annual results 2004 1 annual results 23 rd june 2004

1 Annual Results 2004

Annual ResultsAnnual Results2323rdrd June 2004 June 2004


Robert SpeirsRobert Speirs

ChairmanChairman


Highlights Strong year of growth and delivery of strategic objectives

Turnover from continuing operations up 4.9%

Strong financial and operational performances at UK Bus and South West Trains

Restructuring of North American business successfully delivered

Net debt reduced to £67.6m from £560.0m last year

Final dividend of 2.0p per share (giving full year dividend of 2.9p (2003 - 2.6p)) – up 11.5%

Return of capital to shareholders – 18p per share


Martin GriffithsMartin Griffiths

Finance DirectorFinance Director


Financial Highlights Turnover from continuing businesses up 4.9%

£1,659.4m (2003 - £1,581.4m)

Up 5.9% at constant exchange rates

Operating margin enhancement in continuing divisions*

2004 2003 % %

Before goodwill amortisationand restructuring costs 8.4% 6.6%

Including goodwill amortisationand restructuring costs 7.0% 4.7%

* Excluding disposed Citybus, Road King and Trainline businesses but including all of North America; before exceptional items


Turnover

Total operating profit/(loss)*- pre goodwill & exceptionals* (after restructuring costs)

Profit/(loss) before tax

- pre goodwill & exceptionals

Free cash flow**

Adjusted earnings per share

Dividend per share

2004£m

2003£m

1,792.3

129.7

147.5

95.8

120.2

209.5

6.7p

2.9p

2,076.6

(466.2)

146.4

(500.2)

112.9

217.8

6.4p

2.6p

Financial Summary

* After restructuring costs of £7.2m (2003 - £6.3m)** Free cash flow comprises net cash inflow from operating activities, dividends from joint ventures and associates, net cash inflow/(outflow) from returns on investments and servicing of finance, and taxation.


2002/2003 Profit before taxOperating profit of retained businesses:- UK Bus- New Zealand- North America- Rail – underlying- Virgin Rail Group- Other JVs and associatesOverheadsReduction in underlying finance chargesExceptionals & goodwill

Rail – non-recurring liquidated damagesCitybus (disposed)Road King (disposed)Trainline (disposed)Restructuring costs2002/2003 gain on repurchase of bonds2003/2004 Profit before tax

Profit Reconciliation

(613.1)

--------

582.1(31.0)

-6.6----

(24.4)

(500.2)

7.8(0.5)0.8

14.46.30.41.0

21.3582.1133.4

(8.5)(11.5)

(3.5)1.9

(0.9)(15.1)95.8

112.9

7.8(0.5)0.8

14.46.30.41.0

21.3-

164.4(8.5)

(18.1)(3.5)1.9

(0.9)(15.1)120.2

Reported£m

Exceptionals & Goodwill

£m

Pre goodwill & exceptionals

£m


EBITDA

UK BusNorth America (Coach USA)Overseas BusRailVirgin Rail GroupthetrainlineRoad KingOthers

Overheads & restructuringEBITDA before exceptionals

2004£m

2003£m

117.630.118.346.413.5(2.4)7.0

(0.4)230.1(15.4)214.7

112.049.551.840.9

7.2(4.3)10.5(0.8)

266.8(15.1)251.7


Opening net debtCash flows from operationsRoad King dividendsNet interest receivedTax paidDividends paidNet capital expenditure and new hire purchase financeAcquisitions/disposals Foreign exchange and other movementsClosing net debt

£m(560.0)214.3

4.10.5

(9.4)(35.6)(78.8)364.2

33.1(67.6)

Movement in Net Debt


UK Bus Trading Results

Turnover growth 8.7% to £650.2m Underlying passenger growth 1.4% outside London Strong contribution from London companies

19.1% turnover growth Improved operating margin

11.5% versus 11.2% in 2003 12.2% versus 11.3% excluding operating lease impact

and business development costs


UK Bus Profit Analysis

TurnoverUnderlying profitMarginDeduct increased operating lease costsAdd saving in depreciation arising fromoperating leases

MarginDeduct Megabus & Taxibus start-upsOperating profit as reported

Margin as reported

30 April 2003£m

650.279.612.2%(5.0)

2.076.611.8%(1.8)74.8*

11.5%

598.467.611.3%(1.1)

0.567.011.2%

-67.0

11.2%

30 April 2004£m

*After £9.9m increase in pensions/NI costs


North America Trading Results

Turnover £336.8m (2003 - £603.0m) 5.1% like for like turnover increase in second half*

0.3% like for like turnover increase for year* Operating profit** £14.8m (2003 - £14.0m)

US$25.4m (2003 – US$21.8m) strict cost control overhead reduction

* Like for like turnover increase is measured as the change in turnover from residual businesses excluding the impact of foreign exchange movements

** Pre restructuring costs, exceptional items and goodwill amortisation


North America Turnover Breakdown

Residual businesses- North East- North Central- Canada

Residual taxi businesses to be disposed ofDiscontinuedTotal

£ equivalent

213.9109.641.8

365.317.3

193.8576.4

£m336.8

30 April 2004Turnover

$m

211.7110.238.4

360.317.0

561.7939.0

£m603.0

30 April 2003Turnover

$m


New Zealand Trading Results

Turnover £58.3m (2003 - £51.0m)

1.6% turnover growth (excluding currency movements)

2003 revenue base includes impact of America’s Cup

Operating profit £10.7m (2003 - £11.2m)

NZ$29.5m (2003 – NZ$34.8m)

Operating margin 18.4% (2003 – 22.0%)


Rail Trading Results

Rail Subsidiaries

Turnover £438.9m (2003 - £413.6m)

Operating profit £44.1m (2003 - £38.2m*)

Passenger volumes up 3.2% at SWT

Operating profit stated after franchise bid costs

*Included £8.5m of non-recurring liquidated damages


Rail Profit Analysis

SWT operating profit per bid

Passenger income

Net Sch 7/Sch 8 performance payments

Electric current for trains

Staff costs

Other Costs

Revenue/Profit share to the SRA

Actual SWT operating profit

Other

Total Rail operating profit

30 April2004£m

25.2

15.3

4.7

5.9

2.5

18.5

(27.6)

44.5

(0.4)

44.1


Joint Ventures and AssociatesVirgin Rail Group

Share of turnover £288.4m (2003 - £276.1m)

Share of operating profit £13.5m (2003 - £7.2m)

Out-performed budget set by SRA

Trainline

Disposed February 2004

Share of turnover £8.1m (2003 - £11.0m)

Share of operating loss £2.4m (2003 – loss of £4.3m)

Road King

Disposed January/February 2004

Share of operating profit £7.0m (2003 - £10.5m)


Taxation

Pre goodwill and exceptionalsExceptional itemsGoodwill amortisationResult for the yearOne-off exceptional tax credit

Cash tax paid (net)

Pre-tax£m

Tax£m

120.2(6.6)

(17.8)95.8

-95.8

(32.3)(0.2)0.3

(32.2)41.0

8.89.4

%

26.9%3.0%1.7%

33.6% N/A

(9.2)%

2004


Fuel Hedging

% of group fuel hedged

Average hedge price $/barrel

Average US$/£ rate

Average unhedged floating price $/barrel

Variable fuel costs of continuing businesses

2003/04 2004/05100%

$24

1.7115

$32

£31m

40%

$24

1.84

$38

£37m

2005/064%

$24

1.84

$38

£42m

Continuing businesses use 1.81m barrels of fuel a year (288m litres)Each $5 per barrel movement in crude oil price impacts variable fuel costs by approximately £5m if no hedging in place

2006/070%

N/A

1.84

$38

£43m


Pensions

Increased employer and employee contributions

£32.9m total pension costs (2003 - £31.2m)

£36.2m cash paid (2003 - £26.9m)

FRS17 post-tax deficit of £115.8m for UK Bus/Group

Down £40.4m from £156.2m

Financial support in new SWT franchise allows for cost of funding the deficit for SWT

Managed as part of overall cost base


Balance Sheet & Financing

Net debt down to £67.6m (2003 - £560.0m)

EBITDA*/Interest cover 7.9 times

Net Debt/EBITDA* 0.3 times

Progressive dividend policy

Evaluation completed of optimum balance sheet structure

Return of capital of approximately £250m

Investment grade rating confirmed after return of capital

New £440m 5 year bank facilities

* Before exceptional items


Proposed Return of Capital

“B” Share Scheme

Shareholders receive for every 24 ordinary shares:

19 consolidated ordinary shares

24 “B” shares redeemable at 18p each

All shareholders treated equally

2004 final dividend payable per existing ordinary share

Approval at AGM – 27 August 2004

“B” shares issued – September 2004

Total return of approximately £250m


Return of Capital - Example Shareholder “A” holds 1,000 ordinary shares Share price 87p

1,000 existing ordinary shares(share price 87p)

791 ordinary shares(share price 87p)

1,000 “B” shares redeemable at 18p each

Redeemed for cash of £180

% shareholding unchanged

VALUE = £870

VALUE = £868


Current Trading & Outlook

Group trading in line with our expectations Expected revenue and profit growth in UK Bus and North

America SWT trading under the terms of the new three year

franchise New Zealand trading in line with expectations Virgin Rail Group

SRA budget 2004/05 Franchise negotiations progressing well


Brian SouterBrian Souter

Chief ExecutiveChief Executive


Group Strategy (1)

UK Bus – Margin Development Programme Solid foundations Kickstart

Commercial Government assisted

New Products Megabus Oxford Tube re-launch Envirox fuel additive Electric bus

What next? Commercial Park and Ride Optical Guidance


Charter23%

Transit11%Scheduled

service/Line run/Commuter

28%

Taxi15%

School Bus & Contract

14%

Sightseeing & Tours (incl New York)

9%

Group Strategy (2)North America Restructured business – robust business model with more predictable

earnings Small add-on acquisitions Leisure upturn

Charter20%

Sightseeing & Tours (incl New York)

16%

Scheduled service/Line

run/Commuter46%

School Bus and Contract

18%

Year ended 30 April 2003 Residual businesses 2004

$939m $365m


Group Strategy (3)

UK Rail Return to high volume growth Maximise potential from VRG Five year extension at SWT New franchise opportunities

Commuter Inter-city


Summary

Strong trading performance across the Group with focused management

Strengthened balance sheet allowing return of capital and dividend growth

Current trading in line with our expectations


Appendices


UK Bus Revenue Development

2002/03 turnover

Passenger volumes

Tender wins/ contract amendments

Fare increases

2003/04 turnover

144.2

-

24.3

3.2

171.7

16.9%

2.2%

19.1%

London

£m %

454.2

6.4

-

17.9

478.5

1.4%

-

3.9%

5.4%

598.4

6.4

24.3

21.1

650.2

1.1%

4.1%

3.5%

8.7%

Outwith London

£m %

UK Bus

£m %


171.7

478.5

650.2

9.7%

12.1%

11.5%

16.7

58.1

74.8

144.2

454.2

598.4

10.5%

11.4%

11.2%

15.1

51.9

67.0

UK Bus - London/Other

2004

Operating Operating

Turnover Profit Margin

£m £m %London

Other

2003

Operating OperatingTurnover Profit

Margin £m £m

%


Overseas Bus Revenue Development

2002/03 TurnoverDisposal of Citybus and AustraliaCurrency movementsVolumesFares/Business mix2003/04 Turnover

Citybus£m

New Zealand

£m

132.3(107.5)

(4.5)(2.5)-

17.8

51.0-6.41.6

(0.7)58.3

Australia£m

0.4(0.4)----

Total£m

183.7(107.9)

1.9(0.9)(0.7)76.1


Overseas BusSegmental results

132.3

51.0

0.4

183.7

14.4%

22.0%

-

16.5%

19.1

11.2

-

30.3

17.8

58.3

-

76.1

5.6%

18.4%

-

15.4%

1.0

10.7

-

11.7

2004

Operating Operating


£m £m %Citybus

New Zealand

Australia

Total

2003

Operating Operating


£m £m %


North AmericaRevenue Development

2002/03 Turnover

Underlying growth – second half

Underlying decline – first half

US$/C$ currency impact

Impact of disposals and other movements on non-core

2003/04 Turnover

360.3

8.2

(7.0)

3.8

-

365.3

578.7

-

-

-

(367.6)

211.1

939.0

8.2

(7.0)

3.8

(367.6)

576.4

Core continuing*

US$mOtherUS$m

TotalUS$m

* North East, North Central & Canada


Turnover of residual North American business

Scheduled service/Line run/CommuterCharterSchool Bus & ContractSightseeing & Tours (incl New York)2003/04 Turnover

North East$m

North Central

$m

126.121.124.142.6

213.9

18.335.440.515.4

109.6

Canada$m

19.418.2

2.71.5

41.8

Total$m

163.874.767.359.5

365.3


Rail Revenue Development

2002/03 Turnover

SWT Passenger volumes

SWT Fares

Passenger Charter

Other

2003/04 Turnover

£m %

413.6

12.9

13.5

(2.5)

1.4

438.9

3.1%

3.3%

(0.6)%

0.3%

6.1%


Interest/Debt Ratios

Finance charges* (net)

EBITDA pre-exceptionals

EBITDA pre-exceptionals/Finance charges

Net Debt/EBITDA

2004£m

2003£m

27.3

214.7

7.9 times

0.3 times

33.5

251.7

7.5 times

2.2 times

* 2003 includes £15.1m net gain on early redemption of bonds


Gross debt & related derivativesCash on deposit

Joint ventures & associatesNon-utilisation/commitment feesAmortisation of bond issue costs/bank chargesInsurance letters of creditDiscount on insurance provisionsInterest received on Corporation Tax refundOther

Finance charges

£m

AnnualEffective rate

%

36.8(10.6)26.2(1.2)0.40.61.32.8

(2.1)(0.7)27.3

6.3%3.5%9.3%

Finance Charges

Average balance*

£m

584(301)

283

*Average of month end debt/interest earning £ and $ cash balances


27.0----

27.0

45.323.1

6.94.43.3

83.0

(2.7)(0.9)(0.6)

--

(4.2)

42.622.2

6.34.43.3

78.8

18.323.1

6.94.43.3

56.0

Capital Expenditure

UK BusNorth AmericaNew ZealandDiscontinued - CitybusRail

Capex on new hire purchase

£m

Impact ofcapex onnet debt

£m

Disposalproceeds*

£mNet£m

Cash spent on

capex £m

*Excludes proceeds from selling businesses

Note: In addition to the above, vehicles with a capital value of £16.6m were acquired by UK Bus during the year on operating leases (2003 - £19.6m)


Fuel Usage and Impact of Crude Price

UK Bus

North America

New Zealand

Usage litresUsagebarrels

190m

76m

22m

288m

1.2m

0.47m

0.14m

1.81m

US$ variablecosts based

on $38 a barrel

$45.6m

$17.9m

$5.3m

$68.8m

Each $5 per barrel movement in oil price impacts fuel cost by approximately $9m


Exchange Rates

US$HK$*NZ$C$

Closing rate Average rate

1.598212.4648

2.85732.2929

1.557412.1464

3.10312.3985

April 2003

Closing rate Average rate

1.773413.8317

2.83502.4388

1.711513.3188

2.76002.2985

April 2004

* Average rate used for Citybus up to date of disposal – 12.7803

annual results 2004 1 annual results 23 rd june 2004

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