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Interim Results 6 December 2006

Interim Results 6 December 2006. Robert Speirs Chairman. Highlights. Strong set of results for six months ended 31 October 2006 Revenue from continuing businesses + : +10.0% Earnings per share*: +7.4% Interim dividend: +9.1%

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Interim Results 6 December 2006

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  1. Interim Results6 December 2006

  2. Robert SpeirsChairman

  3. Highlights • Strong set of results for six months ended 31 October 2006 • Revenue from continuing businesses+: +10.0% • Earnings per share*: +7.4% • Interim dividend: +9.1% • UK Bus: partnership and innovation driving revenue and passenger growth • Rail: further revenue growth and excellent operational performance • North America: increased operating profit** and margin • 10-year South Western franchise secured • Disposal of London bus operations in August 2006 for c.£265m • Proposal to return no less than £400m of funds to shareholders + Excluding acquisitions of Glenvale and Traction, and disposed operations. * Excluding intangible asset expenses and exceptional items. ** References to the operating profit (or operating margin) of a particular business throughout this presentation mean operating profit (or operating margin) before intangible asset expenses, exceptional items and restructuring costs.

  4. Martin GriffithsFinance Director

  5. Financial highlights • Revenue+* from continuing businesses up 10.0% • £711.1m (2005: £646.5m) • Up 10.5% at constant exchange rates • Operating profit* pre intangibles and exceptionals £80.7m (2005: £68.5m) • EBITDA* (pre exceptionals) up 15.2% at £113.5m (see slide 8) • Adjusted EPS up 7.4% to 5.8p • Net debt of £135.9m converted to net funds of £140.9m + excluding acquisitions of Glenvale and Traction. * excluding disposed operations.

  6. Financial summary October 2006 £m October 2005 £m Revenue* - continuing operations, excluding Glenvale and Traction Total operating profit* - pre intangibles & exceptionals* Profit before tax* - pre intangibles & exceptionals* Cash generated from operations - pre £57.0m one-off pension contribution Adjusted earnings per share Interim dividend per share 752.1 711.1 101.5 80.7 97.3 77.4 99.4 156.4 5.8p 1.2p 653.3 646.5 55.3 68.5 40.7 57.9 120.2 120.2 5.4p 1.1p * excluding disposed operations

  7. Revenue bridge October 2005 previously Reported £m Revenue reclassified as “discontinued” £m Constant currency revenue growth in continuing businesses £m October 2006 before re-translation (Sub total) £m Changes in foreign currency exchange rates £m October 2006 (Total) £m Businesses held throughout both periods UK Bus Coach USA Rail Business units closed Coach USA Businesses acquired during year ended 30 April 2006 UK Bus Businesses disposed UK Bus – London New Zealand 270.1 123.2 245.6 638.9 7.6 646.5 6.8 653.3 111.0 28.7 793.0 - - - - - - - - (111.0) (28.7) (139.7) 28.5 13.3 31.2 73.0 (5.2) 67.8 34.2 102.0 - - 102.0 10.6% 10.8% 12.7% 298.6 136.5 276.8 711.9 11.4% 2.4 714.3 10.5% 41.0 755.3 - - 755.3 - (3.1) - (3.1) (0.1) (3.2) - (3.2) - - (3.2) 298.6 133.4 276.8 708.8 10.9% 2.3 711.1 10.0% 41.0 752.1 - - 752.1

  8. Revenue and margin growth * Constant currency revenue growth excluding impact of businesses acquired, sold and closed ** Operating margin before intangible asset expenses, exceptional items and restructuring costs, excluding impact of businesses acquired and discontinued operations

  9. EBITDA October 2006 £m October 2005 £m UK Bus - excluding Glenvale/Traction - Glenvale/Traction North America Rail Group overheads & restructuring costs EBITDA from Group companies before exceptionals* Virgin Rail Group (share of EBIT) Other joint ventures and associates (share of EBIT) Total EBITDA before exceptionals* 52.0 3.2 24.6 34.6 (5.9) 108.5 3.9 1.1 113.5 48.0 (0.5) 23.5 27.0 (5.6) 92.4 6.1 Nil 98.5 +17.4% +15.2% * excluding disposed operations

  10. Movement in net debt October 2006 £m EBITDA from continuing Group companies before exceptionals (slide 8) EBITDA from discontinued operations Movement in pension deficit Working capital and other operating cash movements Net interest paid Tax paid Net capital expenditure including new hire purchase (slide 35) Acquisitions of businesses, intangibles and investments Disposals of businesses and investments Token sales and redemptions Dividends and loan repayments from joint ventures Foreign exchange Net movement in bond issue costs Reduction in net debt before cash flows with shareholders Equity dividends Other share capital movements Reduction in net debt Opening net debt Closing net funds 108.5 7.7 (60.6) 40.1 (4.0) (11.4) 80.3 (53.2) (0.4) 260.6 (2.8) 11.0 8.3 (0.1) 303.7 (28.4) 1.5 276.8 (135.9) 140.9

  11. UK Bus trading results • Revenue growth 22.6% to £339.6m (2005: £276.9m) • revenue growth 10.6%, excluding acquisitions of Glenvale and Traction • new concessionary fare schemes • Like-for-like passenger volume growth 6.1% (see slide 11) • includes impact of new concessionary fare schemes • Operating margin 11.3% (2005: 11.2%), excluding acquisitions of Glenvale and Traction • Glenvale and Traction operating profit £0.5m (2005: operating loss £0.8m) • Disposal of London bus completed August 2006

  12. UK Bus revenue development Continuing £m % Glenvale/ Traction £m % Discontinued £m % Total £m % 2005 revenue as previously reported Traction Disposals in year Passenger volumes (incl impact of new concessionary fare schemes) Tender wins/ contract amendments Fare increases megabus.com (incl impact of services transferred out to Citylink JV) Timing impact of prior year acquisition 2006 revenue 270.1 Nil Nil 16.4 1.7 12.1 (1.7) Nil 298.6 n/a n/a 6.1% 0.6% 4.5% (0.6)% n/a 10.6% 6.8 30.3 Nil Nil Nil Nil Nil 3.9 41.0 445.6% n/a n/a n/a n/a n/a 57.3% 502.9% 111.0 Nil (111.0) Nil Nil Nil Nil Nil Nil n/a (100.0)% n/a n/a n/a n/a n/a (100.0)% 387.9 30.3 (111.0) 16.4 1.7 12.1 (1.7) 3.9 339.6 7.8% (28.6)% 4.2% 0.4% 3.1% (0.4)% 1.0% (12.5)%

  13. UK Bus revenue growth • Stagecoach UK Bus: 10.6% like-for-like revenue growth • Growing share of UK Bus market • Consistent like-for-like revenue growth

  14. North America trading results • Revenue £135.7m (2005: £130.8m) • 10.8% increase in constant currency revenue excluding closed/disposed business units • Operating margin 12.3% (2005: 12.0%) • Deploying assets to maximise returns • Excluding Megabus, operating margin up from 12.0% to 12.8% • Operating profit £16.7m (2005: £15.7m) • US$31.2m (2005: US$28.3m) • excellent revenue growth • strict cost control

  15. North America revenue breakdownby product October 2006 US$m October 2005 US$m % Growth Megabus Scheduled service/Line run/Commuter Charter Sightseeing & Tour School Bus & Contract Before closed business units Closed business units Total 2.2 93.9 53.3 55.9 43.9 249.2 4.3 253.5 - 87.3 47.1 51.9 35.3 221.6 13.8 235.4 n/a 7.6% 13.2% 7.7% 24.4% 12.5% 7.7%

  16. Rail trading results Rail subsidiaries • Revenue £276.8m (2005: £245.6m), up 12.7% • Operating profit £31.4m (2005: £24.4m) • Passenger volumes up 8.5% at SWT • Revenue and profit share to Department for Transport £43.0m (2005: £27.8m) • Bid costs £8.0m (2005: £6.9m)

  17. Virgin Rail Group (“VRG”) • Share of profit after finance income and tax £3.7m (2005: £4.5m) • Significant progress on agreeing long-term commercial arrangements for West Coast • CrossCountry • Current contract ends on 10 November 2007 • VRG invited to tender for New CrossCountry franchise

  18. Taxation October 2006 Pre-tax Profit £m Tax £m Effective Rate % Pre intangibles and exceptionals* Exceptional items Intangible asset expenses Results for the period* Cash tax paid (net) 79.6 27.4 (7.5) 99.5 (20.7) (6.4) 1.5 (25.6) 11.4 26.0% 23.4% 20.0% 25.7% * Adjusted for share of VRG’s tax, classified within operating profit under IFRS Excludes discontinued operations and any exceptional items relating to these discontinued operations

  19. Pensions • Significant reduction in retirement benefit obligations • £144.3m (30 April 2006: £222.2m) • £22.8m exceptional past service credit reduces IAS19 pension liability • £57.0m of additional contributions reduces IAS19 pension liability • Rail pension schemes: under IFRS, only the part of the deficit that we expect to fund is recognised • Changes to schemes

  20. Balance sheet & financing • Net funds+ £140.9m ( October 2005: net debt £208.9m) • EBITDA*/finance charges cover 32.9 times (2005: 8.7 times) • Continuing management objective to optimise capital structure • Proposed return of value of no less than £400m • Shareholders to participate pro-rata to ordinary shareholdings • Ordinary share consolidation • £50.0m pension contribution agreed in principle • + UK GAAP definition • * from continuing group companies, before exceptional items

  21. Brian Souter Chief Executive

  22. Group strategic objectives • Key 5 year strategic objectives achieved • Restructuring of North American operations • Repositioning of UK Bus • Retention of South Western rail franchise • Organic growth in core operations

  23. Group strategy Quality operations driving strong results Excellent operational performance • Bus operator of the Year – second year running • South West Trains punctuality consistently above 90% • Improved punctuality at Virgin Rail Group • UK Bus reliability 99.5%* ↓ Strong financial results • Adjusted EPS up 7.4% • Revenue from continuing operations* up 10.0% • Absorbing increased fuel costs • Interim dividend up 9.1% • * excluding acquired Glenvale and Traction operations

  24. UK Bus Drivers of continued strong performance • Entrepreneurial expertise and investment focused on regional bus operations • Strong partnerships with public sector (e.g. Kickstart successes) • Marketing strategies generating growth • Acquisition integration on target at Glenvale and Traction Group • Concessionary travel schemes • Strong like-for-like volume growth

  25. Group strategy UK Bus passenger volume growth Passenger volume growth by operating company – excluding London October 2006 v October 2005 Overall passenger growth 6.1% > 10% 6 - 10% 0 - 5%

  26. Group strategy – Rail • Deliver on commitments and opportunities in South Western and West Coast Mainline franchises • Opportunities to expand rail portfolio • East Midlands • New CrossCountry franchise (at Virgin Rail Group) • Further development of megatrain.com

  27. Group strategy – North America • Revenue and margin growth • Core scheduled services • Contract wins • Capitalise on continued strong leisure bounce-back • New product development and improved marketing • megabus.com • Launch of New York Duck Tours • Web-based sales

  28. Current trading and outlook • Current trading in line with our expectations • Continued focus on organic growth and bolt-on acquisitions in UK and North American bus markets • Evaluate opportunities for new rail franchises • Good potential for further growth

  29. Interim Results6 December 2006

  30. Appendices

  31. North America revenue development Ongoing business units US$m Closed/ disposed units US$m Total US$m 2005 revenue Year on year impact of closed/disposed business units US$/C$ currency impact Underlying growth 2006 revenue 221.6 Nil 3.7 23.9 249.2 13.8 (9.5) Nil Nil 4.3 235.4 (9.5) 3.7 23.9 253.5

  32. Rail revenue development £m % 2005 revenue SWT Passenger volumes SWT Fares/yield SWT Other Island Line/Supertram 2006 revenue 245.6 20.4 8.2 1.8 0.8 276.8 8.3% 3.3% 0.7% 0.3% 12.7%

  33. Finance charges ratios October 2006 £m October 2005 £m Finance charges (net)* EBITDA from continuing Group companies, pre-exceptionals* (slide 8) EBITDA from continuing Group companies, pre-exceptionals*/finance charges* 3.3 108.5 32.9 times 10.6 92.4 8.7 times * UK GAAP definition

  34. Finance charges Average balance* £m Finance charges £m Annual effective rate % Gross debt & related derivatives Interest bearing cash balances Non-utilisation/commitment fees Amortisation of bond issue costs/bank charges Insurance letters of credit Discount on insurance provisions Other 337.0 265.0 8.0 (6.5) 1.5 0.5 0.1 0.4 1.4 (0.6) 3.3 4.7% 4.9% *Average of month end debt/cash balances

  35. Fuel hedging 6 months to 31 October 2006 6 months to 30 April 2007 Forecast 2007/08 Forecast 2008/09 % of Group fuel hedged - fixed - cap/floor Average hedge price (crude price US$/barrel) - fixed - cap/floor 20% 76% US$50 US$83/US$54 19% 77% US$60 US$83/US$54 Nil 52% n/a US$83/US$54 Nil 45% n/a US$83/US$54 • The Group’s UK Bus and North American bus operations consume the equivalent of 1.6m barrels of fuel a year • Each US$10 per barrel movement in crude oil price impacts variable fuel costs by approximately • US$16m if no hedging in place • Amounts shown for future periods exclude London bus operations

  36. Capital expenditure Capex on new hire purchase £m Impact of capex on net debt £m Disposal proceeds** £m Net £m Cash spent on capex* £m UK Bus North America Rail 32.2 - - 32.2 43.9 8.5 1.9 54.3 (0.7) (0.4) - (1.1) 43.2 8.1 1.9 53.2 11.7 8.5 1.9 22.1 * Excludes capitalised intangible assets of £0.1m and additions made as part of business combinations ** Excludes proceeds from selling businesses

  37. Exchange rates October 2006 October 2005 Closing rate Average rate Closing rate Average rate US$ NZ$ C$ 1.9073 n/a 2.1370 1.8687 n/a 2.0914 1.7703 2.5295 2.0881 1.7989 2.5706 2.1836

  38. Interim Results6 December 2006

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