Spain

Revenue in our Spanish division, ALSA, was £483.1 million (2007: £298.0 million) and normalised profit from operations was £83.3 million (2007: £50.9 million). In local currency, revenue was €608.5 million (2007: €434.9 million) and normalised profit from operations was €105.0 million (2007: €74.3 million). This has been achieved in spite of the economic slowdown in Spain, particularly in the second half of the year.

The urban business continued to perform well, whilst bidding for new contracts as more cities consider outsourcing. The long distance business achieved a good performance, despite increased competition from high speed rail on some routes. Regional transport saw more impact as the economic downturn adversely affected the construction and tourism industries.

The integration of Continental Auto, which the Group acquired in October 2007, continued throughout 2008 and remained on schedule at year end. We also bought Transportes Colectivos, S.A. (TCSA), which provides bus services, under the Bizkaibus brand, in the Bilbao metropolitan area.

As a result of these acquisitions, Spain's largest private transport operator also became one of its most efficient, benefiting from synergies in both sales and the management of depots and fleet totalling €6.6 million. In 2008 we achieved 95.7% fleet availability and transported a total of 122.2 million customers - an increase of 7.6% over the previous year. Customer opinion of the service we provided continued to improve; ALSA's customer satisfaction index (out of 10) rose to 6.91 for the year versus 6.88 in 2007. For the premium Supra services, the customer satisfaction index was 7.44 last year, up from 7.30 in 2007.

The enlarged ALSA was also a safer and greener company. On the safety front, initiatives included enhanced driver training courses, coupled with a support programme aimed at drivers identified as in need of improvement; a new service planning system to provide greater control in monitoring and enforcing driver rest times; and a new process to identify accident hot spots and so help our drivers avoid potentially dangerous situations. Against this background of safety innovation, we achieved a 10% reduction in our accident rate for the year.

As part of our efforts to minimise the impact of ALSA operations on the environment, we extended the use of biodiesel to more services and began a trial of our first vehicles driven by ethanol and those meeting the Euro V emission standards. Having joined the Spanish voluntary code for reducing CO₂ Emissions promoted by the Observatory for Sustainability and the Ministry of Environmental Affairs, we had the distinction of being the first Spanish company to register a reduction in emissions - 1,651 tonnes of equivalent CO₂ in 2008.

Last year we also made travel more comfortable with the introduction of new routes for our Supra Class buses, following the Continental Auto integration. This has increased our ability to offer premium class services with reduced associated costs and increased profitability. Access to these and other services is increasingly through the use of online reservations and ticketing. Website revenues grew by 60% in 2008.

Following the successful acquisition of Continental Auto, we reinforced our position as the number one private transport operator in Spain. We believe that this positions us well to access new market opportunities in Spain, as well as driving a more sales and marketing driven agenda in our existing businesses. Continental Auto has a higher proportion of urban and commuter services, which balance the long distance services that are the largest part of ALSA. The integration of Continental Auto is proceeding to plan, both in terms of timing and synergies delivered. Integration has been completed in finance, sales and routing systems, and we have implemented our safety management and financial control procedures within Continental Auto. We are in the process of consolidating maintenance facilities and the fleet purchasing process.

During 2007 we negotiated the extension of a number of contracts. As a result no concession expires before 2013. Competitive pressures exist within the market; however, we have responded to the entry of low cost airlines and the development of high speed rail by varying our frequency, adapting our prices and altering our network to provide complementary services.

In addition, we secured non-regulated work outside the formal concessionary arrangements. This has benefited from having the scale of operations and the expertise to deliver in a timely and consistent basis.

We are developing our product offering in the market. In October we launched the new Supra class incorporating a revised on-board catering offering and on-board WiFi, being the first transport mode in Spain to offer this facility. In addition, we launched a new loyalty card, 'Bus Plus', and e-tickets were rolled-out on long distance routes. Good progress in developing distribution channels resulted in 15% of all sales for long distance and regional services occurring via the internet.

With over 60% of the Spanish transport market represented by bus and coach, we believe there are many opportunities for growth, particularly in the urban bus market. We also believe that, when future liberalisation of the public transport market in Spain occurs, we are well positioned to bring our experience and market presence to bear.

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