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Financial Review

Year at a glance

We have continued our track record of delivering strong financial results. Profit before tax increased by 44.0% to £149.9m (2006: £104.1m), driven by a 14.6% increase in operating profit to £162.3m (2006: £141.6m). Basic earnings per share from continuing operations improved 39.4% to 73.6p (2006: 52.8p).

Our financial key performance indicators are based on normalised results, which we feel reflect the performance of the business more appropriately. Normalised results are defined as the statutory result before the following, as appropriate: profit or loss on the sale of businesses, exceptional profit or loss on the disposal of non-current assets and charges for goodwill impairment, intangible asset amortisation, exceptional items and tax relief thereon as appropriate.

Normalised group operating profit was up by 11.3% to £205.6m (2006: £184.8m), on revenue of £2,615.4m (2006: £2,525.5m) resulting in an increased operating margin of 7.9% (2006: 7.3%). Normalised profit before tax increased by 13.4% to £177.0m (2006: £156.1m), driving a 9.7% increase in normalised diluted earnings per share to 83.9p (2006: 76.5p).

Reflecting this earnings growth and the Board’s confidence for its future prospects, the proposed final dividend per share will be increased by 10.0% to 26.40p (2006: 24.0p). This results in a full year dividend per share of 37.96p (2006: 34.75p), an increase of 9.2%.

Net debt increased by £472.4m to £910.8m (2006: £438.4m), with £481.9m of the increase resulting from our acquisition of Continental Auto in Spain.

Divisional review

Commentary on the divisional results is included in the Operational Review above. Specific financial points to note are included below.

Trains

Revenue decreased 2% as a result of franchises leaving the Group. Normalising the result for franchise exits, revenue increased by 11%.

The business margin has improved to 4.3% (2006: 3.3%). The Central Trains, Silverlink and Midland Mainline franchises expired in November 2007, and as part of the DfT re-mapping exercise, Gatwick Express leaves the Group in June 2008. The settlement of working capital balances in respect of trains franchises that have finished will continue to result in operating cash outflows.

Coaches

The trading results for the start up business National Express Dot2Dot were in line with the business plan, with revenue of £3.1m resulting in an operating loss of £4.8m. This has been reported as part of the UK Coach results. Consequently on a like for like basis the Coach margins increase to 12.2% (2006: 11.4%).

Spain

In local currency, we generated normalised operating profit of €74.3m (2006: €65.0m) on revenue of €434.9m (2006: €365.6m). We are pleased to have maintained our margins above 17%.

The integration of Continental Auto into Alsa is a major project covering the systems for sales, vehicle maintenance and financial reporting. We started this project as soon as the sale completed in October and expect it to be completed by mid-2008. The valuation work on intangibles and key assets will be included in the 30 June 2008 balance sheet in accordance with IFRS 3, "Business Combinations".

North America

In local currency, North America increased normalised operating profit to US$75.5m (2006: US$72.3m). Revenue has increased by 18% to US$617.5m (2006: US$524.0m).

As reported in last year’s results, historic fuel hedges that were in place ended in 2006, which resulted in a US$13m increase in the cost base in 2007. This resulted in a lower margin of 12.2% (2006: 13.8%).

Following the Group’s announcement of the planned sale of the operating lease on Stewart International Airport, the assets and related liabilities of the disposal group were separately identified in the 2006 balance sheet, in accordance with IFRS 5, ‘Non-current assets held for sale and discontinued operations’. The business did not meet the definition of a discontinued operation, therefore the results, which do not make a significant contribution, are included within continuing operations in 2007 and 2006.

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