverlink and WAGN (including Stansted Express) businesses. This involved the consolidation of a number of central functions such as fleet maintenance and customer relations. During the year the performance of c2c was dominated by two key factors: the new trains and the impact of industrial action, now resolved, which related to the introduction of driver only operated trains, which will be completed during 2002. On Silverlink, the service was badly disrupted by ESRs and a temporary timetable was introduced to accommodate the West Coast re-modernising work, which was withdrawn in September following remedial work by Railtrack. WAGN's performance was severely affected throughout the year by ESRs and the poor quality of the infrastructure on which the service runs. We are strongly encouraging Railtrack as a matter of urgency to address this issue. This did not, however, stop us from investing in the service with the delivery of a new branding partnership with local councils and the installation of CCTV at selected stations. Gatwick Express services were significantly impacted by the reduction in air travel following 11 September and we made changes to the timetable to reflect the reduction in demand. Patronage levels are currently running 12% below last year. During 2002, we have increased focus on working with low-cost airlines to promote rail-air services following British Airways' decision to downsize its operations at Gatwick. This work should have a long-term benefit to the Gatwick Express business. Long Distance/Intercity - Turnover for the year was £121.7m (2000: £113.2m) with an operating profit of £10.5m (2000: £10.7m). Midland Mainline's ('MML') performance was impacted by ESRs on its network throughout the year. In February 2002 we announced the signing of a £160m order for the manufacture and supply by Bombardier of new rolling stock for MML. The new fleet, to be called 'Meridien', will be fully in service by January 2005 and will replace the current Turbostar fleet, which will be reallocated within the Group. Regional Services - Turnover for the year was £779.9m (2000: £647.3m) with an operating loss of £19m (2000: loss £13.4m). Following the agreement with the SRA, Central and ScotRail, which form part of our Regional Services, are currently forecast to break-even until the end of their franchise periods in early 2004. At Central, an additional 70 drivers and conductors were recruited to prevent cancellations caused by staff shortages. The SRA and Centro have also agreed to enter into good faith negotiations, which have already begun, to extend the Central franchise by two years to March 2006. This extension was set out in the SRA's Strategic Plan which was published in January 2002. At ScotRail a special timetable was introduced in response to the withdrawal by train drivers of rest day and overtime working as part of a pay dispute. Four one day strikes have been held in March 2002. We continue to hold discussions with ASLEF with a view to finding a solution. However, whilst these strikes continue we will be incurring losses. In October the remapping of the Wales & West franchise concluded with the establishment of the Wales and Borders and Wessex Trains franchises. We will continue to operate these franchises until they are awarded. Coaches The coach division provides Britain's only scheduled express coach network and serves more than 1,200 destinations. AirLinks, the airport coach service, operates premier, high-frequency scheduled coach services between the major UK airports, as well as airside coaching services at Heathrow and Gatwick. The division has 2,000 employees. Turnover for the year fell 2.9% to £181.3m (2000: £186.8m) primarily as a result of a reduction in the number of people travelling post 11 September. Operating profit reduced by 6.2% to £10.6m (2000: £11.3m). Denis Wormwell joined the division as Managing Director in January. Denis brings a range of travel marketing and operations experience as the division increases its direct sales focus. UK Express coaches - Our scheduled routes remained popular despite a severe reduction in in-bound tourism due to 11 September, foot and mouth and the strength of sterling. Providing accurate travel information to customers continues to be a priority. In July a new £1.4m customer contact centre opened in Birmingham offering a 'one stop shop' for all our products and services. We also introduced new frontline customer service staff at principal departure points. Passenger revenue increased with sales through direct channels growing by 29%. Sales via the GoByCoach.com website doubled reflecting the increased usage of this facility by our customers. We continued to develop the Shuttle brand, which provides turn up and go high frequency commuter services. Technology will play a major role in the development of the division. Ticket collection points were increased and during December GoByCoach.com was enhanced to offer customers the facility to print e-tickets directly from the website. Airport services - The impact of 11 September affected the performance of AirLinks in the last quarter of the year. However, a number of important contracts were secured with British Airways, BAA, Gatwick airport passenger services, JMC, Virgin Atlantic and NCP. European coaching - With the growth in internet booking, Eurolines has upgraded its central reservation system to accommodate increased internet sales. This business has, however, been badly affected by the reduction in in-bound tourism both to the UK and Continental Europe. USA The USA division consists of student transportation (Durham School Services), public transit operations (ATC) and Stewart International Airport. It employs 19,000 people and has a fleet of 11,500 vehicles. Turnover for the year was up 33.2% to £401.7m (2000: £301.6m) and operating profit was up 20.2% to £39.3m (2000: £32.7m). During 2001 we saw a number of significant developments in our USA division, with the consolidation of businesses and functions as well as the sharing of best practice across operations. The division benefited as a slower US economy helped improve the quality and availability of driver applicants. Our operations remain contractually based and during 2001 we continued to enjoy a high level of success in renewing our existing contracts while we strategically bid or negotiated an exit from those contracts which did not meet our financial returns or had little or no strategic relevance to the overall business. We were impacted by the increase in insurance costs after the renewal of the annual policies in October 2001. Student Transportation - The division had a strong start to the 2002 school year largely due to the improved availability of drivers. We continue to invest in the quality of our staff, formalising and expanding our training programmes for all general managers, operation supervisors and dispatchers. We anticipate these programmes will be completed by April 2002. In August 2001, we rebranded the division 'Durham School Services'. The Durham brand is well established and brand equity research showed that we would benefit from a consistent umbrella brand. The rebranding was combined with standard policies and procedures in financial reporting, safety, maintenance, recruitment and retention of personnel being extended throughout the division. Durham School Services continues to focus on expanding the market. Moving forward, in view of the changing economic climate in the USA, school districts are likely to outsource more of their services, including their school bus operations. Currently 30% of the student transportation market is outsourced. With only a 2% market share of the total school bus transportation market and 7% of the privatised market we are well positioned to benefit from this development. We also continue to review potential share shift opportunities. Public Transit - ATC's focus is on the combination of the provision of quality services and the delivery of improved financial results. During the year we strengthened our contract bidding team which has resulted in improved consistency in bidding and the re-negotiation of lower margin contracts. As a result significant contract wins were achieved in California and Washington. Currently 10% of the public transit market is outsourced and ATC holds a 2.5% market share leaving it well placed to benefit from any increase in outsourcing. Consolidation and centralisation of operations, most notably within the finance function, ensured improved financial control and increased standardisation of the ATC product offering. Training and the continuous maintenance of skills are the two most important elements of transportation delivery. ATC requires its managers and supervisors to attend the ATC Management University once a year. It has also established a separate ATC Maintenance University to improve the skills of its maintenance managers and supervisors, bringing them up to speed on the latest technological advances. ATC commands a strong position in the industry as a provider of quality services with reliability on average exceeding 90% and has one of the lowest accident and complaint rates in the industry. Stewart Airport - The tragic events of 11 September severely impacted the operations of Stewart International Airport, located 55 miles north-west of New York, and passenger numbers declined by 20%. Performance was also impacted by the ComAir strike and the bankruptcy of Midway Airlines. Despite this, significant progress was made during the year, including the completion and opening of a federal government facility cargo inspection station, continued development of the industrial park, as well as certain facility improvements which were primarily funded in partnership with government aviation programmes. Australia In Australia, we are the largest private operator of train, tram and bus services with operations in Brisbane, Melbourne, Perth and Sydney, under the rail brands, M>Train, M>Tram and V/Line and the bus brands Blue Ribbon, Glenorie, National Bus Company, Southern Coast Transit and Westbus. Our fleet includes 1,100 buses and 570 trains and trams. 4,500 people are employed by the division. Turnover fell to £207.9m (200:0: £221.5m) after a reduction of £14m in franchise payments and operating profit was maintained at £13.4m (2000: £13.3m). The interim agreement reached earlier this month with the Victorian Government has secured the short term financial viability of our train and tram businesses. The current discussions with the Victorian Government continue to address the long term viability of these franchises and the continuing decline in franchise subsidy. Trains and Trams - We have been working to address key operational issues in our Melbourne train and tram businesses and were pleased to announce in February 2002 an interim agreement was reached with the Victorian Government. This agreement has put these businesses on a stronger financial footing and enables us to develop patronage recovery proposals which will address some of the key operational issues such as fare evasion. For example, we are working with the State Government and the other operators through a dedicated ticketing task force to develop proposals to improve and ultimately replace the ticketing system. This initiative will improve the availability, ease of use and security of ticket machines. A major media campaign promoting heavy penalties for fare evasion has also been launched, coupled with intensive fare evasion 'blitz' inspection activity. In October our two metropolitan Victorian businesses were officially rebranded under the 'Moving Melbourne' banner; Bayside Trains became M>Train and Swanston Trams became M>Tram. The launch of the new brand was supported by a new customer friendly website - www.movingmelbourne.com and new customer information at tram stops. We also began the roll-out of refurbished trains and trams in Victoria, delivering improved features. A major highlight of 2001 was the signing of a A$410m (£147m) contract to build 29 new two-car diesel trains for regional Victoria. The new 160kph trains, to be delivered from 2004, will improve services and customer comfort as well as significantly reduce journey times. Buses - During the year good progress was made in our bus operations. Significant improvements in both punctuality and reliability were achieved. In August John Lee joined as Managing Director of Westbus. John was formerly senior adviser to New South Wales' inaugural Co-ordinator General of Rail and brings extensive experience from his involvement in co-ordinating commuter services for the Sydney 2000 Olympics. Towards the end of the year we acquired Glenorie Bus Company for A$23.5m (£8.5m) which gave critical mass to our Sydney operations. Growth of our business in the Hills district of Sydney is a key objective for 2002 and this acquisition opens the way for new and better integrated services, including in-bound commuter services from Glenorie's catchment area, the fast growing western suburbs of Sydney. Demand for school services in New South Wales continues to grow and we expect this aspect of the business to generate further revenue in 2002, with continued population growth in north-western Sydney in particular and new private schools opening in the area. National Bus Company in Victoria is working with the State Government on a number of proposals aimed at growing patronage. Most notable are plans to build Melbourne's first bus 'Park 'n Ride' in the eastern suburbs and a proposal to upgrade significantly the central business district services. We are also undertaking a commercial trial of diesel to LPG conversion technology with assistance from the Federal Government's Greenhouse Office. - ENDS - Notes to Editors: Train market sector split by turnover and operating profit/loss: Turnover Operating profit/(loss) 2001 2000 2001 2000 £m £m £m £m London and the South East 516.4 264.2 46.7 32.7 Long distance/Intercity 121.7 113.2 10.5 10.7 Regional 779.9 647.3 (19.0) (13.4) Other 40.2 33.9 2.4 4.1 Total 1,458.2 1,058.6 40.6 34.1 NATIONAL EXPRESS GROUP PLC GROUP PROFIT AND LOSS ACCOUNT For the year ended 31 December 2001 Total before Total before goodwill and Goodwill and goodwill and Goodwill and exceptional exceptional exceptional exceptional items items Total items items Total 2001 2001 2001 2000 2000 2000 Note £m £m £m £m £m £m Turnover - continuing operations 2,457.4 - 2,457.4 1,968.6 - 1,968.6 - discontinued 6.8 - 6.8 34.0 - 34.0 operations Turnover 1 2,464.2 - 2,464.2 2,002.6 - 2,002.6 Other operating income 12.4 - 12.4 13.4 - 13.4 Other operating costs before goodwill and exceptional items (2,318.8) - (2,318.8) (1,860.9) - (1,860.9) Franchise amendment costs - (67.0) (67.0) - - - Other exceptional items - (16.5) (16.5) - (30.6) (30.6) Goodwill amortisation - (41.9) (41.9) - (22.7) (22.7) Total operating costs (2,318.8) (125.4) (2,444.2) (1,860.9) (53.3) (1,914.2) Operating profit 157.8 (125.4) 32.4 155.1 (53.3) 101.8 - continuing operations 156.7 (125.4) 31.3 142.0 (53.3) 88.7 - discontinued 1.1 - 1.1 13.1 - 13.1 operations Operating profit 1 157.8 (125.4) 32.4 155.1 (53.3) 101.8 Share of operating (1.9) - (1.9) (1.8) - (1.8) losses of associated undertakings Profit/(loss) on sale of businesses - 91.7 91.7 - (1.0) (1.0) Profit on ordinary activities before 155.9 (33.7) 122.2 153.3 (54.3) 99.0 interest Net interest payable (26.7) - (26.7) (34.0) - (34.0) Profit on ordinary activities before 129.2 (33.7) 95.5 119.3 (54.3) 65.0 taxation Tax on profit on ordinary activities (27.8) 26.6 (1.2) (25.7) 12.8 (12.9) Profit after tax 101.4 (7.1) 94.3 93.6 (41.5) 52.1 Minority interest 0.1 - 0.1 (0.7) - (0.7) Profit attributable to shareholders 101.5 (7.1) 94.4 92.9 (41.5) 51.4 Dividends (28.6) - (28.6) (26.3) - (26.3) Retained profit for the financial year 72.9 (7.1) 65.8 66.6 (41.5) 25.1 Basic earnings per share 2 72.9p 43.4p Diluted earnings per 2 68.3p 39.7p share Normalised diluted earnings per share 2 72.8p 63.7p NATIONAL EXPRESS GROUP PLC GROUP BALANCE SHEET At 31 December 2001 Group Company 2001 2000 2001 2000 £m £m £m £m Fixed assets Intangible assets 503.6 523.7 - - Tangible assets 512.8 653.6 1.4 3.4 Investments and interests in associated undertakings 26.4 27.3 582.0 915.3 1,042.8 1,204.6 583.4 918.7 Current assets Stock 21.4 20.7 - - Debtors 376.1 327.1 621.4 515.4 Cash at bank and in hand 92.3 53.8 56.7 7.2 489.8 401.6 678.1 522.6 Creditors: amounts falling due within one year (610.6) (751.1) (460.5) (312.5) Net current (liabilities)/assets (120.8) (349.5) 217.6 210.1 Total assets less current liabilities 922.0 855.1 801.0 1,128.8 Creditors: amounts falling due after more than one year (405.1) (458.2) (355.6) (428.8) Provisions for liabilities and charges (103.0) (19.6) (6.1) (8.1) 413.9 377.3 439.3 691.9 Capital and reserves Called-up share capital 6.6 6.5 6.6 6.5 Share premium account 43.7 40.5 43.7 40.5 Share capital to be issued 0.3 0.4 0.3 0.4 Merger reserve 15.4 57.3 - 214.2 Capital reserve - 17.0 26.4 52.1 Revaluation reserve 0.8 17.5 - - Profit and loss account 341.8 233.6 362.3 378.2 Equity shareholders' funds 408.6 372.8 439.3 691.9 Equity minority interest 5.3 4.5 - - 413.9 377.3 439.3 691.9 NATIONAL EXPRESS GROUP PLC GROUP STATEMENT OF CASH FLOWS For the year ended 31 December 2001 2001 2000 Note £m £m Net cash inflow from operating activities 4(a) 185.5 167.5 Interest received 9.5 3.1 Interest paid (37.7) (20.7) Interest element of finance lease rentals (1.0) (1.6) Return on investments and servicing of finance (29.2) (19.2) UK corporation tax paid (5.4) (24.8) Overseas tax paid (0.6) (1.8) Taxation (6.0) (26.6) Payments to acquire tangible assets (102.6) (89.3) Receipts from sale of tangible assets 10.6 3.6 Purchase of own shares to satisfy employee share scheme (0.7) (1.6) Payments to acquire other investments (0.1) (13.1) Capital expenditure and financial investment (92.8) (100.4) Receipts from the sale of businesses 237.6 - Payments to acquire businesses (8.6) (283.0) Cash disposed in businesses sold (1.7) - Cash acquired in businesses purchased 0.4 52.6 Deferred consideration for businesses acquired (1.5) - Acquisitions and disposals 226.2 (230.4) Equity dividends paid (28.1) (22.0) Cash inflow/(outflow) before financing activities 255.6 (231.1) Management of liquid resources Cash withdrawn from short term deposits 4.5 19.4 Financing Issue of share capital 3.2 4.9 Cash inflow/(outflow) from lease financing 21.2 (4.4) Movements on bank deposits relating to loan notes - 3.1 Loans advanced - 187.5 Loans repaid (241.2) - Net cash (outflow)/inflow from financing (216.8) 191.1 Increase/(decrease) in cash 4(b) 43.3 (20.6) NATIONAL EXPRESS GROUP PLC GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES For the year ended 31 December 2001 2001 2000 £m £m Profit attributable to shareholders 94.4 51.4 Exchange differences on foreign currency net investments (0.6) (0.5) Total recognised gains and losses for the year 93.8 50.9 RECONCILIATION OF MOVEMENTS IN GROUP EQUITY SHAREHOLDERS' FUNDS For the year ended 31 December 2001 2001 2000 £m £m Total recognised gains and losses 93.8 50.9 Dividends (28.6) (26.3) New share capital issued for cash 3.2 4.9 New share capital issued for non cash consideration - 80.5 Goodwill realised (32.6) - Net addition to shareholders' funds 35.8 110.0 Equity shareholders' funds at 1 January 372.8 262.8 Equity shareholders' funds at 31 December 408.6 372.8 NATIONAL EXPRESS GROUP PLC Notes 1. Turnover and segmental analysis The turnover of the Group comprises revenue from road passenger transport, airport operations, train passenger services and related activities in the UK, USA and Australia. Within the trains division, franchise agreement payments from the Strategic Rail Authority and local Passenger Transport Executives within the West Midlands region and Scotland are treated as turnover. During the year franchise agreement payments amounted to £554.8m (2000: £482.6m) in the UK and £56.0m (2000: £69.6m) from the Victoria Department of Public Transport in Australia. Operating profit before goodwill and Turnover exceptional items Net assets 2001 2000 2001 2000 2001 2000 Analysis by class of business £m £m £m £m £m £m Buses 208.3 200.1 52.8 50.6 63.8 108.0 Trains 1,458.2 1,058.6 40.6 34.1 9.8 91.0 Coaches 181.3 186.8 10.6 11.3 35.2 32.4 UK operations 1,847.8 1,445.5 104.0 96.0 108.8 231.4 USA 401.7 301.6 39.3 32.7 501.5 496.5 Australia 207.9 221.5 13.4 13.3 101.6 55.0 Continuing operations 2,457.4 1,968.6 156.7 142.0 711.9 782.9 Discontinued operations - 6.8 34.0 1.1 13.1 - 162.4 Airports 2,464.2 2,002.6 157.8 155.1 711.9 945.3 Exceptional items (see table (83.5) (30.6) below) Goodwill amortisation (41.9) (22.7) 32.4 101.8 Unallocated net liabilities (303.3) (572.5) 408.6 372.8 Equity minority interest 5.3 4.5 Total net assets 413.9 377.3 Exceptional items can be analysed as follows: Buses Trains Coaches USA Australia Other Total £m £m £m £m £m £m £m 2001 Franchise amendment - 67.0 - - - - 67.0 costs New trains - 3.0 - - - - 3.0 Reorganisation - 4.8 3.1 3.6 0.6 - 12.1 Abortive bid costs 0.2 1.0 - - 0.2 - 1.4 0.2 75.8 3.1 3.6 0.8 - 83.5 2000 New trains - 2.4 - - - - 2.4 Reorganisation 1.6 5.6 - 1.5 2.4 - 11.1 Abortive bid costs - - - 0.6 - - 0.6 Atlantic Express - - - - - 16.5 16.5 1.6 8.0 - 2.1 2.4 16.5 30.6 The exceptional franchise amendment expenditure represents the cost to the Group of its renegotiations with the Strategic Rail Authority of the Central Trains and ScotRail rail franchises. The exceptional expenditure on new trains is the costs associated with bringing the new trains into service. Reorganisation costs include £1.7m (2000: £nil) relating to the impairment of goodwill previously written off to reserves in respect of a coach business. The exceptional expenditure during the year ended 31 December 2000 of £16.5m is the settlement, with no admission of liability, of the litigation brought against the Group by Atlantic Express Group Inc. in the USA, and the associated professional fees. Goodwill amortisation of £41.9m (2000: £22.7m) is analysed as Trains £21.6m (2000: £6.0m), Coaches £0.4m (2000: £0.2m), USA £18.5m (2000: £15.2m) and Australia £1.4m (2000: £1.3m). The allocation of net assets by division for the year ended 31 December 2000 has been restated to reflect a reassessment of the allocation of certain net assets. Unallocated net liabilities comprise other investments, cash at bank and in hand, borrowings (other than finance leases), deferred consideration payable, dividends payable and taxation. The net assets in respect of the Group's investment in associated undertakings have been analysed according to the activities of the associated undertakings. 2. Earnings per share 2001 2000 Basic earnings per share 72.9p 43.4p Diluted earnings per share 68.3p 39.7p Normalised diluted earnings per share 72.8p 63.7p Basic earnings per share is calculated by dividing the profit attributable to shareholders of £94.4m (2000: £51.4m) by the weighted average number of ordinary shares in issue during the year, excluding those held by employee share ownership trusts which are treated as cancelled. For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. These represent share options granted to employees where the exercise price is less than the average market price of the Company's ordinary shares during the year. The reconciliation of weighted average number of ordinary shares is Number Number detailed as follows: of shares of shares 2001 2000 Basic weighted average shares 129,457,561 118,393,605 Adjustment for dilutive potential ordinary shares 8,852,402 11,191,236 Diluted weighted average shares 138,309,963 129,584,841 The normalised diluted earnings per share has been calculated in addition to the basic and diluted earnings per share required by Financial Reporting Standard 14 since, in the opinion of the Directors, it reflects the financial performance of the core business more appropriately. The normalised diluted earnings per share for the year ended 31 December 2000 has been restated to exclude the earnings from discontinued operations. The normalised diluted earnings per share for the year ended 31 December 2001 excludes the earnings from discontinued operations. It has not been adjusted to reflect the interest earned on the cash proceeds from the disposal of the discontinued operations. Normalised profits after tax and minority interest are: 2001 2000 £m £m Profit after tax and minority interest 94.4 51.4 Earnings from discontinued operations (0.8) (10.4) Exceptional operating costs 83.5 30.6 Goodwill amortisation 41.9 22.7 (Profit)/loss on sale of businesses (91.7) 1.0 Tax relief on goodwill and exceptional items (26.6) (12.8) 100.7 82.5 3. Net borrowings Group Company 2001 2000 2001 2000 £m £m £m £m Due within one year Loan notes 10.0 5.5 1.5 1.5 Bank loans 3.6 156.2 3.6 149.0 Other loans 0.1 0.3 - - Bank overdrafts 0.5 0.4 177.5 59.7 Finance lease obligations 6.3 3.6 - - 20.5 166.0 182.6 210.2 Due within one to two years Loan notes - 0.6 - - Bank loans 70.8 42.6 70.4 42.6 Other loans - 0.1 - - Finance lease obligations 6.8 3.6 - - 77.6 46.9 70.4 42.6 Due within two to five years Loan notes - 1.8 - - Bank loans 285.2 386.2 285.2 386.2 Finance lease obligations 18.9 6.2 - - 304.1 394.2 285.2 386.2 Due by instalments after five years Finance lease obligations 5.1 0.9 - - Due other than by instalments after five years Loan notes - 2.4 - - Total borrowings 407.3 610.4 538.2 639.0 Cash at bank and in hand (92.3) (53.8) (56.7) (7.2) Net borrowings 315.0 556.6 481.5 631.8 During the year ended 31 December 1999, the Company agreed a part term (£550m), part revolving (£250m) syndicated loan facility for a total of £800m. During the year ended 31 December 2001, the Company voluntarily repaid £190m of the term loan from the Group's cash resources. Secured borrowings within the Group total £37.1m (2000: £14.3m). 4. Cash flow statement (a) The reconciliation of operating profit to net cash inflow from operating activities is shown below: Continuing Discontinued Continuing Discontinued operations operations Total operations operations Total 2001 2001 2001 2000 2000 2000 £m £m £m £m £m £m Operating profit 31.3 1.1 32.4 88.7 13.1 101.8 Depreciation of 59.6 1.0 60.6 39.6 4.3 43.9 tangible assets Amortisation of 41.9 - 41.9 22.7 - 22.7 goodwill Increase in stocks (1.4) - (1.4) (1.5) - (1.5) (Increase) / decrease (54.9) - (54.9) (57.5) 0.4 (57.1) in debtors Increase / (decrease) 38.5 (7.1) 31.4 65.8 (4.1) 61.7 in creditors Increase / (decrease) 80.4 - 80.4 (4.3) - (4.3) in provisions Other movements (4.9) - (4.9) 0.3 - 0.3 Net cash inflow/ 190.5 (5.0) 185.5 153.8 13.7 167.5 (outflow) from operating activities The operating cash inflows include outflows of £16m (2000: £28.8m) from continuing operations which relate to exceptional costs. (b) Reconciliation of net cash flow to movement in net debt (note 4(c)) 2001 2000 £m £m Increase/(decrease) in cash in the year 43.3 (20.6) Cash outflow/(inflow) from movement in debt and lease financing 220.0 (186.2) Cash inflow from movement in liquid resources (4.5) (19.4) Change in net debt resulting from cash flows 258.8 (226.2) Loans and finance leases of subsidiaries acquired in year (1.4) - Other non cash movements in net debt (15.8) (14.5) Change in net debt resulting from non cash flows (17.2) (14.5) Movement in net debt in the year 241.6 (240.7) Net debt at 1 January (556.6) (315.9) Net debt at 31 December (315.0) (556.6) Other non cash movements in net debt primarily represent exchange movements. (c) Analysis of changes in net debt At At 31 1 January Cash Acquisitions/ Other December 2001 flow disposals movements 2001 £m £m £m £m £m Cash 21.0 9.1 - (0.4) 29.7 Overnight deposits 20.2 34.3 - - 54.5 Liquid resources - other 12.6 (4.5) - - 8.1 short term deposits Cash at bank and in hand 53.8 38.9 - (0.4) 92.3 Bank overdrafts (0.4) (0.1) - - (0.5) Debt due within one year Loan notes (5.5) 0.3 - (4.8) (10.0) Bank and other loans (156.5) 159.5 - (6.7) (3.7) (162.0) 159.8 - (11.5) (13.7) Debt due after one year Loan notes (4.8) - - 4.8 - Bank and other loans (428.9) 81.4 (0.4) (8.1) (356.0) (433.7) 81.4 (0.4) (3.3) (356.0) Finance lease obligations (14.3) (21.2) (1.0) (0.6) (37.1) Net debt (556.6) 258.8 (1.4) (15.8) (315.0) Short term deposits included within liquid resources relate to term deposits repayable within three months. During the year, following the voluntary repayment of £190m of the term loan, certain tangible fixed assets were refinanced through finance leases. The £21.2m cash movement in finance lease obligations represents the associated £30m inflow arising from this, offset by repayments of the capital element of finance lease rentals of £8.8m. 5. Exchange rates The most significant exchange rates to the pound for the Group are as follows: 2001 2001 2000 2000 Closing Average Closing Average rate rate rate rate US dollar 1.46 1.44 1.49 1.51 Australian dollar 2.84 2.80 2.69 2.63 6. Retirement Benefits Under the transitional arrangements for the implementation of FRS 17, 'Retirement Benefits', the Group continues to account for pensions in accordance with SSAP 24. The additional disclosures required by FRS 17, 'Retirement Benefits,' during the transitional period, for the bus, coaches and trains divisions' defined benefit schemes are set out below. They are based on the most recent actuarial valuations, which have then been updated by independent professionally qualified actuaries to take account of the requirements of FRS 17. In respect of the Australian state run multi-employer schemes, the Group is unable to identify its share of the underlying assets and liabilities in these schemes on a consistent and reasonable basis and therefore they will be accounted for as if they were defined contribution schemes. Buses and Trains Coaches % % Rate of increase in salaries 4.0 4.0 Rate of increase of pensions in payment 2.5 2.5 Discount rate 6.0 6.0 Inflation assumption 2.5 2.5 The assets in the schemes and the expected long-term rate of return as at 31 December 2001 were: Rate of Buses and Trains Total return Coaches % £m £m £m Equities 8.0 269.6 579.4 849.0 Bonds 5.4 93.6 65.7 159.3 Property 6.7 0.7 39.2 39.9 Other 5.0 6.8 2.1 8.9 370.7 686.4 1,057.1 The following amounts at 31 December 2001 were measured in accordance with the requirements of FRS 17. Buses and Coaches Trains Total £m £m £m Total market value of assets 370.7 686.4 1,057.1 Present value of scheme liabilities (338.0) (603.0) (941.0) Surplus in the schemes 32.7 83.4 116.1 Irrecoverable surplus - (30.4) (30.4) Pension asset 32.7 53.0 85.7 Related deferred tax liability (9.8) (15.9) (25.7) Net pension asset 22.9 37.1 60.0 If FRS 17 had been adopted, the Group's net assets and profit and loss reserve at 31 December 2001 would have been as follows: £m Net assets excluding pension assets/liabilities 412.6 Pension asset 60.0 Net assets including pension asset 472.6 Profit and loss reserve excluding pension assets/liabilities 340.5 Pension reserve 60.0 Profit and loss reserve 400.5 Copies of the preliminary statement may be obtained from the Company Secretary at 75 Davies Street, London W1K 5HT. Copies are also available via www.nationalexpressgroup.com The preliminary announcement is an abridged version of the full accounts upon which the auditors have given an unqualified opinion. The full accounts will be filed with the Registrar of Companies in due course. - ENDS - This information is provided by RNS The company news service from the London Stock Exchange

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