SGC.L Regulatory News (SGC)

5 December 2012

Stagecoach Group plc - Interim results for the six months ended 31 October 2012

Strong partnerships delivering revenue and profit growth in bus and rail operations

·; Group like-for-like* revenue up 5.9%

·; Earnings per share* up 66.3% to 16.8 pence (2011: 10.1 pence)

- Further growth in profit from bus operations

- Growth in rail profit with full effect of revenue support at East Midlands Trains

- Earnings-enhancing effect of October 2011 return of cash to shareholders

·; Interim dividend per share up 8.3% to 2.6 pence (2011: 2.4 pence)

·; UK Bus (regional operations):Partnership model and successful fares strategy delivering further revenue and operating profit growth

·; UK Bus (London): Turnaround of acquired business progressing to plan and profitability improved

·; UK Rail: Good revenue growth, increased profitability and strong operational performance. Further development of the alliance between South West Trains and Network Rail

·; North America: Further expansion of megabus.com network and good financial performance at recently acquired Coach America operations

·; Virgin Rail Group: Nearing agreement for continued operation of West Coast train services and plans to bid for new long-term West Coast franchise when tendered

Planning for the future

·; Board / senior management: management succession plan announced in August 2012

·; Financial planning: increased financing headroom through US$150m 10-year private placement

·; Rail franchising: engaging with UK Government to help deliver a better rail franchising model for passengers, taxpayers and investors

Financial summary

Commenting on the results, Chief Executive, Sir Brian Souter, said: 

"Our success is built on strong partnerships across our bus and rail networks. We are delivering a better service for passengers, growing our business sustainably and helping support local communities and the economy.

"In the UK, we have achieved further growth in our regional bus operations and we continue to make good progress at our contracted London bus business. Passenger revenue growth remains good on our UK rail networks and we have further developed the alliance with Network Rail at South West Trains.

"We are playing an active part in the UK Government's review into rail franchising. The private sector has been central to the huge growth of UK rail travel over the past 15 years and it is important that a sustainable rail franchising programme is restarted as quickly as possible.

"Virgin Rail Group has introduced more than 100 new Pendolino train carriages in recent months, boosting capacity on the West Coast mainline. We look forward to it shortly reaching an agreement with the UK Department for Transport for the continued operation of West Coast train services.

"In North America, we are pleased with the performance of the businesses acquired in the summer from Coach America. Our budget coach brand, megabus.com, continues to expand to new regions and we now offer low-cost travel to customers in around 120 locations in the United States and Canada.

"This summer, many of our employees put in a massive effort to deliver a hugely successful transport operation for the London 2012 Olympic and Paralympic Games. I am proud of their achievement and once again I would like to thank them for their professionalism and dedication.

"We see good potential ahead to grow our transport operations in the UK and North America, and we believe the outlook is positive. We are closely focused on the commercial opportunities from our investment in new technology, such as smartcards, digital marketing and social media. These developments are helping customers by making it easier to travel, easier to buy, and easier to get information. Innovation, value for money and strong operational delivery are also key elements of our ongoing programme to drive organic growth and we are making targeted acquisitions where these can add value to the Group."

Copies of this announcement are available on the Stagecoach Group website at http://www.stagecoach.com/investors/financial-analysis/reports/2012.aspx

For further information, please contact:

Stagecoach Group plc www.stagecoachgroup.com

Investors and analysts

Media

Notes to Editors

Stagecoach Group

·; Stagecoach Group is a leading international public transport group, with extensive operations in the UK, United States and Canada. The Group employs around 35,000 people, and operates bus, coach, train, and tram services.

·; Stagecoach is one of the UK's biggest bus and coach operators with around 8,000 buses and coaches. Around 2.5 million passengers travel on Stagecoach's buses every day on a network stretching from south-west England to the Highlands and Islands of Scotland. The Group's business includes major city bus operations in London, Liverpool, Newcastle, Hull, Manchester, Oxford, Sheffield and Cambridge. Low-cost coach service, megabus.com, operates between around 60 towns and cities across the UK.

·; Stagecoach is a major UK rail operator, running the South West Trains, Island Line and East Midlands Trains networks. It has a 49% shareholding in Virgin Rail Group, which operates the West Coast inter-city rail franchise.

·; Stagecoach also operates the Supertram light rail network in Sheffield.

·; In North America, Stagecoach operates around 2,900 buses and coaches in the United States and Canada. Megabus.com links around 100 key locations in North America. Stagecoach is also involved in operating commuter and transit services, contracted bus services, charters, sightseeing tours and a small number of school bus services.

Chairman's statement

The Group has delivered a strong performance in the first half of the 2012-13 financial year. The growth being delivered is underpinned by strong partnerships and a focus on safe, high-quality, good value transport.

While many businesses and sectors are continuing to struggle with challenging economic conditions, our bus and rail services have seen further growth in revenue and profit. A sustainable transport system is central to the future of our economy and our local communities, and we believe we are well placed to benefit from the opportunities ahead.

Commercial bus services in the UK are the cornerstone of the Group and we continue to deliver sector-leading profit margins. We have achieved further fare-paying passenger volume growth in our regional bus businesses where we offer the best value fares of any major UK operator. Investment in our networks, the roll-out of new ways to buy and use tickets and improved customer service are supporting our organic growth strategy. We have also recently announced three targeted acquisitions of UK bus businesses to complement our existing services.

In the London bus market, we continue to make good progress in restructuring the acquired business and improving its overall profitability.

North America offers significant growth opportunities with the continuing roll-out of our low-fare coach service, megabus.com. In recent months we have expanded to Texas and will shortly begin megabus.com operations in California, capitalising on the acquisition over the summer of a set of businesses from Coach America.

As previously reported, the United States Department of Justice and the New York Attorney General's Office are reviewing the creation of the Twin America joint venture, which was formed by Stagecoach North America and City Sights in 2009. We expect the authorities to announce the results of their review shortly.

Passenger revenue growth in our UK rail franchises at South West Trains and East Midlands Trains remains good. We have successfully established our ground-breaking alliance with Network Rail at South West Trains, which aims to deliver benefits from closer, more efficient working.

Virgin Rail Group ("VRG") is close to reaching an agreement to continue operating the West Coast train services beyond the end of the current franchise on 8 December 2012, which will ensure continuity for passengers and employees. The serious flaws in the competition for the InterCity West Coast rail franchise earlier this year have been well documented. However, we are clear that VRG's bid was robust and deliverable. VRG has assisted with the recent Laidlaw review of the West Coast franchise process and looks forward to bidding for the long-term franchise under an improved process when it is re-tendered in due course.

Richard Brown, a Non-Executive Director at the UK Department for Transport, is leading a review into the wider UK rail franchising system and we have set out our ideas to him on how we believe the system can be improved. We believe the private sector and franchising on the right terms can deliver significant benefits to passengers, taxpayers and investors. We remain keen to support the Government in delivering an improved, sustainable process with a view to getting the franchise programme restarted as soon as possible.

The Group has achieved good revenue and profit growth in the six months to 31 October 2012. Revenue for the period was £1,403.3m (2011: £1,293.7m). Total operating profit (before intangible asset expenses and exceptional items) was up 33.7% at £142.0m (2011: £106.2m). Earnings per share before intangible asset expenses and exceptional items were 66.3% higher at 16.8p (2011: 10.1p), reflecting the higher operating profit and the earnings enhancing effect of the October 2011 return of cash to shareholders.

In line with the Group's performance and consistent with our policy of generally setting the interim dividend per share at approximately one-third of the rate for the previous full financial year, the Directors have declared an interim dividend of 2.6p per share (2011: 2.4p). The dividend is payable to shareholders on the register at 8 February 2013 and will be paid on 6 March 2013.

Stagecoach has made a good start to the second half of the 2012-13 financial year. Current trading is in line with our expectations and the Group remains in a strong financial position.

The Group announced in August 2012 a number of Board changes as part of its succession planning. With effect from 1 May 2013, I will retire as a director and Sir Brian Souter, the Group's co-founder and current Chief Executive, will become Chairman. Garry Watts will continue as Senior Independent Non-Executive Director and, in addition, becomes Deputy Chairman. Finance Director Martin Griffiths will succeed Sir Brian as Chief Executive and Ross Paterson, Director of Finance & Company Secretary, will join the Board as Finance Director. The Board has begun the process to appoint a further independent Non-Executive Director, who will chair the Audit Committee.

Finally, my thanks go to our employees in the UK and North America who help our three million customers a day get to their destination by bus, coach, tram and train. In particular, I would like to pay tribute to the Stagecoach teams from Orkney in Scotland to Porth in Wales and Dover in England who delivered a fantastic transport operation at the London 2012 Olympic and Paralympic Games and were such great ambassadors for our Group and our country.

Sir George Mathewson

Chairman

5 December 2012

Interim management report

The Directors of Stagecoach Group plc are pleased to present their report on the Group for the six months ended 31 October 2012.

Description of the business

Stagecoach Group plc is a public limited company that is incorporated, domiciled and has its registered office in Scotland. Its ordinary shares are publicly traded and it is not under the control of any single shareholder. The Company has its primary listing on the London Stock Exchange. Throughout this document, Stagecoach Group plc is referred to as "the Company" and the group headed by it is referred to as "Stagecoach" or "the Group".

The Group is a leading international public transport group, with extensive operations in the UK, United States and Canada. A description of each of the Group's operating divisions is given on pages 4 to 6 of its 2012 Annual Report.

Overview of financial results

The Group has achieved continued good financial and operational performance in the six months ended 31 October 2012.

Revenue by division is summarised below:

Operating profit by division is summarised below:

UK Bus (regional operations)

Financial performance

The financial performance of the UK Bus (regional operations) division for the six months ended 31 October 2012 is summarised below:

The financial results for the six months ended 31 October 2012 include revenue of £18.8m and operating profit of around £4m arising from the successful delivery of contracts to provide transport for the media and athletes at the London 2012 Olympic and Paralympic Games. This additional revenue of £18.8m is excluded from the like-for-like revenue figures shown above.

Passenger and revenue growth

Like-for-like full-fare passenger volume growth in the period was 1.3%. Like-for-like revenue was built up as follows:

The like-for-like revenue growth of 4.1% is higher than the 3.6% reported previously for the twenty four weeks ended 14 October 2012. This is principally due to £1.8m of revenue recognised in the period 15 to 31 October 2012 in relation to the resolution of a claim for concessionary revenue. Excluding this, like-for-like revenue for the six months ended 31 October 2012 was 3.7%.

We have delivered further revenue growth at our UK Bus (regional operations) whilst like-for-like vehicle miles operated increased by only 0.3%. Our focus on commercial revenue, where we have greater flexibility to manage pricing, service patterns and frequencies, is reflected in the like-for-like revenue growth of 5.9% reported for that category. The lower rate of growth in concessionary revenue reflects reduced passenger volumes partly due to poorer summer weather and pressure from local authorities to minimise concessionary reimbursement rates in light of budgetary pressures they face, which has also resulted in reduced revenue from tendered and school services.

The increase in operating margin was built up as follows:

Staff costs have fallen as a proportion of revenue principally as a result of lower pension expenses.

In April 2012, the proportion of fuel duty that is rebated to bus operators was cut. The rebate is known as Bus Service Operators' Grant ("BSOG") and in the six months ended 31 October 2012, the rebate earned by the Group was £5.2m below the equivalent prior year period. This is proportionately lower than the decrease expected for the full year due to the timing of when additional BSOG "bonus" payments were recognised.

Although fuel costs fell as a proportion of revenue in the six months ended 31 October 2012, unit fuel costs in the six months ending 30 April 2013 are expected to be higher than in the six months ended 31 October 2012, reflecting anticipated increases in fuel duty and the phasing of the Group's fuel hedges.

Local bus networks

We are continuing to deliver sector-leading profit margins through our value fares strategy, continued investment in our fleet and the roll-out of new technology solutions to make travel easier for our customers. In the past five years, Stagecoach has invested more than £370m in hundreds of new vehicles for local communities and for our inter-city coach services. We are continuing with the roll-out of our StagecoachSmart travel cards and they are now in use at a number of our UK bus businesses. We are also working on integrated bus-rail smart ticketing and taking part in the UK's first trial of near-field communications technology using mobile phones for ticketing on public transport.

Our strong partnerships with transport authorities around the country are working well. In Oxford, we are part of a successful multi-operator smart ticketing partnership, which was recently highlighted by the Government's Transport Select Committee as it endorsed partnership working as key to delivering service improvements. In South Yorkshire, passengers are also benefitting from a partnership agreement which is delivering affordable fares, smarter multi-operator ticketing, and newer, greener low-floor buses.

The Tyne and Wear Integrated Transport Authority, with the support of the five councils in Tyne and Wear, is exploring the respective benefits of a new Voluntary Partnership Agreement with bus companies, and a Quality Contracts Scheme, in which bus services would be offered under franchise by a single public body. We have a strong bus business in Tyne and Wear, which generated revenue of around £60m in the year ended 30 April 2012, and the region has the highest level of bus passenger satisfaction in the UK at 91%. We passionately support working in partnership across our transport operations, as evidenced by our successful approach in Oxford and South Yorkshire referred to above, and in our UK Rail Division where we have established a ground-breaking Alliance between South West Trains and Network Rail. Stagecoach is firmly opposed to Quality Contracts and we will vigorously resist any proposals to introduce them in the areas where we currently operate. We believe the highly centralised, inflexible and bureaucratic approach of Quality Contracts would result in poorer value for money for taxpayers, inefficient bus operations and a worse service for customers.

Cost control

We have taken successful steps to manage the impact of cuts in public sector spending, including the reductions in Bus Service Operators' Grant which took effect in April 2012. Measured fares changes and adjustments to our bus networks have protected services and ensured they remain good value. These developments have also made our business less dependent on Government spending.

Investment in improved energy management systems, eco driving technology and intelligent lighting systems are also helping control our fleet and buildings costs, as well as cut our carbon emissions.

Acquisitions

We continue to evaluate acquisition opportunities in the UK Bus market. Such opportunities tend to be small relative to the size of our existing operations, reflecting the stability in ownership of the majority of UK Bus operators and the approach taken by the UK competition authorities.

We have recently completed the acquisition of a UK bus business and announced plans to acquire two other UK bus businesses, being:

Outlook

We expect revenue growth in the second half of the financial year ending 30 April 2013 to remain relatively modest, as the organic growth in commercial revenue is partially offset by pressure on concessionary, tendered and contract revenue. We remain positive on the prospects for our regional bus operations as we continue to focus on running good value commercial services where we have flexibility on fares and service patterns. The division is well placed to deliver some growth in operating profit in the year ending 30 April 2013.

Our bus operations in the UK have proved robust and continued to perform well during weak macroeconomic conditions and a period of downward pressure on Government spending. As conditions improve, we believe the division is well placed to grow further by capitalising on rising motoring costs, worsening road traffic congestion, and public policy and consumer opinion focused on greener lifestyles.

UK Bus (London)

Financial performance

The financial performance of the UK Bus (London) division for the six months ended 31 October 2012 is summarised below:

The 0.6% decline in revenue at our London bus operations is consistent with our previous expectation that some less profitable contracts would not be retained as we restructured the acquired business and improved its overall profitability. This reflects the revenue lost from contracts that ended during the year to 30 April 2012. For the year as a whole to 30 April 2013, UK Bus (London) is well placed to maintain revenue with contract losses being offset by some contract wins and inflationary price increases on existing contracts.

Our turnaround programme for our London Bus operations, which we acquired in October 2010, is progressing to plan. Although the competitive environment remains challenging, we are benefitting from overhead cost savings through synergies with our other UK operations, and unit labour cost savings following negotiated agreements with staff on working practices and productivity. The closure of one depot last year has allowed us to closely match capacity with our contract portfolio and hence improve operational efficiency.

The improvement in operating margin was built up as follows:

The results for the six months ended 31 October 2012 includes a net cost of £0.8m as a result of the agreement reached between London bus operators, Transport for London and trade unions to pay additional amounts to bus operators' employees in connection with the 2012 London Olympics.

The financial effect of the positive steps taken to reduce unit staff costs is reflected in the improved operating margin.

In common with the regional UK Bus operations, the London Bus operations experienced a reduction in the rate of Bus Service Operators' Grant from April 2012 partly offset by underlying fuel costs reducing as a percentage of revenue for the six months. Lease costs have increased as a percentage of revenue as a higher proportion of the fleet is held on operating lease. Other costs have been lower as a percentage of revenue principally due to higher maintenance spend in the comparative period to improve fleet reliability.

Since we acquired the London Bus operations in 2010, we have bid to retain contracts with an approximate annualised revenue of £46.9m and have retained approximately 78% of that revenue. We have also won new contracts from other operators with an approximate annualised revenue of £2.7m.

The current, contracted, annualised revenue base (excluding contingent quality incentive income and any miscellaneous income) of the Group's London bus operations is estimated at £224.6m and can be analysed by contract expiry date as follows:

Outlook

We are encouraged by continuing signs that our new tender strategy is resulting in contract wins and retentions on realistic profit margins. Further work remains to be done, however we are pleased with our continuing progress and we see the UK Bus (London) division as well placed to deliver some growth in operating profit in the year ending 30 April 2013.

North America

Financial performance

The financial performance of the North America division for the six months ended 31 October 2012 is summarised below:

Like-for-like revenue was built up as follows:

The like-for-like growth for the six months of 9.3% is below the rate of 10.7% previously reported for the five months ended 30 September 2012. All revenue categories were affected in October 2012 by the severe storms in the North East of the United States.

In July 2012, we completed the acquisition of nine businesses and related assets from Coach America for a cash consideration of US$134.2m. Stagecoach also acquired a further 79 vehicles from Coach America for a cash consideration of US$25.9m.

The businesses we acquired include contract, line-run, charter and sightseeing operations. They extended our footprint into Texas, California, Georgia, Ohio, Wyoming, Nevada, Maryland and Oregon. The integration of these businesses into our existing operations in the United States has progressed well and they are making a good contribution to the profitability of the division. We have used the acquired depot infrastructure to expand our megabus.com budget coach network more quickly and efficiently, retaining direct operational control and avoiding the need to pay a sub-contract profit margin in these locations. We launched our Texas hub in June 2012 and our California hub starts running services this month (December 2012). We continue to have a relatively high level of investment mileage in this expansion period. Our megabus.com brand has high recognition in a growing market across the United States and Canada.

In addition to the expansion of megabus.com, the North American division has also seen growth in scheduled service/commuter, charter and sightseeing/tour revenue.

Operating profit for the six months ended 31 October 2012 was below the equivalent prior year period. This partly reflects the disposal of the profitable Wisconsin school bus operations in November 2011 and the continued start-up losses from new megabus.com services. We also invested in further preventative measures to enhance our industry-leading safety systems at megabus.com following a number of unrelated highway incidents during the period and in advance of Federal Motor Carrier Safety Administration guidance for the wider motorcoach and trucking sector. This reduced revenue and profit in the short-term, but reflects our absolute commitment to put safety and our customers first. megabus.com continues to have the highest safety rating and we remain focused on ensuring these high standards are maintained as we expand our operations and acquire new businesses. More recently, the severe storms in the North East of the United States have adversely affected operating profit in the month of October 2012.

Our companies and employees in the North East of the United States have provided transportation and other assistance to local communities both before and in the aftermath of Hurricane Sandy. We assisted with the evacuation of New Jersey's coastal communities, sending dozens of buses to Atlantic City and neighbouring towns to take people to safe locations, including state operated shelters. Much of the NJ Transit rail system was significantly impacted by the storm as well as the New York City subway system, the Holland tunnel between New York and New Jersey and a number of rail and bus maintenance facilities. In addition to our normal schedules, we have provided emergency shuttle services on behalf of NJ Transit and for many banks and financial services companies. Personnel from our joint venture New York sightseeing operations also worked alongside the City authorities and Google to provide transportation for volunteers to get from Manhattan to Staten Island, which was badly hit by the storm.

The reduction in operating margin was built up as follows:

Unit fuel costs have risen in North America and have in part been offset by revenue growing faster than the rate of change in staff costs and insurance and claims costs. Other costs have grown disproportionately to revenue reflecting start up costs for new megabus.com routes, increased costs of sub-contracting megabus.com services and increases in bus station and stop costs.

Outlook

Although the severe storms continued to affect the business in November 2012, the North America division continues to see excellent prospects for long-term growth, particularly as our newer megabus.com routes reach maturity. In the near term, however, we remain more cautious on the outlook for profit as we absorb losses on newer megabus.com routes.

UK Rail

Financial performance

The financial performance of the UK Rail division for the six months ended 31 October 2012 is summarised below:

The improvement in operating margin was built up as follows:

Certain rail franchises are eligible to receive "revenue support" from the Department for Transport to partly offset the extent to which actual revenue falls short of the revenue that was forecast as part of the successful bid for the relevant franchise. In the six months ended 31 October 2011, East Midlands Trains was not eligible for revenue support but following the macroeconomic downturn, its revenue was below the levels anticipated in the bid for that franchise. Accordingly, East Midlands Trains incurred a significant operating loss in that period. From November 2011, East Midlands Trains was entitled to revenue support which returned it to profitability and the turnaround in the profitability of the UK Rail Division in the six months ended 31 October 2012 is largely due to that factor.

Partly offsetting the increased revenue support income was an increase in the premia payments payable to Government in accordance with the relevant franchise agreements.

Staff and other costs have grown at a lower rate than revenue, as we remained focussed on controlling costs in light of economic uncertainty and increasing premia payments to Government.

During the six months ended 31 October 2012, the Group incurred £4.7m (2011: £Nil) of costs bidding for new rail franchise opportunities. This excludes costs incurred by Virgin Rail Group in bidding for the West Coast rail franchise.

Operational performance and passenger satisfaction

Strong revenue growth in our UK Rail division has been underpinned by consistently high levels of punctuality and customer satisfaction. In terms of punctuality, East Midlands Trains has been the best performing long distance train operator in the UK for the last four years. Punctuality at East Midlands Trains is 93.6%* on a moving annual average basis and is 91.9% at South West Trains. The latest National Passenger Survey, carried out in Spring 2012, shows overall satisfaction with South West Trains is 83% - higher than the average for train operators in London and the South East. Passengers using East Midlands Trains services were also highly satisfied, with 87% overall satisfaction.

________________

Investment in trains, stations and customer service

Passengers are continuing to benefit from our ongoing programme of investment in trains and stations. At East Midlands Trains we recently completed a programme of over £30m to fully refurbish our entire fleet of nearly 100 trains. Trains to London have been fitted with WiFi, which will help attract business and leisure customers to rail travel. A £10m station investment programme has benefitted the majority of locations on our network, and work recently started on the multi-million pound transformation of Nottingham station.

At South West Trains, we will be introducing more than 100 extra carriages between May 2013 and December 2014 to increase peak-time capacity. Work has also started on the £23m overhaul of our Class 455 electric trains, a project which has created new jobs. Around £27m is being spent upgrading and improving stations on the South West Trains network. It includes the recent completion of a major scheme at Southampton station to deliver a new transport interchange, a larger waiting area and booking hall, as well as better ticket facilities.

Delivery of clear and consistent information to passengers remains a key priority across our rail franchises. A new state of the art public address system has been introduced at London Waterloo, the UK's busiest railway station. Online "rainbow boards" were recently launched to provide passengers with an easy, at-a-glance guide to how their services are running. Our social media channels are also proving popular with customers. South West Trains has attracted 20,000 followers to its Twitter account in only a year and also recently launched a Facebook presence.

At East Midlands Trains, we have invested over £250,000 to install 30 new collection-only ticket machines at key stations. We are also rolling out smartcard technology across the network, which will allow monthly and annual season tickets to be stored electronically on a StagecoachSmart travel card. Smartcard readers have now been installed at 26 stations on the East Midlands Trains' network.

As part of our commitment to customer service, we have recently been awarded Investors in People status at East Midlands Trains and at South West Trains we have received the highest rating by the British Quality Foundation for our organisational performance.

Efficiency and cost control

In April 2012, South West Trains and Network Rail announced the formation of an alliance to deliver better and more efficient rail services in the south and south-west of England. A single senior joint management team now has responsibility for both trains and track on the route operating out of London Waterloo in a first for the UK rail industry. We have put in place new processes over the past six months which have improved the management of the railway infrastructure and the train service.

We are encouraged by the potential to improve customer service through the Alliance. In the short-term, we do not expect to realise significant financial savings but we continue to see opportunities for longer term financial savings as we develop the Alliance further. We are exploring how we can support Network Rail to achieve savings from its capital investment programme and deliver financial benefits to both South West Trains and Network Rail.

The office of Rail Regulation recently found that East Midlands Trains and South West Trains were both in the list of four train operating companies whose costs were consistently on or below the average for three measures used to compare costs across difference UK train operators.

Rail franchises

In August 2012, the Department for Transport confirmed that East Midlands Trains had fulfilled the criteria to ensure the automatic extension of its franchise, as expected, through to March 2015, and in November 2012, we received similar confirmation from the Department for Transport that South West Trains had met the criteria for its franchise to be automatically extended to February 2017.

In October 2012, the Department for Transport announced that the competition for the InterCity West Coast rail franchise had been cancelled due to flaws in how the Department applied the tender process. It also announced that it was commissioning two independent reviews into both the specific InterCity West Coast competition and rail franchising more widely. Stagecoach has contributed to the Brown review into the wider franchising system.

We believe the private sector and rail franchising on the right terms can deliver significant benefits to passengers, taxpayers and investors. We will support the Government in delivering an improved, sustainable process with a view to getting the franchise programme restarted as soon as possible. The Group remains shortlisted for new Greater Western and Thameslink rail franchises and will re-evaluate its bids when the pause on these competitions is lifted. Stagecoach Group will continue to bid for rail franchise opportunities we believe can add shareholder value.

Outlook

We are pleased at the continued good revenue growth from our rail operations and we expect the division to deliver a good profit in the full year to 30 April 2013. While the UK rail franchising timetable is currently on hold, we expect to continue to be a significant participant in future competitions where there is the right risk-reward profile.

Group overheads

Group overhead costs increased from £5.0m in the six months ended 31 October 2011 to £7.8m in the six months ended 31 October 2012, principally due to higher expenses related to the effect of the increase in the Group's share price on the charge for share based incentive schemes.

Virgin Rail Group

Financial performance

The financial performance of the Group's Virgin Rail joint venture for the six months ended 31 October 2012 is summarised below:

Virgin Rail Group ("VRG") has been operating the West Coast rail franchise under an eight-month extension since April 2012, which runs until 8 December 2012. During this time, VRG has successfully delivered services for the period of the London 2012 Olympics and managed the introduction of more than 100 new Pendolino train carriages, which will increase standard class capacity by more than 40%. Stagecoach Group's share of VRG's profit after tax for the extension period reflects the relatively low revenue risk. VRG is currently in receipt of contractual revenue support payments from the Department for Transport under the West Coast franchise but it remains a significant net financial contributor to the Department for Transport.

 In August 2012, the Department for Transport announced that VRG had not been awarded the new West Coast Trains rail franchise. VRG subsequently commenced Court proceedings seeking a review of the decision by the Department to award the contract to a subsidiary of FirstGroup plc. In October 2012, the Department announced that the competition for the InterCity West Coast Rail franchise had been cancelled and that it planned to conduct two independent reviews into both the specific InterCity West Coast competition and rail franchising more widely. It will refund the costs that bidders incurred in bidding for the long-term West Coast rail franchise that was due to begin in December 2012. VRG also expects to recover the legal costs that it incurred in challenging the Department's initial decision on the award of the franchise. We expect to record the Group's share of these refunds as exceptional income when the amounts of the refunds are agreed with and confirmed by the Department, which is likely to be during six months ending 30 April 2013. The independent Laidlaw report into the way the west Coast franchise competition was managed has confirmed our long-standing concerns about the process, technical failures and inconsistencies in how bids were treated. Nevertheless, we remain clear that VRG's bid was both robust and deliverable.

VRG is close to reaching an agreement with the Department for Transport to continue to operate the West Coast train services from the end of the current franchise on 8 December 2012.

Twin America

Financial performance

The financial performance of the Group's Twin America joint venture for the six months ended 31 October 2012 is summarised below:

Twin America grew profit in the six months ended 31 October 2012 by continuing to offer good-value fares and high standards of customer service. October and November 2012 have been affected by the severe storms in New York, which resulted in the business suspending its New York sightseeing services for several days.

As previously reported, the United States Department of Justice and the New York Attorney General's Office are undertaking a competition review of the Twin America joint venture, which was formed by Stagecoach North America and City Sights in 2009. Twin America has had further discussions with the authorities in recent weeks and we understand that the authorities are now well progressed with their review and we expect that they will announce the results of the review shortly.

Depreciation and intangible asset expenses

Earnings before interest, taxation, depreciation, intangible asset expenses and exceptional items (pre-exceptional EBITDA) amounted to £196.8m (2011: £156.6m). Pre-exceptional EBITDA can be reconciled to the financial statements as follows:

The income statement charge for intangible assets, which includes amortisation of the intangible assets acquired with the businesses bought from Coach America in July 2012, decreased from £6.8m to £5.6m due to a reduction in the expense related to Virgin Rail Group from £2.5m to £0.9m. The amortisation charge of intangible assets acquired with the East London Bus businesses in 2010 decreased as certain contracts the intangible assets related to expired.

Exceptional items

A pre-tax exceptional expense of £2.0m was recognised in the six months ended 31 October 2012. £1.4m of this was expenses incurred in relation to the acquisition of businesses from Coach America in July 2012, £0.5m was adjustments made to amounts recognised on previous acquisitions and disposals of businesses, and £0.1m was the loss on disposal of properties.

Finance costs

Net finance costs for the six months ended 31 October 2012 were £18.3m (2011: £17.5m) and can be further analysed as follows:

The increased net finance costs reflects higher average net debt following the October 2011 return of cash to shareholders and July 2012 acquisitions of businesses from Coach America.

Taxation

The effective tax rate for the six months ended 31 October 2012, excluding exceptional items, was 23.7% (2011: 24.2%). This is slightly higher than our expected rate for the full year ending 30 April 2013 due to the seasonality of taxable profits in different tax territories. The tax charge can be analysed as follows:

Fuel costs

The Group's operations as at 31 October 2012 consume approximately 383m litres of diesel fuel per annum. As a result, the Group's profit is exposed to movements in the underlying price of fuel. The Group's fuel costs include the costs of delivery and duty as well as the costs of the underlying product. Accordingly, not all of the cost varies with movements in oil prices.

The proportion of the Group's projected fuel usage that is now hedged using fuel swaps is as follows:

The Group has no fuel hedges in place for periods beyond 30 April 2016.

Cash flows

Net cash from operating activities before tax for the six months ended 31 October 2012 was £192.5m (2011: £170.2m) and can be further analysed as follows:

The working capital inflow of £26.0m arose principally in the UK Rail Division due to the timing of rail industry payment cycles.

Net cash from operating activities before tax was £192.5m (2011: £170.2m) and after tax was £191.3m (2011: £159.9m). Net cash outflows from investing activities were £170.4m (2011: £48.8m), which included £86.2m in relation to acquisitions and net cash inflow from financing activities was £8.7m (2011: outflow £225.7m), which in the prior year includes the part of the return of cash to shareholders that was funded from excess cash.

Net debt

Net debt (as analysed in note 17 to the condensed financial statements) increased from £523.8m at 30 April 2012 to £552.0m at 31 October 2012, primarily due to the acquisition of businesses from Coach America and further investment in new vehicles, partly offset by strong operating cashflows. The Group's net debt at 31 October 2012 is further analysed below:

The split between fixed and floating rate debt shown above takes account of the effect of interest rate swaps in place as at 31 October 2012.

The net impact of purchases of property, plant and equipment for the six months on net debt was £133.6m (2011: £107.8m). This primarily related to expenditure on passenger service vehicles, and comprised cash outflows of £119.5m (2011: £99.9m) and new hire purchase and finance lease debt of £14.1m (2011: £7.9m). In addition, £36.2m (2011: £43.1m) cash was received from disposals of property, plant and equipment.

Liquidity and bank re-financing

The Group's financial position remains strong and is evidenced by:

·; The ratio of net debt at 31 October 2012 to pre-exceptional EBITDA for the twelve months ended 31 October 2012 was 1.4 times (2011: 1.7 times).

·; Pre-exceptional EBITDA for the six months ended 31 October 2012 was 10.8 times (2011: 9.0 times) net finance charges (including joint venture net finance income).

·; Undrawn, committed bank facilities of £295.1m at 31 October 2012 (30 April 2012: £265.3m) were available to be drawn as bank loans with further amounts available only for non-cash utilisation. Headroom has increased since 30 April 2012, principally due to the good underlying cash generation and the new issue of US$150m of 10-year notes to United States investors re-financing the acquisitions from Coach America. In addition, the Group continues to have available asset finance lines.

·; The three main credit rating agencies continue to assign investment grade credit ratings to the Group.

The Group's main bank facilities are committed through to 2016.

Capital expenditure

Additions to property, plant and equipment for the six-month period were:

The differences between the amounts shown above and the impact of capital expenditure on net debt arose from movements in fixed asset debtors, prepayments and creditors.

Business combinations and disposals

The only significant acquisition or disposal completed in the six months ended 31 October 2012 is the acquisition of businesses and assets from Coach America, referred to in the section of this report entitled "North America".

The Group has announced three acquisitions of UK Bus businesses as explained in the "UK Bus (regional operations)" section of this report. One of these completed on 2 December 2012, and the other two should complete within the next few months.

Net liabilities

Net liabilities at 31 October 2012 were £58.2m (30 April 2012: £57.3m) with the change in net liabilities primarily reflecting actuarial losses on Group defined benefit pension schemes of £43.1m after tax and after-tax movements on Group cash flow hedges of £15.0m, offset by strong results for the six months.

Retirement benefit obligations

The reported net liabilities of £58.2m (30 April 2012: £57.3m) that are shown on the consolidated balance sheet are after taking account of net pre-tax retirement benefit liabilities of £163.1m (30 April 2012: £124.1m), and associated deferred tax assets of £37.5m (30 April 2012: £29.8m).

The Group recognised pre-tax actuarial losses of £54.5m in the six months ended 31 October 2012 (2011: £19.1m) on Group defined benefit schemes.

Related parties

Details of significant transactions and events in relation to related parties are given in note 19 to the condensed financial statements.

Principal risks and uncertainties

Like most businesses, there are a range of risks and uncertainties facing the Group. A brief summary is given below of those specific risks and uncertainties that the Directors believe could have the most significant impact on the Group's performance. These principal risks and uncertainties have not changed since the publication of the Group's 2012 Annual Report, where a more detailed explanation of the risks and uncertainties and how the Group manages these can be found on pages 8 to 12. These matters are not intended to be an exhaustive list of all possible risks and uncertainties. In assessing the Group's likely financial performance for the second half of the current financial year, these risks and uncertainties should be considered in addition to the matters referred to regarding seasonality in note 3 to the condensed financial statements, and the comments made later under the heading "current trading and outlook".

·; Catastrophic events- there is a risk that the Group is involved (directly or indirectly) in a major operational incident.

·; Terrorism - there is a risk that the demand for the Group's services could be adversely affected by a significant terrorist incident.

·; Economy - the economic environment in the geographic areas in which the Group operates affects the demand for the Group's bus and rail services.

·; Rail cost base- a substantial element of the cost base of the UK Rail division is essentially fixed as under its UK rail franchise agreements, the Group is obliged to provide a minimum level of train services and is less able to flex supply in response to changes in demand.

·; Sustainability of rail profit - there is a risk that the Group's revenue and profit could be significantly affected (either positively or negatively) as a result of the Group winning new UK rail franchises or failing to retain its existing franchises.

·; Breach of franchise- if the Group fails to comply with certain conditions as part of its rail franchise agreements it may be liable to penalties including potential termination of one or more of the rail franchise agreements.

·; Pension scheme funding - the Group participates in a number of defined benefit pension schemes, and there is a risk that the cash contributions required increase or decrease due to changes in factors such as investment performance, discount rates and life expectancies.

·; Insurance and claims environment - there is a risk that the cost to the Group of settling claims against it is significantly higher or lower than expected.

·; Regulatory changes and availability of public funding - there is a risk that changes to the regulatory environment or changes to the availability of public funding could affect the Group's prospects.

·; Management and board succession - there is a risk that the Group does not recruit and retain sufficient directors and managers with the skills important to the operation of the business.

·; Disease - there is a risk that demands for the Group's services could be adversely affected by a significant outbreak of disease.

·; Information technology- there is a risk that the Group's capability to make Internet sales either fails or cannot meet levels of demand.

·; Treasury risks- the Group is affected by changes in fuel prices, interest rates and exchange rates.

Going concern

On the basis of current financial projections and the facilities available, the Directors are satisfied that the Group has adequate resources to continue for the foreseeable future and, accordingly, consider it appropriate to adopt the going concern basis in preparing the condensed financial statements for the six months ended 31 October 2012.

Current trading and outlook

The Group has made a good start to the second half of its financial year ending 30 April 2013 and overall trading is in line with our expectations. The substantial increase in profit before tax in the first half of the year partly reflects East Midlands Trains not being entitled to revenue support in the first half of the prior year whereas it now is. The same growth in profit is not expected to occur in the second half because East Midlands Trains earned revenue support in the second half of last year but nevertheless, we still see good potential for some growth in full-year adjusted earnings per share.

We continue to see positive long-term prospects for public transport in the markets we operate with rising road congestion, increasing environmental awareness and higher car operating costs. As well as the potential for continued organic growth we see in our core businesses, our development of new products such as megabus.com and new ideas such as the South West Trains-Network Rail Alliance will build on the positive conditions for public transport. We welcome the review of UK rail franchising initiated by the UK Government and look forward to an improved rail franchising system that benefits passengers, tax payers and operators. Our overall emphasis remains on providing safe, reliable, high quality, good value bus, train and tram services, which in turn we believe can generate significant returns for our shareholders.

Sir Brian Souter

Chief Executive

5 December 2012

Responsibility Statement

We confirm that to the best of our knowledge:

(a) the condensed consolidated interim financial information contained in this document has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting" as adopted by the European Union;

(b) the Chairman's statement and the interim management report contained in this document together include a fair review of the information required by the Financial Services Authority's Disclosure and Transparency Rules ("DTR") 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

(c) this document includes a fair review of the information required by DTR 4.2.8R (disclosure of related party transactions and changes therein).

By order of and on behalf of the Board

Sir Brian Souter Martin Griffiths

Chief Executive Finance Director

5 December 2012 5 December 2012

Cautionary statement

The preceding interim management report and Chairman's statement have been prepared for the shareholders of the Company, as a body, and no other persons. Their purpose is to assist shareholders of the Company to assess the strategies adopted by the Company and the potential for those strategies to succeed and for no other purpose. The interim management report and Chairman's statement contain forward-looking statements that are subject to risk factors associated with, amongst other things, the economic and business circumstances occurring from time to time in the countries, sectors and markets in which the Group operates. It is believed that the expectations reflected in these statements are reasonable but they may be affected by a wide range of variables that could cause actual results to differ materially from those currently anticipated. No assurances can be given that the forward-looking statements will be realised. The forward-looking statements reflect the knowledge and information available at the date of preparation. Nothing in the Chairman's statement or in the interim management report should be considered or construed as a profit forecast for the Group. Except as required by law, the Group has no obligation to update forward-looking statements or to correct any inaccuracies therein.

CONDENSED FINANCIAL STATEMENTS

CONSOLIDATED INCOME STATEMENT

The accompanying notes form an integral part of this consolidated income statement.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED BALANCE SHEET (STATEMENT OF FINANCIAL POSITION)

The retained earnings deficit of £472.7m (30 April 2012: £489.7m) is the consolidated position. The holding company's distributable reserves as at 31 October 2012 under UK GAAP were £179.9m (30 April 2012: £226.2m).

The accompanying notes form an integral part of this consolidated balance sheet.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

CONSOLIDATED STATEMENT OF CASH FLOWS

Cash and cash equivalents for the purposes of the consolidated cash flow statement comprise cash at bank and in hand, overdrafts and other short-term highly liquid investments with maturities at the balance sheet date of twelve months or less.

The accompanying notes form an integral part of this consolidated statement of cash flows.

NOTES

The condensed consolidated interim financial information for the six months ended 31 October 2012 has been prepared in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority and International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union. The condensed consolidated interim financial information should be read in conjunction with the annual financial statements for the year ended 30 April 2012, which have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union. The accounting policies and methods of computation applied in the consolidated interim financial information are consistent with those of the annual financial statements for the year ended 30 April 2012, as described on pages 55 to 62 of the Group's 2012 annual report which can be found on the Stagecoach Group website at http://www.stagecoach.com/investors/financial-analysis/reports/.

This condensed consolidated interim financial information for the six months ended 31 October 2012 has not been audited, nor has the comparative financial information for the six months ended 31 October 2011 but they have both been reviewed by the auditors. The comparative financial information presented in this announcement for the year ended 30 April 2012 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006 and does not reflect all of the information contained in the Company's annual financial statements. The annual financial statements for the year ended 30 April 2012, which were approved by the Board of Directors on 26 June 2012, received an unqualified audit report, did not contain an emphasis of matter paragraph, did not contain a statement under section 498(2) or (3) of the Companies Act 2006 and have been filed with the Registrar of Companies.

The Board of Directors approved this announcement, including the condensed consolidated interim financial information, on 5 December 2012. This announcement will shortly be available on the Group's website at http://www.stagecoach.com/investors/financial-analysis/reports/.

New standards, amendments to standards and interpretations that are mandatory for the first time for the financial year beginning 1 May 2012 do not have any significant effect on the consolidated financial statements of the Group.

As explained in the Group's 2012 Annual Report, the Group will be required to apply the new version of International Accounting Standard 19 ("IAS 19"), "Employee Benefits", to its financial statements for the year ending 30 April 2014 and re-state comparative amounts accordingly. Had the new IAS 19 been applied to the Group's financial statements for the six months ended 31 October 2012, the revenue, consolidated balance sheet and the consolidated statement of cash flows would have been the same as is reported in this announcement and the segmental operating profit and profit from continuing operations would have been affected as follows:

The principal rates of exchange used to translate the results of foreign operations are as follows:

The Group's North American bus operations and the Twin America joint venture typically earn higher operating profit for the first half of the financial year (i.e. the six months ended 31 October) than for the second half. This is because leisure customers generate an element of the revenue with demand being at its strongest in the summer months.

In the current financial year to 30 April 2013, the revenue and operating profit that the UK Bus (regional operations) earned from the contracts related to the 2012 Olympic and Paralympic Games all fell within the first half of the financial year. Also, the current West Coast rail franchise operated by Virgin Rail Group ends on 8 December 2012 and any new contract for the period from 9 December 2012 is likely to be on different commercial terms.

The Group is managed, and reports internally, on a basis consistent with its four continuing operating segments, being UK Bus (regional operations), UK Bus (London), North America and UK Rail. The Group's IFRS accounting policies are applied consistently, where appropriate, to each segment.

The segmental information provided in this note is on the basis of four operating segments as follows:

The basis of segmentation is consistent with the Group's last annual financial statements for the year ended 30 April 2012.

The Group has interests in three joint ventures: Virgin Rail Group that operates in UK Rail, Citylink that operates in UK Bus (regional operations) and Twin America that operates in North America. The results of these joint ventures are shown separately in note 4(c).

Due to the nature of the Group's business, the origin and destination of revenue is the same in all cases except in respect of an immaterial amount of revenue for services operated by UK Bus (regional operations) between the UK and mainland Europe. As the Group sells bus and rail services to individuals, it has few customers that are individually "major". Its major customers are typically public bodies that subsidise or procure transport services - such customers include local authorities, transport authorities and the UK Department for Transport.

Revenue split by segment was as follows:

Operating profit split by segment was as follows: