Chairman's Statement

During 2008 we delivered strong revenue and profit growth for National Express. Total Group revenue grew nearly 6% to almost £2.8 billion. We increased normalised profit before tax by almost 10% to £194.1 million. At the same time, we improved our performance in rail, meeting all first year franchise commitments for East Coast. We saw a successful integration of the UK businesses, driving efficiencies and shared ideas. In Spain, we saw the full benefits of the Continental Auto acquisition, whilst in North America we had a successful year for contract retention and began delivery of the Business Transformation project.

2008 was also a year of significant weakening in the global economy. The fourth quarter saw a marked slowdown in growth, particularly in UK Rail and in Spain. With the unprecedented disruption in bank markets, any business with higher than average debt, including National Express, has suffered a significant adverse rerating of its equity; in short, a reduced share price.

2009 presents many challenges and the transport industry is not immune from these. Many parts of our business are less sensitive to economic change, benefiting from government-backed contracts and concessions, and offering value-orientated public transport services used for commuting, business and essential student transport, as well as more discretionary leisure travel. Nevertheless, we are taking appropriate actions to ensure that National Express comes through the current recession resiliently.

In particular, the UK rail industry faces challenging conditions, given the large number of franchises that were agreed in a very different economic climate. These franchises do not benefit from government revenue support in the early years of the contracts. Whilst our East Anglia franchise already benefits from this support mechanism, our East Coast franchise does not until December 2011. We are therefore engaged in constructive discussions with Government on a wide range of issues relating to managing the difficult outlook for UK Rail. Notwithstanding this, we have plans in place to reduce costs in order to deliver a profitable rail business in 2009.

We have also made cash management and the strengthening of our balance sheet our priority. As part of this programme, the Board is proposing to reduce the full year dividend by 40% to 22.72 pence per share, recommending a final dividend of 10 pence per share. Although this is a difficult decision, the Board feels this is an essential part of our 'self help' measures to reduce debt. The proposal will save over £30 million in cash in 2009, compared to last year, and sets a dividend which we see as a sustainable base for the future. We are also focusing on a restrained period of capital investment and have identified opportunities to reduce working capital. We will continue to review other opportunities to strengthen our financial position.

Our employees

I have been particularly impressed by the way in which our employees have risen to both the opportunities and challenges of the past 12 months. They continue to show immense commitment and work tirelessly to deliver great service to our customers. I would like to thank them for this dedication.

Your Board

In November 2008, we were delighted to welcome Jez Maiden as Group Finance Director, replacing Adam Walker. Jez's experience adds significant strength to the management team and a clear focus on driving improvement.

In December 2008, David Ross resigned as director and Chairman of the Group. I would like to thank David for his significant contribution to the business since he joined the company in 2001. We wish him well. I have assumed the Chairmanship of the Board on an interim basis. The process to appoint a new Chairman is well underway.

In June 2008, we strengthened the Board with the appointment of Miranda Curtis as a Non Executive Director, following the retirement of Barry Gibson after nearly nine years on the Board. I would like to thank Barry for his tremendous contribution during his tenure on the Board.

As we face the challenges of 2009, we have a strong Board and management team in place, committed and experienced colleagues and clear actions to ensure that we succeed in delivering a better, stronger Group.

Tim Score
Interim Chairman