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National Express (NEX)

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Monday 27 June, 2005

National Express


National Express Group PLC
27 June 2005

For announcement at 0700 hours on 27 June 2005

                           National Express Group PLC
 Restatement of financial information under International Accounting Standards
                and International Financial Reporting Standards.

National Express Group PLC today announced the restatement of its results for
the year ended 31 December 2004 in accordance with International Financial
Reporting Standards ('IFRS'). These results will form the comparative data for
the Group's 2005 results announcements.

There is no change to the Group's underlying operations under IFRS and, in
particular, there is no impact on the Group's strong cash flow or ability to
maintain its current dividend policy.

The financial restatements result in a:

•            £1.6m (1.2%) decrease in 2004 full year normalised profit before
             tax, after the reclassification of £2.5m profit from discontinued 
•            2.4p (3.3%) increase in 2004 full year normalised diluted EPS to
•            £2.3m (0.9%) increase in net assets at 31 December 2004 to £266.8m;
•            £12.8m (4.8%) decrease in net assets at 1 January 2005 to £254.0m
             on the recognition of financial instruments.

Restatements and changes in disclosure arise primarily as a result of:

•            goodwill no longer being amortised;
•            recognition of all employee benefit related assets and obligations,
             principally defined benefit pension schemes;
•            recognition of an intangible asset related to the operation of UK
             Trains franchises, reflecting the Group's right of operation;
•            inclusion of a fair value charge in relation to employee share
•            dividend liability recognised when approved;
•            reclassification of discontinued businesses; and
•            recognition of certain financial instruments at fair value at 1
             January 2005.

Commenting on the impact of the transition to IFRS, Adam Walker, Finance
Director, said:

'Today's restatement of our 2004 result emphasises the limited financial impact
on our business arising from the adoption of IFRS. Whilst the presentation of
our results may change somewhat, our fundamental financial strength is
unaffected. Consequently, the Group's future prospects remain the same, as we
continue to explore ways of utilising our strong cash generation to enhance
shareholder value.'

                                    - ENDS -

Notes to Editors:

•            A full list of all supporting appendices is available in the media
             centre at

For further information, please contact:

Adam Walker, Finance Director
National Express Group PLC                              020 7529 2000

                           National Express Group PLC
 Restatement of financial information under International Accounting Standards
                and International Financial Reporting Standards


International Accounting Standards ('IAS') and International Financial Reporting
Standards ('IFRS') will apply for the first time in the Group's Interim Report
for the six months to 30 June 2005 and for the full Annual Report and Accounts
2005.  This press release, which is unaudited, explains how the Group's
previously reported financial performance and position are reported under IFRS.
This includes, on an IFRS basis:

•            the Group's consolidated balance sheet at 1 January 2004, the
             Group's date of transition;
•            the Group's consolidated balance sheet at 30 June 2004 and 31
             December 2004;
•            the Group's consolidated income statement, consolidated statement
             of recognised income and expense and consolidated cash flow 
             statement, for the year ended 31 December 2004 and six months ended 
             30 June 2004; and
•            the Group's consolidated balance sheet at 1 January 2005.

The significant changes as a result of the adoption of IFRS compliant accounting
policies are discussed below. The detailed restatements of the financial results
are available as Appendices to this statement.

This financial information has been prepared on the basis of financial reporting
standards expected to be applicable at 31 December 2005.  These are subject to
ongoing review and endorsement by the European Union or possible amendment by
interpretive guidance from the International Accounting Standards Board ('IASB')
and the International Financial Reporting Interpretations Committee ('IFRIC')
and are therefore still subject to change.


The effect of IFRS on the Group's reported results is minimal.  Normalised*
operating profit for 2004 decreased by £1.6m, after the reclassification of
discontinued businesses and normalised* diluted EPS is 74.2p, an increase of
2.4p.  Profit after tax for the year ended 31 December 2004 is increased by
£17.8m principally due to the requirement not to amortise goodwill.  Net assets
at 31 December 2004 are increased by £2.3m.

* Normalised operating profit and EPS is consistent with that disclosed in the
Annual Report and Accounts 2004.

Key Changes Analysis

IAS 19, 'Employee Benefits': Defined benefit pension plans

The Group's opening IFRS balance sheet reflects the assets and liabilities of
the Group's defined benefit schemes, as required by IAS 19.  IAS 19 requires the
Group to recognise a liability when an employee has provided service in exchange
for employee benefits that will be paid in the future.  In respect of the Rail
Pension Scheme ('RPS') there are differences between the IAS 19 position and the
FRS 17 position disclosed in note 30 to the Annual Report and Accounts 2004, as
set out below.

Under the Group's IFRS accounting policies, actuarial gains and losses arising
from experience adjustments, changes in actuarial assumptions and amendments to
pension plans will be charged or credited in the Statement of Recognised Income
and Expense in the period in which they arise.

Rail Pension Scheme

The majority of employees of the UK Train companies are members of the
appropriate shared cost section of the RPS, a funded defined benefit scheme.
Applying the rules of IAS 19 to our UK Train franchises has proved to be a
difficult exercise.   IAS 19 is based on the theory that a pension deficit
should be considered an ongoing liability of the Group that, like any other
liability, will require settlement at a future date. In reality, we have now
experienced three changes of UK Train franchise ownership where the pension
deficit has transferred to the new owner, without cash consideration passing.

To reflect the future transfer of the liability, a franchise adjustment is made
to the full IAS 19 calculated deficit, representing the expected deficit at the
end of the franchise.  This reduces the net deficit on the balance sheet and the
remaining liability reflects that element of the deficit to be settled by the
Group during the franchise term.

In taking on a franchise and assuming legal liability for any pension deficit
that exists at that point in time, the Group recognises an intangible asset
reflecting its right to operate the train franchise.  In accordance with IAS 38
'Intangible Assets', the residual value of this definite life intangible asset
will be amortised on a straight line basis over the life of the franchise with
the residual value assumed to be zero.  This is illustrated in the restated 2004
balance sheet in the appendices by the recognition of an intangible asset of
£13.0m, before amortisation, on commencement of the 'one' franchise on 1 April
2004 and the franchise extensions at Wagn, Silverlink and Wessex.

On transition to IFRS, there is a different approach for the first time
application of IAS 19 and the first time application of IAS 38. The Group's
pension liabilities are recognised as at 1 January 2004 but there is a
requirement to apply IAS 38 retrospectively to the intangible asset. There are a
number of franchises where the relevant sections of the RPS scheme were in
surplus at the time the Group assumed legal liability for the funding of that
RPS section. Accordingly no intangible asset would have been recognised on
commencement of the franchise and therefore none is recognised at the date of

The net effect of this restatement at 1 January 2004 is to reduce net assets by
£4.4m, comprising the recognition of pensions deficits of £8.5m offset by
intangible assets totalling £1.0m, the removal of the accruals of £0.9m and
recognising a deferred tax asset of £2.2m. For the year ended 31 December 2004,
the net UK GAAP pensions charge (£26.8m) is removed and replaced with the IAS 19
charge (£24.0m) and the amortisation charge in respect of the intangible assets
(£1.9m). The net effect increases profit before tax by £0.9m.

The pension deficit reported under IAS 19 differs from the FRS17 position
disclosed in note 30 to the Annual Report and Accounts 2004. Under FRS 17 the
deficit at 31 December 2004 was £85.5m which, after including the franchise
adjustment of £67.6m, reduces to £17.9m under IAS 19.

The 2004 IAS 19 pension charge of £24.0m is £10.8m higher than the charge
reported under FRS 17. The difference arises from the removal of the net gain of
£14.0m on the exit and entry of train franchises and the inclusion of a
discounting credit of £3.2m for unwinding the franchise adjustment.

UK Bus and UK Coach defined benefit pension schemes

The Group's obligations in respect of its UK Bus and UK Coach defined benefit
pension schemes have the characteristics of traditional defined benefit schemes.
Therefore the accounting follows the normal method prescribed under IAS 19,
which is in line with FRS 17 as reported in note 30 to the Annual Report and
Accounts 2004.

Recognising the scheme net liability on transition reduces net assets by £36.5m
after deferred tax, comprising the net deficit under IAS 19 of £30.4m and the
reversal of £6.1m of pension prepayments.  The incremental charge arising from
the adoption of the standard in the Group's 2004 income statement is £1.3m
before tax.

IAS 19, 'Employee Benefits': Short term compensated absences (Holiday pay)

IAS 19 requires full provision for holiday pay outstanding at the period end for
all staff.  The recognition of this accrual decreases net assets by £2.4m at 31
December 2004 before the recognition of a deferred tax asset of £0.7m.  The
effect on the operating profit result in 2004 is immaterial.

IFRS 2, 'Share based payment'

IFRS 2 requires the Group to reflect in the income statement the effects of
share based payments including expenses associated with share options granted to
employees, based on the fair value at the date of the grant.

In accordance with IFRS 2 and the transitional exemption permitted by IFRS 1,
the fair value of awards granted after 7 November 2002 and vesting after 1
January 2005 under the Group's share schemes have been calculated using a
stochastic valuation model, and are charged to the income statement over the
relevant option vesting periods.

The fair value charge reduces normalised operating profit for year ended 31
December 2004 by £0.6m.  In 2005, the 206,411 shares remaining unvested in the
WMT Share Incentive Plan will be issued to employees, vesting immediately. The
charge to operating profit of this appropriation will be based on the share
price at the date of grant.

IFRS 3, 'Business combinations'

IFRS 3 prohibits the amortisation of goodwill.  The standard requires goodwill
to be carried at cost with impairment reviews undertaken annually and also when
there are indications that the carrying value may not be recovered. The Group
has taken advantage of the transition option to apply IFRS 3 prospectively and
not to restate business combinations prior to 1 January 2004. As a result, all
prior business combination accounting including the value of goodwill is frozen
(subject to any future impairment reviews) at UK GAAP amounts at 1 January 2004.

The exception to this is the goodwill arising on the acquisition of Prism Rail
PLC ('Prism') in 2000.  The train franchises acquired with Prism have finite
lives and under UK GAAP the goodwill is amortised over the average life of the
franchises.  An annual impairment charge, anticipated to be equivalent to the
goodwill amortisation charged under UK GAAP (2004: £33.3m), will continue to be
charged on this goodwill to represent the finite nature of the cash flows
related to the goodwill.

The full year operating profit impact in 2004 is a reduction in the amortisation
charge of £18.3m, after the IFRS 5 reclassification of the discontinued
businesses (see IFRS 5 below).  Net assets are increased by £16.5m at 31
December 2004, before the amortisation below.

The Group acquired Connex Bus UK Limited, Student Express Limited and certain
assets of M&O Bus Lines Limited during 2004.  The accounting for these
acquisitions has been restated under IFRS 3 with no material adjustments
required for the Connex Bus UK or M&O Bus Lines acquisitions. The goodwill
arising on consolidation of Student Express Limited is adjusted to take account
of a £3.5m intangible asset relating to acquired contracts that is required to
be recognised under IFRS but not UK GAAP.  The intangible amortisation in 2004
is £0.5m.

IAS 10, 'Events after the balance sheet date'

Under IAS 10 the liability in respect of dividend payments is recognised when
the dividend is approved.  On this basis dividends approved after the balance
sheet date should not be presented as a liability at that balance sheet date.

Consequently, the final dividend declared in February 2004 in relation to the
financial year ended 31 December 2003 has been reversed in the 1 January 2004
balance sheet, increasing net assets at 1 January 2004 by £23.6m.  Net assets at
31 December 2004 were increased by £28.5m for the same reason.

IAS 12, 'Income Taxes'

The adoption of IAS 12 does not in itself result in any restatement of the
Group's tax charge.  However the tax effect of the adjustments noted above will
result in a restatement of the Group's deferred tax positions as at 1 January
2004 and subsequent balance sheet dates.

IFRS 5, 'Non-current assets held for sale and discontinued operations'

IFRS 5 requires discontinued operations to be disclosed as a single item on the
face of the income statement, comprising the total of the post-tax profit of the
operations and the post-tax gain or loss recognised on the disposal.  As a
result, the disclosure of the disposal of discontinued businesses in 2004 is
changed in the income statement, and there is no change to net profit or net

IAS 1, 'Presentation of financial statements'

IAS 1 requires the split between current and non-current assets and liabilities
on the face of the balance sheet.  As a result the balance sheet reconciliations
include a number of adjustments to reclassify assets and liabilities where this
disclosure was not required under UK GAAP.

IAS 32, 'Financial Instruments: Disclosure and Presentation' and IAS 39, '
Financial Instruments: Recognition and Measurement'

IAS 32 and 39 address the accounting for, and the financial reporting of,
financial instruments.  The Group has opted to take advantage of the IFRS 1
exemption from preparing the 2004 comparatives under IAS 32 and 39.  As a result
the date of transition to IAS 32 and 39 is 1 January 2005.

The Group has adopted the full version of IAS 39 as issued by the IASB.  For the
Group, compliance with the full version of IAS 39 will also achieve compliance
with the European Commission endorsed version of IAS 39.

Under UK GAAP, Group derivative financial instruments used for hedging purposes
are not recognised on the balance sheet.  Gains and losses from derivatives are
deferred and recognised in the income statement as the underlying hedged
transaction matures.

Under IAS 39 all financial assets and liabilities are recognised initially at
fair value, with the corresponding debit entry booked to the hedging reserve in
equity for those instruments which meet the requirements for hedge accounting.
In subsequent periods the measurement of these financial instruments depends on
their classification into one of various measurement categories.  The amounts
held in the hedging reserve will be recycled through the profit and loss over
the life of the underlying hedged transaction.

The impact of this change on the financial instruments held by the Group is
discussed below:

a)        Interest rate swaps

The Group uses interest rate swaps to hedge interest rate exposures, by swapping
floating rate debt to fixed.  These interest rate swaps are categorised as cash
flow hedges to the extent that they meet the extensive IAS 39 requirements for
hedge accounting.  The accounting treatment for these swaps is to recognise them
at 1 January 2005 at fair value with the corresponding debit entry to the
hedging reserve in equity.  The amounts held in the hedging reserve will be
recycled through the profit and loss over the life of the debt.

The net impact of bringing the interest rate swaps on balance sheet at 1 January
2005 is to reduce net assets by £25.0m before deferred tax, and is consistent
with that disclosed in note 34 to the Annual Report and Accounts 2004.

Of the swaps held at 1 January 2005, a $200m interest rate swap did not meet the
hedge accounting criteria as it contains a written option. As disclosed in the
Annual Report and Accounts 2004, this swap was terminated in January 2005.

b)        Fuel price swaps

The Group uses fuel swaps to hedge fuel price exposures.  These swaps are
categorised as cash flow hedges at 1 January 2005.  The gain or loss on these
swaps will be deferred to match the gain or loss on the underlying fuel usage.
The net impact of recognising the related financial asset is to increase net
assets by £6.3m before deferred tax, as at 1 January 2005, as disclosed in note
34 to the Annual Report and Accounts 2004.

c)        Forward foreign currency contracts

Forward foreign currency contracts are used to hedge the translation risk of our
investment in overseas operations on a post-tax basis.  These contracts meet the
criteria for hedge accounting as the hedge of a net investment in a foreign
operation.  The net impact of bringing these contracts on balance sheet is

d)        Reclassifications

Under IAS 32 and 39 certain other assets and liabilities are classed as
financial assets and liabilities, for example investments classified as trade
investments under UK GAAP are classed as financial assets under IAS 32.  These
changes have resulted in the reclassification of items within the balance sheet.

Cash Flow

The adoption of the IFRS compliant accounting policies discussed above does not
change the strong cash flow generation of the Group in 2004.  The operating cash
flow for 2004 remains unchanged at £187.5m generated on £150.4m of normalised
operating profit.
                                                     Previously reported       Effect of           Restated
                                                           under UK GAAP   transition to
                                                                                    IFRS              under
                                                                                      £m               IFRS

Normalised operating profit                                        152.0           (1.6)              150.4
Operating profit of discontinued operations                            -             2.5                2.5
Depreciation                                                        64.2               -               64.2
Amortisation of fixed asset grants                                 (6.5)               -              (6.5)
Profit on disposal                                                 (0.6)               -              (0.6)
EBITDA                                                             209.1             0.9              210.0
Working capital and other movements                                 41.9           (0.9)               41.0
Eurostar                                                           (3.1)               -              (3.1)
Net cash inflow from operations                                    247.9               -              247.9
Net capital expenditure                                           (66.5)               -             (66.5)
Operating cash flow before one-offs                                181.4               -              181.4
 - Exceptional items                                               (5.2)               -              (5.2)
 - Franchise revisions                                              11.3               -               11.3
Operating cash flow                                                187.5               -              187.5

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 the Annual Report and
Accounts 2004.

The reconciliation of net debt for 2004 is unchanged from the reconciliation
presented on page 29 of our Annual Report and Accounts 2004, prepared under UK
GAAP.  The Group generated £164.0m of free cash flow and reduced effective net
debt by £171.2m to £136.6m.

Presentation of results under IFRS

The appendices are presented in accordance with the IFRS accounting policies the
Group intends to adopt for the year ending 31 December 2005.

                                    - ENDS -

•            A full list of all supporting appendices is available in the media
             centre at

                      This information is provided by RNS
            The company news service from the London Stock Exchange                                                                                                              

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