annual results 2006 1 annual results 28 th june 2006

1 Annual Results 2006

Annual ResultsAnnual Results2828thth June 2006 June 2006


Robert SpeirsRobert Speirs

ChairmanChairman


Highlights

Strong operational and financial performance across the Group

Headline earnings per share up 11.6% - fourth year of successive growth

Innovation driving growth at UK Bus

Excellent performance in UK Rail

Further growth in North America with increase in operating margin to 7.2%

Final dividend of 2.6p per share giving full year dividend of 3.7p (2005: 3.3p) – up 12.1%

Bid to be submitted for South Western franchise by 30 June 2006

Disposals of New Zealand and London bus

Acquisitions of Glenvale and Traction Group


Martin GriffithsMartin Griffiths

Finance DirectorFinance Director


Financial highlights

Revenue+* from continuing businesses up 8.2%

- £1,530.0m (2005: £1,413.4m)

- Up 7.3% at constant exchange rates

Operating profit* pre intangibles and exceptionals £156.6m (2005: £153.1m)

EBITDA* from Group companies (pre exceptionals) up 6.9% at £219.7m

Adjusted EPS up 11.6% to 10.6p

+ excluding acquisitions of Glenvale and Traction and disposed New Zealand operations* excluding disposed New Zealand operations


Revenue*

- continuing operations, excluding Glenvale and Traction

Total operating profit*

- pre intangibles & exceptionals*

Profit before tax*

- pre intangibles & exceptionals*

Net cash from operating activities

Adjusted earnings per share

Full-year dividend per share

2006£m

2005£m

1,568.5

1,530.0

136.1

156.6

115.0

140.6

175.5

10.6p

3.7p

1,420.5

1,413.4

132.9

153.1

104.9

131.2

173.6

9.5p

3.3p

Financial summary

* excluding disposed New Zealand operations


EBITDA

UK Bus - excluding Glenvale/Traction- Glenvale/Traction

North AmericaRailGroup overheads & restructuring costsEBITDA from Group companies before exceptionalsVirgin Rail GroupOther joint ventures and associatesTotal EBITDA before exceptionals

2006£m

2005£m

132.20.5

33.764.7

(11.4)219.7

5.30.1

225.1

132.5Nil30.053.4

(10.3)205.6

14.2(0.4)

219.4


EBITDA from Group companies before exceptionals (slide 7)EBITDA from discontinued operationsWorking capital and other operating cash movementsNet interest paidTax paidNet cash from operating activitiesNet capital expenditure including new hire purchaseAcquisitions of businesses, intangibles and investmentsDisposals of businesses and investmentsToken sales and redemptionsForeign exchange/otherReduction in net debt before cashflows with shareholdersRepurchase of ‘B’ sharesEquity dividendsOther share capital movementsReduction in net debtOpening net debtClosing net debt

30 April2006£m

219.78.5

(5.8)(19.4)(27.5)175.5(94.4)(52.4)105.3

(4.0)(8.5)

121.5(13.9)(36.6)

7.778.7

(214.6)(135.9)

Movement in net debt


UK Bus trading results

Revenue growth 13.0% to £814.2m (2005: £720.3m)

revenue growth 7.7%, excluding acquisitions of Glenvale and Traction

Like for like passenger growth of 2.1%, excluding London/Megabus

Operating margin 11.4% (2005: 12.2%), excluding acquisitions of Glenvale and Traction

Glenvale/Traction operating loss £1.9m


UK Bus Revenue Development

2004/05 Revenue

Glenvale/Traction

Passenger volumes

Tender wins/ contract amendments

Fare increases

megabus.com

2005/06 Revenue

n/a

n/a

5.1%

3.4%

n/a

8.5%

London

£m %

507.1

38.5

10.6

7.1

19.1

Nil

582.4

7.6%

2.1%

1.4%

3.8%

n/a

14.8%

6.2

Nil

Nil

Nil

Nil

1.0

7.2

n/a

n/a

n/a

n/a

16.1%

16.1%

207.0

Nil

Nil

10.6

7.0

Nil

224.6

Outwith London

£m %

Megabus

£m %

720.3

38.5

10.6

17.7

26.1

1.0

814.2

5.3%

1.5%

2.5%

3.6%

0.1%

13.0%

UK Bus

£m %


Sale of London Bus

Conditional sale to Macquarie agreed

Subject to regulatory approval and other conditions

Headline consideration £263.6m

2005/06 EBITDA £31.3m

8.4 times EV/EBITDA

c.£120m gain on disposal

Completion expected within three months


Sale of London Bus - Pensions

c.£60m cash contribution to Stagecoach Group Pension Scheme

Stagecoach’s IAS 19 deficit reduces by c.£60m

Significant reduction in pensions volatility

c.£165m of pension scheme liabilities (and matching assets) transfer with London Bus

Transfer with London Bus is broadly IAS 19 neutral (no significant impact on transaction multiples)


North America trading results

Revenue £247.6m (2005: £220.8m) 11.0% increase in US$ revenue from continuing operations Operating margin up from 7.0% to 7.2%, excluding megabus Operating profit £17.7m (2005: £15.5m), excluding megabus

US$31.5m (2005: US$28.7m), excluding megabus excellent revenue growth strict cost control overhead reduction

£0.8m megabus loss marketing and other start-up costs


Scheduled service/line run/commuterCharterSightseeing & tourSchool bus & contractTotal

2006US$m

2005US$m

178.7 92.1 84.0 84.7439.5

165.884.475.270.6

396.0

% Growth

7.8%9.1%

11.7%20.0%11.0%

North America continuing revenue breakdown

by product


Rail trading results

Rail subsidiaries

Revenue £506.7m (2005: £479.4m)

Operating profit £58.9m (2005: £50.0m)

Passenger volumes up 1.3% at SWT, adversely affected by terrorist attacks

Revenue and profit share to DfT £66.7m (2005: £46.0m)

Bid costs £11.7m (2005: £3.0m)


Virgin Rail Group

Share of profit after finance income and tax £5.5m (2005: £10.7m)

New long-term commercial arrangements on West Coast – discussions with DfT ongoing

CrossCountry – current franchise terminates on 10 November 2007. Joint bid with Virgin for new franchise


Taxation

Excluding intangible asset amortisation and exceptional items- Before joint ventures- Joint ventures

Intangible asset amortisationExceptional items

Joint venture taxReported in income statement

Cash tax paid (net)

Pre-taxProfit£m

Tax£m

135.07.1

142.1(20.5)

(5.1)116.5

(1.5)115.0

(31.4)(1.5)

(32.9)2.22.8

(27.9)1.5

(26.4)

(27.5)

Rate%

23.3%21.1%23.2%

23.9%

2006


Pensions

£33.4m total pension costs (2005: £32.9m)

IAS 19 pre-tax deficit of £222.2m (2005: £220.9m) for Group

Includes £21.5m increase on acquisition of Glenvale/Traction

c.£60m of additional contributions to reduce deficit

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

Proposed changes to schemes


Balance sheet & financing

Net debt £135.9m (2005: £214.6m)

EBITDA*/finance charges cover 14.1 times (2005: 10.0 times)

Progressive dividend policy

UK GAAP definition* From continuing businesses, before exceptional items


Brian SouterBrian Souter

Chief ExecutiveChief Executive


Group strategyQuality operations driving strong results

Excellent operational

performance

Strong financial results

Bus operator of the Year Train operator of the Year South West Trains punctuality circa 90% Improved punctuality at Virgin Rail Group UK Bus reliability 99.3%*

Adjusted EPS up 11.6% Revenue from continuing operations* up 8.2% Absorbing increased fuel costs Full year dividend up 12.1%

↓

* excluding acquired Glenvale and Traction operations


Group strategy – UK Bus

Focus on less regulated bus operations outside London– Sale of London operations– Capitalise on innovation and marketing expertise

Build on four years of consistent passenger growth– Development of Kickstart projects– Organic growth opportunities in Southern companies– Concessionary travel schemes

Exploit growth potential of bus company acquisitions Business development

– Inter-city bus and coach services


Group strategyUK Bus passenger growth

Like for like passenger growth by operating company – excluding London & Megabus

April 2006 v April 2005

Overall passenger growth 2.1%

3% +

0-3%

<0%

Stagecoach London


Group strategy – Rail

Powerful, value-for-money bid for South Western franchise

Successful renegotiation of West Coast franchise

Evaluate opportunities to expand rail portfolio

– East Midlands

– West Midlands

– CrossCountry

Further development of megatrain.com


Group strategy – North America

Revenue and margin growth– Core scheduled services– Contract wins– Capitalise on continued strong leisure bounce-back– Further growth in sightseeing and charter

New product development and improved marketing– megabus.com– Launch of New York Duck Tours– Web-based sales


Current trading and outlook

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

acquisitions Good potential for further growth


Appendices


North Americarevenue development

2004/05 Revenue

Impact of disposals and othermovements on discontinued turnover

US$/C$ currency impact

Underlying growth

2005/06 Revenue

396.0

Nil

5.1

38.4

439.5

13.1

(13.1)

-

-

-

409.1

(13.1)

5.1

38.4

439.5

ContinuingUS$m

DiscontinuedUS$m

TotalUS$m


Rail revenue development

2004/05 Revenue

SWT passenger volumes

SWT fares/yield

SWT other

Island Line/Supertram

2005/06 Revenue

£m %

479.4

6.1

19.0

1.3

0.9

506.7

1.3%

4.0%

0.3%

0.2%

5.7%


Finance charges ratios

Finance charges (net)*

EBITDA pre-exceptionals*

EBITDA pre-exceptionals*/finance charges*

Net Debt+/EBITDA*

2006£m

2005£m

16.0

225.1

14.1 times

0.6 times

21.9

219.4

10.0 times

1.0 times

* From continuing businesses+ UK GAAP definition


Gross debt & related derivativesInterest bearing cash balances

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

Finance charges

£m

Annualeffective rate

%

20.4(7.1)13.3

0.60.40.43.3

(0.9)(1.1)16.0

5.8%4.6%6.8%

Finance charges

Average balance*

£m

352.0(155.0)197.0

*Average of month end debt/cash balances


Fuel hedging

% of Group fuel hedged - fixed

- cap/floor

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

- cap/floor

Forecast2006/07

18%

75%

US$54

US$83/US$54

• Continuing Bus divisions use 1.9m barrels of fuel a year• Each US$10 per barrel movement in crude oil price impacts variable fuel costs by approximately

US$19m if no hedging in place• Amounts shown above include London bus operations• 2006/07 year-on-year increase of £30m-£35m for continuing operations

Forecast2007/08

Nil

44%

n/a

US$83/US$54

Forecast2008/09

Nil

38%

n/a

US$83/US$54


10.7 Nil Nil Nil

10.7

71.823.5

3.43.9

102.6

(3.9)(3.6)(0.7)

Nil(8.2)

67.919.9

2.73.9

94.4

61.123.5

3.43.9

91.9

Capital expenditure

UK BusNorth AmericaNew ZealandRail

Capex on new hire purchase

£m

Impact ofcapex onnet debt

£m

Disposalproceeds**

£mNet£m

Cash spent on capex*

£m

* Excludes capitalised intangible assets of £0.6m and additions made as part of business combinations

** Excludes proceeds from selling businesses

Note: No vehicles were acquired by UK Bus during the year on operating leases (2005: capital value of vehicles acquired on operating leases - £25.1m )


Exchange rates

US$NZ$*C$

Closing rate Average rate

1.90992.60882.3969

1.85302.72402.3621

April 2005

Closing rate Average rate

1.81762.46062.0368

1.77512.56412.1079

April 2006

* Average and closing rates up to date of disposal used – 29 November 2005

annual results 2006 1 annual results 28 th june 2006

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