SGC.L Regulatory News (SGC)

26 June 2012

Stagecoach Group plc - Preliminary results for the year ended 30 April 2012

Business highlights

Maximising shareholder returns

·; Adjusted earnings per share* up 6.7% to 25.4 pence (2011: 23.8 pence)

·; Full year dividend up almost 10% to 7.8 pence (2011: 7.1 pence)

·; c.£340m cash return to shareholders in October 2011

Leading the way in improving transport for passengers

·; Growth underpinned by innovation, value for money, investment and operational delivery

·; Expansion of megabus.com in North America and Europe

·; New Alliance with Network Rail

Pursuit of new opportunities for growth

·; Like-for-like revenue up 6.9% across the Group

·; Virgin Rail Group's bid for new West Coast rail franchise submitted May 2012

·; Shortlisted for two new UK rail franchises

·; US$134m planned acquisition of businesses and assets from Coach America

·; Further potential to grow operating profit at acquired London Bus business

Financial summary

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

"We continue to see good organic growth in our bus and rail services in the UK and North America. This has been supported by our successful mix of innovation, value-for-money travel, continued investment in our services, and strong operational delivery.

"Our UK regional bus operations are delivering good returns with different management approaches applied to respond to the different conditions in each of the markets in which we operate. In London, our turnaround plan is progressing well and we have won new contracts on more acceptable profit margins.

"We are excited about the next phase of our growth plan for our budget coach brand, megabus.com. As well as testing the market in Europe, we are expanding to new locations in North America where the response to the product from consumers has been particularly strong.

"The planned acquisitions from Coach America will enable us to expand our US business at a reasonable price while further underpinning the development of megabus.com in targeted regions.

"In UK Rail, we are pleased that East Midlands Trains has returned to profit and South West Trains continues to perform well. We are involved in shortlisted bids for a number of new franchises. At South West Trains, we are moving forward with our alliance with Network Rail to deliver a more efficient railway and a better service for passengers. We believe this approach can be a model for future franchises and our pioneering work can give the Group first mover advantage.

"Across our business, our new ideas and partnerships are helping shape the future of public transport and the Stagecoach difference is delivering strong returns to our shareholders. We believe the outlook for our bus and rail services is positive and we look forward with confidence to the year ahead."

Copies of this announcement are available on the Stagecoach Group website at http://www.stagecoach.com/media/news-releases/2012/2012-06-26.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 company employs around 33,000 people, and operates bus, coach, rail, and tram services.

·; Stagecoach is one of the UK's biggest bus and coach operators. Around 2.5 million passengers travel on Stagecoach's 7,700 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.

·; 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 currently operates around 1,900 buses and coaches in the United States and Canada. Budget coach service, megabus.com, links around 90 key locations in North America. Stagecoach is also involved in operating commuter and transit services, as well as tours, charters, sightseeing tours and a small number of school bus services. In May 2012, Stagecoach announced that it had agreed to acquire selected businesses and assets from Coach America, which will further expand its North American business.

Chairman's statement

The Group has delivered another strong set of results, achieving growth across its bus and rail businesses in the UK and North America. We have met the challenges in our sector and the wider economy and driven the business forward by developing innovative products and new ideas to make public transport better for our customers. Our focus continues to be on safe, good value, high quality bus and rail travel.

High fuel prices and motoring costs have resulted in commuters, business customers and leisure travellers switching from the car and airlines to our better value bus, coach and rail services. As well as building on our record of strong operational delivery, we are investing in improved customer service. We are using new technology to deliver quicker and smarter service information, making our services easier to use.

At the core of the Group are our regional bus operations in the UK where we have achieved consistent organic growth over several years. Our devolved management teams understand their local commercial markets and have achieved good financial returns. We have maintained our leading position as the UK's best value major bus operator, despite cost increases and reduced Government spending on public transport. In London, our turnaround plan for the business we acquired in late 2010 is progressing well and we have won new contracts at more acceptable levels of profitability.

North America is the fastest growing division in the Group and we are excited by the next phase of our growth plan for our budget coach brand, megabus.com. While megabus.com is a relatively small part of the Group, it offers good growth potential in North America and we have a clear plan to roll-out our services to new parts of the United States.

In May 2012, we agreed to acquire selected businesses and assets from Coach America, Inc. ("Coach America") and we expect to complete the acquisition shortly. This will allow us to acquire selected businesses and vehicles at attractive prices in markets and regions we know well. These businesses will benefit from both our management expertise and ability to invest for growth. The businesses to be acquired in Texas and California in particular will give us an extended geographic footprint to accelerate our growth strategy for megabus.com.

In UK Rail, our franchises are continuing to deliver good revenue growth, supported by high levels of operational performance and customer satisfaction, and our East Midlands Trains franchise returned to profit in the second half of the year. In partnership with the Department for Transport, we have announced new investment in extra capacity for our biggest commuter network at South West Trains. In addition, South West Trains' new alliance with Network Rail is a major step forward for the industry, offering the prospect of a more efficient railway, a better service for passengers and a better deal for taxpayers. We believe this approach can be a model for the future.

We are pleased to have been selected as a shortlisted bidder for each of Greater Western and Thameslink as part of the latest round of rail refranchising. Our joint venture, Virgin Rail Group, has submitted an innovative and value for money bid for the new Intercity West Coast franchise.

We have invested further in our online retailing capability during the year to support our fast-growing Internet sales. This has included a new website and related systems for our megabus.com brand as we expand to cover new locations in the UK, North America and in mainland Europe.

Revenue for the year to 30 April 2012 was £2,590.7m (2011: £2,389.8m). Operating profit (before intangible asset expenses and exceptional items) was £237.2m (2011: £240.2m). Earnings per share before intangible asset expenses and exceptional items were 6.7% higher at 25.4p (2011: 23.8p).

In line with the Group's strong performance, the Directors have proposed a final dividend of 5.4p per share. This gives a total dividend for the year up almost 10% at 7.8p (2011: 7.1p) in addition to the c.£340m of cash paid to shareholders during the year. The proposed final dividend is payable to shareholders on the register at 31 August 2012 and will be paid on 3 October 2012.

We have strong management teams at Group, divisional and regional operating level. During the year, we put in place a succession plan at our UK Bus division which will ensure a smooth transition of responsibilities ahead of the retirement of the Division's current Managing Director in 2013. We have also made key senior appointments at our South West Trains, East Midlands Trains and Sheffield Supertram rail businesses, which demonstrate the breadth of management talent we have across the Group.

Stagecoach has made a good start to the financial year ending 30 April 2013. Current trading is in line with our expectations and the Group remains in a strong financial position.

This summer, we look forward to playing a key role in the successful delivery of the London 2012 Olympic and Paralympic Games, including providing transport for athletes and the media.

I would like to take this opportunity to thank our employees in the UK and North America who make possible the many customer journeys on our regular buses and trains every day. Looking forward, I am confident the Group will continue to deliver for our customers and shareholders.

Sir George Mathewson

Chairman

26 June 2012

Preliminary management report

The Directors of Stagecoach Group plc are pleased to present their report on the Group for the year ended 30 April 2012.

Overview of financial results

The Group has achieved continued good financial and operational performance in the year ended 30 April 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 year ended 30 April 2012 is summarised below:

Like-for-like passenger volume growth for the year was 1.9%. Like-for-like revenue was built up as follows:

We have delivered further revenue, passenger volume and operating profit growth at our UK Bus (regional operations). While investment by local authorities in contracted and supported services has decreased, we have focused closely on growing our strong commercial bus services. 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, which is a little lower than the growth rate reported for the first half of the financial year because some fare increases were effected later than in the previous year. The decline in concessionary revenue reflects pressure from local authorities to reduce concessionary reimbursement rates in light of budgetary pressures they face, which is also putting pressure on revenue from tendered and school services. Revenue from contracts has declined as a result of major events in the prior year period that did not recur such as providing services for the Ryder Cup golf event in Wales and the Pope's visit to Glasgow.

Total like-for-like revenue growth of 2.4% is below the rate of 2.7% previously reported for the forty eight weeks ended 1 April 2012. The reduction in the rate of growth reflects the effect of significant concessionary scheme settlements recognised in April 2011 that did not recur in April 2012, partly offset by there being one less bank holiday day in April 2012 compared to April 2011.

We are continuing to achieve good financial returns using tailored management solutions to respond to specific markets by managing pricing, service patterns and frequencies. Bus use in Hull, for example, has grown by 60% in less than a decade, while in East Kent passenger numbers have doubled since 2003. Strong partnerships with local transport authorities have been central to that success. This summer, we will be playing a key role in the successful delivery of the London 2012 Olympic and Paralympic Games, including providing transport for athletes and the media.

We are continuing to deliver sector-leading profit margins and good organic passenger volume growth through our value fares strategy, consistent investment in our fleet, the development of innovative products and roll-out of new technology solutions to make travel easier for our customers. In February 2012, we announced a £60m investment in 390 new buses and coaches for the 2012-13 financial year for our regional bus networks in Scotland, England and Wales. We have expanded further our megabus.com budget coach product in the UK, adding more frequent services on key routes and new locations, as well as supporting our joint venture, Scottish Citylink, in trialling a new overnight sleeper coach service. In April 2012, we launched a new network of international routes from the UK to Continental Europe. Our new services linking London with Paris, Brussels and Amsterdam have already proved popular and we are monitoring closely the moves by several countries in Europe to further deregulate domestic coach services.

The improvement in operating margin was built up as follows:

Although wages have generally increased in line with average earnings, staff costs as a whole fell as a percentage of revenue, reflecting a continued focus on cost control and reduced pension costs. Fuel costs increased by £5.2m, reflecting increased unit costs under the Group's fuel hedging programme. Insurance and claims costs have reduced as the value of claims received relative to the revenue has been lower than in previous years.

Acquisition

The Group has agreed, subject to regulatory approval to acquire the bus assets of FirstGroup in North Devon and Torridge for £2.8m. The process to seek regulatory approval is underway. FirstGroup has announced plans to sell further businesses and we shall assess each further opportunity on its own merits.

Cost control

We have taken sensible steps to manage cuts in public sector spending, including the reductions in Bus Service Operators' Grant from April 2012, through changes to our fares and bus networks. Our focus continues to be on protecting services, targeting investment in areas where buses are most used by our customers, as well as ensuring our business continues to deliver good returns to our shareholders. These developments have also made our business less dependent on Government spending.

In light of the Government cuts to Bus Service Operators' Grant, reduced Government funding of concessionary and tendered revenue, and increasing fuel costs, our bus fares were increased in April 2012 by an average of 5% but generally continue to offer good value when compared to other operators' fares and the costs of other transport modes. The effect of the April 2012 fare increases on revenue has thus far been in line with our expectations.

Regulatory developments

The Competition Commission inquiry into the local bus market in the UK (excluding London and Northern Ireland) has largely given the industry a clean bill of health and expressly ruled out structural change, price controls or increased regulation. In another of its key conclusions, it called on local transport authorities to embrace partnerships with bus operators. This approach has been successful in ensuring more bus priority measures, more investment and higher quality services, encouraging more people to switch from the car to greener bus travel. In England, the Department for Transport is consulting on the Competition Commission recommendations for multi operator ticketing and some changes to service registration regulations. These are positive outcomes and we will continue to support further improvements which will lead to greater bus use and build on the already high levels of customer satisfaction.

Outlook

We remain positive on the prospects for the Division as we continue to focus on running good value commercial services where we have flexibility on fares and service patterns. The Division has continued to perform well during weak macroeconomic conditions and a period of downward pressure on Government spending. We are benefitting from modal shift from the car to public transport as motoring costs and fuel prices remain high and this is a key focus for our marketing campaigns. These factors have reinforced our confidence in the robustness of the Division. As economic conditions improve, it is well placed to grow further by capitalising on the demand for value travel, rising environmental awareness, and increasing road congestion.

In the year to 30 April 2013, we see the Division being well placed to at least maintain operating profit despite the challenging headwinds facing it.

UK Bus (London)

Financial performance

The financial performance of the UK Bus (London) division for the year ended 30 April 2012 is summarised below:

On 14 October 2010, the Group completed the acquisition of the bus business formerly owned by East London Bus Group Limited, acquiring four companies that together operate the business.

The annualised revenue from contracts which we currently operate is around £226m. At the time of acquisition, the annualised revenue from contracts being operated was around £241m. The number of contracts being operated has reduced from 93 at the date of acquisition, to 81 at 30 April 2012. The loss of the majority of the contracts no longer being operated was as a result of unsuccessful bids submitted prior to our acquisition of the business.

Our turnaround programme for our London Bus operations is progressing well. We have achieved overhead cost savings through synergies with our other UK operations, and unit labour cost savings through reaching positive negotiated agreements with staff on working practices and productivity.

The majority of new vehicles for our London Bus business have been obtained on operating leases since our 2010 acquisition of the business. Although this results in lower operating profit with financing costs being incorporated in the lease cost that is expensed to operating profit, it enables the lease terms to be matched to the duration of the contracts with Transport for London. This protects the business from residual value risk and means that our other bus businesses are not forced to accept second-hand London vehicles.

Bus workers across London, including those employed by the Group, have voted for industrial action in relation to their demand for bonus payments to recognise what they consider to be an increase in their workload during the 2012 Olympic Games. Strike action took place on 22 June. The Group is contracted by Transport for London to operate bus services in London and the price paid by Transport for London does not contemplate the payment of bonuses for the 2012 Olympic Games. The Group continues to work with Transport for London and the trade unions to seek a resolution to this matter.

Outlook

We are encouraged by the continuing signs that our restructured business is more competitive in the tendered market and has now achieved contract wins on realistic profit margins. We are pleased with the progress to date, and are optimistic on the prospects for further profit growth.

North America

Financial performance

The financial performance of the North America division for the year ended 30 April 2012 is summarised below:

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

North America is the fastest-growing division in the Group and we have increased our operating profit during the year even after taking account of the operating profit foregone on the sale of our Wisconsin school bus operations and start-up losses on the further expansion of megabus.com. Our focus on megabus.com and our scheduled service and commuter business has included redeploying fleet away from charter work to these businesses. This approach is reflected in the change in the mix of revenue. During the year, we disposed of the majority of our North American school bus operations, which represented US$17.5m of the revenue for the year ended 30 April 2012.

We are excited by the next phase of our growth plan for our budget coach brand, megabus.com, in North America where we are seeing growing demand for our package of value fares and high-quality travel. In December 2011, we announced a £40m investment in 95 vehicles for the megabus.com network in the United States and Canada. During the year, we expanded our services to the South East United States and we now cover around 90 key cities. Moving forward, we have a clear plan to roll-out our services to new parts of the United States and our new Texas network started operating services from 19 June 2012. While we have a relatively high level of investment mileage in this period of expansion, our more established routes are continuing to show excellent operating margins.

The North American division has reported good growth in scheduled service and commuter revenue as these services have benefited from passenger volumes shifting to bus and coach travel from other forms of transport. Sightseeing, tour, contract and school bus revenue has held up well through difficult economic conditions.

The change in operating margin was built up as follows:

Fuel costs increased by US$9.8m, which is in part related to the increased mileage operated to support growth in megabus services, and also the fuel hedging arrangements mean that the average fuel cost per unit is higher than last year. Insurance and claim costs have decreased as a percentage of revenue from last year as the expense last year included provisions for a small number of significant individual claims. However, the year-on-year saving in insurance and claims costs is less than we reported for the first half of the financial year, reflecting more significant claims provisions recorded for matters arising in the second half of the year. Staff costs fell as a percentage of revenue as we continue to focus on cost control. Other external charges increased as a proportion of revenue mainly as a result of sub-contracted megabus.com services.

Acquisition from Coach America

In May 2012, we agreed to acquire selected businesses and assets from Coach America, and we expect to complete the acquisition shortly. We have agreed to acquire:

1. Certain businesses and related assets and liabilities, for a cash consideration of US$134.2m and;

2. At the option of the Sellers, up to 85 further coaches for a cash consideration of up to US$25.6m, which would correspondingly reduce other capital expenditure.

Some US$16.0m of the consideration was paid in May 2012 as a refundable deposit, with the balance being due on or around the completion of the transaction. The consideration payable will be potentially adjusted based on the working capital balances of the businesses to be acquired.

In the year ended 31 December 2011 and applying Stagecoach accounting policies, the businesses to be acquired for US$134.2m generated estimated revenue of US$164.4m, EBITDA of US$24.6m and operating profit of US$13.3m, after taking account of estimated central overheads relating to the businesses.

The businesses being acquired include contract, line-run, charter and sightseeing operations. The transaction enables Stagecoach to acquire selected businesses at an attractive price and to acquire vehicles as part of its capital expenditure programme.

The businesses to be acquired include operations in Texas and California, which will provide depot infrastructure to enable Stagecoach to expand its megabus.com budget coach network more efficiently, more quickly and under its full control, whilst avoiding the need to pay a sub-contract profit margin in these locations. In addition, Coach America's Atlanta business is the existing sub-contractor of the megabus.com Atlanta hub and that business is amongst those to be acquired.

Outlook

The North America division continues to see excellent prospects for long-term growth. As we roll-out our megabus.com brand to new locations, we expect the benefits of continuing revenue growth at our established operations and improving profits at some megabus.com hubs as they mature to be offset by start up losses incurred at the newer megabus.com hubs. The planned acquisition of businesses from Coach America will further add to operating profit. Looking further forward, the outlook remains positive with the prospect of improving profit across the newer megabus.com operations and ongoing growth in the other businesses.

UK Rail

Financial performance

The financial performance of the UK Rail division for the year ended 30 April 2012 is summarised below:

The UK Rail division made an operating profit of £27.1m in the year to 30 April 2012 (2011: £48.4m). This reduction was principally due to losses incurred at East Midlands Trains in the first half of the year where revenue was below the level forecast when the contract was originally awarded, and the premium payments made to the Department for Transport ("DfT") were agreed. From November 2011, East Midlands Trains has earned revenue support payments from the DfT, which have returned that business to profitability for the second half of the year. South West Trains, which also makes premium payments to the DfT, continues to receive revenue support. We have a strong and profitable rail portfolio and our wholly-owned franchises recognised net premium payments of £283.1m in 2011-12 to the DfT, ensuring taxpayers share in our success in attracting more people to rail travel.

Like-for-like revenue growth of 9.0% is above the rate of 8.8% previously reported for the forty eight weeks ended 1 April 2012. The increase in the rate of growth is principally due to there being one less bank holiday day in April 2012 compared to April 2011.

The decline in operating margin was built up as follows:

The net amount paid to the DfT by our two rail franchises, which includes revenue support payments received, has increased at a faster rate than revenue, as actual revenue growth has not been as high as was expected at the time the franchise contracts were awarded. Rolling stock costs have a large fixed element which is not subject to inflationary increases and therefore decrease as a proportion of revenue as revenue grows. Network Rail charges as a proportion of revenue have decreased as revenue growth has been higher than the inflationary increase in these costs, along with changes in the amount of performance regime income received. Traction energy costs have increased ahead of the rate of revenue growth due mainly to rises in diesel costs. Staff costs have in general seen inflationary increases, along with some savings from more efficient use of staff, which has resulted in staff costs growing at a lower rate than revenue.

The recent strikes by East Midlands Trains drivers have not had an adverse financial impact on the Group, and we can confirm that agreement in principle has now been reached with all of the major trade unions, setting reduced pension contribution rates at East Midlands Trains from July 2012 in accordance with the formal actuarial valuation. No further strike action is expected in relation to this matter.

The Group disposed of its Manchester tram operations, Stagecoach Metrolink Limited, in August 2011, realising an £7.0m gain on disposal, which is separately reported as an exceptional item.

Operational performance, passenger satisfaction and cost control

Strong revenue growth in our UK Rail division has been underpinned by consistently high levels of punctuality and customer satisfaction. South West Trains was named Passenger Operator of the Year in 2011 and operational performance at our East Midlands Trains and South West Trains franchises remains amongst the highest of the UK train operators. The most recent figures show that the moving annual average for punctuality1 at South West Trains is 91.9% and at East Midlands Trains is 93.5%. Satisfaction amongst our passengers also remains high. The latest National Passenger Survey, carried out during Autumn 2011, shows overall satisfaction of 84% at South West Trains and 87% at East Midlands Trains.

We continue to critically review our operational cost base to identify and drive out efficiency savings, while improving the service for our customers. 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. It delivers a key element of the Government's Rail Command Paper, issued in March 2012, which called for closer co-operation between operations and infrastructure. 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. It is aiming to cut delays for passengers, provide better customer service, deliver more effective management of disruption, and reduce the costs of the railway through more collaborative working and better decision-making. The new alliance is also expected to benefit rail freight operators who use the Wessex route. It builds on the existing joint working between South West Trains and Network Rail through the Wessex Integrated Control Centre at London Waterloo, as well as recent moves by Network Rail to devolve operational responsibility to regional units. The alliance has been approved by the DfT and the Office of Rail Regulation. It is planned to run until 4 February 2017, the expiry date of the South West Trains franchise agreement.

The Alliance includes an agreed financial baseline for the costs and revenues of its activities, with variances to the financial baseline being shared equally between South West Trains and Network Rail. The agreement also includes a "taxpayer benefit" whereby the DfT takes a share of any financial upside generated by the Alliance in excess of agreed financial thresholds.

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Investment

We are continuing to invest in services for passengers, delivering additional capacity on our trains and improving our stations. A total of 108 extra carriages are to be introduced on South West Trains, one of the busiest commuter networks in Europe, between May 2013 and December 2014. Under the agreement with the DfT, thousands of extra seats will be provided for commuters during peak times. As part of the capacity enhancements, Platform 20 at the former Waterloo International Terminal will be brought back into use and South West Trains is working with the Government and other agencies to re-open the platform earlier than the previously planned timescale of December 2013. Proposals are also being developed by the DfT, Network Rail and South West Trains to provide a long-term solution to congestion at London Waterloo. South West Trains is currently investing over £100m in a range of improvements for passengers, including better station facilities, additional car parking spaces, fleet refurbishment and provision of better customer information. At East Midlands Trains, passengers are benefitting from investment of around £70m on improving every single train in the fleet, delivering better station facilities, creating more car parking spaces, providing 200 extra secure cycle spaces and installing new ticket machines.

Rail franchises

The Government is continuing its review of rail franchising in light of the McNulty report on value for money in the rail industry and publication of the Rail Command Paper. The evolving franchise model incorporates longer franchises, some additional flexibility in service levels, a more customer-focused measure of quality, changes to risk share in a move to a GDP-based sharing mechanism and profit share and more responsibility for stations being transferred to train operators. Stagecoach has a combination of commercial and operational expertise which means the Group is well placed to benefit from franchise reform. We have an experienced business development team, which has been refreshed with senior operational expertise. The Group has a record of major project delivery, good cost control, generating passenger growth and increased revenue from smart timetabling, and delivering consistently high levels of performance and passenger satisfaction. We are currently shortlisted for both of the franchises we recently applied for, Greater Western and Thameslink. The DfT programme for the medium-term will see at least 7 franchises market tested within the next 3 years and we will seek to add to our existing portfolio where we believe there is the right risk-reward profile and we can add value for our shareholders.

Outlook

The profit of our existing rail franchises is now less sensitive to macroeconomic conditions given the availability of revenue support. Revenue growth remains good and although our bidding costs will increase in 2012-13 as we invest in new franchise opportunities and premia payments to the DfT will rise, we see potential for increased profit from the UK Rail Division with a full year of revenue support at East Midlands Trains.

Virgin Rail Group

Financial performance

The financial performance of the Group's Virgin Rail joint venture for the year ended 30 April 2012 is summarised below:

Virgin Rail Group ("VRG") has continued to grow its business and leisure base on the West Coast franchise. Annual passenger journeys have risen from around 14 million to over 30 million in just 7 years, following significant investment in new trains and improved infrastructure, with VRG train services winning significant market share from domestic airlines. The VRG operating margin is lower than last year mainly because the increase in the net amounts paid by VRG to the DfT was proportionately higher than the growth in passenger revenue.

Like-for-like revenue growth of 8.5% is above the rate of 7.9% previously reported for the forty eight weeks ended 1 April 2012. The increase in the rate of growth is principally due to there being one less bank holiday day in April 2012 compared to April 2011, with revenue around the time of the Royal Wedding in April 2011 being notably lower than usual.

Performance has improved in recent months, with a moving annual average of 85.4% punctuality to 26 May 2012. However, it remains below what VRG believes is acceptable for its customers and VRG continues to press Network Rail for changes that will deliver better, more consistent infrastructure performance on the West Coast mainline to improve train punctuality for customers.

VRG has agreed an eight month extension to the franchise, which has been extended to 8 December 2012. As well as providing continuity of service over the period of the London 2012 Olympics, VRG will manage the introduction of more than 100 new Pendolino train carriages, during the extension period.

We expect the Group's share of VRG's profit after tax for the extension period from 1 April 2012 to 8 December 2012 to be below £10.0m. This expected return reflects the relatively low revenue risk in the extension period and the strategic importance to VRG of it remaining the franchise incumbent. VRG received contractual revenue support payments from the DfT under the West Coast franchise for the year to 31 March 2012. The DfT's target revenue for the franchise extension is challenging and VRG expects to be in revenue support for the extension period as a whole.

In May 2012, VRG submitted its bid for the new West Coast rail franchise, which will start on 9 December 2012 and run until 31 March 2026, with an option to be extended by up to 20 months. VRG's innovative bid is centred on improving services for passengers, building on its strong record of passenger volume growth, leveraging the investment made in train services and infrastructure, and providing a significant premium to taxpayers.

Outlook

VRG expects to remain profitable through to the end of the now extended West Coast franchise in December 2012. As indicated, it has submitted a strong bid for the new West Coast franchise, and will evaluate opportunities to bid for other major inter-city rail franchises as they come up for re-tender.

Twin America

Financial performance

The financial performance of the Group's Twin America joint venture for the year ended 30 April 2012 is summarised below:

The tax treatment of our share of profit is such that the joint venture's own profit is partially taxed but an additional tax charge falls on the joint venture partners and the effect of that on the Group is included within "taxation" in the consolidated income statement.

We are pleased by the strong financial performance of our Twin America joint venture in the year ended 30 April 2012. The main New York sightseeing operation has continued to deliver a high operating margin. Overall profit growth was partly constrained by losses at a now terminated venture in Los Angeles and legal costs associated with the regulatory matters explained below. In June 2011, Twin America commenced sightseeing boat tours on the River Hudson around Manhattan, where demand has been encouraging and these operations have generated operating profit over the past quarter. The outlook for Twin America remains positive.

Twin America was notified by the United States Surface Transportation Board ("STB") in February 2011 that its application for formal approval of the joint venture had not been approved. The STB confirmed that the joint venture, as currently structured, did require its approval and therefore, having decided not to approve the joint venture, the STB gave Twin America the option of separating the business, assets and management of the joint venture. Alternatively, the joint venture could terminate or divest its interstate services, which account for around 1% of the joint venture's revenues. The interstate services are now no longer part of the joint venture and this removed the transaction from STB jurisdiction and placed it within the authority of the New York State Attorney General and the United States Department of Justice. The New York Attorney General and Department of Justice are now undertaking reviews of the transaction and Twin America is co-operating with them. Twin America believes customers have benefitted from good quality, high value, and better co-ordinated services, while the joint venture has achieved cost savings and other synergies. We and Twin America will continue to assist all regulatory authorities and will present any further evidence as appropriate to help inform any future decision.

Depreciation and intangible asset expenses

Earnings from continuing operations before interest, taxation, depreciation, intangible asset expenses and exceptional items (pre-exceptional EBITDA) amounted to £343.9m (2011: £342.7m). Pre-exceptional EBITDA can be reconciled to the condensed financial statements as follows:

The income statement charge for intangible assets decreased from £15.2m to £12.3m as certain intangible assets became fully amortised and the rate charged on Virgin Rail Group goodwill was reduced so as to spread the remaining carrying value of goodwill over the now extended remaining period of its West Coast rail franchise. Of the charge, £3.2m (2011: £5.1m) related to joint ventures.

Business disposals and other exceptional items

The following exceptional items were recognised in the year ended 30 April 2012:

·; A pre-tax gain of £7.0m on the sale of the Group's Manchester tram operations, which has been updated since the results of the six months ended 31 October 2011, was reported following finalisation of the disposal accounting, and a pre-tax loss of £0.1m was reported in relation to adjustments to amounts receivable from previous disposals.

·; A pre-tax gain of £10.8m (US$17.2m) on the November 2011 sale of the Group's Wisconsin school bus operations. The proceeds for the sale were £31.5m (US$50.2m, after taking account of additional proceeds of US$3.2m received as part of an adjustment for working capital balances), transaction costs were £0.5m (US$0.8m) and the carrying value of the net assets disposed was £20.2m (US$32.2m). Although the business had performed well, Stagecoach's share of the US school bus market was relatively small and the sale enabled Stagecoach to focus its management and capital on less regulated North American operations, including the fast growing megabus.com business.

·; A pre-tax gain of £38.0m arising from a reduction in the Group's retirement benefit obligations following pension scheme changes to secure the continued provision by the Group of high quality pension arrangements for its employees. The principal change giving rise to the exceptional gain was a reduction in the maximum rate by which pensionable pay may increase.

·; A pre-tax loss of £5.6m (US$9.0m) related to the continued re-focussing of the Group's North American business. The loss arises from the closure of certain business units and the expected withdrawal from certain contracts and other operations. The largest components of the exceptional loss are a £4.6m (US$7.3m) impairment of goodwill and a £0.7m (US$1.1m) provision for an onerous property lease.

·; Expenses of £0.5m were incurred in the year in relation to the planned acquisition of businesses from Coach America.

Finance costs

Net finance costs for the year ended 30 April 2012 were £34.7m (2011: £34.5m) and can be further analysed as follows:

Taxation

The effective tax rate for the year ended 30 April 2012, excluding exceptional items, was 22.9% (2011: 21.9%). The effective rate is lower than the standard rate of UK corporation tax for the year of 25.8% due primarily to the utilisation of previously unrecognised tax losses and the impact of the reduction in the rate at which deferred tax is calculated (following the reduction in the corporation tax rate from 26% to 24%). The tax charge for continuing operations can be analysed as follows:

Fuel costs

The Group's operations as at 30 April 2012 consume approximately 363.7m 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 year ended 30 April 2012 was £279.2m (2011: £252.2m) and can be further analysed as follows:

The net working capital outflow for the year ended 30 April 2012 of £0.2m (2011: £22.7m) was better than previously expected, principally due to active management of working capital to maximise cash conversion.

Net cash from operating activities before tax was £279.2m (2011: £252.2m) and after tax was £257.5m (2011: £231.8m). Net cash outflows from investing activities were £75.6m (2011: £198.2m), which included in the prior year £57.0m in relation to acquisitions and net cash used in financing activities was £299.4m (2011: £49.7m), which includes the part of the return of cash (see below) to shareholders that was funded from excess cash.

The net impact of purchases of property, plant and equipment for the year on net debt was £211.4m (2011: £164.4m). This primarily related to expenditure on passenger service vehicles, and comprised cash outflows of £176.1m (2011: £156.3m) and new hire purchase and finance lease debt of £35.3m (2011: £8.1m). In addition, £65.4m (2011: £14.7m) cash was received from disposals of property, plant and equipment.

Return of cash

A return of cash to shareholders of approximately £340m was completed in October 2011. This equated to 47p per ordinary share. The return of cash was approved by shareholders at a general meeting on 7 October 2011. Note 13 to the condensed financial statements includes further information on the return of cash.

Net debt

Net debt (as analysed in note 16 to the condensed financial statements) increased from £280.9m at 30 April 2011 to £523.8m at 30 April 2012, primarily due to the return of cash to shareholders. The Group's net debt at 30 April 2012 is further analysed below:

Liquidity and bank re-financing

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

·; The ratio of net debt at 30 April 2012 to pre-exceptional EBITDA for the year ended 30 April 2012 was 1.5 times (2011: 0.8 times).

·; Pre-exceptional EBITDA for the year ended 30 April 2012 was 10.0 times (2011: 10.0 times) net finance charges (including joint venture net finance income).

·; Undrawn, committed bank facilities of £265.3m at 30 April 2012 (2011: £423.6m) were available to be drawn as bank loans with further amounts available only for non-cash utilisation. 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.

The Group plans to initially finance the acquisition of businesses and assets from Coach America from its undrawn, committed bank facilities but has plans to restore facility headroom through the issue of new debt to part re-finance the acquisition.

Capital expenditure

Additions to property, plant and equipment for the year were:

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

Net liabilities

Net liabilities at 30 April 2012 were £57.3m (2011: net assets £246.2m) with the decrease primarily reflecting the return of cash to shareholders in October 2011, actuarial losses on Group defined benefit pension schemes of £72.8m after tax and after-tax movements on Group cash flow hedges of £29.2m, partly offset by strong results for the year.

Retirement benefit obligations

The reported net liabilities of £57.3m (2011: net assets £246.2m) that are shown on the consolidated balance sheet are after taking account of net pre-tax retirement benefit liabilities of £124.1m (2011: £97.1m), and associated deferred tax assets of £29.8m (2011: £25.2m).

The Group recognised pre-tax actuarial losses of £93.7m in the year ended 30 April 2012 (2011: pre-tax actuarial gains £76.5m) on Group defined benefit schemes.

Related parties

Details of significant transactions and events in relation to related parties are given in note 18 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 of the principal risks and uncertainties is given below. The principal risks and uncertainties facing the Group have not changed since the publication of the Group's 2011 Annual Report, where a more detailed explanation of the risks and uncertainties can be found on pages 14 to 16. Further information and updates will be provided in the 2012 Annual Report. These matters are not intended to be an exhaustive list of all possible risks and uncertainties.

The focus below is on those specific risks and uncertainties that the Directors believe could have the most significant impact on the Group's performance.

·; 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 profits - 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 - succession planning for the Directors and senior management is an important issue.

·; Disease - there is a risk that demand 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.

Current trading and outlook

The Group has made a good start to its financial year ending 30 April 2013 and is trading in line with our expectations. Further investment in growth is planned over the next year, notably in expanding megabus.com to new locations, bidding for new rail franchise opportunities and in capital expenditure on new vehicles and other assets.

The Group is well positioned to withstand any further deterioration in macroeconomic conditions with its solid financing arrangements, its robust bus operations and its current rail franchises benefiting from the protection of Government revenue support. As well as these strong defensive attributes, the Group has a range of opportunities to drive growth and add further value including the acquisition from Coach America, the further expansion of its successful megabus.com services, the continued turnaround of the acquired London Bus operations, pursuing rail franchise opportunities for which it is shortlisted, developing the Alliance between South West Trains and Network Rail, and furthering its longstanding successful strategy to deliver organic passenger volume and revenue growth, particularly in its regional UK Bus operations. These opportunities combined with the positive long-term environment for public transport created by rising road congestion, rising car operating costs, supportive government policy and public concerns for the environment augur well for the future of the Group.

Sir Brian Souter

Chief Executive

26 June 2012 

Cautionary statement

The preceding preliminary 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 preliminary 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 preliminary 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 £489.7m (2011: £217.4m) is the consolidated position. The holding company's distributable reserves as at 30 April 2012 under UK GAAP were £226.2m (2011: £453.4m).

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

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (AUDITED)

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

These results are extracts of consolidated financial statements that have been prepared in accordance with International Financial Reporting Standards ("IFRS") and International Financial Reporting Interpretations Committee ("IFRIC") interpretations as adopted by the European Union (that therefore comply with Article 4 of the EU IAS Regulation), and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The accounting policies and methods of computation adopted are consistent with those used in the last set of published financial statements.

The following new standards, amendments to standards and interpretations are mandatory for the first time for the financial year beginning 1 May 2011, but do not have any significant effect on the consolidated financial statements of the Group:

·; Amendments resulting from May 2010 Annual Improvements to IFRSs

·; IFRS 1 (amended), ' First time adoption of IFRSs - Limited exemption from comparative IFRS 7 disclosures for first-time adopters'

·; IAS 24 (revised), 'Related party disclosures'

·; IFRIC 14 (amended), 'IAS 19 - The limit on a defined benefit asset, minimum funding requirements and their interaction'

·; IFRIC 19, 'Extinguishing financial liabilities with equity instruments'

Where appropriate, comparative figures for the previous year have been adjusted to conform to changes in presentation. These changes have no impact on the consolidated income statement or on consolidated net assets.

The Board of Directors approved this announcement on 26 June 2012.

In June 2011, the International Accounting Standards Board issued an amended version of International Accounting Standard 19 ("IAS 19"), "Employee Benefits". The Group will be required to apply the new version of IAS 19 to its financial statements for the year ending 30 April 2014 and re-state comparative amounts accordingly. The IAS 19 change that will have the most significant effect on the Group's reported profit is that the Group's annual expense for defined benefit pension schemes will be required to include net interest expense or income calculated by applying the discount rate to the net defined benefit asset or liability. This net interest expense or income will replace the finance charge on scheme liabilities and the expected return on scheme assets and is expected to result in a higher annual expense. Had the new IAS 19 been applied to the Group's financial statements for the year ended 30 April 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 pro forma profit shown above, reflects:

·; The inclusion of the pensions current service cost within the operating profit of each division in the consolidated income statement.

·; The inclusion of investment administration costs and taxes, such as amounts levied by the UK Pension Protection Fund, in the actual return on investment, with the difference between the actual return on investment and the discount rate applied to the scheme assets being reflected in other comprehensive income.

·; The inclusion of net interest expense on the net defined benefit liability within finance charges (net) in the consolidated income statement.

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

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 2011.

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 3(c).

Due to the nature of the Group's business, the origin and destination of revenue (i.e. United Kingdom or North America) 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: