Interim Results

Embargoed until 07.00 am on Wednesday 5 November 2003 FIRSTGROUP PLC INTERIM RESULTS FOR THE SIX MONTHS TO 30 SEPTEMBER 2003 SUMMARY * Results in line with market expectations * Strong performance given additional Â£7.0m of NI and Pension costs * Rail profits impacted by Â£7.7m through subsidy reduction and increased franchise premium * Continued strong growth in North American operations * US School bus operating profit + 14%1 * Substantial growth in London bus business + 23% * Passenger growth in UK urban bus operations +1.5%, UK Rail +4% * TransPennine and Thames franchises to commence in 2004 FINANCIAL SUMMARY * Turnover Â£1,127.7m (2002: Â£1,068.9m) * Operating profit2 Â£78.1m4 (2002: Â£84.4m) * Profit before tax2 Â£56.8m4 (2002: Â£55.8m) * Adjusted basic earnings per share 9.6p (2002: 9.3p) * EBITDA3 Â£125.0m4 (2002: Â£133.5m) * Interim dividend per share up 5.6% to 3.75p (2002: 3.55p) Commenting, FirstGroup's Chief Executive, Moir Lockhead said: 'The Group has made significant progress in this period, with continued expansion in North America, the acquisition of GB Railways and the award of the TransPennine Express rail franchise. We have achieved excellent results after absorbing significant cost increases in our UK operations (including National Insurance and pension contributions). We were delighted to be selected yesterday as the preferred bidder for the Thames Trains franchise. This two-year franchise will run from April 2004 and allow us to benefit passengers through the integration of services into Paddington ahead of the creation of the Greater Western franchise in 2006. Going forward, we will continue to bear down on costs while growing our businesses in North America and the UK. The second half of the year has started in line with expectations and we expect to achieve our earnings targets for the remainder of the year.' 1At constant exchange rates 2Before goodwill amortisation, exceptional items and profit on disposal of fixed assets. 3Operating profit as defined plus depreciation 4After cost increases and subsidy reduction of c.Â£15m in UK operations Enquiries: FirstGroup plc Moir Lockhead, Group Chief Executive Tel: 020 7291 0512 Iain Lanaghan, Group Finance Director Tel: 020 7291 0512 Michael Mitchell, Corporate Communications Director Tel: 020 7291 0504 Photographs for the media are available at www.newscast.co.uk Chairman's statement I am pleased to report another period of solid operational performance. Group turnover has increased by 5.5% to Â£1,127.7m and profit before tax, goodwill amortisation and exceptional items has risen to Â£56.8m (2002: Â£55.8m). This is a strong performance given the additional Â£7.0m of National Insurance and pension costs in our UK operations and the combined Â£7.7m reduction in rail subsidies and increased franchise payments. Adjusted earnings per share (before goodwill amortisation, restructuring and exceptional costs, and property profits) increased by 3% to 9.6p (2002: 9.3p). In line with the indications given in May, the Board has recommended an increase in the interim dividend ahead of inflation to 3.75p (2002: 3.55p), an increase of 5.6%. The dividend will be paid on 11 February 2004 to shareholders on the register on 16 January 2004. Safety continues to be the primary concern of our business and all our companies focus on ensuring that we operate in the safest possible way for our passengers and staff. In May we acquired the transit division of Coach USA. This acquisition is a good strategic fit with our existing transit operations in the US. In August our offer for GB Railways plc was declared wholly unconditional. This acquisition fits well with our existing rail operations and provides an entry into the growing rail freight market. In the US we are very encouraged by the continued progress of our school bus division which has had a strong bidding season, gaining contracts for some 1,468 new buses for operation from September 2003. We have an active pipeline of further acquisition opportunities for the remainder of the year which will bring our school bus additions to the top end of our expectations. We are also optimistic about the opportunities to develop our Services Division and anticipate accelerated growth during the remainder of the year. Our London bus business has grown by 23% following the introduction of congestion charging. Outside London we are seeing encouraging growth in our urban bus operations through improved marketing of services and working with local authorities to introduce more bus priority measures. In UK rail we were delighted to be awarded the franchise for TransPennine Express with our partner Keolis and to be selected as the preferred bidder for the Thames Trains franchise. We are also bidding for the Northern and ScotRail franchises. All our businesses continue to be strong generators of cash that can be used to invest in further growth, buy back equity or pay down debt. Our North American business is now self-funding for maintenance and growth capital expenditure. The Group's strategy of developing businesses in major transport markets has continued to deliver value for shareholders. Our strategic positions in the UK and US markets ensure that we have a strong base for future expansion. The opportunities for our businesses on both sides of the Atlantic are excellent. I am confident that we will be able to continue to grow earnings and dividends ahead of the rate of inflation. Martin Gilbert Chairman Chief Executive's operating review OVERVIEW Results This has been an exciting six months for the Group with continued expansion in North America, the acquisition of GB Railways and the award of the TransPennine Express rail franchise. Turnover has increased to Â£1,127.7m (2002: Â£1,068.9m). Operating profit, before goodwill amortisation, exceptional costs and profits on disposal of fixed assets was Â£78.1m (2002: Â£84.4m). In this period we have had to absorb substantial increases of Â£7.0m in National Insurance and pension contributions in our UK operations. In UK Rail profits were also impacted by Â£ 7.7m through the contractual reduction in rail subsidy and increased franchise premium. The Group has generated Â£125.0m (2002: Â£133.5m) of EBITDA (operating profit before goodwill amortisation, exceptional items and profit on disposal of fixed assets plus depreciation) which has been used to invest Â£93.5m in the business through capital expenditure and the acquisition of new operations in the US and UK. NORTH AMERICA In North America the Group is the second largest operator of student transportation with over 16,000 school buses across the US and Canada. We also operate transit contracting and management, and vehicle maintenance services. Results In the six months to 30 September 2003 turnover increased to Â£286.1m (2002: Â£ 261.6m). The underlying increase at constant exchange rates was 18%. Operating profit for the same period was Â£18.0m (2002: Â£16.5m) an increase at constant exchange rates of 21%. Margins have been maintained at 6.3%. First Student Our US school bus business has continued to grow strongly. At constant exchange rates turnover increased by 12% and operating profit by 14%. We retained approximately 90% of our existing business that came up for renewal and we have had an excellent year for new business wins, increasing our current base by 9% with the addition of 1,468 new buses. We were particularly pleased to be awarded the management contract to run all of the 683 school buses on behalf of the City of Boston. The start-up of this large contract and the other new business has gone extremely well. New contracts have been acquired at our target margins and we are on course to maintain the full year margins. We have an active pipeline of new business acquisitions for the remainder of this year that will bring growth in the division to the top end of our expectations. We believe that we will be able to continue to grow this division by 8-10% per annum over the next few years. First Transit At constant exchange rates turnover increased by 23% and operating profit by 33%. In May we were pleased to announce the acquisition of the Transit Division of Coach USA for a purchase price of $22.5m. The business is an excellent strategic fit with our existing operations and has an annualised turnover of $95m with contracts to operate some 1,200 buses on behalf of transit authorities and other bodies in states such as California, Florida and New York. During this period we renewed a significant 5-year contract with the city of Miami and going forward we have an active acquisition pipeline. Our strategy is to be the lowest cost provider in our core market of transit management and operation. In addition we will develop in the fast expanding markets of call centre management (through our Dyntek operation), paratransit and other related light transit markets. First Services At constant exchange rates turnover has grown by 37% and operating profit by 39% reflecting the inclusion for the first time of the L&E Mobile business acquired in February this year. During the period L&E expanded its operations with a major contract award with the Massachusetts State Police and First Vehicle Services won a major contract in Atlantic City. The business is targeting to expand into the US$21 billion private sector fleet services market and to develop new add-on services that are complementary to its existing skill sets. It is intended to continue to expand L&E's turnkey business, which fits communication equipment to emergency service vehicles. First Services has active plans to grow strongly both organically and through acquisition and has already won a number of new public and private client service contracts to commence operation in the second half of the year. Summary We have successfully expanded o ur North American operations by 50% in the four years since acquisition and we expect to see this pace of growth maintained over the next few years. UK BUS We are the largest bus operator in the UK with a fleet of some 9,500 buses, running more than 1 in 5 of all local bus services and carrying 2.7 million passengers every day. Results For the six months to 30 September 2003 turnover increased by 5.8% to Â£443.0m (2002: Â£418.7m ). Operating profit before contract hire leasing costs increased to Â£46.2m (2002: Â£45.9m). This result was achieved after absorbing increases in National Insurance contributions of Â£2m and additional pension contributions of Â£4m. Increases in bus fares were held at or below the level of inflation, resulting in a slight fall in operating margin to 10.4% (2002: 11.0%). London We have continued to see substantial growth in our London bus operations. Turnover year on year has grown by 23% and now represents approximately 21% of our total UK bus business. During the period we have gained 8 new contracts and we now operate approximately 1,300 buses for Transport for London. We are opening a new depot in Willesden which will increase capacity and be used as the base for new articulated bus services due to commence early next year. Outside London Outside London we have continued to see encouraging passenger growth of 1.5% in our urban bus operations that comprise approximately 56% of turnover. We will continue to improve the marketing of our services and work with Local Authorities to develop new bus priority measures. We have started work on the Yorkshire showcase project in Leeds and Sheffield in partnership with local Passenger Transport Executives and the Department for Transport. This project is based on new vehicles, quicker schedules, a simplified route network and enhanced bus priority measures and is predicted to increase growth by 5% per annum on targeted routes. Costs We continue to bear down on costs and target further efficiencies. As our largest single cost item is labour we are focusing on improved driver recruitment and retention and enhanced scheduling and rostering systems to maximise driver output. We are also introducing improvements to our engineering systems that will increase the productivity of our fleet and reduce the amount of time that vehicles are off the road. We are achieving useful savings in purchasing and we have centralised all of our accounting functions through the new Shared Service Centre in Aberdeen with consequent increased efficiency and reductions in overhead costs. UK RAIL Our Rail division operates passenger and freight services in the UK. Our passenger operations include intercity (First Great Western, Anglia Railways and Hull Trains), London commuter (First Great Eastern) and regional (First North Western). We have been awarded the contract to operate TransPennine Express starting in February 2004. We also operate freight services through GB Railfreight. Results Rail turnover during the period was Â£395.4m (2002: Â£385.4m) an increase of 2.6%. Passenger income on First Great Western and First Great Eastern has increased by 4%. Operating profit was Â£22.1m (2002: Â£29.5m) which is a strong performance given the combined reduction in subsidy and increase in franchise payments of Â£7.7m. Current Operations Performance at First Great Eastern has continued at a high level and we have successfully introduced a Â£80m fleet of 21 new Desiro trains into service. We have seen some slow down in season ticket revenues but this has been countered by an increase in full fare travel. First Great Western has continued to improve its operating performance and we have reduced delays attributable to us by over 20%. Our engineering enhancements to the High Speed Train fleet proved extremely successful during the hot summer period with train availability almost doubling. The level of delays attributable to Network Rail is continuing to cause concern and we are working closely with them to improve the situation. We operate First North Western on behalf of the Strategic Rail Authority (SRA). We receive a management fee and do not take revenue risk on the operations. At the National Rail Awards we were delighted that First Great Eastern won Best Operator for the second time and one of our Train Managers from First Great Western won the Rail Personality award for customer service. GB Railways GB Railways operates Anglia Railways, Hull Trains and GB Railfreight (GBRf). Anglia holds the franchise to operate the intercity services from London to Ipswich and Norwich and connecting local services in East Anglia. Hull Trains is a non-franchised, open access train operating company running trains between London Kings Cross and Hull. GB Railways is bidding for the Greater Anglia franchise that will incorporate all passenger rail operations from London Liverpool Street. GBRf provides freight services in the UK for customers such as Network Rail, British Gypsum and Medite Shipping Company Limited. We are optimistic about the opportunities for this business and look forward to increasing our presence in the rapidly expanding rail freight market. New Franchises In September we were pleased to be awarded, with our partner Keolis, the contract to operate the new TransPennine Express franchise for a period of 8 years from early 2004 with an option to extend for a further 5 years. We have already ordered a Â£260m fleet of new trains and contracted for two new maintenance depots for the franchise that will greatly improve the service offered to passengers in the region. We were delighted to be selected yesterday as the preferred bidder for the Thames Trains franchise. This two-year franchise will run from April 2004 and allow us to benefit passengers through the integration of services into Paddington ahead of the creation of the Greater Western franchise in 2006. In addition we have submitted our bids for the new Northern and ScotRail franchises and we are interested in bidding for the new Integrated Kent franchise. Rail Freight We are excited at the opportunities to grow our UK Rail operations further and to expand in the rail freight market. We have asked the management of GBRf to develop plans to accelerate the growth of this business and for investment in new rolling stock and equipment. GROUP OUTLOOK Going forward, we will continue to bear down on costs while growing our businesses in North America and the UK. The second half of the year has started in line with expectations and we expect to achieve our earnings targets for the remainder of the year. Moir Lockhead Chief Executive Finance Director's review Overall Turnover increased by Â£58.8m (5.5%) to Â£1,127.7m and operating profit, before goodwill and exceptional items was Â£78.1m (2002: Â£84.4m). 6 months to 6 months to Year to 30 September 2003 30 September 2002 31 March 2003 Divisional Turnover Operating Operating Turnover Operating Operating Turnover Operating Operating results Â£m profit * Margin * Â£m profit * Margin * Â£m profit * Margin * Â£m % Â£m % Â£m % UK Bus 443.0 46.2 10.4 418.7 45.9 11.0 859.4 111.7 13.0 UK Rail 395.4 22.1 5.6 385.4 29.5 7.7 842.3 61.3 7.3 North America 286.1 18.0 6.3 261.6 16.5 6.3 582.4 61.3 10.5 Financing - (4.1) - - (2.9) - - (6.7) - element of leases ** Other *** 3.2 (4.1) - 3.2 (4.6) - 6.9 (11.5) - Total Group 1,127.7 78.1 6.9 1,068.9 84.4 7.9 2,291.0 216.1 9.4 * Before goodwill amortisation, exceptional items and profit on disposal of fixed assets ** Financing element of UK PCV operating lease costs *** Tram operations, central management, Group information technology and other items Throughout the financial review, operating profit and operating margin are defined as being before goodwill amortisation and exceptional items North American turnover was Â£286.1m (six months to 30 September 2002: Â£261.6m), an increase of 9.4% (17.6% before exchange rate movements). We have added 1,468 yellow school buses during the period including a significant new contract win in Boston. In addition we acquired Coach USA's transit business in July 2003. North American operating profit was Â£18.0m (six months to 30 September 2002: Â£ 16.5m), an increase of 9.1% (20.7% before exchange rate movements) and the overall margin was maintained at 6.3%. UK Bus turnover was Â£443.0m (six months to 30 September 2002: Â£418.7m), an increase of 5.8%. Urban passenger volumes outside London increased by 1.5% and new London tenders accounted for Â£17.0m of the uplift in turnover. UK Bus operating profit was Â£46.2m (six months to 30 September 2002: Â£45.9m), an increase of 0.7%. This increase in operating profit was after the impact of significant cost pressures, in particular additional pension and national insurance costs year on year of Â£6.0m. In addition there was industrial action during the period which combined with the cost pressures, saw the operating margin fall to 10.4% from 11.0% last half year. UK Rail turnover was Â£395.4m (six months to 30 September 2002: Â£385.4m), an increase of 2.6%. Passenger income increased by 4% in First Great Western and First Great Eastern. UK Rail operating profit was Â£22.1m (six months to 30 September 2002: Â£29.5m) with the reduction principally due to subsidy reduction of Â£4.7m in First Great Western and an increase in the franchise payment of Â£ 3.0m in First Great Eastern. We have been awarded the new TransPennine Express franchise along with our partner, Keolis, which we expect to start operating in early 2004 and we have been selected as the preferred bidder for the Thames Trains two year franchise extension. We await the outcome of our bids for the Northern and ScotRail franchises. Interest charge before exceptional item The net interest charge was Â£21.3m (six months to 30 September 2002: Â£28.6m) with the reduction principally due to the cancellation of the interest rate swaps referred to below. The interest charge before exceptional items was covered 5.9 times (six months to 30 September 2002: 4.7 times) by EBITDA. Taxation The taxation charge, including exceptional items, was Â£4.6m (six months to 30 September 2002: Â£12.2m). The reduction in the taxation charge is principally due to higher exceptional charges in the first half of 2003 compared to last year. No tax has been provided on property gains as these do not give rise to a chargeable gain for tax purposes. The taxation charge for the half year has been based on the estimated effective rate for the full year of 30% (six months to 30 September 2002: 30%) on profit before goodwill and exceptional items. The actual cash cost of taxation to the Group is estimated to be 17% of profit before tax after exceptional items for the full year (year to 31 March 2003: 20%). Goodwill amortisation, exceptional items and property gains on disposal Property disposal gains of Â£6.1m (six months to 30 September 2002: Â£11.2m) were realised as part of our ongoing property disposal programme. Goodwill amortisation was Â£13.0m (six months to 30 September 2002: Â£13.1m) with favourable foreign exchange movements of Â£1.0m offsetting Â£0.9m of additional goodwill on acquisitions. During the six months to 30 September we incurred an exceptional charge of Â£ 18.7m in relation to the cancellation of certain US Dollar and Sterling interest rate swaps. New US dollar swaps were implemented with a significantly lower average interest rate of 2.85%, and for a longer term than the cancelled US Dollar swaps. Other exceptional items were Â£7.5m (six months to 30 September 2002: Â£1.0m) and comprised Â£3.6m of UK Bus restructuring costs, Â£3.1m of UK Rail bid costs and Â£ 0.8m in North America. Dividends The interim dividend of 3.75 pence (six months to 30 September 2002: 3.55 pence) per ordinary share represents an increase of 5.6%. Earnings per share (EPS) The adjusted basic EPS was 9.6 pence (six months to 30 September 2002: 9.3 pence), an increase of 3.2%. Basic EPS was 4.6 pence (six months to 30 September 2002: 9.7 pence) with the reduction principally due to higher exceptional charges and lower property disposal gains. EBITDA and investment in the business EBITDA was Â£125.0m (six months to 30 September 2002: Â£133.5m). Capital expenditure was Â£81.8m (six months to 30 September 2002: Â£67.9m) which consisted principally of Â£20.2m for new passenger carrying vehicles in the UK and Â£46.8m for yellow school buses in North America. In addition in the first half we invested Â£28.9m (six months to 30 September 2002: Â£9.7m) in acquisitions, net of Â£10.4m (6 months to 30 September 2002: Â£1.8m) of cash acquired, as set out below. Acquisitions On 21 May 2003 we acquired the Transit business of Coach USA for a total consideration of $22.5m. Goodwill arising on this acquisition amounted to $5.4m. On 14 August 2003 our offer for GB Railways plc was declared unconditional in all respects. As at 30 September 2003 we had acquired 89.4% of the share capital of this company for an initial consideration of Â£22.0m. Provisional goodwill arising on this acquisition amounted to Â£17.2m. No disclosure has been given of the results of acquisitions in the six months to 30 September 2003 as the results are not considered material enough to warrant separate disclosure. Net debt Net debt at 30 September 2003 was Â£709.5m (30 September 2002: Â£691.7m), an increase year on year of only Â£17.8m, despite significant investment through capital expenditure and acquisitions. This once again clearly demonstrates the Group's strong cash generation from operating activities. Since 1 April 2003 the sterling value of the Group's dollar borrowings decreased by Â£14.8m as a result of the period end exchange rate movement to Â£1: $1.66 from an opening rate of Â£1:$1.57. In line with policy on interest rate risk, 81% (30 September 2002: 78%) of the Group's net debt is on fixed terms. Net debt at 30 September 2003 included $497m (30 September 2002: $409m) to hedge the net assets of the North American businesses. Analysis of net debt Fixed Variable Total Â£m Â£m Â£m Cash - 0.1 0.1 Rail ring-fenced cash and deposits - 73.3 73.3 Sterling bond (2013 6.875%) (295.3) - (295.3) Sterling bank loans and overdrafts - (113.8) (113.8) US dollar bank loans and overdrafts - (299.6) (299.6) Canadian bank loans and overdrafts - (10.4) (10.4) HP and finance leases (34.1) (8.3) (42.4) Loan notes (8.7) (12.7) (21.4) Interest rate swaps (237.9) 237.9 - Total (576.0) (133.5) (709.5) Balance sheet and net assets Net assets decreased over the period by Â£19.9m principally reflecting a retained profit for the period of Â£3.6m offset by adverse foreign exchange movements of Â£24.1m. Shares in issue As at 30 September 2003 there were 413.4m (30 September 2002: 417.7m) shares in issue. The average number of shares in issue (excluding own shares held) was 413.2m (six months to 30 September 2002: 418.1m). Foreign exchange The results of the North American businesses have been translated at an average rate of Â£1:$1.62 (six months to 30 September 2002: Â£1:$1.49 and year to 31 March 2003: Â£1:$1.55). The period end rate was Â£1:$1.66 (30 September 2002: Â£1: $1.56 and 31 March 2003: Â£1:$1.57). Accounting policies The Group has continued to account for pension costs under SSAP 24 and will continue to do so until the adoption of International Accounting Standards in 2005/06. Iain M Lanaghan Finance Director Consolidated profit and loss account Notes Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Audited before goodwill total before goodwill total Year to goodwill amortisation 6 months goodwill amortisation 6 months 31 to to March amortisation and amortisation and 30 30 2003 and exceptional September and exceptional September 2002 Â£m exceptional items 2003 exceptional items Â£m items 6 months to Â£m items 6 months to 6 months to 30 September 6 months to 30 September 2002 30 September 2003 30 September 2002 Â£m 2003 Â£m Â£m Â£m Turnover Continuing 1,127.7 - 1,127.7 1,068.9 - 1,068.9 2,291.0 operations Operating profit Continuing 78.1 (20.5) 57.6 84.4 (14.1) 70.3 179.7 operations Group operating 78.1 - 78.1 84.4 - 84.4 216.1 profit before goodwill amortisation and exceptional items Goodwill - (13.0) (13.0) - (13.1) (13.1) (25.8) amortisation Exceptional items, - (7.5) (7.5) - (1.0) (1.0) (10.6) net Operating profit 78.1 (20.5) 57.6 84.4 (14.1) 70.3 179.7 Profit on disposal - 6.1 6.1 - 11.2 11.2 10.0 of fixed assets Profit on ordinary 78.1 (14.4) 63.7 84.4 (2.9) 81.5 189.7 activities before interest Net interest payable (21.3) (18.7) (40.0) (28.6) - (28.6) (56.3) and similar charges Profit on ordinary 56.8 (33.1) 23.7 55.8 (2.9) 52.9 133.4 activities before taxation Tax on profit on 3 (17.0) 12.4 (4.6) (16.7) 4.5 (12.2) (35.8) ordinary activities Profit on ordinary 39.8 (20.7) 19.1 39.1 1.6 40.7 97.6 activities after taxation Equity minority - - - - - - (0.1) interests Profit for the 39.8 (20.7) 19.1 39.1 1.6 40.7 97.5 financial period Equity dividends 4 (15.5) - (15.5) (14.8) - (14.8) (45.5) paid and proposed Retained profit for 13 24.3 (20.7) 3.6 24.3 1.6 25.9 52.0 the financial period Adjusted basic 5 9.6p 9.3p 26.8p earnings per share Adjusted cash 5 21.0p 21.1p 50.6p earnings per share Basic earnings per 5 4.6p 9.7p 23.4p share Diluted earnings per 5 4.6p 9.7p 23.4p share Consolidated balance sheet Notes Unaudited Unaudited Audited 30 September 30 September 31 March 2003 2002 2003 Â£m Â£m Â£m Assets employed: Fixed assets Goodwill 6 486.4 501.9 496.7 Tangible fixed assets 7 803.9 790.3 775.8 Investments 0.5 1.1 0.7 1,290.8 1,293.3 1,273.2 Current assets Stocks 31.8 27.0 28.9 Debtors 8 403.1 347.1 345.8 Investments 9 45.8 50.9 45.7 Cash at bank and in hand 27.6 39.5 35.6 508.3 464.5 456.0 Creditors: amounts falling due 10 (595.8) (611.2) (571.5) within one year Net current (liabilities)/assets Amounts due within one year (133.4) (183.3) (159.3) Amounts due after more than one 8 45.9 36.6 43.8 year Net current liabilities (87.5) (146.7) (115.5) Total assets less current 1,203.3 1,146.6 1,157.7 liabilities Creditors: amounts falling due 10 (695.7) (635.4) (630.9) after more than one year Provisions for liabilities and 11 (124.7) (119.7) (124.0) charges 382.9 391.5 402.8 Financed by: Capital and reserves Called up share capital 12 20.7 20.9 20.7 Share premium account 13 238.8 236.7 238.8 Revaluation reserve 13 3.5 3.6 3.5 Other reserves 13 3.8 3.6 3.8 Profit and loss account 13 114.4 125.7 134.9 Equity shareholders' funds 381.2 390.5 401.7 Equity minority interests 1.7 1.0 1.1 382.9 391.5 402.8 Consolidated cash flow statement Notes Unaudited Unaudited Audited 6 months to 6 months to Year to 30 September 30 2003 31 March September Â£m 2002 2003 Â£m Â£m Net cash inflow from operating 14(a) 92.6 79.6 219.7 activities Returns on investment and servicing 14(b) (52.6) (15.1) (31.0) of finance Taxation Corporation tax paid (15.0) (11.3) (23.6) Capital expenditure and financial 14(c) (64.6) (71.9) (82.2) investment Acquisitions and disposals 14(d) (28.9) (9.7) (23.8) Equity dividends paid (30.6) (29.4) (44.0) Cash (outflow)/inflow before use of (99.1) (57.8) 15.1 liquid resources and financing Management of liquid resources (Increase)/decrease in liquid bank (0.1) 9.5 14.7 deposits Financing 14(e) 77.9 44.6 (47.4) Decrease in cash in period (21.3) (3.7) (17.6) Reconciliation of net cash flows to movement in net debt Notes Unaudited Unaudited Audited 6 months to 6 months to Year to 30 September 30 2003 31 March September Â£m 2002 2003 Â£m Â£m Decrease in cash in period (21.3) (3.7) (17.6) Cash (inflow)/outflow from (78.3) (50.0) 32.7 (increase)/decrease in debt and HP contract and finance lease financing Movement in current asset 0.1 (9.5) (14.7) investments Fees on issue of Bond and loan - 0.2 1.6 facility Amortisation of debt issuance fees (0.4) (0.2) (0.5) Foreign exchange differences 14.8 24.0 26.6 Movement in net debt in period (85.1) (39.2) 28.1 Net debt at beginning of period 15 (624.4) (652.5) (652.5) Net debt at end of period 15 (709.5) (691.7) (624.4) Consolidated statement of total recognised gains and losses Unaudited Unaudited Audited 6 months to 6 months to Year to 30 September 30 2003 31 March September Â£m 2002 2003 Â£m Â£m Profit for the financial period 19.1 40.7 97.5 Foreign exchange differences (24.1) (49.0) (53.2) Total recognised (losses)/gains for the (5.0) (8.3) 44.3 period Reconciliation of movement in shareholders' funds Unaudited Unaudited Audited 6 months to 6 months to Year to 30 September 30 2003 31 March September Â£m 2002 2003 Â£m Â£m Profit for the financial period 19.1 40.7 97.5 Dividends (15.5) (14.8) (45.5) 3.6 25.9 52.0 Shares issued to QUEST - - 2.1 Own shares purchased and cancelled - (5.4) (17.1) Write down of own shares held by QUEST - - (1.1) Foreign exchange differences (24.1) (49.0) (53.2) Net reduction in shareholders' funds (20.5) (28.5) (17.3) Shareholders' funds at beginning of 401.7 419.0 419.0 period Shareholders' funds at end of period 381.2 390.5 401.7 No note of historical cost profits and losses is given as there are no material differences between the results as set out in the consolidated profit and loss account and their historical cost equivalents. Notes to the interim financial information 1 Basis of preparation This interim report does not constitute statutory accounts within the meaning of section 240 of the Companies Act 1985. The figures for the six months to 30 September 2003 include the results of the rail businesses for the 24 weeks ended 13 September 2003 and the results of the other businesses for the 26 weeks ended 27 September 2003. These results are unaudited but have been reviewed by the auditors. The comparative figures for the six months to 30 September 2002 are unaudited and are derived from the interim report for the six months ended 30 September 2002, which was also reviewed by the auditors. The comparative figures for the year to 31 March 2003 are not the Company's statutory accounts for that financial year but have been derived from them. Those accounts have been reported on by the Company's auditors and delivered to the Registrar of Companies. The report of the auditors did not contain a statement under section 237(2) or (3) of the Companies Act 1985. This interim report will be sent to all shareholders in November 2003 and will be available to the public at the Registered Office of the Company, 395 King Street Aberdeen AB24 5RP. This interim report was approved by the Board on 4 November 2003. 2 Principal accounting policies The results for the six months ended 30 September 2003 have been prepared using the same accounting policies as were used in the preparation of the annual report for the year ended 31 March 2003. 3 Tax on profit on ordinary activities 6 months to 6 months to Year to 30 September 30 September 31 March 2003 2002 2003 Â£m Â£m Â£m Corporation tax 1.9 9.6 27.2 Deferred tax 2.7 2.6 8.6 4.6 12.2 35.8 4 Dividends 6 months to 6 months to Year to 30 September 30 September 31 March 2003 2002 2003 Â£m Â£m Â£m Ordinary shares of 5p each - Interim proposed 15.5 14.8 14.8 - Final paid - - 30.8 - Adjustment to prior year final dividend - - (0.1) in respect of shares cancelled 15.5 14.8 45.5 The interim dividend of 3.75p per ordinary share will be paid on 11 February 2004 to shareholders on the register of members at the close of business on 16 January 2004. 5 Earnings per share (EPS) Basic EPS is based on earnings of Â£19.1m (six months to 30 September 2002: Â£ 40.7m and year to 31 March 2003: Â£97.5m) and on a weighted average number of ordinary shares of 413.2m (six months to 30 September: 418.1m and year to 31 March 2003: 416.7m) in issue. Diluted EPS is based on the same earnings for each of the periods and on the weighted average number of ordinary shares of 415.7m (six months to 30 September 2002: 419.1m and year to 31 March 2003: 417.4m). The difference in the number of shares between the basic calculation and the diluted calculation represents the weighted average number of potentially dilutive ordinary shares. The adjusted basic EPS and adjusted cash EPS are intended to demonstrate recurring elements of the results of the Group before goodwill amortisation. A reconciliation of the earnings used in the bases is set out below Â£m Six months to 30 September 2003 Earnings per share p Profit for basic EPS calculation 19.1 4.6 Goodwill amortisation 13.0 3.1 Exceptional items, net 7.5 1.8 Exceptional interest rate charge 18.7 4.6 Profit on disposal of fixed assets (6.1) (1.5) Taxation effect of adjustments (12.4) (3.0) Profit for adjusted basic EPS calculation 39.8 9.6 Depreciation 46.9 11.4 Profit for adjusted cash EPS calculation 86.7 21.0 Â£m Six months to 30 September 2002 Earnings per share p Profit for basic EPS calculation 40.7 9.7 Goodwill amortisation 13.1 3.1 Exceptional items, net 1.0 0.3 Profit on disposal of fixed assets (11.2) (2.7) Taxation effect of adjustments (4.5) (1.1) Profit for adjusted basic EPS calculation 39.1 9.3 Depreciation 49.1 11.8 Profit for adjusted cash EPS calculation 88.2 21.1 Â£m Year to 31 March 2003 Earnings per share p Profit for basic EPS calculation 97.5 23.4 Goodwill amortisation 25.8 6.2 Exceptional items, net 10.6 2.5 Profit on disposal of fixed assets (10.0) (2.4) Taxation effect of adjustments (12.1) (2.9) Profit for adjusted basic EPS calculation 111.8 26.8 Depreciation 99.2 23.8 Profit for adjusted cash EPS calculation 211.0 50.6 6 Goodwill Â£m Cost At 1 April 2003 584.8 Additions 23.3 Exchange rate differences (25.0) At 30 September 2003 583.1 Amortisation At 1 April 2003 88.1 Charge for period 13.0 Exchange rate differences (4.4) At 30 September 2003 96.7 Net book value At 30 September 2003 486.4 At 31 March 2003 496.7 At 30 September 2002 501.9 7 Tangible fixed assets Land and Passenger Other Total buildings carrying plant and Â£m Â£m vehicle equipment fleet Â£m Â£m Cost or valuation At 1 April 2003 128.4 1,134.5 142.3 1,405.2 Subsidiary undertakings and 1.8 9.3 3.3 14.4 businesses acquired Additions 5.8 71.2 4.8 81.8 Disposals (2.1) (17.4) (0.7) (20.2) Exchange rate differences (1.1) (22.5) (1.5) (25.1) At 30 September 2003 132.8 1,175.1 148.2 1,456.1 Depreciation At 1 April 2003 19.9 520.5 89.0 629.4 Subsidiary undertakings and 0.2 - 1.7 1.9 businesses acquired Charge for period 1.5 37.9 7.5 46.9 Disposals (0.2) (15.0) (0.6) (15.8) Exchange rate differences (0.2) (9.2) (0.8) (10.2) At 30 September 2003 21.2 534.2 96.8 652.2 Net book value At 30 September 2003 111.6 640.9 51.4 803.9 At 31 March 2003 108.5 614.0 53.3 775.8 At 30 September 2002 105.6 630.1 54.6 790.3 8 Debtors 30 September 30 September 31 March 2003 2002 2003 Â£m Â£m Â£m Amounts due within one year Trade debtors 219.8 187.6 190.5 Other debtors 64.4 40.8 44.5 Deposits paid for rolling stock - 16.7 - Pension funds' prepayments 10.2 6.6 8.1 Other prepayments and accrued income 62.8 58.8 58.9 357.2 310.5 302.0 Amounts due after more than one year Pension funds' prepayments 44.6 35.1 42.4 Other prepayments and accrued income 1.3 1.5 1.4 45.9 36.6 43.8 403.1 347.1 345.8 9 Current asset investments 30 September 30 September 31 March 2003 2002 2003 Â£m Â£m Â£m Bank deposits 45.8 50.9 45.7 10 Creditors 30 September 30 September 31 March 2003 2002 2003 Â£m Â£m Â£m Amounts falling due within one year Bank loans and overdrafts 60.6 98.2 40.0 Obligations under hire purchase contracts 26.3 47.2 34.2 and finance leases Loan notes 0.3 1.3 0.6 Trade creditors 94.5 125.7 102.9 Corporation tax 14.3 22.1 27.2 Other tax and social security 24.7 19.1 18.5 Other creditors 53.1 23.3 33.0 Pension funds' creditors 12.3 10.3 11.3 Accruals and deferred income 256.9 214.6 235.0 Season ticket deferred income 36.9 34.6 37.8 Proposed dividends 15.9 14.8 31.0 595.8 611.2 571.5 10 Creditors (continued) 30 September 30 September 31 March 2003 2002 2003 Â£m Â£m Â£m Amounts falling due after more than one year Bank loans - Due in more than one year but not more - 267.2 - than two years - Due in more than two years but not more 363.2 9.6 286.8 than five years Obligations under hire purchase contracts and finance leases - Due in more than one year but not more 12.8 27.3 21.5 than two years - Due in more than two years but not more 3.3 14.2 6.1 than five years - Due in more than five years - 0.2 0.1 Loan notes - Due in more than one year but not more 21.1 22.1 21.3 than two years Â£300.0m Sterling bond - 6.875% 2013 295.3 294.8 295.1 695.7 635.4 630.9 Bank loans and overdrafts Whilst advances under bank facilities are generally repayable within a few months of the balance sheet date, they have been classified by reference to the maturity date of the longest refinancing permitted under these facilities in accordance with FRS 4. The bank loans and overdrafts are unsecured. Hire purchase contracts and finance leases Hire purchase contract and finance lease liabilities are secured on the assets to which they relate. The contracts vary in length between four and twelve years. No new contracts were entered into during the period. Loan notes The loan notes have been classified by reference to the earliest date on which the loan note holders can request redemption. Loan notes of Â£20.4m (30 September 2002: Â£21.3m and 31 March 2003: Â£20.6m) are supported by bank guarantees. Bond The bond is repayable in 2013 and is shown net of Â£4.7m (30 September 2002: Â£ 5.2m and 31 March 2003: Â£4.9m) of issue related costs which are being amortised over the term of the bond. Certain subsidiaries have issued guarantees to the Company's bondholders. These guarantees rank pari passu with guarantees provided by those subsidiaries to the Group's other major unsecured lenders. 11 Provisions for liabilities and Deferred Insurance Pensions Total charges tax claims Â£m Â£m Â£m Â£m At 1 April 2003 88.2 29.8 6.0 124.0 Provided in the period 2.7 8.6 0.1 11.4 Utilised in the period - (10.9) - (10.9) Subsidiary undertakings acquired (0.4) - - (0.4) Notional interest - 1.3 0.1 1.4 Exchange rate differences (0.2) (0.6) - (0.8) At 30 September 2003 90.3 28.2 6.2 124.7 12 Called up share capital 30 September 30 31 March September 2003 2003 2002 Â£m Â£m Â£m Authorised: Ordinary shares of 5p each 30.0 30.0 30.0 Allotted, called up and fully paid Ordinary shares of 5p each 20.7 20.9 20.7 The number of ordinary shares of 5p each in issue at the end of the period was 413.4m (30 September 2002: 417.7m and 31 March 2003: 413.4m). 13 Reserves Share Revaluation Profit and premium reserve loss account account Â£m Â£m Â£m At 1 April 2003 238.8 3.5 134.9 Retained profit for the financial period - - 3.6 Foreign exchange differences - - (24.1) At 30 September 2003 238.8 3.5 114.4 Capital Capital Total other redemption reserve reserves reserve Â£m Â£m Â£m At 1 April 2003 and 30 September 2003 1.1 2.7 3.8 14 Notes to the consolidated cash flow 6 months to 6 months to Year to statement 30 September 30 September 31 March 2003 2002 2003 Â£m Â£m Â£m (a) Reconciliation of operating profit to net cash inflow from operations Group operating profit 57.6 70.3 179.7 Depreciation charges 46.9 49.1 99.2 Goodwill amortisation 13.0 13.1 25.8 Loss on sale of non-property fixed assets 0.2 - 0.2 Profit on sale of investment in joint - (2.5) (2.5) venture (Increase)/decrease in stocks (0.1) 0.2 - Increase in debtors (42.6) (47.6) (77.3) Increase/(decrease) in creditors and 17.6 (3.0) (5.4) provisions Net cash inflow from operating activities 92.6 79.6 219.7 (b) Returns on investments and servicing of finance Interest received 0.9 1.0 2.7 Interest paid (32.9) (12.1) (25.1) Cancellation of interest rate swaps (18.7) - - Interest element of hire purchase (1.9) (4.0) (7.0) contracts and finance lease payments Fees on issue of bond and loan facilities - - (1.6) Net cash outflow from returns on (52.6) (15.1) (31.0) investments and servicing of finance (c) Capital expenditure and financial investment Purchase of tangible fixed assets (69.8) (74.7) (107.4) Sale of fixed asset properties 2.5 2.0 4.4 Sale of other tangible fixed assets 2.7 0.8 4.1 Deposits for rolling stock - - 16.7 Net cash outflow from capital expenditure (64.6) (71.9) (82.2) and financial investment (d) Acquisitions and disposals Purchase of subsidiary undertakings (21.9) - - Purchase of businesses (17.4) (14.0) (28.1) Net cash acquired with purchase of 10.4 1.8 1.8 subsidiary undertakings and businesses Sale of investment in joint venture - 2.5 2.5 Net cash outflow from acquisitions and (28.9) (9.7) (23.8) disposals (e) Financing Issue of share capital - - 2.5 Own shares repurchased - (5.4) (17.1) Shares purchased by Employee Benefit (0.5) - - Trust New bank loans 98.4 125.9 312.1 Repayments of amounts borrowed: - Bank loans - (44.6) (285.1) - Loan notes (0.5) (0.9) (2.5) Capital element of hire purchase and (19.5) (30.4) (57.3) finance lease payments Net cash inflow/(outflow) from financing 77.9 44.6 (47.4) 15 Analysis of net debt At Cash flow Other At 30 September 31 March Â£m non-cash 2003 2003 changes Â£m Â£m Â£m Current asset investments 45.7 0.1 - 45.8 Cash at bank and in hand 35.6 (7.7) (0.3) 27.6 Bank overdrafts (10.0) (13.6) - (23.6) Cash 25.6 (21.3) (0.3) 4.0 Bank loans due within one (30.0) (7.0) - (37.0) year Bank loans due after one year (286.8) (91.3) 14.9 (363.2) Sterling bond 2013 (295.1) - (0.2) (295.3) Obligations under hire (61.9) 19.5 - (42.4) purchase contracts and finance leases Loans and loan notes (21.9) 0.5 - (21.4) Financing (695.7) (78.3) 14.7 (759.3) Net debt (624.4) (99.5) 14.4 (709.5) Other non-cash charges include Â£14.8m (six months to 30 September 2002: Â£24.0m and year to 31 March 2003: Â£26.6m) of foreign exchange movements.

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