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National Express (NEX)

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Thursday 26 February, 2004

National Express

Final Results

National Express Group PLC
26 February 2004

26 February 2004

                           National Express Group PLC
                              Preliminary Results
                      For the year ended 31 December 2003

Financial Highlights

  • Turnover from continuing operations is up 6% to £2.6 billion (2002:  £2.4

  • Normalised operating profit* up 3% to £134.6 million (2002:  £130.9

  • Normalised profit before tax* of £105.5 million (2002: £106.8 million)

  • Normalised diluted earnings per share* of 59.7 pence (2002:  60.3 pence)

  • Final dividend increased by 6.7% to 17.5 pence

  • Strong operating cashflow** from continuing businesses of £139.7 million
    (2002:  £105.5 million)

  • Effective net debt** reduced to £307.8 million (2002:  £334.6 million)

*excluding goodwill, exceptional items and tax relief thereon as appropriate

**operating cashflow and effective net debt as defined on pages 13 and 10

Operating Highlights

  • Rail patronage up 5%

  • Coach patronage up 2%

  • Signing of first public transport Concordat at Travel Coventry

  • Entry into London bus market through acquisition of Connex Bus

  • Award of Greater Anglia franchise

  • Signing of two year extensions for Central Trains, Great Northern and
    Wessex Trains

  • Solid performance from North American student bus division and an
    improvement in public transit

Commenting on current trading and prospects, Chairman, Michael Davies said:

'We have made a good start to the year. In the Bus division, we remain focused
on growing our UK business by delivering further bus priority measures and
investing in additional quality partnerships. We look forward to signing the
first statutory quality partnership in the bus industry during this year.  The
acquisition of the Connex bus business creates an important entry for the Group
into the London market.

Our Trains division continues to perform well and we expect to build on this
success during 2004.  We are working closely with Network Rail to gain further
improvements in reliability and punctuality. We are already well advanced with
our plans for the merging of the three TOCs which will create the new Greater
Anglia franchise, due for launch in April, and look forward to submitting our
pre-qualification questionnaire for the Intercity East Coast rail franchise.

The Coach division has started the year well and we anticipate building on the
growth we achieved last year.

We are encouraged by the opportunities in North America. Our US student bus
business is in its bidding season.  We remain confident of securing new business
wins and retaining our current contracts.  Our entry into the Canadian market
has been successful and we are actively seeking opportunities to expand this
part of our business.

Overall, we look forward to the future with confidence.'

For further information, please contact:

Phil White, Chief Executive
Adam Walker, Finance Director
Nicola Marsden/Fiona Noblet, Group Communications
National Express Group PLC                                         020 7529 2000

Steve Jacobs/Ben Foster/Dido Laurimore
Financial Dynamics                                                 020 7831 3113

•  An analyst presentation will take place at 0900 hours on 26
February 2004 at Financial Dynamics, Holborn Gate, 26 Southampton Buildings,
London  WC2A 1PB

•  A copy of the analyst presentation will be available on our
website at 0900 hours on 26 February 2004.  For
further information, contact 020 7529 2036

•  For details of the live webcast, please contact Elaine Holder or
Dido Laurimore at Financial Dynamics on 020 7269 7121

•  Photos are available through Newscast on Tel:  020 7608 1000.

Chairman's Statement

I am delighted to announce that 2003 was a year of significant progress for the
National Express Group ('Group'). Despite the market, economic and business
challenges that we have faced, we are very pleased with our performance and I
would like to thank all our staff for their contribution during the year.

Our coach division marked its 30th anniversary with a complete rebranding of its
operations, reinforcing our high quality, value for money services.  During this
year we have taken the business forward with new, exciting marketing and pricing
initiatives which, together with the introduction of a new concessionary fares
scheme in association with the Department for Transport, have increased the
overall attractiveness of coach travel.  We experienced significant patronage
growth on our key routes, including the airport services and, as a result, we
carried a record number of passengers during the year.

Within our trains division, we have made considerable progress working with the
Strategic Rail Authority ('SRA') in their rail refranchising programme. We
secured two year extensions at Central Trains ('Central'), Great Northern and
Wessex Trains ('Wessex').  We anticipate signing the Silverlink two year
extension this summer and await news of the preferred bidder for the ScotRail
franchise. Two year extensions provide a strong financial footing for our
franchises and give the Group a firmer base from which to develop our portfolio.

In January, we were awarded the new Greater Anglia franchise by the SRA. This
franchise, which combines the existing Anglia and Great Eastern franchises, and
the West Anglia Liverpool Street services (including Stansted Express) from the
Group's Wagn franchise, marks the introduction of the first of the new franchise
template agreements.  This franchise will run for seven years with an automatic
extension of three years, subject to the achievement of performance and service
quality targets set out by the SRA.  We now have a portfolio of seven franchises
which run until 2006 or beyond.  We look forward to welcoming our new colleagues
from Anglia Railways and Great Eastern to the Group.

We continue to work with Network Rail, our other key suppliers and the industry
participants to improve the level of operating performance. We are particularly
encouraged to see consistent patronage growth returning across all our train
operating companies ('TOCs'). We welcome the major review of the structure of
Britain's railway announced by the Transport Secretary in January 2004 and we
are already playing an active part in the consultation process.

During the year, the Wales and Borders franchise transferred ownership to Arriva
following three years of operation in which the Group significantly developed
this business. I would like to take this opportunity to thank our employees for
their hard work during our tenure and we wish them well for the future.

Our bus operations delivered another strong set of results. We were particularly
pleased with the response to the Travel Coventry branding which we launched at
the end of last year. The signing of the Coventry Concordat, which marked the
culmination of a partnership between Coventry City Council, Centro and
ourselves, is aimed at ensuring further development of the bus network in the
region. This initiative was supported by Central Government which provided £35
million of funding to improve bus priority measures and passenger facilities.
We have also introduced smartcards onto the network.  We look forward to the
signing of the first bus industry statutory quality partnership on our Castle
Vale service in Birmingham.  We continue to work with Centro and the City
Council to stabilise traffic flows arising from the redevelopment of Birmingham
city centre to improve reliability of our services.

I am pleased to announce the acquisition of Connex's London bus operations for a
nominal consideration.  This gives the Group an important entry into the London
bus market through established depots in Battersea and Croydon. With 200 buses
operating twelve contracts on behalf of Transport for London, this gives us the
critical mass we require to develop our bus operations in this fast growing
market thereby increasing our presence in the UK bus market overall.

Our North American operations have continued to grow and we have improved
profits despite the weakening dollar. Our student bus operation continues to
provide essential services to school boards in 20 states and two Canadian
provinces. Following its first full year of contribution, our Canadian
acquisition, Stock Transportation, has proved to be a strong business run by an
experienced management team.  The Canadian market with its longer term contracts
provides stability and, in common with the United States, relies on strong
relationships with school boards.  We look forward to increasing our presence
within Canada.

The results from the public transit division showed year-on-year improvement.
We continued to exit poor performing contracts and renew existing ones at higher
rates to reflect the increased cost of accident claims in the United States.
Safety is a priority and we were pleased to see the frequency of accidents

We are pleased with the performance of our Australian Bus operation.

We continue to negotiate an exit from our shareholding in Eurostar. These
negotiations are expected to be completed when the new structure for Eurostar is
put in place. We are committed to achieving a solution which benefits all
parties as soon as possible but will ensure we act in the best interests of our

The Board

With my retirement from the Board taking place at our next Annual General
Meeting in May, I would like to thank all the members of the National Express
Group Board for their support and contribution during the period of my
Chairmanship.  I was Chairman of the Group at the time of its flotation back in
1992 and it is very pleasing to see the progress and developments that have
taken place over the last decade.   Today we are a leading international
transport group with a sound financial base and I look forward with confidence
to watching the Group capitalise on its many opportunities for future growth.
The process of recruiting a successor is well underway  and an announcement will
be made before the Annual General Meeting.

I would like to take this opportunity to pay tribute to Larry Durham who has
decided to retire from the Group but remains as a consultant.  Larry joined the
Group in 1999 when we acquired Durham Transportation, the company that he
founded.  Since joining he has been responsible for the successful growth of our
North American operations.  We are delighted that Larry has stayed with us for
nearly five years since we acquired his business.  In this time he has
successfully integrated a number of major acquisitions as well as established a
strong management team.  We wish Larry all the best for the future.  He leaves
behind a business that continues to perform well.

Results and Dividend

Turnover from continuing operations increased by 6% to £2.6 billion (2002: £2.4
billion) and normalised Group operating profit increased by 3% to £134.6 million
(2002: £130.9 million). After interest and the Group's share of losses from
associated undertakings, normalised profit before tax was £105.5 million (2002:
£106.8 million). Normalised diluted earnings per share were 59.7p (2002: 60.3p).

The strong cash performance of the Group's continuing operations continues with
£139.7 million operating cash flow (2002: £105.5 million).  Our effective net
debt has reduced from £334.6 million to £307.8 million.

Given the Board's confidence in the Group's operations, as well as its financial
strength, we are recommending an increased final dividend of 17.5p per ordinary
share (2002: 16.4p) to be paid on 7 May 2004 to shareholders on the register at
13 April  2004. Including the interim dividend, the proposed total dividend for
the year is 26.0p (2002: 24.5p).

Current trading and outlook

We have made a good start to the year. In the Bus division, we remain focused on
growing our UK business by delivering further bus priority measures and
investing in additional quality partnerships. We look forward to signing the
first statutory quality partnership in the bus industry during this year.  The
acquisition of the Connex bus business creates an important entry for the Group
into the London market.

Our Trains division continues to perform well and we expect to build on this
success during 2004.  We are working closely with Network Rail to gain further
improvements in reliability and punctuality. We are already well advanced with
our plans for the merging of the three TOCs which will create the new Greater
Anglia franchise, due for launch in April, and look forward to submitting our
pre-qualification questionnaire for the Intercity East Coast rail franchise.

The Coach division has started the year well and we anticipate building on the
growth we achieved last year.

We are encouraged by the opportunities in North America. Our US student bus
business is in its bidding season.  We remain confident of securing new business
wins and retaining our current contracts.  Our entry into the Canadian market
has been successful and we are actively seeking opportunities to expand this
part of our business.

Overall, we look forward to the future with confidence.

Operational Review


Travel West Midlands is the leading bus operator in the West Midlands
incorporating Travel Coventry, Travel Midland Metro and Travel Dundee.  It
employs over 5,500 employees and has a fleet of 1,800 buses operating over 600

Turnover for the period was £211.9 million (2002: £208.7 million) with operating
profit of £47.2 million (2002: £49.8 million) principally impacted by the
financing of new buses through operating leases. Overall, performance of this
business remains strong. Following the completion of the development works in
the centre of Birmingham in September, there have been a number of traffic flow
issues concentrated around the main shopping mall resulting in extended journey
times and delays to services.  We are working with Centro and the City Council
to resolve these matters as quickly as possible.

We have undertaken a series of successful joint marketing initiatives with the
local authorities to promote key events and destinations within the West
Midlands. Many of these promotions have been backed up by special travel offers
giving added value to passengers.  In addition, we have joined forces with
Centro to open the latest one-stop shop for travel information and sales in the
West Midlands. We have also supported Centro in their relaunch of Travelwise
which promotes travel by public transport and launched our first internal
journey planning facility as part of the West Midlands Traveline service.  We
actively encourage travel by bus as part of a journey through involvement in the
PlusBus integrated rail-bus ticketing scheme.

We continue to invest in our bus operations. In Birmingham, we introduced 155
new vehicles during the year which has resulted in 60% of the fleet now being
low-floor easy access, well above the industry average.  We have a further 155
buses on order for our West Midlands operation for delivery in 2004. Nearly half
of the fleet has CCTV installed and during the period we extended our
involvement and promotion of the Operation Safer Travel initiative.

In Coventry, the roll-out of the new Travel Coventry brand was completed and
feedback from customers and stakeholders has been very positive. In December we
were the first bus operator to sign a Public Transport Partnership Concordat
committing Coventry City Council, Centro and ourselves to work in partnership
for the promotion and enhancement of bus services across the region. We believe
that this is a major positive step by all parties for the future development of
the network of services and believe that additional quality partnerships will be
launched on the back of this.

To support this initiative we introduced nine new low-floor articulated vehicles
into the Coventry fleet which has resulted in 14% growth in passenger numbers in
the first eight months.  In addition, the first phase of the smartcard scheme in
Coventry, targeted at seniors, was launched with over 30,000 smartcards issued.

Travel Dundee performed well with an increase in patronage.

We remain committed to developing public transport services in the West Midlands
and Dundee. We were pleased to be the first bus operator nationwide to adopt the
Bus Forum Service Stability initiative which ensures that service changes are
only undertaken on a maximum of twelve dates per annum. We remain strongly of
the view that quality partnerships are the way forward for our bus operations as
all our stakeholders are beneficiaries.  We aim to be the first bus operator to
sign a statutory quality partnership later this year.

We believe that the acquisition of Connex bus operations in London positions our
bus division well for the future and provides the foundation for future growth


We operate c2c, Central Trains, Gatwick Express, Midland Mainline, ScotRail,
Silverlink, Wagn including the Stansted Express and Wessex Trains franchises.
The division currently employs 12,800 people.

Turnover for the year increased by 10% to £1,702.4 million (2002:  £1,553.2
million).  Normalised operating profit was £32.0 million (2002: £33.9 million).
This reduction was due to increased headcount to improve operational
performance, increased pensions and insurance costs, as well as a subsidy
reduction for our London and South East operations.

We are pleased that patronage across the division was up 5% on last year with
particularly strong growth across the long distance and London and South East

Operational performance has improved over the past twelve months through closer
working relationships with Network Rail. We believe a more hands-on approach
through Joint Boards and a further investment in driver resources will deliver
improvements.  Within our own operations, we have introduced improvement plans
designed to enhance performance control at all levels within the TOCs.  At
Midland Mainline and Central Trains we have brought the operations and
engineering functions closer together through a reorganisation of these

We have strengthened our Trains division management teams over the past six
months with a number of senior appointments from within the industry including
the appointment of a new fleet engineering director and managing directors for
the Midland Mainline and the Greater Anglia franchises.  In February 2004 we
appointed David Franks as the Chief Executive of the division.

London and the South East

Turnover for the period was £555.9 million (2002: £535.7 million).  Normalised
operating profit was £20.0 million (2002: £21.0 million).  Patronage growth on
these services was very encouraging at 7%, mainly from off-peak travel.

Both Wagn and c2c performed well with Stansted Express achieving strong
patronage growth of 17%, reflecting the growth of the airport. We commenced the
introduction of driver only operations at c2c towards the end of the year.
Patronage on Gatwick Express is improving but this franchise continues to be
impacted by the relocation of international flights from Gatwick airport.

Long distance

Turnover for the year increased to £207.0 million (2002: £156.1 million) with an
operating profit of £12.4 million (2002: £8.2 million).  This increase reflected
the commencement of operations by Midland Mainline ('MML') of a new London to
Manchester service, which started in May 2003 at the request of the SRA and
additional compensation received as a result of engineering work.  Passenger
numbers on this service have been encouraging with many passengers transferring
to the route following the West Coast Main Line blockade throughout the summer
months.  Overall there was a 6% increase in patronage.

We continue to undertake the refurbishment of MML's 15 high speed trains. With
half of the fleet already completed, it is anticipated that the whole fleet will
be finished by Spring 2004. The first of the new Meridian trains is expected to
come into operation later this year.

MML's performance continues to be impacted by the Channel Tunnel Rail Link
development work at St Pancras.  During the course of this year, its operations
will be restricted by a reduction in the number of platforms at St Pancras and
the opening of a temporary station.

Regional Services

Turnover for the period was £939.5 million (2002:  £861.4 million) with a
normalised operating loss of £0.4 million (2002: profit £4.7 million).

As part of our two year extension at Central, £5.0 million will be invested over
the next two years in passenger benefits including a new Customer Service
Academy for all Central staff. Following the reopening of Birmingham city
centre, Central's patronage has increased 3% year-on-year as shoppers from a
wider catchment area are travelling to Birmingham by train. During the year,
Central took over operation of the Birmingham to Cardiff and Liverpool services.
Operational performance continues to be a challenge but we are making progress
in this area.

Wessex Trains increased its operations significantly over the last twelve months
following a transfer of selected services from Virgin Trains to Wessex.
Patronage growth during the year was a very creditable 8%. In February 2004 a
two year extension for Wessex was signed.

ScotRail's patronage grew by 7%.  Operational performance has improved and
recent passenger research has shown marked improvements in customer
satisfaction.  This month will see the delivery of 21 new turbostar trains. At
the request of the SRA and the Scottish Executive, we are extending our existing
franchise by seven months to October 2004 to assist with the refranchising


At the beginning of this month, we merged our Qjump operation with, creating a stronger, larger operation for rail ticket sales.  As
part of the merger we have acquired a 14% shareholding of the enlarged business.
  The combined business consolidates's position as the UK's
leading rail ticketing retailer and we believe the enlarged entity will be more
successful moving forward.

Earlier this month we signed two year extensions for our Great Northern and
Wessex franchises.  Moving forward a two year franchise extension is under
discussion for Silverlink and we await the preferred bidder announcement for the
ScotRail franchise.  Plans are well underway for the launch on the Greater
Anglia franchise at the beginning of April.  We are also preparing ourselves for
the next round of franchise bids, including the Intercity East Coast rail
franchise.  We look forward to further improvements in operational performance
across the division.


The coach division provides Britain's only scheduled national coach network and
serves more than 1,200 destinations.  The airport services provide premier, high
frequency scheduled coach services to all the UK's major airports, as well as
airside coaching services.  Eurolines offers value for money European travel by
coach.  The division  employs 1,900 people.

Turnover for the year was £186.6 million (2002: £184.5 million) with a
normalised operating profit of £15.0 million (2002: £12.2 million).  This was
especially pleasing against a background of uncertainty in the tourist market.
Progress in the second half was exceptional with patronage up 2% for the year.
We have invested in better management systems, which has facilitated improved
yield management,  as well as focusing on cost control and increasing the
proportion of direct sales.

Key routes have seen a significant growth in patronage and delivered well above
average revenue growth. Widespread promotion of our scheduled services,
particularly to major events such as the Glastonbury Festival, has delivered
good results. Best value fares have been rolled out to our most popular routes
and this has reduced costs with less duplication of services as passengers have
transferred to non peak services.

The concessionary travel scheme, launched in May in conjunction with the
Department for Transport, provides all disabled customers and those over the age
of 60 with up to half price travel on over 80% of our services. Over a million
passengers have benefited from this scheme since it started.

The refocusing of our airport services and strengthening of management, has
produced good growth despite the well publicised issues with which the airline
industry has had to contend.  We have improved coach links from Stansted into
Central London. With the continuing strong growth in passenger numbers using
Stansted and plans for an additional runway at the airport, we believe further
growth will occur.

We look forward to the future with confidence following a successful 2003. We
are extending our £1 best value fares across the network and continuing to
invest in our coach facilities.  We remain committed to investing in a new coach
station in Birmingham as a key hub for our services.

Moving forward we aim to meet the coach travel needs of the future whilst
continuing to provide a value for money product. We believe there is scope to
improve further the product offering and consequently we are continuously
reviewing vehicle design and on board facilities as well as investing in
training and development of drivers and other front line staff.

North America

The North American division consists of student transportation, public transit
operations and Stewart Airport in New York State. The division employs 21,000
employees, with 1,700 in Canada.  Student transportation provides services in
more than 260 school districts and two Canadian provinces. Public transit
operates in 18 states.

Turnover in the student transportation division for the year was £228.1 million
(2002: £219.6 million) and normalised operating profit was £32.4 million (2002:
£30.9 million). In US dollars, turnover was $374.1 million (2002: $331.6
million) and normalised operating profit $53.1 million (2002:  $46.6 million).
Progress within this division has been encouraging, particularly in Canada, with
underlying trading in the Canadian marketplace being very positive.

New routes were added at Durham School Services in spite of the slowing US
economy and lower tax revenues which have impacted on school district budgets.
New contracts were won in Arizona and Kansas and we added two new conversions in
Natchez, Mississippi and Uvalde, Texas. Durham School Services has maintained
its regional, targeted focus in bidding.  In common with Stock Transportation,
its strength is based on its attention to safety and provision of a quality

We are pleased with the performance of our Canadian business after its first
full year of ownership.  The quality of its management and their strong
relationships with school boards has resulted in sustainable organic growth.
Whilst many of the factors which are key to operating successfully in the United
States student bus market are also common in the Canadian market, Canada has not
experienced some of the significant cost pressures particularly increased
workers' compensation and insurance claim costs.  We continually focus on
extracting synergy savings across the two businesses particularly in the areas
of fleet and parts procurement.

Turnover in the public transit division was £172.0 million (2002: £188.4
million) and normalised operating profit was £4.6 million (2002: £1.7 million).
In US dollars turnover was $282.1 million (2002: $284.5 million) and normalised
operating profit $7.6 million (2002:  $2.6 million). During the year we withdrew
from a number of underperforming contracts and key contracts were retained at
improved rates to address increasing insurance costs.  Operating costs across
the public transit division remain an area for focus. Following a benchmarking
exercise across the engineering and maintenance functions, we are rolling out
best practice across our depots.  As part of our accident and claims initiative
launched last year, all our safety programmes focus on preventability and
reducing accident frequency through improved safety training.  We are pleased to
note that the accident frequency rates have fallen this year.

Moving forward Brian Stock, President and Chief Executive Officer of Stock
Transportation, will head up our North American student bus operations working
alongside John Elliott who has been Chief Operating Officer of Student
Transportation for the past three years.  Jim Long will continue to head up our
public transit operations.  During 2004 we will focus on retaining profitable
contracts across the division, reducing the cost base further and improving the
competitiveness of our bids.  We will continue to look for share shift and
conversion opportunities as well as bolt on acquisitions within student


The Group operates six bus companies in Australia. Operations are in Brisbane,
Melbourne, Perth and Sydney and employ 1,800 people.

Turnover for the Australian Bus division totalled £65.1 million (2002: £58.0
million) with a normalised operating profit of £3.4 million (2002:  £2.3
million). Trading remains in line with expectations. The New South Wales
Government review of bus services has recommended a reduction in the number of
operators areas in the Greater Metropolitan area of Sydney. We believe that
Westbus, as the largest private operator in New South Wales, will play a key
role in the review.

Finance Director's Review

I am particularly pleased at the progress the Group has made from a financial
viewpoint over the past year. Securing a number of two year extensions has
provided more stability to our UK Trains profits and the acquisition of Connex
Bus along with the new Greater Anglia franchise provides opportunities for
further profit growth. Our business faces increasing cost pressures which we
mitigate through long term pay deals, fuel hedging and tight financial
procedures and controls.

Where we refer to a normalised result, this is defined as the statutory result
before the following as appropriate: charges for goodwill amortisation,
exceptional charges and tax relief on certain North American goodwill
amortisation and exceptional items.

Year at a glance

Normalised group operating profit was £134.6m (2002: £130.9m), on turnover of
£2,566.1m (2002: £2,572.3m). Normalised profit before tax from continuing
operations was £105.5m (2002: £106.7). Normalised diluted earnings per share
were 59.7p (2002: 60.3p), a small reduction caused by lower profits and a higher
average number of diluted shares.  Cash flow was strong with effective net debt*
reducing by £26.8m to £307.8m after paying out the Australia trains cash exit
costs of £49.8m. Full year dividend per share increased by 6% to 26.0p (2002:

*Effective net debt is net debt excluding the £18.7m of cash deposits secured as
a bond in respect of future rolling stock maintenance at ScotRail.

Divisional review


Turnover increased by 2% to £211.9m (2002: £208.7m). Operating profit fell to
£47.2m (2002: £49.8m). The difficulty of operating in the centre of Birmingham
as a result of the redevelopment of the Birmingham Bull Ring has dampened
revenue growth. The fall in operating profit reflects the increasing number of
buses financed by operating leases, now totalling 377, which is 20% of the
fleet. The increase in the lease charges in the year of £2.7m compares with a
notional saving on depreciation of £1.3m. As a result, the operating margin
reduced to 22.3% (2002: 23.9%). We will continue to review the most cost
effective way to finance our new bus purchases.


Turnover increased by 9.6% to £1,702.4m with overall patronage growth of 5%
across our portfolio of TOCs. Normalised operating profit fell to £32.0m (2002:

                                                     Turnover              Normalised operating profit /
                                                     2003            2002            2003            2002
                                                       £m              £m              £m              £m

London and South East                               555.9           535.7            20.0            21.0

Long distance                                       207.0           156.1            12.4             8.2

Regional services                                   939.5           861.4           (0.4)             4.7

                                                  1,702.4         1,553.2            32.0            33.9

Normalised operating profit in our London and South East TOCs fell to £20.0m
(2002: £21.0m). Turnover increased by £20.2m as strong passenger revenue growth
offset the £12.2m net reduction in subsidy. The normalised operating margin fell
to 3.6% (2002: 3.9%) reflecting increased passenger compensation payments.

Our long distance TOC increased turnover by 32.6% and normalised margins to 6.0%
(2002: 5.3%), benefiting from the SRA's decision to strengthen London to
Manchester services whilst the West Coast Route Modernisation was in progress.
Margins were also assisted in part by performance compensation related to the
Channel Tunnel Rail Link construction work at St. Pancras. This work continues
throughout 2004 and will have a significant impact on operational performance
and therefore may restrict passenger growth during the year. We are expecting to
receive the first of our new Meridian train fleet later this year.

The regional TOCs made a normalised operating loss of £0.4m (2002: £4.7m
profit). From the beginning of April, Central Trains and ScotRail will operate
on new improved terms. The former as part of the two year extension and the
latter a seven month extension currently being finalised with the SRA. We ceased
to operate Wales & Borders from 6 December 2003.

Since the year end we have undertaken two restructuring exercises.,
our on-line loss making ticketing service which we set up in January 2002, was
merged with, the UK's leading on-line rail ticket provider, on 9
February 2004. Our train maintenance company, Maintrain, will cease to pursue
maintenance work outside of the Group and instead concentrate on improving
rolling stock performance for Midland Mainline and Central Trains.

Consequently, we have removed the 'Other' segmental disclosure for the Trains
Division, reallocating the profit or losses of Maintrain and Qjump to the
division in which they conducted their activities.


Our Coach operations performed strongly increasing normalised operating profit
by 23.0% to £15.0m (2002: £12.2m). Yield management on ticketing and the
introduction of the concessionary fare scheme providing discounted travel to the
over 60s increased turnover from continuing operations by 2.9% to £186.6m (2002:
£181.4m). Investment in management systems during the year provided improved
route by route profitability analysis enabling key strategic decisions to be
implemented to target this growth. The normalised operating margin improved to
8.0% (2002: 6.6%) benefiting from the improved ability to avoid duplicate
coaching costs as passengers switch journey times to the off peak.

North America

Normalised operating profit increased by £7.0m before a £2.6m adverse foreign
exchange movement. Turnover fell by £7.9m, but at constant exchange rates
increased by £24.5m.

                                                   Turnover               Normalised operating profit
                                                   2003            2002            2003            2002

                                                     £m              £m              £m              £m

Student Transportation                            228.1           219.6            32.4            30.9

Public Transit                                    172.0           188.4             4.6             1.7

                                                  400.1           408.0            37.0            32.6

                                                     $m              $m              $m              $m

Student Transportation                            374.1           331.6            53.1            46.6

Public Transit                                    282.1           284.5             7.6             2.6

                                                  656.2           616.1            60.7            49.2

Average US dollar exchange rate of 1.64 (2002: 1.51).

Turnover in our Student Transportation business increased by £8.5m (and £25.2m
at constant exchange rates) through the full year effect of Stock, acquired in
July 2002, and new routes operated. Normalised operating margin improved to
14.2% (2002: 14.1%) through tight control of costs and the full year impact of
Stock. The 2003 bid season was price competitive and we expect this to continue
during the current bid season. Stock Transportation performed well. The
evergreen nature of the Canadian market provides long term stability.

The normalised operating margin of our Public Transit business improved to 2.7%
(2002: 0.9%). Whilst encouraging, this is still not at a level that we find
acceptable. We are continuing with our policy of eliminating unprofitable
contracts and negotiating new contracts at substantially higher rates to
mitigate the effects of on-going claims and insurance cost pressures.


Our Australia Bus operations experienced an encouraging year, increasing
normalised operating profit to £3.4m (2002: £2.3m) on turnover of £65.1m (2002:
£58.0m). Normalised operating margin increased to 5.2% (2002: 4.0%).


We hold a 33% investment in Altram LRT Limited (Altram) and a 40% investment in
Inter-Capital and Regional Rail Limited (ICRRL).

Altram has operated the Midland Metro since June 1999. Our share of the
operating loss for 2003 was £0.5m (2002: £0.5m). We are in discussions with our
fellow shareholders at Altram and Centro regarding a restructuring which may
lead to the Group taking full ownership.

ICRRL is contracted to manage the operations of Eurostar UK to 2010. Our share
of the operating loss for the year was £3.6m (2002: £3.5m), which represented a
second half loss of £0.1m.  Revenue performance at Eurostar UK improved markedly
in the last quarter of 2003, after the opening of the first section of the
Channel Tunnel Rail Link. The second half also benefited from settling several
large claims with its partners.  The cash outflow of £3.9m comprises the Group's
share of funding for the 2002 losses. We continue to seek an exit from Eurostar
which we believe is in the best interests of shareholders.


Net interest payable increased to £25.0m (2002: £20.1m) reflecting a higher
level of net debt in the first half of 2003 following payments of £49.8m mainly
to indemnify the providers of the performance bonds in respect of our withdrawal
from Australia Trains. Interest payable was also impacted, but to a lesser
extent, by higher interest rates.  Normalised operating profit before
depreciation (EBITDA) from continuing operations was £194.8m (2002: £191.5m) and
EBITDA interest cover from continuing operations was 7.8 times (2002: 9.5

Goodwill amortisation

The annual goodwill amortisation charge increased to £45.7m (2002: £45.2m)
reflecting a full year amortisation charge for the Stock acquisition in July
2002, offset by the weakening of the US dollar.

Exceptional items

Exceptional items comprise £5.3m (2002: £5.0m) of pre-contract bid costs
incurred in the UK Trains refranchising process.


The tax charge on normalised profit of £105.5m (2002: £106.8m) was £24.3m (2002:
£24.6m), which represents an effective rate of 23.0% (2002: 23.0%).  Continuing
low effective tax rates on overseas earnings maintain a low overall rate.

The total tax charge includes one off credits of £6.0m arising from a review of
group tax liabilities as a result of agreeing prior years' computations.  It
also includes tax relief on certain North American goodwill amortisation and UK
Trains exceptional costs.

Cash flow

The strong cash performance of the Group demonstrates our ability to convert
operating profits into cash and underlines the importance we attach to managing
cash in our various businesses.  We generated £156.9m (2002: £176.5m) of
on-going operating cash flow from continuing businesses and £139.7m (2002:
£90.5m) after other items.

                                            UK         UK        UK     American    Australian
                                           Bus    Coaches    Trains          Bus           Bus      Total

                                            £m         £m        £m           £m            £m         £m

Normalised operating profit               47.2       15.0      32.0         37.0           3.4      134.6

Depreciation                              10.0        4.8      21.8         24.4           3.7       64.7

Amortisation of fixed asset grants           -          -     (3.0)            -             -      (3.0)

Profit on disposal                       (0.4)          -     (1.1)          0.3         (0.3)      (1.5)

EBITDA                                    56.8       19.8      49.7         61.7           6.8      194.8

Working capital movement                 (3.7)       10.2     (7.0)          9.1           0.5        9.1

Eurostar                                     -          -     (3.9)            -             -      (3.9)

On-going net cash
  inflow from
  operations                              53.1       30.0      38.8         70.8           7.3      200.0

Net capital expenditure                  (9.1)      (6.0)     (8.4)       (17.4)         (2.2)     (43.1)

On-going operating
  cash flow                               44.0       24.0      30.4         53.4           5.1      156.9

Other items                                                                                        (17.2)

Operating cash flow                                                                                 139.7

Operating cash flow represents 'Net cash inflow from operating activities' plus
'Receipts from the sale of tangible assets' less 'Finance lease additions' and '
Payments to acquire tangible assets' as set out in note 18c and the cash flow

Strong working capital inflows in UK Coach and North America resulted from
improved receivable collections and the on-going timing delays in settling
accident claims in North America where the cash outgoings were £5.4m less than
the claims. The working capital outflow in the UK Trains division includes a
catch up payment of £43m on contractual and performance payments to Network Rail
which was partially offset by timing differences of £25m which will reverse in
2004. £3.9m was paid to fund our share of Eurostar losses from the previous

Net capital expenditure of £43.1m from continuing operations (2002: £52.4m)
includes £9.1m (2002: £0.3m) in UK Buses, £8.4m (2002: £17.3m) in UK Trains,
£17.0m (2002: £19.0m) investment in North American school buses. Capital
expenditure includes £8.0m (2002: £0.8m) of additions purchased under finance
leases, comprising  £0.1m (2002: £0.1m) in UK Buses, £0.3m (2002: £0.5m) in UK
Coaches, £1.0m (2002: £0.2m) in UK Trains, and  £6.6m (2002: £nil) in North
American school buses. A further £7.6m of expenditure incurred in the year will
be paid for in early 2004.

The reduction in capital expenditure this year reflects the reduced capital
requirements of the Trains Division as a large number of our franchises approach
the end of the current contracts and North America where we have started a major
exercise in fleet utilisation to improve efficiency.

Other items comprise £5.0m for a top up payment into the Coaches pension scheme,
£4.9m for train bid costs, and £7.3m to unwind the working capital position upon
exiting the Wales and Borders rail franchise.

Net funds inflow was £66.6m, before payments of £49.8m to settle the performance
bonds and other costs relating to the exit from Australia trains and a foreign
exchange gain of £10.0m. Therefore, the effective net debt was reduced by £26.8m
to £307.8m, with the benefit of a favourable exchange movement of £10.0m arising
principally from the translation of US$ denominated debt. The published net debt
of £289.1m is stated after taking into account £18.7m of cash deposits secured
as a bond in respect of future rolling stock maintenance at ScotRail.


An interim dividend of 8.5p per share was paid in October 2003 and a final
dividend of 17.5p per share will be paid in May 2004, bringing the total
dividend for the year to 26.0p. This is a 6% increase in total dividends
declared compared to 2002.  This dividend is covered 2.3 times (2002: 2.5 times)
by normalised profits after tax.


The Group's principal defined benefit pension schemes are all in the UK. The
most recent triennial actuarial valuations were carried out at 31 March 2001 and
31 March 2002 for the two Bus schemes, 5 April 2001 for Coaches and 31 December
2001 for the Train schemes.  These valuations showed funding levels of 107% to
119% on the Bus schemes, 67% on the coach scheme and 89% to 109% on the train
schemes.  Approximately 1,750 people (32%) of bus division employees are members
of two schemes, which have been closed for some years, and some 500 members of
staff are members of the coach division scheme.  New employees in the bus and
coach division are offered membership of defined contribution pension schemes.
In the trains division approximately 12,500 employees are members of the train
schemes.  The group injected £5m into the coach scheme in March 2003 in order to
enhance its funding position.

Overall, the FRS 17 deficits have increased as the increased values of the
financial assets, reflecting the improvements in global stock markets, have been
more than offset by increases in the liabilities arising from decreases in the
discount rate and higher inflation as well as the extra year of service.  The
deficit in the bus schemes has increased to £38.7m (2002: £18.7m); the increase
in liabilities of £32.7m compares with the asset increase of £12.7m. We expect
to increase the Group's contribution to the Bus schemes in 2005 after the next
actuarial valuation. In the coach scheme the deficit reduced to £4.7m (2002:
£9.5m), mainly as a result of the £5m injection in the year. In the train
schemes the deficit increased to £70.8m (2002: £53.8m) with the increase in
liabilities of £82.7m being significantly more than the asset increase of
£65.7m.  We will provide full disclosure in the accounts position of our defined
benefit schemes under FRS17  which includes the train pension schemes, where our
main obligation is to pay the contributions as agreed with the scheme actuary.

Post balance sheet events

On 9 February 2004 we merged our train on-line ticketing service,,
with We have acquired 14% of the equity in Trainline, which will
be classified as a trade investment.

On 25 February 2004 we acquired the entire issued share capital of Connex Bus
(UK) Limited for a nominal consideration.

We will take over the new Greater Anglia train franchise from 1 April 2004.
This will be the first franchise operated under the new franchise template
agreement and will be for an initial period of seven years with an extra three
years if performance targets are achieved in the first five years.  The
performance bond requirement will be £5m at inception rising to £22m by April
2006.  There will be a share capital cash subscription of £15m and we will
maintain an amount of cash in the company calculated in accordance with the
financial covenants.  It is estimated that the franchise will commence with
season ticket bonded cash of approximately £43m of which £9m will come from the
present West Anglia franchise.

Accounting policies


We continue to apply the transitional arrangements of FRS 17 'Retirement
Benefits' and plan to move directly to the International Accounting Standard
equivalent (IAS19) in 2005 following the Accounting Standards Board's decision
to defer full adoption of FRS17. UITF 38 'Accounting for ESOP trusts' will be
adopted from 1 January 2004, resulting in own shares held as fixed asset
investments at 31 December 2003 being deducted in the calculation of
shareholders' funds.


The Council of the European Union announced in June 2002 that all listed
companies would adopt International Financial Reporting Standards (IFRS),
formerly known as International Accounting Standards (IAS), from 1 January 2005.
The adoption of IFRS will be first reflected in the Group's financial statements
for the half year ending 30 June 2005 and the year ending 31 December 2005. The
Company has established a project team to manage the convergence to IFRS.
Throughout this process we have worked closely with our auditors, Ernst & Young

At the date of this report, the Group has made good progress on converting to
IFRS.  Whilst the Group has undertaken an exercise to understand the differences
between IAS/IFRS and the Group's current policies, the conversion project is
on-going.  A number of new standards were only issued by the IASB in December
2003 and the IASB have indicated they will not issue all the standards which
will apply for adoption in 2005 until March 2004. The IASB are also expected to
continue to issue further new standards during 2004, 2005 and beyond, for which
the Group will consider early adoption on a case by case basis. In addition, the
International Financial Reporting Interpretations Committee are expected to
continue to issue interpretations which will apply to the standards that are
mandatory for 2005.

Adam Walker
Finance Director



                                    Total before    Goodwill &             Total before    Goodwill &      
                                      goodwill &   exceptional               goodwill &   exceptional
                                     exceptional         items              exceptional         items       
                                           items                    Total         items                    Total
                                            2003          2003       2003          2002          2002        2002
for the year ended 31 December
                              Note            £m            £m         £m            £m            £m         £m


- continuing operations                  2,566.1             -    2,566.1       2,412.4             -    2,412.4

- discontinued operations                      -             -          -         159.9             -      159.9

Turnover                       3         2,566.1             -    2,566.1       2,572.3             -    2,572.3

Other operating income                      10.9             -       10.9          10.8             -       10.8

Other operating costs before
goodwill and exceptional items         (2,442.4)             -  (2,442.4)     (2,452.2)             -  (2,452.2)
Goodwill amortisation
  and impairment               3               -        (45.7)     (45.7)             -        (58.7)     (58.7)

Other exceptional items        3               -         (5.3)      (5.3)             -         (5.0)      (5.0)

Total operating costs                  (2,442.4)        (51.0)  (2,493.4)     (2,452.2)        (63.7)  (2,515.9)

Group operating profit                     134.6        (51.0)       83.6         130.9        (63.7)       67.2

- continuing operations                    134.6        (51.0)       83.6         130.8        (63.7)       67.1
- discontinued operations                      -             -          -           0.1             -        0.1

Group operating profit           3         134.6        (51.0)       83.6         130.9        (63.7)       67.2

Share of operating losses of     3         (4.1)             -      (4.1)         (4.0)         (2.6)      (6.6)

Total operating profit                     130.5        (51.0)       79.5         126.9        (66.3)       60.6

Loss on closure of businesses                  -             -          -             -       (126.1)    (126.1)

Profit /(loss) on ordinary
activities before
  interest                                 130.5        (51.0)       79.5         126.9       (192.4)     (65.5)
Net interest payable             4        (25.0)             -     (25.0)        (20.1)             -     (20.1)

Profit/(loss) on ordinary                  105.5        (51.0)       54.5         106.8       (192.4)     (85.6)
activities before taxation

Tax on profit /(loss) on
  ordinary activities            5        (24.3)          11.8     (12.5)        (24.6)           4.3     (20.3)

Profit/(loss) after tax                     81.2        (39.2)       42.0          82.2       (188.1)    (105.9)

Minority interest                            1.0             -        1.0           0.6             -        0.6

Profit/(loss) for the                       82.2        (39.2)       43.0          82.8       (188.1)    (105.3)
financial year

Dividends                                 (35.1)             -     (35.1)        (32.4)             -     (32.4)

Retained profit/(loss)                      47.1        (39.2)        7.9          50.4       (188.1)    (137.7)

Basic earnings/(loss)
  per share                      6                                  32.1p                                (80.0p)

Normalised basic earnings
  per share                      6         61.4p                                  62.9p

Diluted earnings/(loss)
  per share                      6                                  31.2p                                (80.0p)

Normalised diluted
  earnings per share             6         59.7p                                  60.3p

                                                                                              2003        2002
at 31 December 2003                                                               Note          £m          £m

Fixed assets

Intangible assets                                                                    7       404.6       467.7

Tangible assets                                                                      8       405.6       420.5

Investments and interests in associates                                              9        12.5        25.3

                                                                                             822.7       913.5
Current assets

Stock                                                                               10        17.3        19.7

Debtors                                                                             11       343.7       359.8

Cash at bank and in hand                                                            12        97.0        93.7

                                                                                             458.0       473.2

Creditors: amounts falling due within one year                                      13     (601.0)     (659.7)

Net current liabilities                                                                    (143.0)     (186.5)

Total assets less current liabilities                                                        679.7       727.0

Creditors: amounts falling due after more than one year                             14     (347.3)     (360.0)

Provisions for liabilities and charges                                              16      (58.8)     (104.4)

Net assets                                                                                   273.6       262.6

Capital and reserves

Called up share capital                                                                        6.8         6.7

Share premium account                                                               17        45.1        44.7

Share capital to be issued                                                          17         0.1         0.2

Merger reserve                                                                      17        15.4        15.4

Capital reserve                                                                     17           -         0.4

Revaluation reserve                                                                 17         0.8         0.8

Profit and loss account                                                             17       200.7       189.6

Equity shareholders' funds                                                                   268.9       257.8

Equity minority interest                                                                       4.7         4.8

                                                                                             273.6       262.6

                                                                                                 2003       2002
For the year ended 31 December 2003                                                   Note         £m         £m

Net cash inflow from operating activities                                            18(a)      182.8      175.5

Interest received                                                                                 7.6        7.0

Interest paid                                                                                  (26.7)     (24.1)

Interest element of finance lease rentals                                                       (3.9)      (1.9)

Return on investments and servicing of finance                                                 (23.0)     (19.0)

UK corporation tax paid                                                                        (22.2)      (9.4)

Overseas tax paid                                                                               (0.1)      (2.4)

Taxation                                                                                       (22.3)     (11.8)

Payments to acquire tangible assets                                                            (48.0)     (91.6)

Receipts from sale of tangible assets                                                            12.9        7.4

Receipts from sales of/(payments to acquire) shares to satisfy employee share                     2.1      (2.7)

Receipts/(payments) in respect of other investments                                               8.1      (1.2)

Capital expenditure and financial investment                                                   (24.9)     (88.1)

Receipts from the sale of businesses                                                              0.8        2.9

Cash disposed in businesses sold/closed                                                             -      (3.3)

Payments in respect of businesses disposed/closed                                              (49.8)          -

Payments to acquire businesses                                                                  (4.7)     (74.9)

Cash acquired in businesses purchased                                                               -        2.2

Deferred consideration for businesses acquired                                                  (0.4)      (2.4)

Acquisitions and disposals                                                                     (54.1)     (75.5)

Equity dividends paid                                                                          (33.2)     (29.9)

Cash inflow/(outflow) before financing activities                                                25.3     (48.8)

Management of liquid resources

Cash withdrawn from/(paid in to) short term deposits                                 18(c)       14.2     (50.4)


Issue of share capital                                                                            0.4        1.0

Cash (outflow)/inflow from lease financing                                           18(c)     (13.8)       20.3

Repayment of loan notes                                                              18(c)      (0.7)      (0.9)

Loans advanced                                                                                      -       32.0

Loans repaid                                                                         18(c)     (26.1)          -

Net cash (outflow)/inflow from financing                                                       (40.2)       52.4

Decrease in cash                                                                     18(b)      (0.7)     (46.8)

                                                                                                 2003        2002
For the year ended 31 December 2003                                                   Note         £m          £m

Profit/(loss) for the financial year                                                             43.0     (105.3)

Exchange differences on foreign currency net investments                                17        2.8       (2.7)

Total recognised gains and losses                                                                45.8     (108.0)

                                                                                                 2003        2002
For the year ended 31 December 2003                                                   Note         £m          £m

Profit/(loss) for the financial year                                                             43.0     (105.3)

Dividends                                                                                      (35.1)      (32.4)

Exchange differences on foreign currency net investments                                17        2.8       (2.7)

New share capital issued for cash                                                                 0.4         1.0

Goodwill realised                                                                                   -         0.4

Net addition/(reduction) to shareholders' funds                                                  11.1     (139.0)

Equity shareholders' funds at 1 January                                                         257.8       396.8

Equity shareholders' funds at 31 December                                                       268.9       257.8



1.        Basis of preparation

The Preliminary Results presented have been prepared using the accounting
policies set out in the Group's 2002 statutory accounts.

2.        Exchange rates

The most significant exchange rates to the pound for the Group are as follows:

                                                                 2003          2003          2002          2002

                                                        Closing  rate  Average rate Closing  rate  Average rate

US dollar                                                        1.79          1.64          1.61          1.51

Australian dollar                                                2.37          2.53          2.86          2.78

Canadian dollar                                                  2.32          2.31          2.54          2.47

If the results for the year ended 31 December 2002 were retranslated at the
average exchange rates for the year ended 31 December 2003, North America would
have achieved an operating profit before goodwill and exceptional items of
£30.0m on turnover of £375.6m, and Australian Bus an operating profit before
goodwill and exceptional items of £2.5m on turnover of £63.6m.

3.        Turnover and segmental analysis

Due to the nature of the Group's businesses, the origin and destination of
turnover is the same.  During the year, franchise agreement receipts amounted to
£684.0m (2002: £634.9m) in the UK.  In 2002, franchise agreement receipts
totalling £62.5m were received from the Victoria Department of Public Transport
in Australia and were treated as turnover.

                                                       Turnover     Operating profit         Net assets/
                                                                    before goodwill and     (liabilities)
                                                                    exceptional items

                                                     2003      2002      2003       2002      2003      2002

Analysis by class of business                          £m        £m        £m         £m        £m        £m

UK Bus                                              211.9     208.7      47.2       49.8      46.3      34.7
UK Trains                                         1,702.4   1,553.2      32.0       33.9     (8.0)       3.3  
UK Coach                                            186.6     184.5      15.0       12.2      24.8      28.1

UK operations                                     2,100.9   1,946.4      94.2       95.9      63.1      66.1

North American Bus                                  400.1     408.0      37.0       32.6     449.9     521.5

Australian Bus                                       65.1      58.0       3.4        2.3      58.9      48.9

Continuing operations                             2,566.1   2,412.4     134.6      130.8     571.9     636.5

Discontinued operations - Australia Trains              -     159.9         -        0.1         -    (49.8)

                                                  2,566.1   2,572.3     134.6      130.9     571.9     586.7

Goodwill amortisation                                                  (45.7)     (45.2)

Goodwill impairment                                                         -     (13.5)

Exceptional items (see table below)                                     (5.3)      (5.0)

Group operating profit                                                   83.6       67.2

Share of operating losses of associates                                 (4.1)      (6.6)

Total operating profit                                                   79.5       60.6

Loss on closure of businesses                                               -    (126.1)

Profit/(loss) on ordinary activities
  before interest                                                        79.5     (65.5)

Unallocated net liabilities                                                                (303.0)   (328.9)

                                                                                             268.9     257.8

Equity minority interest                                                                       4.7       4.8

Net assets                                                                                   273.6     262.6

Goodwill amortisation of £45.7m (2002: £45.2m) is analysed as UK Trains £24.3m
(2002: £23.2m), UK Coach £0.9m (2002: £0.8m), North American Bus £19.4m (2002:
£19.4m) and Australian Bus £1.1m (2002: £1.8m). The goodwill impairment charge
for 2002 relates to Australian Bus.

Unallocated net liabilities comprise other investments, cash at bank and in
hand, borrowings (other than finance leases), deferred consideration payable,
dividends payable and taxation.  The net assets in respect of the Group's
investment in associates have been analysed according to the activities of the

3.             Turnover and segmental analysis continued

Exceptional items are analysed as follows:
                                                                                                 2003       2002
                                                                                                   £m         £m
Pre-contract bid costs: UK Trains                                                                 5.3        5.0

Included in the 2002 share of operating losses of associates of £6.6m is a £2.6m
exceptional loss which comprises the Group's share of an impairment charge in
the accounts for Altram LRT Limited following a review of the carrying value of
its fixed assets.

4.     Net interest payable                                                                      2003       2002
                                                                                                   £m         £m

Interest payable and similar charges:
Bank loans and overdrafts                                                                      (26.7)     (20.1) 

Other loans                                                                                     (0.9)      (3.1)

Finance lease charges                                                                           (3.5)      (3.9)

                                                                                               (31.1)     (27.1)

Interest receivable                                                                               7.6        7.0

Unwinding of discount on insurance provisions (see note 16)                                     (1.5)          -

Net interest payable                                                                           (25.0)     (20.1)

5.         Taxation

                                                                                                 2003       2002
                                                                                                   £m         £m

Current taxation:

UK corporation tax                                                                               22.9       27.5

Prior years - UK                                                                                  0.4          -

                                                                                                 23.3       27.5

Overseas taxation                                                                                 5.1        3.4

                                                                                                 28.4       30.9
Tax relief on goodwill and exceptional items:

UK corporation tax current                                                                      (1.6)      (1.4)

Prior year adjustment                                                                           (6.0)          -

Overseas                                                                                        (4.2)      (2.9)

Total current taxation                                                                           16.6       26.6

Deferred taxation

Origination and reversal of timing differences                                                  (4.1)      (6.3)

Tax on profit on ordinary activities                                                             12.5       20.3

The exceptional prior year adjustment consists of one off credits arising from a
review of Group tax liabilities as a result of agreeing prior years'

6.     Earnings per share                                                                       2003        2002

Basic earnings/(loss) per share                                                                32.1p     (80.0p)

Normalised basic earnings per share                                                            61.4p       62.9p

Diluted earnings/(loss) per share                                                              31.2p     (80.0p)

Normalised diluted earnings per share                                                          59.7p       60.3p

Basic earnings/(loss) per share is calculated by dividing the profit for the
financial year of £43.0m (2002: £105.3m loss) by the weighted average number of
ordinary shares in issue in the period, excluding those held by employees' share
ownership trusts which are treated as cancelled.

For diluted earnings per share, the weighted average number of ordinary shares
in issue is adjusted to assume conversion of all dilutive potential ordinary
shares.  These represent share options granted to employees where the exercise
price is less than the average market price of the Company's ordinary shares
during the year.

For 2002, the weighted average number of ordinary shares for the purpose of
calculating the diluted loss per share is identical to that used for basic loss
per share. This is because the adjustment for dilutive potential ordinary

6.   Earnings per share continued

shares would have the effect of reducing the loss per ordinary share and is
therefore not dilutive under the terms of FRS14, 'Earnings per share'.

The reconciliation of weighted average number of ordinary shares is detailed as
                                                                                      Number             Number
                                                                                   of shares          of shares

                                                                                        2003               2002

Basic weighted average shares                                                    133,765,928        131,602,152

Adjustment for dilutive potential ordinary shares                                  3,951,354          5,622,274

Diluted weighted average shares                                                  137,717,282        137,224,426

The normalised basic and normalised diluted earnings per share have been
calculated in addition to the basic and diluted earnings per shares required by
FRS 14 since, in the opinion of the Directors, they reflect the financial
performance of the core business more appropriately.

The normalised basic and normalised diluted earnings per share for the year
ended 31 December 2002 exclude the earnings from discontinued operations.

Normalised profits for the financial year are:                                          2003               2002

                                                                                          £m                 £m

Profit/(loss) for the financial year                                                    43.0            (105.3)

Earnings from discontinued operations                                                      -              (0.1)

Goodwill amortisation (including impairment of £13.5m in 2002)                          45.7               58.7

Exceptional operating costs                                                              5.3                5.0

Exceptional loss of associate (see note 3)                                                 -                2.6

Loss on closure/sale of businesses                                                         -              126.1

Tax relief on goodwill and exceptional items                                          (11.8)              (4.3)

Normalised profits for the financial year                                               82.2               82.7

7.     Intangible assets

Goodwill arising on all acquisitions, except Prism, is amortised evenly over the
Directors' estimate of their useful economic life of 20 years. The goodwill
arising on the acquisition of Prism in the year ended 31 December 2000 is
amortised over the weighted average life of the franchises.


At 1 January 2003                                                                                         593.3

Additions                                                                                                   3.6

Exchange adjustment                                                                                      (25.6)

At 31 December 2003                                                                                       571.3


At 1 January 2003                                                                                         125.6

Charge for the year                                                                                        45.7

Exchange adjustments                                                                                      (4.6)

At 31 December 2003                                                                                       166.7

Net book value:

At 31 December 2003                                                                                       404.6

At 31 December 2002                                                                                       467.7

8.     Tangible assets
                             Freehold        Long       Short                                  
                             land and   leasehold   leasehold   Infra-structure     Public      Plant
                            buildings    property    property                      service        and      Total
                                                                                  vehicles  equipment
                                   £m          £m          £m                £m         £m         £m         £m

Cost or valuation:

At 1 January 2003                44.4        48.5        31.0               1.7      318.4       94.2      538.2

Additions                         1.0         0.7         0.5               0.5       38.2       23.7       64.6

Acquisitions of                     -           -           -                 -        1.1          -        1.1
Disposals                       (1.7)       (0.1)       (0.1)                 -     (15.1)      (7.9)     (24.9)
Disposal of businesses              -           -           -                 -          -      (0.4)      (0.4)
Exchange adjustments              1.6       (2.5)       (0.3)             (0.4)      (6.8)      (0.5)      (8.9)

At 31 December 2003              45.3        46.6        31.1               1.8      335.8      109.1      569.7


At 1 January 2003                 4.3         2.9        10.3               0.2       62.0       38.0      117.7

Charge for the year               1.0         1.4         6.0               0.1       35.6       20.6       64.7

Disposals                       (0.3)           -       (0.1)                 -      (9.4)      (3.7)     (13.5)

Disposal of businesses              -           -           -                 -          -      (0.4)      (0.4)

Exchange adjustments              0.4       (0.5)       (0.1)                 -      (4.0)      (0.2)      (4.4)

At 31 December 2003               5.4         3.8        16.1               0.3       84.2       54.3      164.1

Net book value:

At 31 December 2003              39.9        42.8        15.0               1.5      251.6       54.8      405.6

At 31 December 2002              40.1        45.6        20.7               1.5      256.4       56.2      420.5

9.     Investments and interests in associates

                                                Loan to  Interests in         Other           Own         Total
                                             associates    associates   investments        shares
                                                     £m            £m            £m            £m            £m

Cost or valuation:

At 1 January 2003                                   4.5           1.4          20.9           7.2          34.0

Additions                                             -             -             -           1.6           1.6

Redemption                                            -             -         (8.1)             -         (8.1)

Disposals                                             -             -             -         (3.3)         (3.3)

Capitalisation of loan                            (4.2)           4.2             -             -             -

At 31 December 2003                                 0.3           5.6          12.8           5.5          24.2

Share of post-acquisition reserves:

At 1 January 2003                                     -         (1.4)             -             -         (1.4)

Transfer from provisions (see note 16)                -         (4.2)             -             -         (4.2)

At 31 December 2003                                   -         (5.6)             -             -         (5.6)


At 1 January 2003                                     -             -         (5.8)         (1.5)         (7.3)

Disposals                                             -             -             -           1.2           1.2

At 31 December 2003                                   -             -         (5.8)         (0.3)         (6.1)

Net book value:

At 31 December 2003                                 0.3             -           7.0           5.2          12.5

At 31 December 2002                                 4.5             -          15.1           5.7          25.3

In accordance with FRS 9 'Associates and joint ventures', the Group's share of
associates' post acquisition reserves in excess of the cost of investment are
included in provisions (see note 16).

10.           Stock
                                                                                                  2003       2002
                                                                                                    £m         £m

Raw materials and consumables                                                                     17.3       19.7

11.           Debtors
                                                                                           2003             2002

                                                                                             £m               £m

Trade debtors                                                                             175.3            192.8
Amounts due from associates                                                                 9.2              4.7

Other debtors                                                                              75.4             78.1

Prepayments and accrued income                                                             83.8             84.2

                                                                                          343.7            359.8

Included within other debtors of the Group is £2.8m (2002: £4.7m) which is
recoverable after more than one year.  Included within prepayments of the Group
is £5.9m (2002: £1.7m) which is recoverable after more than one year.  £5.2m
(2002: £1.4m) of the Group's prepayments recoverable after more than one year is
in respect of pensions.

12.   Cash at bank and in hand
                                                                                           2003             2002
                                                                                             £m               £m

Cash                                                                                       33.2             16.8
Overnight deposits                                                                          2.3             19.5

Other short term deposits                                                                  61.5             57.4

                                                                                           97.0             93.7

Included in cash at bank and in hand are restricted balances of £62.7m (2002:
£35.0m) held by the train companies which cannot be distributed by means of a
dividend or loaned to other Group companies.  Within the restricted balances is
£18.7m (2002: £nil) of cash deposits secured as a bond in respect of future
rolling stock maintenance at ScotRail Railways Limited.

13.     Creditors: amounts falling due within one year 

                                                                         2003     2002 
                                                                           £m       £m 

                                 Loan notes                               8.4       9.1

                                 Bank loans                              19.9      53.2

                                 Bank overdrafts                          0.2         -

                                 Trade creditors                        160.1     201.6

                                 Amounts owed to associates               0.2       0.1

                                 Finance lease obligations               11.6     10.0 

                                 Corporation tax                         18.4      25.3

                                 Social security and other taxation      16.4      21.7

                                 Accruals and deferred income           169.4     160.3

                                 Other creditors                        172.8    156.7 

                                 Proposed dividend                       23.6     21.7 

                                                                        601.0    659.7 

Included in other creditors is £18.7m (2002: £nil) of cash deposits secured as a
bond in respect of future rolling stock maintenance at ScotRail Railways

14. Creditors: amounts falling due after more than one year 

                                                                     2003     2002 
                                                                       £m       £m 

                                      Bank loans                    304.5     308.0

                                      Finance lease obligations      41.5      48.0

                                      Other creditors                 1.3      4.0 

                                                                    347.3    360.0 

15.     Net borrowings 

                                                                           2003      2002 
                                                                             £m        £m 

                              Due within one year                           

                              Loan notes                                    8.4       9.1

                              Bank loans                                   19.9      53.2 

                              Bank overdrafts                               0.2         -      

                              Finance lease obligations                    11.6      10.0     

                                                                           40.1      72.3 

                              Due within one to two years                            

                              Bank loans                                      -     308.0 

                              Finance lease obligations                    12.2      11.5     

                                                                           12.2     319.5 

                              Due within two to five years                               

                              Bank loans                                  304.5         -

                              Finance lease obligations                    27.7      31.3    

                                                                          332.2      31.3 

                              Due by instalment after five years                       

                              Finance lease obligations                     1.6       5.2    

                              Total borrowings                            386.1      428.3

                              Cash at bank and in hand (see note 12)     (97.0)    (93.7) 

                              Net borrowings                              289.1     334.6 

Secured borrowings within the Group (representing finance leases) total £53.1m
(2002: £58.0m).

16.   Provisions for liabilities and charges
                                              Unfunded    Insurance    Deferred    Associates    Other    Total
                                               pension       claims         tax
                                                   (a)          (b)                       (c)      (d)
                                                    £m           £m          £m            £m       £m       £m

At 1 January 2003                                  0.7         35.1        10.7           8.5     49.4    104.4

Provided in the year                               0.2         31.7         4.7           4.1        -     40.7

Utilised in the year                                 -       (22.9)           -             -   (49.0)   (71.9)

Unwinding of discount                                -          1.5           -             -        -      1.5

Transfer to investments (see note 9)                 -            -           -         (4.2)        -    (4.2)

Released in the year                                 -            -       (8.8)             -    (0.4)    (9.2)

Exchange difference                              (0.1)        (2.6)         0.2             -        -    (2.5)

At 31 December 2003                                0.8         42.8         6.8           8.4        -     58.8

(a)     The unfunded pension provision relates to commuted pensions not provided
within the pension schemes, which will be paid out over 15 to 20 years.

(b)     The insurance claims provision arises from estimated exposures at the
year end, the majority of which will be utilised in the next six years, and
principally comprises provisions for existing claims arising in the UK and North

(c)     The interests in net liabilities of associates comprises £4.9m (2002:
£4.4m) for Altram LRT Limited and £3.5m (2002: £4.1m) for Inter-Capital and
Regional Rail Limited.  See note 9 for more details.

(d)     Within other provisions at 1 January 2003 was £48.0m which related to
the settlement of the performance bonds on the exit of the Australia Trains
business at the end of 2002.  They were settled in the first half of 2003.

17    Reserves
                                        Share        Share   Merger   Capital   Reval-uation     Profit    Total
                                      premium   capital to  reserve   reserve        reserve   and loss
                                                 be issued                                      account       £m
                                           £m                    £m        £m             £m
                                                        £m                                           £m

At 1 January 2003                        44.7          0.2     15.4       0.4            0.8      189.6    251.1

Shares issued during the year             0.4        (0.1)        -         -              -          -      0.3

Transfers                                   -            -        -     (0.4)              -        0.4        -

Exchange differences                        -            -        -         -              -        2.8      2.8

Retained profit for the year                -            -        -         -              -        7.9      7.9

At 31 December 2003                      45.1          0.1     15.4         -            0.8      200.7    262.1

As at 31 December 2003, the cumulative amount of goodwill on acquisitions made
prior to 1 January 1998 which has been set off against the capital reserve and
profit and loss reserve is £281.4m (2002: £281.4m).

18    Cash flow statement

(a)   Reconciliation of operating profit to net cash inflow from operating
                                                                     2003    Continuing   Discontinued     Total
                                                                             operations     operations
                                                                       £m                                   2002
                                                                                   2002           2002
                                                                                     £m             £m

Group operating profit                                               83.6          67.1            0.1      67.2
Depreciation of tangible assets                                      64.7          60.7           10.8      71.5
Amortisation of fixed asset grants                                  (3.0)         (1.3)          (1.1)     (2.4)
(Profit)/loss on disposal of fixed assets                           (1.5)          1.7            0.1       1.8

Annual goodwill amortisation                                         45.7          45.2              -      45.2
Goodwill impairment                                                     -          13.5              -      13.5
Decrease/(increase) in stocks                                         2.0         (0.5)          (0.3)     (0.8)        
Decrease/(increase) in debtors                                       17.6        (10.5)            5.7     (4.8)

(Decrease)/increase  in creditors                                  (34.2)          44.8          (2.9)      41.9

Increase/(decrease) in provisions                                     7.9        (62.8)            5.2    (57.6)

Net cash inflow from operating   activities                         182.8         157.9           17.6     175.5

The net cash flows from operating activities include outflows of £4.9m (2002:
£71.0m) from continuing operations which related to exceptional costs.  There
are no cash flows from discontinued operations in 2003.

                                                                                                 2003        2002

 (b)          Reconciliation of net cash flow to movement in net debt (note 18c)                   £m          £m

Decrease in cash in the year                                                                    (0.7)      (46.8)
Cash outflow/(inflow) from movement in debt and lease financing                                  40.6      (51.4)  

Cash (inflow)/outflow from movement in liquid resources                                        (14.2)        50.4

Change in net debt resulting from cash flows                                                     25.7      (47.8)

Change in net debt resulting from non cash flows                                                 19.8        28.2

Movement in net debt in the year                                                                 45.5      (19.6)
Net debt at 1 January                                                                         (334.6)     (315.0)

Net debt at 31 December                                                                       (289.1)     (334.6)

18    Cash flow statement continued

(c) Analysis of changes in net debt                         At  Cash flow                      Other       At 31
                                                                                           movements    December
                                                     1 January         £m      Exchange                     2003
                                                          2003              Differences                       

                                                            £m                       £m           £m          £m

Cash                                                      16.8       16.7         (0.3)            -        33.2

Overnight deposits                                        19.5     (17.2)             -            -         2.3

Bank overdrafts                                              -      (0.2)             -            -       (0.2)

Net cash                                                  36.3      (0.7)         (0.3)            -        35.3

Liquid resources - other short term deposits              57.4     (14.2)         (0.4)         18.7        61.5

Debt due within one year:

Loan notes                                               (9.1)        0.7             -            -       (8.4)

Bank and other loans                                    (53.2)       26.1           1.1          6.1      (19.9)

                                                        (62.3)       26.8           1.1          6.1      (28.3)

Debt due after one year:

Bank loans                                             (308.0)          -          10.5        (7.0)     (304.5)

Finance lease obligations                               (58.0)       13.8         (0.9)        (8.0)      (53.1)

Net debt                                               (334.6)       25.7          10.0          9.8     (289.1)

Short term deposits included within liquid resources relate to term deposits
repayable within three months. Changes in net debt arising from acquisitions and
disposals in the year are disclosed separately on the face of the cash flow

Other non cash movements in net debt represent finance lease additions of £8.0m
(2002: £0.8m), £0.9m (2002: £nil), amortisation of loan arrangement fees,  and
£18.7m (2002: £nil) cash deposits secured as a bond in respect of future rolling
stock maintenance at ScotRail Railways Limited.

19            The financial information set out above, which was approved by the
Board on 26 February 2004, is derived from the full Group accounts for the year
ended 31 December 2003 and does not constitute the full accounts within the
meaning of section 240 of the Companies Act (as amended).  The Group accounts on
which the auditors have given an unqualified report which does not contain a
statement under section 237 (2) or (3) of the Companies Act 1985 will be
delivered to the Registrar of Companies in due course.

Copies of the Preliminary Results may be obtained from the Company Secretary at
75 Davies Street, London W1K 5HT.  Copies are also available via

                                    - ENDS -

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