Keith Ludeman,
Group Chief Executive.

“Our strategy is straightforward and we remain confident in the underlying strengths of the Group.”

We are pleased with this year’s performance, which has been delivered through our experienced and focused management style and devolved structure.

Overview of operating performance

Overall operating performance was slightly ahead of our expectations, with operating profit* of £123.6m underpinned by record results from our bus operations and good results from rail after a particularly strong year to June 2008.

Strong cash management resulted in a reduction in net debt to £91.0m (2008: £197.8m). Total capital investment was in line with depreciation to maintain our high quality asset base. We remain highly disciplined in our assessment of potential acquisitions and franchise bids. We were delighted to retain our Southern rail franchise which we believe we secured on the basis of current and prudent economic assumptions and deliverable initiatives. We did not complete any acquisitions during the year but, as recently announced, we have agreed to acquire East Thames Buses from Transport for London (TfL) for £5m and Arriva’s Horsham bus operations for £5m. Both are due to complete in the second quarter of the new financial year.

We remain financially robust, with a strong balance sheet and secure financing and propose to maintain our full year dividend to shareholders at 81.0p per share (2008: 81.0p per share).

Bus

Our bus division performed slightly ahead of our expectations for the year, reporting record results despite adverse movements in fuel, pension and accident claims costs. We increased revenue in all six of our bus companies; a result which endorses the economic resilience of these operations. Our devolved structure provided high levels of service quality, customer focus and strong local cost control. This was supplemented by Group purchasing power and de-risked through comprehensive fuel hedging. Capital investment above depreciation ensured we continued to benefit from well maintained freehold depot locations and from one of the youngest bus fleets in the sector.

Rail

Our rail operations performed well, in line with our expectations.

Each UK rail franchise is different and we believe our three franchises are relatively robust given their focus on high density, urban commuter markets. Revenue continued to grow in all three operations, albeit, as expected, at a slower rate in the second half and overall service quality remained strong.

We are making good progress with cost control initiatives, particularly in Southeastern and also in London Midland where we have recently appointed a new managing director to lead the changes in that franchise. Looking forward, we are well advanced with preparations for the new Southern franchise commencing in September 2009 and the UK’s first domestic high speed rail service in Southeastern from December 2009.

Aviation Services

Aviation services delivered a performance in line with our expectations. This was despite difficult trading conditions in ground handling and cargo and the previously reported loss of contracts in Meteor parking. We recognised an exceptional non-cash impairment charge of £38.4m in the first half to reduce the carrying value of our ground handling and cargo operations to approximately £20m. We will continue with the necessary restructuring in this division to protect against near term deterioration in operating results and to strengthen our medium term position.

Revenue and operating profit* by division

• *Before amortisation and exceptional items

Market environment

Public transport remains crucial to the development of the UK and is strongly supported by the main political parties. We believe that it is likely to generate long term growth if supported by operators with strong local stakeholder relationships providing high quality services and innovation.

In the short term, we need to deal with the current phase of the economic cycle. Demand for our bus operations has proven to be resilient. In rail, we believe that the underlying passenger revenue growth (before new services and other initiatives) will broadly follow the economic cycle. We expect the market conditions for our aviation services division to remain challenging in the near term.

Our strategy

Our strategy remains to provide high quality passenger transport in the UK.

The underlying elements of this strategy are to:

• Run our companies in a socially and environmentally responsible manner
• Provide high quality, locally focused passenger transport services
• Prioritise high density, urban markets in the UK
• Maintain strong financial discipline to deliver shareholder value

These elements have a number of performance indicators, both financial and non financial, which are routinely measured for improvement trends and comparison between operating companies.

In the near term, our priority is to deliver value from our existing portfolio of operations.

Key risks to our performance include a major accident or incident, or an unexpected reduction in demand for our services. We operate a strong governance structure and control environment to mitigate these and other risks as far as possible.

In summary

We are pleased with this year’s performance. Our strategy is straightforward and we remain confident in the underlying strengths of the Group. Going forward, we will maintain our financial discipline and prioritise the delivery of value from our existing portfolio of operations.

Keith Ludeman
Group Chief Executive
2 September 2009