We expect the underlying performance of our bus operations to remain robust for the next financial year.

Revenue growth in both our regulated and deregulated operations is expected to continue, albeit at a slower rate than the last two years. In deregulated, this is primarily because we are past the first anniversary of the national concessionary scheme (introduced on 1 April 2008) and are in a lower inflation environment.

In London, we continue to assume that forthcoming contract renewals will be more competitive than when originally negotiated in 2002-2004 and that quality incentive targets will become increasingly challenging.

Cost control across the division will remain a priority. This includes ongoing wage negotiations and productivity improvements to maintain competitive labour costs (which account for approximately two thirds of our cost base). We have fully hedged our fuel costs for the financial year to June 2010 at 47 ppl and at 41 ppl for the following financial year to June 2011 and are confident we can recover the additional cost of around £4m for the new financial year. We are targeting further progress with energy savings, fuel consumption and procurement initiatives and are not assuming any significant change in pensions or accident claim costs compared to the last financial year.

Overall, we expect performance next year to be a little below the record level achieved this year. The following year (to June 2011) is expected to benefit from a lower cost of fuel and contribution from two acquisitions, namely East Thames Buses from TfL for £5m and Arriva’s Horsham bus operations for £5m, both of which are expected to complete in the second quarter of the new financial year.

Hedging Policy & Prices

Our bus fuel hedging programme uses fuel swaps to fix the price of our diesel fuel in advance.Our aim is to be fully hedged for the next financial year three months before the start of that year, at which point we aim to have also fixed at least 50% of the following year and at least 25% of the year after that.This hedging profile is then maintained on a quarterly basis.

Bus fuel accounts for 11% of the cost base and we consume around 110 million litres of fuel each year.

Financial year	Underlying cost of fuel
2007/08	33.7p (50% hedged at 29p)
2008/09	Fully hedged at 43 pence per litre
2009/10	Fully hedged at 47 pence per litre
2010/11	Fully hedged at 41 pence per litre

• *Before delivery, duty and duty rebate through the bus services grant.