Introduction

Overview of 2008

In 2008 we delivered strong revenue and profit growth, despite an increasingly challenging economic environment as the year progressed. Total Group revenue grew 5.9% to almost £2.8 billion. We increased normalised profit before tax by 11.3% to £202.4 million (before discontinued operations).

In its first full year as part of the Group, National Express East Coast met all its franchise commitments, saw revenue growth of 9% and passenger growth from 18.1 million to 18.7 million. In East Anglia, we achieved passenger revenue growth of 6%, while profit is now underpinned by revenue support.

We integrated our UK Bus and Coach businesses at the start of the year, yielding benefits from merging back office functions and sharing operational expertise. New bus partnerships are delivering a sustainable, defensible business in the recessionary environment.

In North America, our Business Transformation project maintained momentum with the opening of our central operations centre and delivery of new technology in pilot stage across the first two US states. This will deliver sustainable competitive advantage in the industry.

The integration of Continental Auto in Spain continued through 2008, with the acquisition growing total revenue year on year, in local currency, by 40%. As the country's leading bus and coach operator, we have scale, long term concession contracts and new outsource opportunities to help offset the economic environment.

The global economy continues to face considerable uncertainty and we are not immune to the impacts of recession. Recognising these challenges, in the fourth quarter we announced plans to reduce headcount in the UK by 750, reducing our cost base by at least £15 million annually. In Spain, we have flexibility to reduce costs and services to reflect demand weakness on some routes.

With the onset of the 'credit crunch', we are focused on maximising cash generation from our naturally strong businesses. With the first Group debt facilities not maturing until September 2010, lower investment requirements and working capital reduction initiatives are planned to reduce net debt in 2009. In addition, despite strong earnings cover, it is also appropriate to rebase the dividend to conserve cash resources; the full year 2008 dividend is proposed to reduce to 22.72p per share, saving over £30 million in 2009. These initiatives should generate over £100 million of incremental cash in 2009.

Outlook for 2009

While the future holds many challenges, we are taking the appropriate steps to ensure that National Express comes through the current recession resiliently. We have made cash management and the strengthening of our balance sheet our priority, benefiting from our significant recent investment.

Our strength is our portfolio of transport businesses – robust revenues in less economically sensitive bus markets in North America and the UK, flexibility to manage costs and services in coach across the UK and Spain, and government revenue support in rail in our East Anglia franchise.

The East Coast rail franchise is undoubtedly exposed to recessionary impact, with a high fixed cost base and no revenue underpin until 2011. We are committed to sustainable delivery of the franchise, enhancing service and building on a highly successful first year. We have engaged with Government to explore ways to offset the impact of lower growth, whilst delivering value through the franchise premia, given that this, like many other franchises, was constructed in very different economic conditions. Alongside this, we have also developed our own 'self help' cost reduction plans, which will be implemented to reflect the difficult economic conditions. We expect financial performance in Rail to weaken in 2009 but to remain profitable, after taking account of our cost reduction plans, with a resilient performance from our other, less economically sensitive businesses.

Despite the challenges of 2008, we delivered a strong operating performance. We are focused on delivering a resilient performance in 2009, through robust cost management and revenue optimisation, built on a stronger financial platform. As people become more selective in how they spend their money, they will turn to those suppliers they know and trust to provide the best value for money. Thanks to our outstanding track record in delivery, constantly improving service levels and a well-deserved reputation for competitive pricing, we will ensure that National Express is well placed to benefit from this continuing trend.

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