Half Year Results for six months to 30 June 2014

RNS Number : 6705N

National Express Group PLC

30 July 2014

National Express Group plc

30 July 2014

Half Year Results for the six months ended 30 June 2014

National Express Group PLC ("National Express" or "the Group") is a leading international public transport operator, with bus, coach and rail services in the UK, Continental Europe, North Africa and North America.

Highlights

· Positive progress in the first half of 2014.

· Excellent cash generation: £80 million of free cash flow in the first half of the year, with a full year target of £150 million. Net debt reduced by £80 million over the last 12 months.

· Success in winning new contracts worth £5 billion and sustaining market-leading contract retention rates.

· Underlying growth in both revenue and passenger numbers, in the UK, North America and Morocco.

· Dividend increased 3% to 3.35 pence per share (based on 2x covered by non-rail earnings in the full year).

Consistent delivery against our strategy

· Important contract wins across the Group, worth £5 billion in total:

o Firmly re-established with a long term future in UK rail: success in retaining the Essex Thameside ('c2c') franchise secures our presence until 2029.

o Largest ever US School Bus conversion contract.

o Retaining largest US transit contract.

o Selected preferred bidder for largest urban/regional bus contract in Spain.

o Continuing to deliver industry-leading retention rate in US School Bus.

· New growth markets: selected as preferred bidder for urban bus services in Bahrain, opening up a significant new potential growth opportunity in the Middle East.

Financial summary

	H1 2014 £m	H1 2013 £m
Revenue	939.5	956.7
Normalised operating profit	89.5	97.2
Normalised profit before tax	65.5	71.8
Statutory profit for the period	20.6	28.7
Normalised basic EPS Dividend Net debt	9.9p 3.35p 729.0	10.8p 3.25p 809.4

· The previously disclosed one-off impacts of extreme US weather and Spanish industrial action, combined with the strength of Sterling have impacted both revenue and profit:

o Underlying Group revenue was up 2%: +7% core UK Coach; +6% Rail; and +3.2% UK Bus commercial revenue. North America also saw 1% revenue growth, while Spain declined by 1%.

o Adjusting for these one-off impacts and Sterling's strength, normalised profit before tax would have increased by £3.8 million.

Dean Finch, National Express Group Chief Executive, said:

"We have made important progress in the first half of the year. Our success in retaining the Essex Thameside rail franchise confirms our long term future in UK rail. Other major contract successes across the Group demonstrate the quality of our services and strength of our reputation in the markets we serve. Our strong cash generation remains a highlight and a particular focus of the business this year.

"We made clear in our previous statement that extreme weather and industrial action in the US and Spain respectively would affect our half year results. We remain determined to deliver the improvements and efficiencies necessary over the course of the year to achieve the Board's expectations.

"We also have a strong pipeline of further opportunities with many bids being evaluated at present, including ScotRail and a number in German rail. We have been selected as the preferred bidder for a bus contract in Bahrain, potentially opening a new and exciting market. We are also actively monitoring the situation in Portugal and Spain where the Group is well placed to deploy its expertise when liberalisation of these markets occurs."

Enquiries

National Express Group PLC
Jez Maiden, Group Finance Director	0121 460 8657
Stuart Morgan, Head of Investor Relations	0121 460 8657
Anthony Vigor, Director of Policy and External Affairs	07767 425822
Maitland
Rebecca Mitchell	07951 057351

There will be a presentation and webcast for investors and analysts at 0900 on 30 July 2014. Details are available from Rebecca Mitchell at Maitland

Definitions

Unless otherwise stated, revenue is stated on an underlying basis, which compares the current year with the prior year on a consistent basis, after adjusting for the impact of currency, and acquisitions and disposals. Like-for-like revenue adjusts underlying revenue for the impact of changes in mileage operated.

Unless otherwise stated, all profit and EPS data refer to normalised results, which can be found on the face of the Group Income Statement in the first column. The definition of normalised profit is as follows: IFRS result (found in the third column), excluding intangible asset amortisation, loss on disposal of business, exceptional items and tax relief thereon. The Board believes that the normalised result gives a better indication of the underlying performance of the Group.

Free cash flow is intended to be the cash flow equivalent of normalised profit after tax. A reconciliation is set out in the Financial Review.

Net debt is defined as cash and cash equivalents (cash overnight deposits and other short-term deposits), and other debt receivables, offset by borrowings (loan notes, bank loans and finance lease obligations) and other debt payable (excluding accrued interest).

BUSINESS REVIEW

Overview

National Express has made positive progress in the first half of 2014. Underlying Group revenue in the period was up 2%, with strong growth across all of the UK divisions, North America 1% higher and Spain 1% lower. Normalised profit before tax was adversely affected by £10.1 million of one-off events and currency translation; excluding these, profit improved by £3.8 million. Cash generation has been excellent and we have continued to reduce net debt, which is now £80 million lower than this time last year. Across the Group we have won new business and retained key contracts. We are firmly re-established with a long term future in UK Rail. We have opened up a potentially exciting new market in the Middle East.

The first element of our strategy - delivering operational excellence - is driving improved performance across our businesses, establishing a robust platform for increasing shareholder returns and generating future growth. Customer satisfaction is strong, operational performance metrics continue to improve, contract retention levels are industry-leading and growth and cost efficiencies are outstripping inflation.

Our key focus in 2014 is to drive superior cash and returns, the second part of our strategy. The Group generated £80.3 million of free cash flow in the first half of 2014, on target to deliver £150 million in the full year. With this, we continue to improve capital deployment across the Group, driving better return on capital (up 40 basis points to 11.8% in the last 12 months), and have reduced debt by £17 million in the first half of 2014 and £80 million in the last 12 months.

Thirdly, we are achieving success in creating new business opportunities, securing £5 billion of future revenue in the period. In June we won our first UK rail franchise since 2007, Essex Thameside, confirming National Express as a long term player in the UK rail market. We are also preferred bidder in our first Middle East public transport opportunity.

All of this has been achieved against a backdrop of challenging conditions. As highlighted in our first interim management statement of 2014, two one-off events impacted the first quarter of the year. Industrial action in Alsa's urban operation reduced normalised profit by €2.0 million. Extreme cold weather in North America reduced profit by US$6.1 million, an unprecedented impact which saw over 1,000 school days lost on our routes, costing US$3.2 million in lost profit, along with $2.9 million of additional costs, including unplanned battery replacement, extra fuel burn to prevent buses from freezing, depot snow clearance and additional driver costs incurred to enable buses to operate, often only for school to be cancelled.

The strength of Sterling also adversely impacted the translation of first half overseas profit by £4.6 million. In addition, in Spain we have faced aggressive competition in intercity coach from high speed rail on several corridors. We have responded to these challenges by delivering greater cost efficiencies and making sure we are always the price leader in long distance travel, growing passenger volumes and finding new business opportunities. As a result, the Group remains on track to deliver its earnings expectations for the year on a constant currency basis.

Performance highlights

Group revenue in the first half was £939.5 million (£956.7m), with underlying growth of 2%. All UK divisions have delivered strong growth, supported by rising passenger volumes. Alsa continues to perform well in regional and urban markets, with the renewal and extension of several contracts in Spain and 20% revenue growth in Morocco, helping to offset rail competition in the intercity coach market. North America has had a successful school bus bid season, progressing its strategy to replace low return contracts with better quality contracts, including conversions and bolt-on acquisitions.

Statutory revenue by division was as follows:

	First half
Revenue	2014 £m	2013 £m	Change %
Spain (€m)	319.3	321.2	(1)
North America (US$m)	556.6	554.5	0

Spain	262.3	272.1	(4)
North America	333.4	358.0	(7)
UK Bus	137.7	134.8	2
UK Coach	130.5	121.7	7
German coach	1.7	0.3	467
Rail	74.5	69.9	6
Intercompany	(0.6)	(0.1)	n/a
Group	939.5	956.7	(2)

Normalised profit before tax in the first half of 2014 decreased by £6.3 million to £65.5 million (2013: £71.8m). Of this reduction, £4.6 million related to currency translation and £5.5 million to one-off events. Excluding these, the improvement in normalised profit before tax was £3.8 million year-on-year.

	First half		Full year
Normalised operating profit	2014 £m	2013 £m	2013 £m
Spain (€m)	38.6	40.8	96.0
North America (US$m)	58.8	64.4	97.9

Spain	31.7	34.6	81.5
North America	35.2	41.6	62.6
UK Bus	15.3	15.0	31.2
UK Coach	9.3	7.8	24.5
Corporate	(6.0)	(5.7)	(14.3)
German coach	(1.4)	(0.9)	(2.4)
Rail	5.4	4.8	9.8
Normalised operating profit	89.5	97.2	192.9
Interest and associates	(24.0)	(25.4)	(49.2)
Normalised profit before tax	65.5	71.8	143.7

Highlights in the first half year have included:

Cash generation:

· £80 million of free cash flow generated through careful capital allocation and strong working capital management; on track for £150 million free cash flow in 2014.

· Reducing net debt to £729.0 million (31 December 2013: £746.1m) and gearing maintained at 2.5x.

Contract wins and new business:

· Being selected as preferred bidder to operate urban bus services in Bahrain, which would be our first Middle East contract.

· Official start-up of operations in our third Moroccan city, Tangiers.

· Retaining our largest US Transit contract, providing disabled passenger services in Boston.

Rail win:

· Retaining the Essex Thameside UK rail contract ('c2c'), expected to generate £4 billion of future revenue and underpinning National Express' rail business in both the UK and Germany until 2029. Two further high quality UK rail bids were submitted, with our ScotRail bid currently in evaluation.

Core operations:

· Achieving 5% revenue growth in the UK businesses, driven by a 2% increase in passengers. Core express revenue growth in UK Coach was 7% and UK Bus delivered a 3.2% increase in like-for-like commercial growth, the strongest performance for some time.

· Successfully implementing our strategic improvement programme in North America School Bus:

o 98% target contract retention with over 2% increase in renewal pricing.

o Improved pricing on competitive renewal, supported by underlying market improvements.

o Replacing poor margin business with contracts which generate higher returns, including adding a major conversion win in Tennessee, now comprising over 700 buses. Completing a third successful bolt-on acquisition in recent months, adding 350 buses in Philadelphia.

o Net growth of 100 buses overall.

· Early success in rolling out revenue management in Alsa intercity coach to address pricing challenge from high speed rail and return to passenger growth.

· Selected as preferred bidder to retain our largest urban/regional bus contract in Spain.

Dividend

The Board has increased the interim dividend by 3% to 3.35 pence per share (2013: 3.25p), reflecting its confidence in the performance and future prospects of the business. Our policy is to pay a dividend around two times covered by non-rail earnings in the full year, with the opportunity for additional returns to shareholders from future rail earnings and cash generation. First half year normalised basic EPS were 9.9 pence (2013: 10.8p), of which non-rail EPS were 9.1 pence (2013: 10.1p). The dividend will be payable on 19 September 2014 to shareholders on the register at close of business on 5 September 2014.

Delivering our strategy

Our portfolio of businesses comprises well established operations in stable markets with good management teams and access to growth opportunities. Our three part strategy aims to build shareholder value by delivering consistent progress in our core divisions, generating superior cash and returns, and creating profits from new, generally capital-light markets.

1. Delivering operational excellence

Our objective is to provide safe, punctual and frequent public transport services at excellent prices. Operational excellence focuses on delivering consistent service performance, leading to revenue growth, and continuous cost efficiency improvement, generating better margins and returns. As a key programme to embed excellence, the roll out of the 'EFQM' framework across the Group is continuing to progress.

To deliver consistent service performance we have invested in our pricing, distribution to customers, our network, fleet, technology and account management. Improved customer satisfaction can be seen in very high contract retention rates in North America and Spain, in the significant improvement recorded by UK Bus in the latest annual Passenger Focus survey of the UK industry, in c2c's 'Best London & South East commuter franchise' in the recent 'Which?' survey and in a 6% increase in passenger numbers in UK Coach.

Building on the strong foundation created since 2010 our UK divisions have continued to grow revenue and profit.

UK Coach achieved core express revenue growth of 7% in the period. It offers superb value for money through attractive fares, which rose just 1% year-on-year. This has driven better coach occupancy and operating margin up 70 basis points. Journey times are faster and services more direct - for example, the Bath to London service is now 35 minutes faster, achieved by removing underused calling points and has driven a 45% increase in passenger numbers. Punctuality has also been improved by investment in network control and real time vehicle tracking. We are running more services and have doubled the number of passengers carried between London and Luton Airport since taking over the route last summer. We have continued to expand distribution to customers, building on last year's partnerships serving Luton Airport, Ryanair and the Post Office, by partnering with Saga, Tesco clubcard, Youth Hostels and Wizz Air. This summer will see the launch of a new partnership with UCAS, the student admissions service.

UK Bus has grown like-for-like commercial revenue by 3.2% and concession revenue by 1.9%. New route-branded buses have been introduced on key corridors. This is supported by vehicle-tracking technology, which has seen a reduction of a quarter in cancelled mileage. We have seen strong growth in dynamically-priced products, for example in the promotion of family and group travel, and we have extended smart cards to cover weekly and monthly travelcards. This has reinforced loyalty, where customers buy multi-journey tickets with National Express. Our industry-leading 'Transforming Bus Travel' partnership with Centro has continued to deliver passenger improvements, particularly in the areas of safety and security.

In Rail, c2c's leadership as the UK's most punctual franchise consistently supports good passenger growth, up 2% in the first half of the year, with overall revenue growth of 6%. Building on this quality approach, we have now been awarded the new 15-year Essex Thameside franchise from November 2014. Our bid puts quality, innovation and customer service at the heart of the franchise, with major fleet upgrades and 68 new additional carriages, 20% more trains into London, a ground-breaking performance commitment including automatic compensation for late running, and a new passenger charter and new tickets, including a full roll-out of smartcards. We will complete capital investment of approximately £50 million in stations, technology and customer experience, primarily in the first three years, to support capacity increases and drive passenger growth. Over the 15 years, c2c will pay the DfT £1.5 billion in premium (in 2014 prices). The franchise carries full revenue risk, with an annual growth rate of approximately 7.5% assumed, similar to the historic rate. Double digit growth has been targeted in the early part of the franchise, based on new timetabling, rolling stock and customer relationship management.

North America

Since 2010 in School Bus we have delivered strong cash generation, significantly improved capital allocation, increased the quality of our contracts and have consistently better margins. Our strategic programme is delivering a step change to replace poor margin business with contracts generating higher returns:

· Firstly, we are delivering excellent customer service, achieving 92% customer satisfaction and renewing 98% of targeted contracts. Pricing for existing contracts has been encouraging, up over 2%.

· Secondly, we have identified those contracts which will be exited since they fall below our minimum return criteria unless we can achieve better pricing. Of these, 14 were retained at bid with an average increase of 5%, showing market support for better returns, while 10 were exited this year as part of our programme. We have identified a remaining 6 contracts, 2% of the portfolio, as onerous - we have provided for the future losses of these and will exit them mostly over the next two years. This will complete delivery of our improvement programme.

· Thirdly, we are replacing these exited contracts with business generating better returns, mostly from outsource conversion opportunities and bolt-on acquisitions. In March we completed a 350 bus acquisition adjacent to our existing Philadelphia operation, which has already proved successful. In June we added a 440 bus conversion to an existing 275 bus contract in Memphis, Tennessee, which becomes our largest North America contract.

Overall, we are targeting to grow the business modestly and have added a net 100 buses to our 20,000 vehicle portfolio in North America School Bus during the 2014 bid season, as shown below:

Change in school bus numbers - 2014 bid season	Number of buses
Regretted contract losses	(400)
Exited contracts	(550)
New contracts - acquisition	350
New contracts - conversions	650
New contracts - share shift	50
Change in buses operated for 2014/15 school year	100

In our US Transit business, we have retained all three existing contracts that were tendered in the period, including our largest contract, part of 'The Ride' para-transit service in Boston.

Spain

Alsa has delivered continued strong growth in Morocco, up 20%. 20 new buses have been added to the established operations of Marrakech and Agadir. In June we launched a fleet of 120 new buses in Tangiers. Morocco remains a key market for future growth with the potential to add further new cities. A strong operational performance in domestic urban transport in Spain supported the extension of the Madrid contract to 2024 and has seen us retained as preferred bidder in Alsa's biggest existing contract.

We are responding rapidly and effectively to changes in Alsa's marketplace. Our Spanish intercity coach market has seen growing competition on eight competed corridors representing €140 million of Alsa's annual revenue. Five of these compete with high speed rail, the others with aggressively priced regional rail. Rail has been highly competitive, reducing fares by an average of 27% and significantly increasing the quota of discounted tickets available. Intercity coach demand on these corridors was impacted initially, with passenger revenues 11% lower and volumes decreasing by around 6%.

In February, Alsa implemented revenue management in response, with a clear plan quickly to recover passenger volumes and return to revenue growth. Where the actions are most advanced, both revenue and passenger demand are now positive:

· Covering 80 competed flows within the 8 target corridors, we have introduced real-time fares analysis which allows for rapid decision-making, cutting prices to be cheaper than the comparable rail journey, using dynamic fares which vary according to booking lead time, occupancy and premium versus standard service type.

· Secondly, Alsa is improving its service offering. We have cut journey times, taking around 30 minutes off key routes such as Madrid to Barcelona and Madrid to Bilbao. We have differentiated our value and premium service offerings to meet different customer needs, and have moved to lower cost sales channels.

· Thirdly, marketing investment has been enhanced - the Alsa brand is well respected; now customers know it is always lowest cost too. There has been a clear improvement on all targeted routes, with passenger volume now growing at 2% and revenue only 5% lower. Alsa will continue to roll out this approach during 2014.

The delayed Spanish long distance coach concession renewal process commenced in June with four tenders released by the Ministry of Public Works (none currently operated by Alsa). The renewal process retains the existing exclusive concession model but without the incumbent scoring advantage. As a high quality, innovative and efficient operator, Alsa is well positioned to retain and secure concessions.

Cost efficiency

Alongside revenue growth, we are also driving cost efficiency across the Group. Last year we set a target to reduce annual costs by 1% in real terms. During the first half of 2014, we delivered £14 million of cost savings. UK Coach has increased vehicle utilisation and reduced operating costs in both the partner and own-operated fleet. Network changes and route efficiencies have allowed more services to be run with the same fleet size. Customer contact operations have been successfully integrated at Birmingham Coach Station. UK Bus is reducing structural costs embedded in the business through driver, engineering and overhead efficiencies. It has completed a buy out of 15% of the active membership of the costly defined benefit pension plan. Engineering management has been integrated with operations and driver rosters reorganised to achieve higher efficiency.

North America has focused efficiency savings on its strategic improvement programme and in removing associated overhead costs. Alsa has implemented a restructuring programme, 'Alsa Futura', to integrate the urban and intercity management structures, as well as to respond better to the pricing and cost challenges of the Spanish market.

Safety

The Group continues to focus on improving safety performance. Adopting the UK rail industry standard methodology, which uses a severity weighted index to monitor performance across all businesses, customer and employee injuries are being reduced, along with vehicle collisions. External consultants Arthur D Little have completed an audit of each division, reporting an overall improvement in safety of over 50% since the 'Driving Out Harm' programme started in 2010.

2. Superior cash and returns

National Express is focused on cash generation and improving return on capital. Our free cash flow pays dividends to shareholders, funds future growth and reduces debt. A strong cash flow and improving return on the capital we invest in the business will drive better future returns for shareholders. Maintaining a strong and flexible balance sheet gives us choices for the future.

During the first half of the year, we generated £80.3 million of free cash flow (2013: £94.5m). This funded £34 million in dividends, £23 million in exceptional cash flow to fund business development and restructuring for future profit growth, £13 million in growth and acquisition investment, and a £17 million reduction in net debt.

We invested £25 million in net maintenance capital expenditure to replenish the fleet. We continue to improve capital allocation, cascading spare vehicles and improving asset utilisation, particularly in Spain and North America. Our improvement programme in North America has significantly enhanced the way we deploy capital in school bus, running the same services with a more efficient fleet size. Over the last 18 months we have reduced the tangible assets of the North America business by almost $100 million and improved its return on assets to 23%.

The Group is targeting £150 million of free cash flow in the full year 2014, adding to the £180 million delivered in 2013. With most of our new business development opportunities capital light, much of this cash flow will go to reduce debt. Consequently gearing will decline from the current 2.5x EBITDA towards 2.0x by the end of 2014. Reducing net debt will give the Group increased flexibility in maximising long term shareholder value.

3. Creating new business opportunities

Our unique portfolio of international bus, coach and rail businesses enables us to grow in selected new markets and add significant value to the Group. In 2013 we secured £1.8 billion of revenue from new market opportunities. In the first half of 2014, we have been selected to operate £5 billion of new contract revenue. We are re-established in UK rail and have been selected as preferred bidder for our first contract in the Middle East. These are key milestones in our strategy of creating new business opportunities, opening up future UK rail franchise competitions to the Group, as well as an exciting new geography in which to leverage our bus experience and capability. We also continue to invest and win business in Germany and Morocco where we have been growing. The majority of our target markets are capital light in nature and we will continue to deploy capital in a way that enables us to secure high returns on investment.

Our key business development opportunities include:

· UK Rail: In June we were awarded the Essex Thameside franchise until 2029. This retains the business we know as c2c, a railway we have transformed into the best performing UK franchise over the last 15 years. Our bid focused on delivering quality, investment in passenger services and value for money for all stakeholders. As our first win in the new tranche of government franchises to be let over the coming years, this is an important step for the Group in accessing an additional opportunity to generate shareholder value. During the period, we also submitted two further high quality bids. We were disappointed not to be successful on Crossrail. ScotRail is currently being evaluated by the franchising authority. We will continue to consider bidding for upcoming franchises on a selective basis, where the quality, risk and returns match the Group's expertise and preferred profile.

· German Rail: In 2013 we secured two contracts to run the Rhine Münsterland Express. Our mobilisation plans are progressing well and construction of the first three trains has been completed, ahead of contract start-up in December 2015. We bid unsuccessfully on new opportunities during the first half of 2014 but are progressing our work to tender for the Berlin Ringbahn and have prequalified for three other bids. Our bid pipeline remains substantial, worth €1.5 billion of annual revenue.

· US Transit: Our focus in the first half of the year was to successfully retain our largest para-transit contract in Boston. The contract has been renewed with annual revenue of $35 million for a five to seven year period, securing up to $250 million in revenue, at margins that are typical for this capital-light industry. Annual revenue in Transit is now close to US$80 million and we are bidding a pipeline of $125 million of annual revenue.

· International opportunities: National Express, and its local joint venture partner, is preferred bidder for a contract to run urban bus operations in Bahrain, following an international competitive bid process. This would be the Group's first operations in the Middle East, a region where, like Morocco, urbanisation is driving greater traffic congestion and consequent demand for public transport. Contracts are usually without revenue risk and we anticipate a number of further opportunities for the Group and its selected partners in the region. We also continue to identify opportunities in new and adjacent markets to our existing businesses, such as in Spanish rail or Portugal, where National Express has the opportunity to deploy its expertise as a public transportation operator and use its experience to secure major new international contracts.

With new business secured in UK Rail, German Rail and internationally by the end of 2014, the Group will not charge bid costs to exceptional items from 2015.

Outlook

We remain on course to deliver our profit expectations for 2014 on a constant currency basis. We will continue our focus on cash generation, with capital investment remaining lower until the end of 2014. Our target for free cash flow is £150 million. We are already mobilising the new Essex Thameside rail franchise and continue to develop our pipeline of UK and international bid opportunities. We are excited by our progress in both our existing and new markets, with our focus on generating significant future shareholder value.

Dean Finch
Group Chief Executive
30 July 2014

FINANCIAL REVIEW

Revenue

Group revenue for the period was £939.5 million (2013 £956.7m), an overall decrease of 2%. This reflected a strengthening in Sterling against the US Dollar and Euro, reducing revenue by 4%.

Underlying revenue increased by 2%. UK Coach was the strongest performer, up 7%. Rail grew by 6% and UK Bus by 2%, with commercial revenue growth of 3.2% delivered through patronage growth. Underlying revenue in Spain declined by 1%, with growth in Morocco, including the start-up of operations in Tangiers, mostly offsetting the impact of intercity coach competition and industrial action in Spain. Underlying revenue in North America School Bus was 0.5% better, with slightly lower volume from the previous bid season offset by better pricing. North America Transit grew by 16% with the benefit of new contracts. The change in revenue is summarised below (all tables have been rounded to the nearest million):

Revenue bridge	£m	Change
2013 first half year revenue	957
Impact of one-off events	(6)
	951	(1)%
Organic growth	24	2%
Acquisitions	3	0%
2014 revenue at constant currency	978	2%
Currency translation	(38)
2014 first half year revenue	940

Normalised profit

Group normalised operating profit decreased by £7.7 million to £89.5 million (2013: £97.2m). Excluding one-off events and currency, normalised operating profit for the Group would have improved. This reflected our focus on driving organic revenue growth and cost efficiency to protect and grow margin.

Profit bridge	£m
2013 first half year normalised operating profit	97
Impact of one-off events	(5)
	92
Organic revenue growth	6
Acquisitions	1
General cost inflation	(17)
Cost efficiencies	14
Fuel price change	-
Other	(1)
2014 first half normalised operating profit at constant currency	95
Currency translation	(5)
2014 first half year normalised operating profit	90

Profit improved strongly in UK Coach, with an increase of £1.5 million, and UK Bus also grew profit. Profit in Spain was down, with local currency profit €2.2 million lower, mostly due to industrial action, while competitive pressure in the domestic long distance market was successfully offset by growth in the regional and urban business. North America divisional profit reduced by US$5.6 million, with the impact of the severe weather the key factor. Excluding this impact, profit was broadly flat, as cost pressures offset gains from improvement in contract quality. Start-up losses in the German coach operation were £1.4 million in the period, representing a complete half year of trading, compared to just one quarter in 2013. Rail profit from the Group's c2c franchise increased.

Net finance costs decreased to £24.2 million (2013: £25.8m), benefitting from the strong cash generation of the Group driving lower debt, together with a lower cost of financing from the Group's bank refinancing in July 2013. With associate income of £0.2 million (2013: £0.4m), normalised profit before tax was £65.5 million (2013: £71.8m).

Summary income statement	Half year ended 30 June		Full year
	2014 £m	2013 £m	2013 £m
Revenue	939.5	956.7	1,891.3
Operating costs	(850.0)	(859.5)	(1,698.4)
Normalised operating profit	89.5	97.2	192.9
Share of results from associates	0.2	0.4	0.6
Net finance costs	(24.2)	(25.8)	(49.8)
Normalised profit before tax	65.5	71.8	143.7

The Group's effective tax rate for 2014 is forecast to be 22.2% (2013: 22.5%), in line with the expected medium term rate, subject to future legislative changes. Normalised basic EPS were 9.9 pence (2013: 10.8p). Of this, 9.1 pence (2013: 10.1p) was generated by non-rail businesses and supports the payment of a dividend, in line with the Board's stated policy. An increase of 3% in the interim dividend to 3.35 pence (2013: 3.25p) has been declared, based on maintaining around two times non-rail earnings cover on a full year basis. Our proposed policy with regard to future rail profits is to return value to shareholders separately, reflecting the franchise nature of the rail industry.

Exceptional items

From normalised profit before tax of £65.5 million the Group has reinvested £27.7 million in exceptional items in the period (2013: £11.4m). This is a significant spend, focused on delivering two key objectives:

· Developing new business opportunities in rail and international markets to add value to the strongly performing existing non-rail operations.

· Restructuring of the existing non-rail operations to maintain their market leading positions and to respond to both opportunities and challenges.

Exceptional items	Half year ended 30 June		Full year
	2014 £m	2013 £m	2013 £m
Rail bidding	(11.9)	(1.6)	(9.3)
International bidding	(2.3)	(4.2)	(6.4)
Restructuring	(13.5)	(2.5)	(5.4)
Acquisition and integration costs	-	(3.1)	(4.6)
Exceptional items	(27.7)	(11.4)	(25.7)

Investment in new business opportunities has focused on securing future profits from the new UK rail franchise competitions; leveraging the Group's rail experience to develop opportunities outside the UK; and establishing a presence in new international public transport markets. During the first half of 2014, the Group bid for 3 UK rail franchises - Essex Thameside, Crossrail and ScotRail - and bid for opportunities in Germany. In June, the Group won the Essex Thameside franchise, which will see National Express continue to operate c2c. This franchise is expected to generate up to £200 million of operating profit over its 15 year term.

Expenditure to develop international contracts, where either the liberalisation of state-run public transport markets or the establishment of first-time public transport operations are key drivers, saw National Express, and its local partner, selected as preferred bidder for a new urban bus contract in Bahrain from 2015. Subject to successful completion of the final agreement, this will be our first operation in this exciting region.

The Board believes that these investments will make an important contribution to the future profits of the Group. Our policy is to charge development costs for new businesses to exceptional items until a revenue stream has been created. In 2014 UK rail bidding costs are charged to exceptional costs on the basis of materiality, as their scale is very large in relation to the profit generated by the Group's remaining UK rail franchise, c2c. By the end of 2014, the Group will have secured business in UK Rail, German Rail and International markets. As a result, the Board will not treat bid costs as exceptional from 2015.

The second objective, restructuring of the existing business, has seen a first half year exceptional charge of £13.5 million, comprising:

· North America: the School Bus strategic improvement programme - to improve return on capital and eliminate value-destroying contracts - incurred a cost of £7.6 million, primarily providing for the future losses from onerous contracts in the business, together with the cost of closing facilities exited in 2014 and the restructuring of related overhead costs. This charge is expected to deliver an annual benefit of £3 million.

· UK: following the margin improvements delivered between 2010 and 2012, the UK businesses are now reducing structural costs. A charge of £4.3 million delivered a buyout from part of the principal Bus defined benefit pension scheme and restructuring of driver, engineering and overhead operations. This will deliver a profit benefit of £2 million in a full year.

· Spain: the 'Alsa Futura' programme is a major restructuring programme to address significant competitive pressures in the domestic market. This has reduced headcount, combining the domestic urban and intercity operations, and implemented revenue management, a fundamental change from the traditional regulated pricing approach. The charge of £1.6 million will deliver ongoing benefits of £1 million a year.

The restructuring programmes will be completed in the second half of 2014 and the Board does not expect an exceptional restructuring charge in 2015.

IFRS results

Intangible amortisation decreased to £14.4 million (2013: £26.1m), with the completion of amortisation on Spanish concessions acquired with the Alsa business. Statutory profit for the period was £20.6 million (2013: £28.7m). Basic EPS were 3.9 pence (2013: 5.5p).

IFRS profit	Half year ended 30 June		Full year
	2014 £m	2013 £m	2013 £m

Normalised profit before tax	65.5	71.8	143.7
Exceptional items and loss on disposal of business	(27.7)	(11.4)	(30.0)
Intangible amortisation	(14.4)	(26.1)	(49.3)
Profit before tax	23.4	34.3	64.4
Tax charge	(2.8)	(5.6)	(6.1)
Profit for the period	20.6	28.7	58.3

Cash management

Cash generation is core to our strategy, representing a key driver of shareholder value. The Group's core bus and coach operations are strong cash generators, complemented by rail's capital-light model. In 2013 and 2014, the Group has targeted increased cash flow generation that has been driven by a programme of capital rationalisation to drive better returns.

In the first half of the year, operating cash flow was £118.3 million (2013: £133.1m), a conversion rate of 132% of operating profit. This strong conversion reflected a lower level of maintenance capital expenditure, net of disposals, of £25.3 million, 50% of depreciation. This included investment in fleet replacement, reflecting ongoing capital discipline across the Group. We expect this reduced level of capital investment to be maintained for the second half of the year before returning to more typical levels (around 1.1 to 1.2 times depreciation) in 2015, with completion of the North America programme.

Working capital reduced by £7.5m (2013 reduction: £27.6m) with strong half year cash collection in North America School Bus and a further improvement in the availability of financing for city receivables in Spain.

£80.3 million of free cash flow was generated in the period (2013: £94.5m). This was after the annual interest coupon payments on the Group's corporate bonds. We are targeting delivery of £150 million in free cash flow in the full year, before this returns to a more typical level from 2015.

Free cash flow	Half year ended 30 June		Full year
	2014 £m	2013 £m	2013 £m
Normalised operating profit	89.5	97.2	192.9
Depreciation and other non-cash items	50.4	56.4	108.2
EBITDA	139.9	153.6	301.1
Net maintenance capital expenditure	(25.3)	(43.3)	(74.9)
Working capital movement	7.5	27.6	30.5
Pension contributions above normal charge	(3.8)	(4.8)	(8.7)
Operating cash flow	118.3	133.1	248.0
Payments to associates and minorities	(0.5)	(0.4)	(0.5)
Net interest paid	(34.7)	(35.2)	(48.4)
Tax paid	(2.8)	(3.0)	(16.3)
Free cash flow	80.3	94.5	182.8
UK rail franchise exit outflow	(0.9)	(1.4)	(3.6)
Exceptional cash	(23.4)	(12.9)	(22.9)
Cash flow available for growth & dividends	56.0	80.2	156.3

From free cash flow, the Group funded £23.4 million of exceptional item spend, leaving £56.0 million (2013: £80.2m) available to invest in growth capital projects, bolt-on acquisitions and capital return to shareholders. We continue to expect growth capital investment to be limited, reflecting the Group's focus on improving return on capital employed and its capital-light opportunity portfolio, and there are no significant acquisitions planned. Return on capital employed over the last 12 months increased by 40 basis points to 11.8%.

With a final dividend payment of £34.5 million (2013: £33.7m), the net inflow of funds in the period after foreign exchange movements was £17.1 million (2013: £18.8m). Net debt reduced to £729.0 million (31 December 2013: £746.1m).

Net funds flow	Half year ended 30 June		Full year
	2014 £m	2013 £m	2013 £m
Cash flow available for growth & dividends	56.0	80.2	156.3
Net growth capital expenditure	(7.3)	(1.6)	(7.7)
Acquisitions and disposals	(6.0)	(2.2)	(9.5)
Dividends	(34.5)	(33.7)	(50.3)
Other, including foreign exchange	8.9	(23.9)	(6.7)
Net funds flow	17.1	18.8	82.1

Treasury management

The Group maintains a prudent approach to its financing and is committed to an investment grade credit rating. The Board's policy targets a level of debt that allows for disciplined investment and ample headroom on its covenants, with net debt to EBITDA at a ratio of 2.0x to 2.5x in the medium term. As part of its strategy to increase flexibility through cash generation, the Group expects to reduce the gearing ratio towards the bottom of this range in the second half of 2014.

The Group's key accounting debt ratios at 30 June 2014 were as follows:

· Gearing ratio: 2.5 times EBITDA (31 December 2013: 2.5x; bank covenant not to exceed 3.5x).

· Interest cover ratio: EBITDA 6.0 times interest (31 December 2013: 6.1x; bank covenant not to be less than 3.5x).

The Group has a strong funding platform that underpins delivery of its strategy. Core funding is provided from non-bank sources, to provide improved certainty and maturity of funding. At 30 June 2014, this represented £750 million of funding, primarily from two Sterling-denominated bonds, comprised of a £350 million bond maturing in 2017 and a £225 million bond maturing in 2020, a private placement of €78 million maturing in 2021 and £120 million of finance leases. The residual debt balance is funded from the Group's £410 million revolving credit facility (RCF), with a margin of 1.1% over LIBOR and maturing in 2018. At 30 June 2014, the Group had £426 million in cash and undrawn committed facilities available.

At 30 June 2014, the Group had foreign currency debt and swaps held as net investment hedges. These help mitigate volatility in foreign currency profit translation with corresponding movements in the Sterling value of debt. These corresponded to 2.0 times EBITDA earned in the US, held in US Dollars, and 1.9 times EBITDA earned in Spain and Germany, held in Euros. The Group hedges its exposure to interest rate movements to maintain a balance between fixed and floating interest rates on borrowings. It has therefore entered into a series of swaps that have the effect of converting fixed rate debt to floating rate debt. The net effect of these transactions was that, at 30 June 2014, the proportion of Group debt at floating rates was 33%.

Contingent asset

Following a decision by the European Court rejecting a fuel duty levied in Spain between 2005 and 2012, Alsa has submitted claims to the Spanish Court for recovery of the duty paid. To date, approximately €4 million of claims have been approved by the Court and are now subject to audit by the Spanish Revenue. These claims, which exceed €20 million, are considered to be a contingent asset of the Group at 30 June 2014. Once receipt becomes virtually certain, an amount will be recognised as a credit to the income statement. The timing and amount are uncertain.

Pensions

The Group's principal defined benefit pension schemes are all in the UK. The combined deficit under IAS19 at 30 June 2014 reduced to £22.0 million (31 December 2013: £30.1m), benefitting from the buyout of some members in UK Bus. The Group has previously reached agreement with the trustees of its key schemes which have fixed the deficit payments, under most eventualities, to just under £10 million per annum until 2017, calculated on a scheme funding basis. The two principal plans are the UK Group scheme, which closed to new accrual in 2011, and the West Midlands Bus plan, which remains open to accrual for existing active members only.

Fuel costs

Fuel cost represents approximately 10% of revenue. The Board's policy is to hedge fully a minimum of 15 months of addressable consumption against movements in price in all businesses, together with at least 50% of the next 9 months consumption in contract businesses. The Group is fully hedged for 2014 and 2015 at an average price of 49p and 47p respectively and 92% hedged for 2016 at an average price of 44p.

Principal risks and uncertainties

The Group's other principal risks and uncertainties remain in line with those detailed in the Annual Report and Accounts 2013 on pages 26 and 27 and are summarised here:

· Concession and contract renewal: 2015 is likely to see some significant bidding activity by the Group to retain and renew its existing portfolio of contracts and concessions, for example in Spain and North America, which may be underbid by competitors.

· Economic conditions: parts of the business may be adversely affected by economic conditions, for example in Spain and the UK, as revenues in many of the businesses are historically correlated to GDP and employment.

· Political and regulatory changes: changes in political and regulatory environments can impact a regulated transport business, through the operation of concessions, safety procedures, equipment specifications, employment requirements, environmental procedures and other operating issues.

· Contract management: an inherent risk of bidding for contracts is that bid assumptions prove to be incorrect.

· Fuel cost: changes in economic, political and climate can drive changes in cost for the Group.

· Insurance and claims: there is a risk that a successful insurance, employment or other claim may result in material charges to profit and cash flow.

· Financial risks: the Group faces risks from deteriorating customer credit and to movements in currencies.

In addition, the Group has seen an increase in competitive pressure, particularly in Spain, where high speed rail competition has impacted intercity coach revenues.

Jez Maiden

Group Finance Director

30 July 2014

Cautionary statement

This Review is intended to focus on matters which are relevant to the interests of shareholders in the Company. The purpose of the Review is to assist shareholders in assessing the strategies adopted and performance delivered by the Company and the potential for those strategies to succeed. It should not be relied upon by any other party or for any other purpose.

Forward looking statements are made in good faith, based on a number of assumptions concerning future events and information available to Directors at the time of their approval of this report. These forward looking statements should be treated with caution due to the inherent uncertainties underlying any such forward looking information. The user of these accounts should not rely unduly on these forward looking statements, which are not a guarantee of performance and which are subject to a number of uncertainties and other events, many of which are outside of the Company's control and could cause actual events to differ materially from those in these statements. No guarantee can be given of future results, levels of activity, performance or achievements.

Responsibility statement

We confirm that, to the best of our knowledge, this half-yearly financial report:

· Has been prepared in accordance with IAS 34 "Interim Financial Reporting" as adopted by the European Union;

· Includes a fair review of the information required by the Disclosure and Transparency Rules ("DTR") 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

· Includes a fair review of the information required by DTR 4.2.8R (disclosure of related party transactions and changes therein).

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial information differs from legislation in other jurisdictions.

30 July 2014

Definitions

In UK Bus, commercial revenue is that from fare-paying passengers and excludes concessions and contracted services. In UK Coach, core express revenue is that from the scheduled National Express network. The c2c Public Performance Measure (PPM) of punctuality was 96.6% on a moving annual average to 21 June 2014.

Unless otherwise stated, all profit, margin and EPS data refer to normalised results, which can be found on the face of the Group Income Statement in the first column. The definition of normalised profit is as follows: IFRS result (found in the third column), excluding intangible asset amortisation, loss on disposal of business, exceptional items and tax relief thereon. The Board believes that the normalised result gives a better indication of the underlying performance of the Group.

Operating margin is the ratio of normalised operating profit to revenue.

EBITDA is 'Earnings Before Interest, Tax, Depreciation and Amortisation'. It is calculated by taking normalised operating profit and adding depreciation, fixed asset grant amortisation, normalised profit on disposal of non-current assets and share-based payments.

Operating cash flow is intended to be the cash flow equivalent of normalised operating profit. Free cash flow is intended to be the cash flow equivalent of normalised profit after tax. A reconciliation is set out in the Financial Review.

Return on Capital Employed is normalised operating profit over the last 12 months divided by tangible and intangible assets.

Return on Assets is normalised operating profit over the last 12 months divided by tangible assets.

Gearing ratio is the ratio of net debt to EBITDA over the last twelve months.

The EPS generated by the Rail business is calculated using the normalised operating profit of the Rail division, taxed at the UK tax rate.

NATIONAL EXPRESS GROUP PLC
GROUP INCOME STATEMENT

For the six months ended 30 June 2014

	Unaudited six months to 30 June
	Note	Total before intangible amortisation & exceptional items 2014 £m		Intangible amortisation & exceptional items 2014 £m	Total 2014 £m	Total before intangible amortisation & exceptional items 2013 £m	Intangible amortisation & exceptional items 2013 £m	Total 2013 £m	Audited Year to 31 December Total 2013 £m
Continuing operations
Revenue	4		939.5	-	939.5	956.7	-	956.7	1,891.3
Operating costs before intangible amortisation & exceptional items			(850.0)	-	(850.0)	(859.5)	-	(859.5)	(1,698.4)
Intangible amortisation	5		-	(14.4)	(14.4)	-	(26.1)	(26.1)	(49.3)
Exceptional items	6		-	(27.7)	(27.7)	-	(11.4)	(11.4)	(25.7)
Total operating costs			(850.0)	(42.1)	(892.1)	(859.5)	(37.5)	(897.0)	(1,773.4)
Group operating profit	4		89.5	(42.1)	47.4	97.2	(37.5)	59.7	117.9
Loss on disposal of business			-	-	-	-	-	-	(4.3)
Share of results of associates			0.2	-	0.2	0.4	-	0.4	0.6
Finance income	7		2.7	-	2.7	3.0	-	3.0	6.8
Finance costs	7		(26.9)	-	(26.9)	(28.8)	-	(28.8)	(56.6)
Profit before tax			65.5	(42.1)	23.4	71.8	(37.5)	34.3	64.4
Tax (charge)/credit	6,8		(14.5)	11.7	(2.8)	(16.2)	10.6	(5.6)	(6.1)
Profit for the period			51.0	(30.4)	20.6	55.6	(26.9)	28.7	58.3
Profit attributable to equity shareholders			50.4	(30.4)	20.0	55.0	(26.9)	28.1	56.8
Profit attributable to non-controlling interests			0.6	-	0.6	0.6	-	0.6	1.5
			51.0	(30.4)	20.6	55.6	(26.9)	28.7	58.3
Earnings per share:
- basic earnings per share	10				3.9p			5.5p	11.1p
- diluted earnings per share	10				3.9p			5.5p	11.1p
Normalised earnings per share:
- basic earnings per share	10		9.9p			10.8p			21.5p
- diluted earnings per share	10		9.8p			10.7p			21.4p

NATIONAL EXPRESS GROUP PLC
GROUP STATEMENT OF COMPREHENSIVE INCOME

For the six months ended 30 June 2014

	Unaudited six months to 30 June 2014 £m	Unaudited six months to 30 June 2013 £m	Audited year to 31 December 2013 £m
Profit for the period	20.6	28.7	58.3

Items that will not be reclassified subsequently to profit or loss:
Actuarial gains/(losses) on defined benefit pension plans	4.4	1.4	(19.0)
Deferred tax on actuarial gains/(losses)	(1.2)	(0.3)	3.7
	3.2	1.1	(15.3)

Items that may be reclassified subsequently to profit or loss:
Exchange differences on retranslation of net assets of foreign operations (net of hedging)	(45.3)	77.2	1.0
Exchange differences on retranslation of non-controlling interests	(0.3)	0.5	0.2
(Losses)/gains on cash flow hedges	(0.1)	(2.7)	2.5
Less: reclassification adjustments for gains or losses included in profit	1.6	(1.5)	(3.5)
Tax on exchange differences	1.8	4.3	2.0
Deferred tax on cash flow hedges	(0.3)	1.0	0.3
	(42.6)	78.8	2.5

Total comprehensive (expenditure)/income for the period	(18.8)	108.6	45.5

Total comprehensive (expenditure)/income attributable to:
Equity shareholders	(19.1)	107.5	43.8
Non-controlling interests	0.3	1.1	1.7
	(18.8)	108.6	45.5

NATIONAL EXPRESS GROUP PLC
GROUP BALANCE SHEET

At 30 June 2014

	Note	Unaudited 30 June 2014 £m	Unaudited 30 June 2013 £m	Audited 31 December 2013 £m
Non-current assets
Intangible assets		1,177.0	1,305.9	1,223.5
Property, plant and equipment		698.4	799.7	751.4
Available for sale investments		7.1	7.5	7.4
Derivative financial instruments	11	16.5	15.9	18.5
Investments accounted for using the equity method		5.4	5.0	5.1
Trade and other receivables		2.6	5.0	4.6
Defined benefit pension assets	12	20.7	17.1	12.6
		1,927.7	2,156.1	2,023.1
Current assets
Inventories		20.7	19.9	21.2
Trade and other receivables		179.4	174.9	169.9
Derivative financial instruments	11	2.2	4.6	3.1
Deferred tax assets		19.5	14.5	16.7
Current tax assets		1.0	-	1.6
Cash and cash equivalents		43.3	163.0	40.9
		266.1	376.9	253.4
Total assets		2,193.8	2,533.0	2,276.5
Non-current liabilities
Borrowings		(741.2)	(783.2)	(750.7)
Derivative financial instruments	11	(1.0)	(2.8)	(1.6)
Deferred tax liability		(72.8)	(87.0)	(75.1)
Other non-current liabilities		(4.8)	(7.8)	(6.5)
Non-current tax liabilities		-	(0.2)	-
Defined benefit pension liabilities	12	(42.7)	(30.4)	(42.7)
Provisions		(19.2)	(27.4)	(21.4)
		(881.7)	(938.8)	(898.0)
Current liabilities
Trade and other payables		(355.0)	(346.3)	(351.6)
Borrowings		(55.8)	(216.5)	(76.8)
Derivative financial instruments	11	(3.7)	(3.3)	(1.9)
Current tax liabilities		(23.5)	(26.3)	(22.9)
Provisions		(32.1)	(27.3)	(28.0)
		(470.1)	(619.7)	(481.2)
Total liabilities		(1,351.8)	(1,558.5)	(1,379.2)
Net assets		842.0	974.5	897.3
Shareholders' equity
Called up share capital		25.6	25.6	25.6
Share premium account		532.7	532.7	532.7
Capital redemption reserve		0.2	0.2	0.2
Own shares		(1.7)	(1.2)	(0.8)
Other reserves		4.1	122.5	46.5
Retained earnings		270.6	284.4	282.4
Total shareholders' equity		831.5	964.2	886.6
Non-controlling interest in equity		10.5	10.3	10.7
Total equity		842.0	974.5	897.3

NATIONAL EXPRESS GROUP PLC
GROUP STATEMENT OF CHANGES IN EQUITY

For the six months ended 30 June 2014

	Share capital £m	Share premium £m	Capital Redemption reserve £m	Own shares £m	Other reserves £m	Retained earnings £m	Total £m	Non-controlling interests £m	Total £m
At 1 January 2014	25.6	532.7	0.2	(0.8)	46.5	282.4	886.6	10.7	897.3
Own shares released to satisfy employee share schemes	-	-	-	1.8	-	(1.8)	-	-	-
Shares purchased	-	-	-	(2.7)	-	-	(2.7)	-	(2.7)
Total comprehensive income	-	-	-	-	(42.4)	23.3	(19.1)	0.3	(18.8)
Share-based payments	-	-	-	-	-	1.4	1.4	-	1.4
Tax on share-based payments	-	-	-	-	-	(0.2)	(0.2)	-	(0.2)
Dividends	-	-	-	-	-	(34.5)	(34.5)	-	(34.5)
Dividends paid to non-controlling interests	-	-	-	-	-	-	-	(0.5)	(0.5)
At 30 June 2014 (unaudited)	25.6	532.7	0.2	(1.7)	4.1	270.6	831.5	10.5	842.0

	Share capital £m	Share premium £m	Capital Redemption reserve £m	Own shares £m	Other reserves £m	Retained earnings £m	Total £m	Non-controlling interests £m	Total £m
At 1 January 2013	25.6	532.7	0.2	(0.5)	44.2	290.7	892.9	9.5	902.4
Own shares released to satisfy employee share schemes	-	-	-	2.2	-	(2.2)	-	-	-
Shares purchased	-	-	-	(2.9)	-	-	(2.9)	-	(2.9)
Total comprehensive income	-	-	-	-	78.3	29.2	107.5	1.1	108.6
Share-based payments	-	-	-	-	-	0.5	0.5	-	0.5
Tax on share-based payments	-	-	-	-	-	(0.1)	(0.1)	-	(0.1)
Dividends	-	-	-	-	-	(33.7)	(33.7)	-	(33.7)
Dividends paid to non-controlling interests	-	-	-	-	-	-	-	(0.3)	(0.3)
At 30 June 2013 (unaudited)	25.6	532.7	0.2	(1.2)	122.5	284.4	964.2	10.3	974.5

NATIONAL EXPRESS GROUP PLC
GROUP STATEMENT OF CASH FLOWS

For the six months ended 30 June 2014

	Note	Unaudited six months to 30 June 2014 £m	Unaudited six months to 30 June 2013 £m	Audited year to 31 December 2013 £m
Cash generated from operations	15	119.3	162.1	296.4
Tax paid		(2.8)	(3.0)	(16.3)
Net cash from operating activities		116.5	159.1	280.1
Cash flows from investing activities
Payments to acquire businesses, net of cash acquired		(5.2)	(1.9)	(7.2)
Deferred consideration for businesses acquired, net of those disposed		(0.5)	(0.3)	(3.7)
Proceeds from the disposal of business		-	-	1.4
Purchase of property, plant and equipment		(37.6)	(50.7)	(90.7)
Proceeds from disposal of property, plant and equipment		7.7	8.8	12.1
Payments to acquire intangible assets		(2.7)	(1.2)	(3.2)
Payments to associates		(0.3)	-	-
Interest received		9.4	9.0	5.2
Net cash used in investing activities		(29.2)	(36.3)	(86.1)
Cash flows from financing activities
Purchase of own shares		(2.7)	(2.9)	(2.8)
Interest paid		(42.8)	(44.2)	(51.0)
Finance lease principal payments		(11.7)	(9.8)	(21.3)
Net loans drawn down/(repaid)		2.3	61.0	(99.4)
Receipt/(payment) on the maturity of foreign currency swaps		6.0	(4.5)	(1.1)
Dividends paid to non-controlling interests		(0.5)	(0.3)	(0.5)
Dividends paid to shareholders of the Company		(34.5)	(33.7)	(50.3)
Net cash used in financing activities		(83.9)	(34.4)	(226.4)
Increase/(decrease) in cash and cash equivalents		3.4	88.4	(32.4)
Opening cash and cash equivalents		40.9	72.8	72.8
Increase/(decrease) in cash and cash equivalents		3.4	88.4	(32.4)
Foreign exchange		(1.0)	1.8	0.5
Closing cash and cash equivalents		43.3	163.0	40.9

NATIONAL EXPRESS GROUP PLC
NOTES TO THE INTERIM FINANCIAL REPORT

For the six months ended 30 June 2014

1. General information

These interim condensed consolidated financial statements for the six months ended 30 June 2014 have been prepared using the accounting policies set out on pages 102 to 110 of the Group's Annual Report and Accounts 2013 except as described below and in accordance with the Disclosure and Transparency Rules (DTR) and International Accounting Standard (IAS) 34 "Interim Financial Reporting". Taxes on income in the interim periods are accrued using the tax rate that is expected to apply to total annual earnings.

The interim results are unaudited but have been reviewed by the Group's auditors. The financial information presented herein does not amount to full statutory accounts within the meaning of Section 434 of the Companies Act 2006. The figures for the year ended 31 December 2013 have been extracted from the Group's Annual Report and Accounts 2013 which has been filed with the Registrar of Companies. The audit report on the Group's Annual Report and Accounts 2013 was unqualified and did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006. The Group's Annual Report and Accounts 2013 are prepared in accordance with IFRS as adopted by the European Union.

Going concern

The Group has a stable financing platform and its key debt ratios are within the Board's target range and well within the Group's banking covenant (see Cash management section). The directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, a period of not less than 12 months from the date of this report. Accordingly, they continue to adopt the going concern basis in preparing the condensed financial statements.

Changes in accounting policies

In the current financial period, the Group has applied for the first time IFRS 10 'Consolidated Financial Statements', IFRS 11 'Joint Arrangements' and IAS 28 (2011) 'Investments in Associates and Joint Ventures', including the amendments to the transitional guidance. There has been no material change as a result of applying these new standards.

Other changes to accounting standards in the period have also had no material impact.

Seasonality

The Group operates a diversified portfolio of bus, coach and rail businesses operating in international markets. The North American Bus business typically earns higher operating profits for the first half of the year (ie the 6 months to 30 June) than for the second half. This is because of the timing of school terms and the summer holiday period. The UK Coach and European bus and coach businesses typically earn lower operating profits for the first half of the year than the second half. This is because of the higher demand created by leisure travellers during the summer months. On a Group basis, the results are not materially seasonal in nature.

2. Exchange rates

The most significant exchange rates to UK Sterling for the Group are as follows:

	Six months to 30 June 2014		Six months to 30 June 2013		Year to 31 December 2013
	Closing rate	Average rate	Closing rate	Average rate	Closing rate	Average rate
US dollar	1.71	1.67	1.52	1.55	1.66	1.56
Canadian dollar	1.83	1.83	1.60	1.58	1.76	1.61
Euro	1.25	1.22	1.17	1.18	1.20	1.18

If the results for the six months to 30 June 2013 had been retranslated at the average exchange rates for the six months to 30 June 2014, North American Bus would have achieved normalised operating profit of £38.1m on revenue of £328.7m, compared to reported normalised operating profit of £41.6m on revenue of £358.0m and Spanish Coach & Bus would have achieved normalised operating profit of £33.5m on revenue of £263.8m compared to reported normalised operating profit of £34.6m on revenue of £272.1m.

3. Risks and uncertainties

The principal risks and uncertainties are described in the Financial Review. Additional information on risks and uncertainties is contained on pages 24-27 in the Group's Annual Report and Accounts 2013.

4. Segmental analysis

The operating businesses are organised and managed separately according to the nature of the public transport services they provide and the geographical market they operate in. Commentary on the segments is included in the Divisional Performance Reviews.

	Six months to 30 June			Year to 31 December
Analysis by class and geography of business	Revenue 2014 £m	Operating result 2014 £m	Revenue 2013 £m	Operating result 2013 £m	Revenue 2013 £m	Operating result 2013 £m
UK Bus	137.7	15.3	134.8	15.0	273.4	31.2
UK Coach	130.5	9.3	121.7	7.8	263.5	24.5
North American Bus	333.4	35.2	358.0	41.6	645.0	62.6
Spanish Coach and Bus	262.3	31.7	272.1	34.6	564.6	81.5
Central functions	-	(6.0)	-	(5.7)	-	(14.3)
Core non-rail businesses	863.9	85.5	886.6	93.3	1,746.5	185.5
German Coach	1.7	(1.4)	0.3	(0.9)	2.1	(2.4)
Non-rail businesses	865.6	84.1	886.9	92.4	1,748.6	183.1
Rail	74.5	5.4	69.9	4.8	143.0	9.8
Intercompany elimination	(0.6)	-	(0.1)	-	(0.3)	-
Result from continuing operations	939.5	89.5	956.7	97.2	1,891.3	192.9
Intangible asset amortisation		(14.4)		(26.1)		(49.3)
Exceptional items		(27.7)		(11.4)		(25.7)
Group operating profit		47.4		59.7		117.9
Loss on disposal of business		-		-		(4.3)
Share of results of associates		0.2		0.4		0.6
Net finance costs		(24.2)		(25.8)		(49.8)
Profit before tax		23.4		34.3		64.4
Tax charge		(2.8)		(5.6)		(6.1)
Profit for the period		20.6		28.7		58.3

Intercompany sales are made by UK Coach to Rail. Inter-segment trading is undertaken on standard arm's length commercial terms.

5. Intangible asset amortisation

Intangible asset amortisation is analysed by reportable segment as follows:

	Six months to 30 June 2014 £m	Six months to 30 June 2013 £m	Year to 31 December 2013 £m
UK Coach	0.2	0.1	0.3
North American Bus	6.5	6.9	13.5
Spanish Coach and Bus	7.5	19.0	35.4
German Coach	0.1	-	-
Central functions	0.1	0.1	0.1
	14.4	26.1	49.3

6. Exceptional items

Exceptional items are material items of income or expenditure which, in the opinion of the Directors, due to their nature and infrequency require separate identification on the face of the Income Statement to allow a better understanding of the financial performance in the period, in comparison to prior periods (see Financial review for further details).

Exceptional items are analysed by reportable segment as follows:

	Six months to 30 June 2014 £m	Six months to 30 June 2013 £m	Year to 31 December 2013 £m
UK Bus	3.4	0.8	1.4
UK Coach	0.1	0.9	1.6
Rail	11.9	1.6	9.3
North American Bus	7.6	3.1	4.6
Spanish Coach and Bus	1.8	0.8	1.8
Central functions	2.9	3.6	6.3
Other	-	0.6	0.7
	27.7	11.4	25.7

Exceptional items are further analysed by type as follows:

	Six months to 30 June 2014 £m	Six months to 30 June 2013 £m	Year to 31 December 2013 £m
UK rail bids	10.8	0.9	7.4
Other rail bids	1.1	0.7	1.9
International bidding	2.3	4.2	6.4
	14.2	5.8	15.7
North America acquisition and integration	-	3.1	4.6
Restructuring	7.5	2.5	5.4
Strategic rationalisation	6.0	-	-
	27.7	11.4	25.7

The tax credit on intangible asset amortisation and exceptional items is analysed as follows:

	Six months to 30 June 2014 £m	Six months to 30 June 2013 £m	Year to 31 December 2013 £m
Tax credit on intangible asset amortisation	4.4	7.9	17.4
Tax credit on exceptional items	7.3	2.7	6.8
Tax credit on loss on disposal of business	-	-	2.2
	11.7	10.6	26.4

7. Net finance costs

	Six months to 30 June 2014 £m	Six months to 30 June 2013 £m	Year to 31 Dec 2013 £m
Bank and bond interest payable	(23.8)	(25.3)	(50.2)
Finance lease interest payable	(1.8)	(2.3)	(4.4)
Other interest payable	(0.3)	(0.2)	(0.2)
Unwind of provision discounting	(0.5)	(0.7)	(1.3)
Interest cost on defined benefit pension obligations	(0.5)	(0.3)	(0.5)
Finance costs	(26.9)	(28.8)	(56.6)
Finance income: Bank interest receivable	2.7	3.0	6.8
Net finance costs	(24.2)	(25.8)	(49.8)

8. Taxation

Tax on profit on ordinary activities for the six months to 30 June 2014 has been calculated on the basis of the estimated annual effective rate for the year ending 31 December 2014. The normalised tax charge of £14.5m (2013 interim: £16.2m; 2013 full year: £32.5m) represents an effective tax rate on normalised profit before tax, for continuing operations, of 22.2% (2013 interim: 22.5%; 2013 full year: 22.6%). The total tax charge of £2.8m (2013 interim: £5.6m; 2013 full year: £6.1m) includes a deferred taxation credit of £4.0m (2013 interim: £4.0m; 2013 full year: £12.2m).

On 21 March 2012, the UK Chancellor of the Exchequer announced a 1% reduction in the UK corporation tax rate to 24% effective from 1 April 2012, along with two subsequent reductions to 23% from 1 April 2013 and 22% from 1 April 2014. On 20 March 2013, in the Chancellor's 2013 Budget Statement, further reductions to 21% on 1 April 2014 and 20% on 1 April 2015 were announced.

At the balance sheet date, a rate of 20% (2013 interim: 23%; 2013 full year: 21%) was substantively enacted. The change in rate from 21% to 20% has resulted in a tax charge of £1.1m to the income statement due to the reduction in the deferred tax asset.

9. Dividends paid and proposed

	Six months to 30 June 2014 £m	Six months to 30 June 2013 £m	Year to 31 December 2013 £m
Declared and paid during the period:
Ordinary final dividend for 2012 paid of 6.6p per share	-	33.7	33.7
Ordinary interim dividend for 2013 of 3.25p per share	-	-	16.6
Ordinary final dividend for 2013 paid of 6.75p per share	34.5	-	-

	Six months to 30 June 2014 £m	Six months to 30 June 2013 £m	Year to 31 December 2013 £m
Proposed for approval and not recognised at period end:
Ordinary interim dividend for 2013 of 3.25p per share	-	16.6	-
Ordinary final dividend for 2013 paid of 6.75p per share	-	-	34.5
Ordinary interim dividend for 2014 of 3.35p per share	17.1	-	-

10. Earnings per share

	Six months to 30 June 2014	Six months to 30 June 2013	Year to 31 December 2013
Basic earnings per share	3.9p	5.5p	11.1p
Normalised basic earnings per share	9.9p	10.8p	21.5p
Diluted earnings per share	3.9p	5.5p	11.1p
Normalised diluted earnings per share	9.8p	10.7p	21.4p

Basic earnings per share is calculated by dividing the profit attributable to equity shareholders of £20.0m (2013 interim: £28.1m; 2013 full year: £56.8m) by the weighted average number of ordinary shares in issue during the period, excluding those held by employees' share ownership trusts and held as own shares which are both treated as cancelled.

For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to include the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares.

The reconciliation of the weighted average number of ordinary shares is as follows:

	Six months to 30 June 2014	Six months to 30 June 2013	Year to 31 December 2013
Basic weighted average shares	511,089,240	510,983,082	511,114,989
Adjustment for dilutive potential ordinary shares	1,012,998	1,340,183	1,425,106
Diluted weighted average shares	512,102,238	512,323,265	512,540,095

The normalised basic and normalised diluted earnings per share have been calculated in addition to the basic and diluted earnings/loss per share since, in the opinion of the Directors, they reflect the underlying performance of the business' operations more appropriately.

The reconciliation of statutory profit to normalised profit for the financial period is as follows:

	Six months to 30 June 2014 £m	Six months to 30 June 2013 £m	Year to 31 December 2013 £m
Profit attributable to equity shareholders	20.0	28.1	56.8
Intangible asset amortisation	14.4	26.1	49.3
Exceptional operating items	27.7	11.4	25.7
Loss on disposal of business	-	-	4.3
Tax relief on amortisation and exceptional items	(11.7)	(10.6)	(26.4)
Normalised profit attributable to equity shareholders	50.4	55.0	109.7

11. Derivative financial assets and liabilities

The Group's multi-national transport operations and debt financing expose it to a variety of financial risks, including the effects of changes in fuel prices, foreign currency exchange rates and interest rates. The Group has in place a risk management programme that seeks to limit the adverse effects of these financial risks on the financial performance of the Group by means of derivative financial instruments.

As at 30 June 2014 the Group's portfolio of hedging instruments included fuel price derivatives, foreign exchange derivatives and interest rate derivatives. The fuel price derivatives are in place to hedge the changes in price of the different types of fuel used in each division. The foreign exchange derivatives are in place to hedge the foreign exchange risk on translation of net assets and earnings denominated in foreign currency. In addition, the Group holds four £50.0 million denominated interest rate derivatives to swap fixed interest on £200m of the Group's Sterling bonds to a floating rate and two €39.25m denominated interest rate derivatives equal in value to the Euro Private Placement.

These derivative financial instruments are held in the balance sheet at fair value, as determined by the third party financial institutions with which the Group holds the instruments and internal valuations using market data (level 2). The Group has no financial instruments with fair values that are determined by reference to significant unobservable inputs i.e. those that would be classified as level 3 in the fair value hierarchy, nor have there been any transfers of assets or liabilities between levels of the fair value hierarchy. There are no non-recurring fair value measurements.

The Group applies relevant hedge accounting to all derivatives outstanding as at 30 June 2014. All hedge relationships were effective under the rules of IAS 39.

Derivative financial assets and liabilities in the balance sheet are as follows:

	At 30 June 2014 £m	At 30 June 2013 £m	At 31 December 2013 £m
Non-current
Fuel derivatives	3.0	0.1	0.9
Interest rate derivatives	13.5	15.8	17.6
Derivative financial assets	16.5	15.9	18.5
Current
Fuel derivatives	1.4	1.5	0.9
Foreign exchange derivatives	0.8	3.1	2.2
Derivative financial assets	2.2	4.6	3.1
Non-current
Fuel derivatives	1.0	2.8	1.1
Interest rate derivatives	-	-	0.5
Derivative financial liabilities	1.0	2.8	1.6
Current
Fuel derivatives	2.8	2.8	1.5
Foreign exchange derivatives	0.9	0.5	0.4
Derivative financial liabilities	3.7	3.3	1.9

12. Pensions and other post-employment benefits

The UK Bus and UK Coach divisions operate funded defined benefit pension schemes and there is a single defined contribution scheme for the two divisions. The majority of employees of the Rail companies are members of the appropriate shared-cost section of the Railways Pension Scheme, a funded defined benefit scheme. The assets of all schemes are held separately from those of the Group. Contributions to the schemes are determined by independent professionally qualified actuaries.

Subsidiaries in North America and Spain contribute to a number of defined contribution plans. The Group also provides certain additional post-employment benefits to employees in North America, which are categorised as 'Other' below.

The total pension cost for the six months to 30 June 2014 was £5.0m (2013 interim: £4.6m; 2013 full year: £9.5m), of which £3.1m (2013 interim: £3.0m; 2013 full year: £6.2m) relates to the defined benefit schemes and £1.9m (2013 interim: £1.6m; 2013 full year: £3.3m) relates to the defined contribution schemes.

The defined benefit pension asset/(liability) included in the balance sheet is as follows:

	At 30 June 2014 £m	At 30 June 2013 £m	At 31 December 2013 £m
UK Bus	(41.1)	(29.0)	(40.8)
UK Coach	15.7	17.1	12.6
Rail	5.0	-	(0.4)
Other	(1.6)	(1.4)	(1.5)
Total	(22.0)	(13.3)	(30.1)

The Rail defined benefit pension asset is net of a franchise adjustment of £22.8m (2013 interim: £17.5m; 2013 full year: £15.5m). Details of the franchise adjustment are included in note 34 to the Group's Annual Report and Accounts 2013.

The net defined benefit pension asset/(liability) was calculated based on the following assumptions:

	Six months ended 30 June 2014			Year ended 31 December 2013
	UK Bus	UK Coach	Rail	UK Bus	UK Coach	Rail
Rate of increase in salaries	2.5%	2.5%	2.8%	2.5%	2.5%	2.9%
Rate of increase in pensions	2.3%	3.3%	2.3%	2.4%	3.4%	2.4%
Discount rate	4.4%	4.4%	4.4%	4.6%	4.6%	4.6%
Inflation rate (RPI)	3.3%	3.3%	3.3%	3.4%	3.4%	3.4%
Inflation rate (CPI)	2.3%	2.3%	2.3%	2.4%	2.4%	2.4%

13. Business Combinations

On 28 February 2014, in the United States, the Group acquired certain trade and assets of Atlantic Express Transportation Corp and its subsidiaries, which operates school bus transportation services in the city of Philadelphia. The provisional fair value of net assets acquired was £2.8m. Consideration was £5.2m, resulting in provisional goodwill of £2.4m. There was £nil cash acquired in the business, therefore the net cash outflow for the Group was £5.2m.

There were no other material acquisitions or disposals in the period.

14. Net debt

	At 1 January 2014 £m	Cash flow £m	Foreign Exchange £m	Other movements £m	At 30 June 2014 £m
Cash and cash equivalents	40.9	3.4	(1.0)	-	43.3
Other debt receivable	1.0	(0.1)	-	-	0.9
Borrowings:
Bank loans	(19.8)	(2.3)	0.7	(0.5)	(21.9)
Bonds	(579.5)	-	-	(0.2)	(579.7)
Fair value of hedging derivatives	9.2	-	-	2.8	12.0
Finance lease obligations	(132.9)	11.7	3.6	-	(117.6)
Other debt payable	(65.0)	0.1	2.3	(3.4)	(66.0)
Total borrowings	(788.0)	9.5	6.6	(1.3)	(773.2)
Net debt*	(746.1)	12.8	5.6	(1.3)	(729.0)

* excludes accrued interest on bonds

	At 1 January 2013 £m	Cash flow £m	Foreign Exchange £m	Other movements £m	At 30 June 2013 £m
Cash and cash equivalents	72.8	88.4	1.8	-	163.0
Other debt receivable	1.0	-	-	-	1.0
Borrowings:
Bank loans	(114.6)	(60.9)	(4.5)	(0.4)	(180.4)
Bonds	(590.0)	-	-	6.0	(584.0)
Fair value of hedging derivatives	23.4	-	-	(9.0)	14.4
Finance lease obligations	(154.7)	9.8	(9.2)	(1.8)	(155.9)
Other debt payable	(66.1)	(0.1)	(3.4)	2.1	(67.5)
Total borrowings	(902.0)	(51.2)	(17.1)	(3.1)	(973.4)
Net debt*	(828.2)	37.2	(15.3)	(3.1)	(809.4)

* excludes accrued interest on bonds

Borrowings include non-current interest bearing loans and borrowings of £741.2m (2013 interim: £783.2m; 2013 full year: £750.7m).

Other non-cash movements represent finance lease additions of £nil (2013 interim: £1.8m) and a £1.3m increase to net debt (2013 interim: £1.3m) relating to loan and bond arrangement fees.

15. Cash flow statement

The reconciliation of Group profit before tax to cash generated from operations is as follows:

	Six months to 30 June 2014 £m	Six months to 30 June 2013 £m	Year to 31 December 2013 £m
Net cash inflow from operating activities
Profit before tax	23.4	34.3	64.4
Net finance costs	24.2	25.8	49.8
Share of post-tax results under the equity method	(0.2)	(0.4)	(0.6)
Depreciation of property, plant and equipment	50.4	57.3	107.3
Intangible asset amortisation	14.4	26.1	49.3
Amortisation of fixed asset grants	(0.4)	(0.6)	(1.1)
Profit on disposal property, plant and equipment	(0.9)	(0.8)	(1.1)
Loss on disposal of business	-	-	4.3
Share-based payments	1.4	0.5	3.1
Decrease/(increase) in inventories	-	0.2	(2.2)
(Increase)/decrease in receivables	(11.1)	24.4	21.9
Increase in payables	21.3	4.8	13.9
Decrease in provisions	(3.2)	(9.5)	(12.6)
Cash generated from operations	119.3	162.1	296.4

16. Commitments and contingencies

Capital commitments

Capital commitments contracted but not provided at 30 June 2014 were £18.1m (2013 full year: £19.0m).

Contingent liabilities

In the ordinary course of business, the Group is required to issue counter-indemnities in support of its operations. As at 30 June 2014, the Group has issued Rail performance bonds of £9.4m (2013 full year: £9.4m) and Rail season ticket bonds of £15.3m (2013 full year: £21.2m). The Group has other performance bonds which include performance bonds in respect of businesses in the US of £108.8m (2013 full year: £105.1m) and the rest of Europe of £27.9m (2013 full year: £26.2m). Letters of credit have been issued to support insurance retentions of £47.3m (2013 full year: £48.8m).

Contingent asset
Following a decision by the European Court rejecting a fuel duty levied in Spain between 2005 and 2012, the Group's Spanish business has submitted claims to the Spanish Court for recovery of the duty paid. These claims, which exceed €20 million, are considered to be a contingent asset of the Group. Once receipt becomes virtually certain, an amount will be recognised as a credit to the income statement.

17. Related party transactions

There have been no material changes to the related party balances disclosed in the Group's Annual Report and Accounts 2013 and there have been no transactions which have materially affected the financial position or performance of the Group in the six months to 30 June 2014.

18. Post balance sheet events

There have been no significant post balance sheet events.

Independent Review Report to National Express Group PLC

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2014 which comprises the Group Income Statement, the Group Statement of Comprehensive Income, the Group Balance Sheet, the Group Statement of Changes in Equity, Group Statement of Cash Flows and the related notes 1 to 18. We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our work, for this report, or for the conclusions we have formed.

Directors' Responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.

Our Responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2014 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

Deloitte LLP
Chartered Accountants and Statutory Auditor
Birmingham, UK
30 July 2014

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The company news service from the London Stock Exchange

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