2001 proved to be a challenging year for the UK train network. The large number of ESRs imposed on the network following the Hatfield accident in October 2000 continued to impact on the punctuality and reliability of our services. Extended and unpredictable travelling times discouraged passengers from travelling by train.

This situation was compounded by the outbreak of foot and mouth disease at Easter and the events of 11 September after which there was a severe reduction in international travel. Our Gatwick Express service was significantly affected by the reduction in in-bound USA flights.

In September, we received £16m in compensation from Railtrack in full and final settlement to mitigate the revenue shortfall incurred as a result of the ESRs following Hatfield. In addition, the late delivery and poor performance of our new trains over the last 18 months has been offset by liquidated damages from the manufacturers.

With travel being an ideal internet purchase, we continued to invest in multiple distribution channels for the sale and distribution of train tickets. A fundamental part of this plan is our internet retailing strategy and the development of an infrastructure to support this proposition. Our retailing strategy was expanded through the launch of Qjump.co.uk – our fast and easy ticket buying site for UK train travel – with the roll-out of the internet retailing system on all our train operating company websites. In October, the Qjump service was launched on third-party websites including GNER. In addition, we have invested £10m in a portable hand-held data terminal which prints train tickets to and from anywhere in the UK as well as providing up-to-date rail network timetabling and fare information. These units are used by on-board staff.

A new central resource for the integration of internet and telephone rail ticket retailing was launched early in the year providing telesales, customer service and co-ordinated customer contact handling.

In April 2002, the new Customer Service Academy in Derby opens. It will provide a multi-purpose centre for recruitment, induction, customer service and skill development for train staff.

Following the appointment of Ian Buchan as Chief Executive of the trains division in May, we are reorganising the division into three market sectors: London and the South East, Long Distance/Intercity and Regional Services.

London and the South East

Turnover for the year was £516.4m (2000: £264.2m) with an operating profit of £46.7m (2000: £32.7m). In March we launched the London Lines organisation to encompass the support functions of our c2c, Silverlink and WAGN (including Stansted Express) businesses. This involved the consolidation of a number of central functions, such as fleet maintenance and customer relations.

During the year the performance of c2c was dominated by two key factors: the new trains and the impact of industrial action, now resolved, which related to the introduction of driver only operated trains, which will be completed during 2002.

On Silverlink, the service was badly disrupted by ESRs and a temporary timetable was introduced to accommodate the West Coast re-modernising work, which was withdrawn in September following remedial work by Railtrack.

Also on Silverlink a major new service initiative, Silver Service, was launched to improve overall service delivery both at stations and on the train. Station improvements and enhancements were implemented on Silverlink stations at Harrow, Milton Keynes, Northampton and Watford Junction.

WAGN’s performance was severely affected throughout the year by ESRs and the poor quality of the infrastructure on which the service runs. We are strongly encouraging Railtrack as a matter of urgency to address this issue. This did not, however, stop us from investing in the service with the delivery of a new branding partnership with local councils and the installation of CCTV at selected stations such as Brimsdown, Enfield Lock and Ponders End. To improve contact with customers, a service update programme was devised to provide a continuous dialogue with passengers. Letters, posters, e-mails and the website are all used more effectively to improve communication.

Gatwick Express services were significantly impacted by the reduction in travel following 11 September and we made changes to the timetable to reflect the reduction in demand. Patronage levels are currently running 12% below last year. During 2002, we have increased focus on working with low-cost airlines to promote rail-air services following British Airways’ decision to downsize its operations at Gatwick. This work should have a long-term benefit to the Gatwick Express business.

Long Distance/Intercity

Turnover for the year was £121.7m (2000: £113.2m) with an operating profit of £10.5m (2000: £10.7m). MML’s performance was impacted by ESRs on its network throughout the year. In February 2002 we announced the signing of a £160m order for the manufacture and supply by Bombardier of new rolling stock for MML. The new fleet, to be called Meridien, will be fully in service by January 2005 and will replace the current Turbostar fleet, which will be reallocated within the Group.

Regional Services

Turnover for the year was £779.9m (2000: £647.3m) with an operating loss of £19m (2000: loss £13.4m). Following the agreement with the SRA, Central and ScotRail, which form part of our Regional Services, are currently forecast to break-even until the end of their franchise periods in early 2004.

At Central, an additional 70 drivers and conductors were recruited to prevent cancellations caused by staff shortages. New passenger-focused initiatives at Central include additional help points giving real-time running information. The Lincoln bus “add on” initiative encourages people to leave their cars at home by buying from Central and local bus operators an integrated bus and train ticket which gives discounted bus travel in the city and the surrounding area.

We also improved services on the Shrewsbury to Chester line through the introduction of new services and reduced fares. We have also marketed Central services to students in the Midlands through a new student website.

The SRA and Centro have agreed to enter into good-faith negotiations, which have already begun, to extend the Central franchise by two years to March 2006. This extension was set out in the SRA’s Strategic Plan, which was published in January 2002.

At ScotRail a special timetable was introduced in response to the withdrawal by train drivers of rest day and overtime working as part of a pay dispute. Four one day strikes have been held in March 2002. We continue to hold discussions with ASLEF with a view to finding a solution. However, whilst these strikes continue we will be incurring losses.

In October the remapping of the Wales & West franchise concluded with the establishment of the Wales & Borders and Wessex Trains franchises. We will continue to operate these franchises until they are awarded.

We continually seek to improve facilities for less able travellers at railway, coach and bus stations. New lifts at Northampton railway station make public transport more accessible.

During the year we commissioned a thorough review of train driver training arrangements. We are now implementing the review’s recommendations as a high priority throughout the division.

WAP technology means customers can access real-time train running information from dedicated sites and monitor the progress of their train before they even reach the station.