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Home , Brian Souter, Island Line (brand), Midland Mainline, Porterbrook, Richard Branson, Selkent

ANNUAL REVIEW 1999 UK Bus

Bluebird Cheltenham & East Fife Western Cumberland Midland Red South Busways Ribble East Kent Transit Red & White United Counties Devon Cambus

Overseas Bus

Swebus Australia Portugal New Zealand Finland

Rail

South West Trains Supertram Holdings plc

Rolling Stock

Porterbrook

Aviation

Glasgow Prestwick International Airport

Strategic Investments

Road King (China)

Financial calendar Contents

Annual General Meeting 3 September 1999 Financial calendar IFC Auditors' statement 31 Final dividend 14 October 1999 Financial highlights 1 Summary profit and loss account 32 Interim report December 1999 Chairman's statement 2-3 Summary balance sheet 33 Interim dividend March 2000 Chief executive's review 4-28 Summary cash flow statement 34 Board of Directors 29 Five year financial summary 35 Summary financial statement 30 Shareholder information 36 Summary directors' report 30 Advisers IBC Stagecoach aims to provide long-term shareholder value by creating a global transport business, focused on innovation and quality, which benefits both our customers and employees.

Financial highlights

4 Total turnover »1,548.4 million, up 15%

4 Total operating profit of »274.7 million, up 27% 4 Profit before tax of »219.9 million, up 39%*

4 Basic earnings per share of 12p, up 26%

4 Adjusted earnings per share of 12.7p, up 32%*

4 Final proposed dividend for the year of 2.0p 4 Total dividend for the year of 3.0p (net), up 25%

4 Free cash flow of »279.8 million

4 Capital investment of »263.1 million

*before goodwill amortisation and exceptional items

Turnover Profit before tax Earnings per share in » million in » million in pence Chairman's statement

I am pleased to report another year of excellent progress.

Turnover has increased by 15% to »1,548.4 million commitment to new train investment and new services, (1998 ^ »1,347.0million) and profit before tax, we believe that we have established a strong case to exceptional items and goodwill amortisation, is up 39% support franchise extension and we will be submitting to »219.9 million (1998 ^ »158.3 million). Earnings per proposals to the Government in the near future. share on an equivalent basis rose 32% to 12.7 pence (1998 ^ 9.6 pence) with basic earnings per share rising has continued to win new orders and 26% to 12.0pence (1998 ^ 9.5 pence). These results currently has an order book totalling »420million. represent strong underlying performances across all our The first orders since privatisation have been delivered divisions as well as contributions from our acquisitions with the remainder due over the next 18 months. of the Yellow Bus Company and Fuller's in New Porterbrook has also been successful in introducing Zealand, Citybus in Hong Kong and our strategic innovative new maintenance arrangements including investments in Road King and Virgin Rail. contracts with under which maintenance responsibility is passed to the train A final dividend of 2 pence per share (1998 ^ 1.6 operating company and with where pence) is proposed and is payable to shareholders on Porterbrook has taken full responsibility for all rolling the register at 13 August 1999 and will be paid on stock maintenance. Looking forward, we believe that 14 October 1999. The total dividend for the year is franchise extension opportunities and continued 3 pence per share, up 25% and is covered 3.9 times. increases in passenger volumes will result in further It is also intended that we will introduce a Dividend growth in rolling stock opportunities for Porterbrook. Reinvestment Plan in the current year to replace the scrip dividend programme we have implemented over Our Prestwick Airport operation has shown a good, recent years. first full year contribution to group results, with record freight tonnage and the introduction of additional For the sixth successive year our UK bus division has passenger services. delivered organic growth with our passenger volumes growing 0.7% on a like-for-like basis. Underlying The results also include the first contributions from margins have also improved significantly from 14.8% our two strategic investments, Road King Infrastructure to 15.8% as a result of revenue growth and further and Virgin Rail Group, which have contributed »10.7 cost savings. million and »11.2 million respectively to pre-tax profits, before goodwill amortisation. Our overseas bus division has also improved margins in all business units. At Swebus, despite the At Road King, toll road volume growth of 48% was continued adverse revenue effect of low inflation achieved and the company reported record profits of on turnover, margins improved from 5.3% to 6.3%. »38.4 million for the year ended 31 December 1998. This improvement has been achieved despite costs We continue to work closely with management to associated with the national bus strike that took assess further opportunities as existing privately place in early spring. Without the effect of the strike owned toll roads consolidate and a wide range the operating margin would have been 6.7%. Our of new projects arise in China. business was extended following deregulation of long distance services in January Virgin Rail Group has had strong volume and revenue 1999 and is showing year on year passenger growth during the year. In addition, the first phase growth of 12%. of the major upgrade plans has been completed, with financing in place for both CrossCountry and West (SWT) has continued to carry more Coast rolling stock. A new Chief Executive has been passengers and we have increased services by more appointed for the Virgin Rail Group and renewed focus than 10% since privatisation. Despite this increased is being placed on the operational performance of the volume of services, reliability on both mainline business, and already improvements in reliability and and suburban services is now at record levels and punctuality are being delivered. Despite a variable punctuality is also improving with the best levels operational performance, passenger volumes on West recorded since privatisation over the last 3 months. Coast grew by 8%, reflecting a strong economy and Given the improved operational performance, our the chronic congestion being experienced by road

2 STAGECOACH HOLDINGS PLC ``We are now in a new phase with the emergence of truly global transport groups.''

Brian Souter Chairman

users. We are confident that there is substantial latent opportunities throughout our businesses. The fruits of passenger demand and we note that inter-city this approach can be seen in the last 14 months where passenger numbers are growing organically at only one of the last six transactions has been secured very high rates across Northern Europe. through an open tender. Indeed, a further example of this is our recent strategic investment, whereby we Over the last 12 months the group has added over have conditionally acquired a 35% stake in Sogin »425 million of annualised turnover through the Group, the largest privately managed bus and coach acquisition of Yellow Bus/Fuller's Ferries in , operator in Italy. Our strong brand and reputation for Citybus in Hong Kong and our investment in Virgin innovation and straight dealing continues to be our Rail Group. Each of these businesses has significant greatest strength. potential to contribute to group performance; Yellow These results are the first to reflect our new Bus now gives us critical mass in New Zealand and an management structure implemented following the overall 64% market share; Citybus, the second largest appointment of Mike Kinski as Group Chief Executive bus operator in Hong Kong, with a very modern fleet, in April 1998 and demonstrate our strong focus on firmly establishes us in this important growth market operational performance and organic growth as well in the Pacific Rim; Virgin Rail Group provides long as value enhancing new acquisitions. Our strong term revenue and profit potential from the substantial infrastructure and rolling stock upgrade taking place management team is well positioned for further organic growth and to exploit new acquisition opportunities. on the West Coast mainline which will create a railway for the . I would like to thank all our employees for their support and commitment over the last 12 months. We are now in a new phase with the emergence The success and growth of the group depends on of truly global transport groups. Most significant the commitment and support of our staff and it is vehicle manufacturers are responding to the changing encouraging to hear anecdotal reports from visitors environment and are now represented in all the main who have found friendly staff as well as quality industrial markets and international procurement services with Stagecoach companies around . savings are becoming increasingly important for all operators. Few countries are still ideologically opposed The current year has started satisfactorily and each of to the concept of privatisation of transport resources our existing businesses is well positioned for continued and market testing but the speed of change will organic growth. We are continuing to assess a wide continue to be determined by political will. The range of business development opportunities within majority of markets are now open to private sector our core disciplines and look forward to another investment and the restrictions on foreign ownership exciting year of progress and sustainable growth. are fast disappearing. The menu of opportunities is An early start has been made to this process following greater and wider than ever before and our aim our announcement of the proposed acquisition of is to identify the correct diet and concentrate our Coach USA, Inc. which provides us with an exciting management time and shareholder funds on the platform for growth in the North American market. best returns and lowest risks.

Our present portfolio uniquely qualifies us to work with other strategic partners and governments to develop transport solutions. These special relationships Chairman are continuing to provide value enhancing 30June 1999

STAGECOACH HOLDINGS PLC 3 ``We have achieved improved performance in all divisions across the group.''

Mike Kinski Group Chief Executive

Chief executive's review UK bus division The UK bus division continues to produce improved margins, organic volume growth and consistent delivery of service.

Turnover for the UK bus companies increased 5.4% in the year have focused on the need to attract and from »490.2 million to »516.9 million and operating retain quality staff and in a growing number of profits increased from »72.6 million to »81.7 million cases extended two or three year agreements have over the same period. Operatingmarginsshowed a been successfully negotiated with our unions, adding 1% improvement, increasingfrom 14.8% to 15.8%. more certainty to the cost base of those businesses going forward. In addition, a more flexible approach Against an overall mixed UK bus industry to part time workingis beingadopted, aimingto performance and a slow down in the second half of better fit the job with people's other commitments, the year, Stagecoach has achieved organic growth includingfamily. The success of this approach has for the sixth consecutive year. Passenger volumes seen a reduction in staff turnover towards the end have increased by 0.7% year on year reflecting of the year. Engineering costs show a further 5% ongoing improvements in the network, rural bus reduction. This has resulted from improved working initiatives and continued improvement to our practices and inspection procedures in our vehicle quality of service and fleet. maintenance programme, a strong engineering management team, continued benefits from Total costs have increased slightly ahead of centralised purchasingand the rollingprogramme inflation. Drivers' costs have continued to come of new vehicle investment. under pressure from the phasingout of profit related pay and the industry wide difficulties in the Duringthe year a further 630 new vehicles were recruitment and retention of staff. Wage settlements purchased, representingan investment of »62.1 million. Highlights of our investment programme included:

õ 27 air conditioned double deck coaches for the UK Bus prestigious Oxford/London service which operates 24 hours a day. Annualised turnover »517m õ 56 MAN super low floor buses for Manchester, some of which have been introduced on to one of Europe's busiest routes with buses every three Employees 17,900 minutes.

õ 98 Dennis Trident low floor double deckers for Fleet 7,400 our tendered market in London.

Passengers carried 745m The average age of the UK fleet is now 6.7 years. We have the youngest fleet in the UK and our capital investment will be correspondingly lower Miles covered 330m in future years. Orders for a further 396 vehicles have been placed for the current year.

4 STAGECOACH HOLDINGS PLC We have an ongoing commitment to capital expenditure on new buses. All our new vehicles meet Euro II environmental standards and are far more accessible for our passengers than older buses. We are proud to have the youngest fleet in Britain with an average age of 6.7 years.

6 New Lo-Liner buses have been put into service in Manchester. Dennis Tridents form the core of the investment in new double-decker . v

We have an unparalleled track record in purchasing new vehicles and an on-going commitment to future spending. Byheavily investing in new buses we are converting our fleet to buses carrying the latest technologyin fuel efficiencywith the lowest emissions, all meeting Euro II standards. The MAN single-deck vehicles, for example, use 20% less fuel than equivalent modern heavyweight buses.

STAGECOACH HOLDINGS PLC 5 We are workingto make more attractive by increasingthe frequency of services. The 24 hour Oxford Tube which provides a direct link between Oxford and London leaves every 10 minutes at peak times.

Our network is more extensive than you may realise.

6 STAGECOACH HOLDINGS PLC Major depot buildingprojects costingin excess the 10 local authorities, the Passenger Transport of »3 million were undertaken in Newcastle and Executive, and the majority Winchester which have significantly enhanced of local bus, tram and rail operators. Significant maintenance facilities and environmental standards benefits are expected to accrue to all parties as well as providingimproved workingconditions includingbus priorities, ticketinginitiatives for our staff. In addition, a significant investment and a general improvement in service quality. commitment in ``state of the art'' ticketing equipment, capable of embracingsmart card In , Stagecoach Devon has continued to technology, has been made for the division. serve the two Park & Ride sites, havingintroduced has been the first company the latest Mercedes Vario mini buses. This scheme to receive this equipment, improvingticketing has been implemented in conjunction with Devon opportunities and market analysis, providing County and Exeter City Councils and has also enhanced management information to help grow secured our ability to continue to run our Exeter the business. City bus network via an otherwise pedestrianised High Street. Duringthe year the division has been reorganised into three regions under one divisional chairman Stagecoach Ribble has reached an agreement for a to enhance operational performance and provide key service, which will link the towns of Accrington a more focused and consistent approach to the and Blackburn and will see major investment from management of the business. the local authorities in quality bus shelters, raised kerbs, real time passenger information and other bus Stagecoach is committed to achieving greater usage priority measures. In exchange, the company will of public transport and puttinginto practice the introduce a new fleet of super low floor buses Government's commitment to integrated transport. allowingwheel chair access. We are now focusingon achievingfurther passenger growth and have strengthened Hastings Borough Council has committed »0.6 the group commercial team to drive forward million of expenditure to improve facilities in a programme aimed at identifying growth Kent's operating area and Kent opportunities in each of the seventy profit County Council is continuingto develop a global centres which make up our UK bus operations. positioningsystem in Ashford. 70% of the Ashford fleet is already fitted with this equipment and is The group is also committed to an extensive benefitingfrom reduced journey times. programme of bus/rail integration and has been successful in winninga substantial programme Rural bus grants of rural bus grant projects. Stagecoach will also We have secured over »5 million of additional continue to be active in seekingquality partnerships annualised revenues from the introduction of with local authorities and will be lookingto achieve the rural bus grant scheme. Projects have been priority for public transport schemes in local particularly successful in where public transport plans. transport has been made more easily available to outlyingrural communities and in Cambridgewhere Quality partnerships ^ one example of increased frequencies on an existing progress to date service yielded a 20% increase in passengers during Significant progress has been made with a number the first month. of local authorities in the development of quality partnerships. The division is currently examining Our Cumberland operation was also very successful 38 projects with a potential investment from in securingfundingand has now introduced another Stagecoach of some »38 million that will span a 14 vehicles to support the additional »0.9 million of number of years. Stagecoach Manchester is involved revenue beinggenerated by the expansion of the in the largest quality partnership agreement in the network. country, having recently signed an agreement with

STAGECOACH HOLDINGS PLC 7 Chief executive's review Overseas Bus Division

Our overseas bus division has seen improvements in all markets.

Continuing operations generated operating profits The Swebus Express operation, which was of »18.3 million compared to »17.0 million in 1998 re-launched in April 1997, continued to grow despite turnover falling from »277.5 million to throughout the year, with the original network »249.9 million, reflecting the reduction in tendered moving into profit in its first full year of operation. operations in and the strength of sterling. The total deregulation of the express market in January 1999 led to further developments of this The results include part year contributions from network, including routes between Malmo ^ our acquisitions in Hong Kong of Citybus and , Dalarna ^ and ^ in New Zealand of the Yellow Bus Company and Stockholm. Fuller's Ferries, the first full year contributions from the 1998 acquisition of school bus operations in We have strengthened the management team in , Australia and an increased contribution Sweden by appointing an Operations Director to the reflecting the first complete year of full ownership Swebus board and an Engineering Director to the of Stagecoach Portugal. Operations in Kenya were North region, both with significant bus industry disposed of in September 1998. experience. In addition, we have adopted a more focused approach to the tendering process, setting Swebus stringent targets for operating margins and return Despite a reduction in turnover from »259.1 million on capital employed to ensure that we bid for in 1998 to »229.4 million, operating profits have tenders at an acceptable price. Over time this increased from »13.7 million to »14.4 million even will balance the portfolio and improve the after taking account of costs associated with the overall margin of the business. national strike which affected all major bus operators in Sweden. Operating margins have During the year, work for some 1,400 buses was increased from 5.3% to 6.3%. Revenues were tendered in Sweden, of which 354 were run by impacted by a reduction in tendered services Swebus representing 11% of its total fleet. We reflecting losses of lower margin or loss making maintained our market share but the geographical tenders in 1998 and low inflation. In addition, distribution changed significantly and, in virtually average exchange rates have moved from all cases, the new traffic was won at operating 12.83SEK to 13.18SEK to the pound, reducing margins significantly higher than that which reported turnover by approximately »6 million. was lost.

The continuing differential between the low Citybus consumer price index movement and wage Turnover for our first two months of ownership was agreements has cost an estimated »4 million in »20.9 million and operating profit was »2.6 million 1999, representing 1.7% operating margin. In before goodwill amortisation, representing a margin addition, the industry wide negotiations for the 1999 of 12.4%. pay award and working conditions led to a national strike which lasted for 13 days in late February, An offer for the entire issued share capital was early March 1999. The total cost of this strike to made on 15 February 1999 and we subsequently Stagecoach was in the region of »1 million, received over 90% acceptances which enables us effectively reducing the operating margin for the to effect a compulsory purchase of the remaining year by 0.4%. Despite this, the reported operating shares and then delist the company from the Hong margin has improved reflecting a more favourable Kong Stock Exchange. Citybus is a leading Hong mix of tenders, operational improvements which Kong bus operator providing both franchised and have reduced costs by 2.5% and the growth in non franchised bus services. It operates the main Swebus Express, which now represents 7.8% of franchise for Chek Lap Kok airport and Hong Kong total turnover, up from 5.8% in the prior year. main island franchises along with a number of

8 STAGECOACH HOLDINGS PLC Overseas Division

Annualised turnover »420m

Employees 11,500

Fleet 5,730

Citybus offers a good opportunity to expand in Asia from a strong base.

The total deregulation of the express market in January 1999 led to further development of Octopus Smart Card the Swebus Express Technology is already network. an operational feature at Citybus.

STAGECOACH HOLDINGS PLC 9 Auckland's LINK bus and service provides an integrated transport link between the islands and mainland.

10 STAGECOACH HOLDINGS PLC cross border and mainland China express routes. New Zealand & Australia Citybus has the youngest fleet in the Hong Kong An operating margin of 19.6% was achieved by the market with an average age of 3.2 years. It has existing operation, compared to 17% for the prior grown rapidly in recent years and now has 1,200 year. Reported turnover and operating profits fell buses as a result of the introduction of services to from »14.7 million to »11.2 million and »2.5 million the new airport in July 1998 and the take-over to »2.2 million respectively, reflecting exchange of additional routes from another operator in movements during the year. Yellow Bus Company September 1998. The company has 4,000 staff and and Fuller's Ferries contributed »18 million to is one of four operators who run franchised bus turnover at a margin of 11.7%. services in Hong Kong. Citybus has approximately 63% of the bus market on Hong Kong Island. The acquisition of Yellow Bus Company in Auckland in August 1998 added a further 600 buses to our Over the last twelve months prior to acquisition, fleet in New Zealand and increased our market the business has experienced rapid growth against share to 64%. Significant progress has been made a background of poor economic conditions in integrating the Yellow Bus operation into our Hong Kong. We are already implementing a number existing Cityline operation in Auckland and also of initiatives with local management to improve in combining the management of Stagecoach's performance and believe that this acquisition and Auckland operations which will represents an opportunity to enter one of the enhance both operating margins and operational most exciting and developed bus markets in the efficiency going forward. Asia Pacific region, with excellent potential for organic growth and new market development. The introduction of 80 super low floor, wheelchair A management board has been created combining accessible, midi buses into both Auckland and the management team from Citybus and Wellington during the year has been well received representatives from Stagecoach to implement the by our customers, adding to our competitive integration of the company into the Stagecoach advantage. group and achieve performance enhancement through synergies in areas such as procurement, During the year we also acquired Fuller's Ferries engineering and improved working practices. which has been integrated into our Stagecoach New We believe that these measures will result in Zealand operation. Fuller's Ferries operates 9 ferries operating margins comparable to the UK being between Auckland and its surrounding islands and achieved in the future. carries more than 3 million passengers per annum. This acquisition provides significant opportunities Our operations in China were extended following for combining land/sea travel in the development of our agreement with Kwoon Chung Buses, a Hong an integrated transport system. Already discounted Kong listed group, on 7 May 1999 to take a 25% daily and monthly passes valid on both ferries and stake in a joint venture which operates 576 buses buses have been successfully introduced, turning in the Chinese city of Chongqing. The joint venture round a previously adverse trend in passenger has a turnover of approximately »6 million and numbers. tremendous potential in a region with a population of 26 million. Kwoon Chung operates a number of Portugal joint ventures in China and we will gain valuable Turnover for the first full year of 100% ownership operating experience and contacts from this first of the Portuguese operation was »7 million and investment. operating profits were »1.4 million giving an operating margin of 20% with the results benefiting from Expo'98.

STAGECOACH HOLDINGS PLC 11 Chiefexecutive's review Rail Division

South West Trains (SWT), the UK's largest commuter railway, is exceeding our expectations with significant passenger growth improving both turnover and operating profits.

Turnover was »338.8 million compared to »314.1 Key features include:

million in the prior year whilst operating profits õ Strengthening of train cleaning crews and have increased from »21.6 million to »34.4 million improvement in procedures. Since this initiative over the same period. Passenger volumes continue to was launched the number of customer complaints grow and have increased by 6.1%year on year with in connection with the cleanliness of trains has strongest growth experienced during the morning reduced by 79%. peak where we have seen numbers increase by 8.6%. õ Approximately »1 million spent on improving This translates into passenger income growth of the engineering reliability of trains. Cancellations 8.3%on 1998. have now reduced to a point where all service groups average well above the 99%requirement Operating costs during the year increased by of the Passengers' Charter. 4%reflecting wage agreements and the costs

of additional train cleaners, security guards and õ Working closely with to address the revenue protection inspectors associated with the issues which have historically caused trains to major customer service initiatives launched during run late. Punctuality during the spring period of the year. The progressive introduction of automatic 1999 has been amongst the best recorded since ticket gates has contributed to the improving the beginning of the franchise, despite running performance, with some »2 million of capital more trains on an increasingly congested network. investment made in these projects during the year. õ Additional services. Since taking over the Further projects are planned, including the possible franchise in 1996 we have added in excess of introduction of gates at Waterloo. Incremental 12,000 additional peak seats. Over the same revenues of around 10%continue to accrue from period, the number of trains run by SWT has the installation of these barriers and, in addition, increased by 145 trains each weekday and 950 they have been recognised by the British Transport trains per week in total which equates to a 10% Police as being a significant factor in the reduction rise since franchising. The 1999 summer timetable of crime on the railways. contains additional services to and Service delivery to give these important cities a more regular off peak service. This timetable A major customer service improvement programme marks the realisation of Stagecoach's aspiration to with more train cleaners, more emphasis on introduce a ``turn up and go'' type service across punctuality and additional services, both peak and off the majority of our franchise. The next step in peak, is beginning to be appreciated by our customers. timetable enhancement is to double the frequency of the off peak London to Salisbury service.

õ Working in partnership with Railtrack, SWT has Rail Division now completed a »3 million scheme to install passenger help points. These give passengers Annualised turnover »350m the ability to ask one of three control centres for information about train running, or, if they need, to contact the Police in an emergency Employees 4,400 simply by pressing a button. In addition, as part of this scheme, station and car park closed circuit Passengers carried 134m television systems are also monitored through the control centres by SWT staff.

12 STAGECOACH HOLDINGS PLC South West Trains is Britain's busiest commuter railway with strong growth in passenger numbers on services running to and from London's Waterloo Station. Passengers' needs are being addressed through a major customer service improvement programme.

STAGECOACH HOLDINGS PLC 13 õ The use of security guards to make our stations performance of train operating companies, Island and trains feel safer, particularly to women Line was the only to score passengers during the evening and at weekends, an A rating in all aspects measured. continues with additional security staff being recruited during the year. The effect of this Supertram initiative, increased revenue protection staff, Supertram was acquired in December 1997 and automated ticket barriers and improved policing the first full year of trading generated »9.0 million have all contributed to a 50%drop in reported of turnover and an operating loss of »0.7 million, crime at SWT stations since 1996. a significant improvement on pre-acquisition financial performance. õ Testing of the new Class 458 trains has now reached a point where SWT and the manufacturer, The restructuring programme is now complete GEC Alstom, are confident that the first trains and Porterbrook, the group's leasing company, has will enter service during 1999, as scheduled. The taken responsibility for both tram and infrastructure introduction of the new units should significantly maintenance. All trams are now in Stagecoach livery improve customer service and attract incremental and Megarider and Dayrider ticketing initiatives revenues. However, ROSCO charges in respect of have been implemented and now account for some additional rolling stock will increase operating 45%of all journeys. Passenger journeys in the year costs as the 30 new trains are phased into outstripped expectations, showing a year on year service. increase of around 13%. has become the Centre of Excellence for integrated transport in Island Line South and Supertram is participating During 1999 Island Line, the railway, with add-on and through ticketing arrangements was awarded the Charter Mark by the Prime Minister in conjunction with other transport operators in in recognition of improvements to customer services. the area. Also, in the latest OPRAF quarterly review of the

Supertram, Sheffield During 1999 Island Line, Britain's smallest franchise, was awarded the Charter Mark by the Prime Minister in recognition ofimprovements to customer services.

14 STAGECOACH HOLDINGS PLC Chief executive's review Porterbrook

Porterbrook continues to promote innovative and flexible lease products to meet its customers' requirements.

Despite a reduction at the half year, turnover for trains delivered since privatisation, which are now the full year has remained in line with 1998 as a running between Birmingham and London. Early result of the successful award of new maintenance this year, Midland Mainline commenced services to contracts as well as short term lease extensions London with the first Class 170 ``Turbostar'' units across the fleet. and by the end of the planned timetable changes will have all 17 units in operation. Operating profits have increased from »130.5million to »140.2 million and continue to be enhanced In January 1999, Porterbrook signed the first by cost savings derived from the re-scheduling all inclusive contract hire deal with Thameslink and re-tendering of heavy maintenance which is Trains. Under this contract, Porterbrook leases still provided on 92% of the lease contract base. At 66 fully maintained four car trains (264 units) 30 April 1999 approximately 68% of current income guaranteeing performance and availability, leaving remains subject to Government underpinning. Thameslink to concentrate on their operations. Conversely, Porterbrook has also reached an New business agreement with Midland Mainline whereby all During the year Porterbrook secured an order for maintenance responsibility is passed to the train a further 21 new vehicles from . In operating company. addition, Porterbrook won an order with Freightliner to provide 17 new freight locomotives including 5 new Class 66 vehicles from General Motors. Since

privatisation total orders for new rolling stock, Freightliners 15.7 Chiltern 18.1 excluding Virgin Rail's tilting trains, have been 5 5 Central 74.5

»911 million and Porterbrook has won »470 million 5 representing 52%, increasing our market share by 5 London, Tilbury

&Southend 3% to 33%. In August 1998, Chiltern Trains took ScotRail 41.2 5 131.5

delivery of 5new Class 168 units, the first new Anglia 21.9 5

Gatwick 44.8 5 5

5 SouthWest Trains 89.8 32.5

New train orders since privatisation

Porterbrook

Annualised turnover »270m

Employees 49

TOCs served 18

STAGECOACH HOLDINGS PLC 15 Porterbrook continues to explore opportunities The future to lease rail related equipment and has won Railtrack's recent Network Management Statement new business totalling »7 million for ticket barriers, predicts passenger volume growth of a further ticket vending machines and passenger information 30% in the next decade. If this increase is to be equipment with 3 train operating companies. accommodated, substantial rolling stock orders will need to be placed and we believe that Porterbrook We continue to improve current stock by spending remains in a strong position to take advantage of »12.5million on refurbishment and modifications these opportunities and to grow its business. to high standards. ScotRail and Great Western sleeper coaches are currently undergoing extensive Similarly, the franchise re-negotiation process is enhancement including the modification of some likely to result in the extension of existing leases coaches to accommodate disabled passengers. together with new investment commitments.

The Turbostar project shown here has been ordered for Midland Mainline, one of Porterbrook's customers. Last year Porterbrook fulfilled an order for Chiltern Trains that was the first rolling stocktobebuiltintheUKfor over ten years.

16 STAGECOACH HOLDINGS PLC Chief executive's review Aviation

The acquired Prestwick International Airport on 30 April 1998 and is pleased to report strong growth during its first 12 months of ownership.

Turnover of »22.3 million generated operating Passenger numbers are now in excess of 600,000 profits of »3.6 million, giving an operating margin an increase of 5% over the previous year, and of 16.1%. scheduled passenger routes now include Paris and Donegal in addition to the existing London Stansted, Freight throughput has grown by 15% year on year Dublin and Belfast services. An additional 45 with 30wide bodied scheduled services weekly, destinations are available via the Stansted and compared to 24 in the prior year. These services Dublin hubs providing hitherto unavailable routes provide vital links between Scotland, the Far and fares to the Scottish public. With its own East and USA and have been identified by inward purpose built railway station, the airport offers investing companies as a positive factor in selecting excellent integrated transport systems. Special fares Scotland for their European operations. To support are available for Prestwick's air passengers on rail this growth and future plans, a new 115,000 sq ft and bus services and presently some 25% of the warehouse facility was completed and opened in airport's passengers take advantage of these schemes. January 1999, and, in addition, we are currently discussing the provision of maintenance facilities To cope with current and future expected growth in for a major freight transporter. traffic, the airport is investing in new and refurbished facilities including the arrivals hall, check in facility, X-ray equipment and the resurfacing, extension and lighting of the secondary runway.

Aviation

Annualised turnover »22m

Employees 400

Cargo handled (tons) 42,000

Passenger traffic 600,000

STAGECOACH HOLDINGS PLC 17 In partnership with Chinese Provincial Authorities, Road King has almost 1,000 km of roads throughout China.

18 STAGECOACH HOLDINGS PLC Chief executive's review Strategic investments

Road King is achieving significant growth in the toll road market in China.

Road King Infrastructure Limited During the year Road King used the strong cash Operating profits from associates of »12.4 million flows generated from operations to buy back represents our share of Road King's results along US$66 million of debt. Road King's gearing ratio with the dividend due on the convertible preference reduced from 58% to 32%. shares acquired during the year. The group's investment in the ordinary share capital In the year to 31 December 1998, Road King of Road King increased during the year to 30 April reported a 37% increase in profits and a 29% 1999 to 21.8%. The conversion of the group's increase in earnings per share. Road King convertible preference shares would take the group's has 22 toll road projects with a total length holding to 29.8% on a fully diluted basis. Net of 975 km. Strong growth was achieved with assets per share were »0.54 at 31 December 1998. total traffic increasing by 48% and toll revenues increasing by 59% year on year reflecting Performance is in line with our expectations and we growth in existing projects and the continue to develop our close working relationship commencement of new projects. Toll rate with the Road King management team. Our strategic increases are agreed with the local Chinese investment in Road King provides not only a good transport authorities and increases of between return on investment and future growth potential 7% and 50% were achieved during the year but also provides us with valuable toll road on four projects. During 1998, as a result operational knowledge and strong relationships of the unfavourable financial and economic with the Chinese transport authorities. conditions in the Asia Pacific region, no new toll road projects were undertaken, other than those previously committed.

In March 1999 Road King announced the proposed sale of its interest in the Shenzhen Meiguan Expressway which will generate »49 million of sale proceeds and an estimated profit of »15 million, when clearance on repatriation of foreign currency is agreed. We believe this highlights the substantial value inherent in the toll road projects and underpins the value of our investment. Following this sale Road King will have financial reserves of approximately »112 million and these resources will be used to further reduce US$ debt exposures and to fund new infrastructure investments.

STAGECOACH HOLDINGS PLC 19 Chief executive's review Strategic investments

The investment in Virgin Rail Group gives Stagecoach access to one of Europe's most exciting rail projects.

Virgin Rail Group information posts. In addition, improvements and The acquisition of 49% of Virgin Rail Group Ltd extensions to many station car parks, including (VRG), announced in June 1998 received OPRAF CCTV is currently underway to meet current and approval on 7 October 1998. forecast demand.

This investment has been accounted for as a joint VRG finalised its planned investment in new rolling venture and our share of turnover and operating stock with orders placed for »593 million of new profit for the period to 30 April 1999 were tilting trains for the West Coast franchise and for »134.9 million and »9.4 million respectively. »407 million of a mixed fleet of both tilting and Goodwill amortised during the period amounted non-tilting trains for the CrossCountry franchise. to »4.4 million and interest attributable to the Operating leases for this investment were also joint venture was »1.8 million, resulting in a finalised during the year, with rental payments pre-tax contribution of »6.8 million. commencing on delivery of each train during 2001 and 2002. In addition, the responsibility for the light Passenger numbers have increased year on year maintenance of existing rolling stock has been by 10% and 8% for CrossCountry and West Coast transferred to the manufacturer with a contractual respectively, whilst revenues have increased by commitment to deliver improvements in rolling 11% and 8% over the same period. Reliability and stock reliability. punctuality remain key priorities for management and progress is being made in identifying and The delays attributable to the CrossCountry fleet rectifying the causes of delays. From a low during have already reduced by 46% in three months. the year of 74.0% and 71.7% respectively for West Virgin Rail is also working very closely with Coast and CrossCountry, punctuality improved to the Railtrack project teams to identify and agree 87.6% and 84.0% in April 1999. Reliability has the schedules of work to ensure that the different consistently exceeded target, currently at 99.2% stages of the major infrastructure upgrades are and 99.1% respectively. delivered as contracted.

Chris Green joined VRG as chief executive in Our partnership with VRG has also provided an February 1999 and brings 34 years' rail experience, exciting opportunity to develop integrated transport much of which was spent in the initiatives which is resulting in an improved service environment. This appointment and subsequent to passengers through bus links to key rail stations, restructuring, strengthens the management integrated timetabling and joint bus/rail ticketing. giving more focus on day to day operations. Stagecoach, through its board representation, is Our investment in Virgin Rail gives Stagecoach closely involved in the strategic direction of the access to one of Europe's most exciting rail projects, business. which has substantial growth potential. Virgin's marketing, strong branding and yield management VRG has invested heavily in improving customer skills are complementary to Stagecoach's transport service with all staff undergoing intensive training expertise and we believe the partnership has a good and the development of the telephone blend of skills and will provide benefits for both reservation system and internet services during the parties. year. An ongoing investment programme to improve station facilities is also underway, with particular emphasis on customer lounge facilities for both first and standard class passengers and dedicated

20 STAGECOACH HOLDINGS PLC Virgin Rail is another forward looking company prepared to invest in the transport systems of tomorrow.

AStagecoach bus in Virgin livery at the launch of the recently introduced Rail Link scheme.

Brian Souter and are driving one of Europe's most exciting rail projects.

STAGECOACH HOLDINGS PLC 21 Chief executive's review Stagecoach ^The Integrated Transport Company

Stagecoach is responding to the challenge set by the Government's White Papers on integrated transport by developing a range of schemes to link our bus, rail and airport operations more closely together.

Developments at South West Trains be introduced in 25 towns and cities served by the The two new bus/rail services introduced by SWT Virgin Rail networkas part of the Virgin/Stagecoach on the first day of railway franchising in February initiative. Through this project Stagecoach has taken 1996 from Romsey to Winchester and from Liphook the lead in promoting a national standard for bus to Bordon, have continued to thrive and have add-on tickets which it is planned to introduce on now become an accepted part of the local travel a nation-wide basis over the coming year. network. A third service, linking the Hythe area on the west side of Southampton Water to Virgin ^``Trains on Rubber Tyres'' Southampton Central station for connections with During 1998 Stagecoach developed a wide-ranging SWT and services as well as those package of bus/rail integration measures as part of other rail operators, commenced in May 1999. of its acquisition of a 49% stake in Virgin Rail If successful, this could point the way to the Group, including five new bus/rail services, the first re-opening for passenger services of the railway of which were launched by Richard Branson and line through Hythe to Fawley, currently only used Brian Souter in May 1999. Offering full bus/rail by freight trains. SWT was also a prime mover in through ticketing, the new services operate in Virgin the partnership between British Airports Authority, colours and promise full Rail Passengers' Charter London Transport, Railtrackand local authorities rights ^ in effect they are ``trains on rubber tyres''. which developed the Feltham ^ Heathrow Railair The first four new services are: bus linkwhich was introduced in April 1999 and õ from Airport to , linking provides a valuable new linkfrom south London Luton and the expanding Luton Airport with to . the .

1998/99 saw further extension of rail-to-bus add-on õ from Stratford to Coventry, providing better tickets, which now include most of the main cities access to Shakespeare Country. and towns served by SWT and allow the completion õ from Bromsgrove and Redditch to Birmingham of the rail journey by bus without purchasing a International Airport. separate ticket. In addition, bus add-on tickets will

õ from Buxton and the PeakDistrict to Macclesfield, giving better access to the Rail, bus and tram form the National Parkand PeakDistrict communities. hub of the City of Manchester's Integrated Transport The Stagecoach/Virgin package also includes the Initiative in which re-launching of existing bus services in the North Stagecoach has played a leading West and Midlands as ``integrated bus services'', role. offering through ticketing between bus and rail, timetables co-ordinated to connect better with trains, and in some cases, re-routing of buses closer to railway stations. These include the Workington to Penrith service in Cumbria and the linking of the to Oxford service into Virgin Rail Group services at Milton Keynes and Oxford.

22 STAGECOACH HOLDINGS PLC Journey Solutions Journey Solutions and its member operators have a During 1998/99 the UK's leading bus and rail big challenge ahead to develop integrated transport companies established a new group to speak on into a real alternative to the private car and will behalf of operators on integrated transport concentrate efforts on co-ordinated services, better matters and to liaise with the new Commission information and seamless ticketing. A range of on Integrated Transport. Reflecting its objective Journey Solutions kite marks is being developed of promoting improved public transport through which will be awarded to services or facilities which integration, the new body is called Journey make a genuine contribution to seamless travel. Solutions and Stagecoach Executive Director Brian Cox has been appointed its first Chairman. Stagecoach will continue to place high priority on the development of integrated transport, both on its own account and through Journey Solutions.

Interconnecting modes of transport, cross ticketing and scheduling ^all contribute towards public transport systems that attract customers and meet the challenge set by both Government and society.

STAGECOACH HOLDINGS PLC 23 Chief executive's review Environment

Stagecoach has a pro-active environmental policy.

Buses Major improvements have been made in many Stagecoach has an unparalleled track record in depots and an integral part of our group purchasing purchasing new vehicles. In 1999 we have invested strategy is to pursue environmentally friendly over »95 million in new buses throughout our options wherever economically possible. For worldwide operations, all of which meet Euro II example, all new gantry drive-through bus washes and in many cases Euro III, environmental have water reclamation plants installed as standard, specifications. This year we have already placed which recycle tons of waste water. The disposal of new bus orders worth an additional »80 million. used tyres is also an environmental waste issue. Stagecoach rents bus tyres from Michelin to Our UK fleet has an average age of 6.7 years, the whom they are returned at the end of their life youngest in the UK. In Hong Kong, Citybus has an for recycling. Oil waste is also collected and sold average fleet age of 3.2 years, making it the most to specialist disposal companies. modern fleet in the world and in Swebus the average age of the fleet is 7.3 years. Trains Trains are one of the most energy efficient New buses have multiple advantages: reduced gas transport systems, carrying much larger numbers emissions and improved energy consumption. Better of passengers than cars, buses or trams. services provide an alternative to private motorists, alleviating congestion and further reducing All new diesel trains ordered by Porterbrook meet emissions. Euro II environmental standards and are highly energy efficient. With regard to the older trains In addition to our substantial expenditure on new in the fleet, there has been an ongoing programme buses, we have continued our overall improvement to upgrade air conditioning systems with by making significant investments in upgrading ozone-friendly gases and some of the oldest engines older buses. Our London operations have seen half have been replaced resulting in fuel and oil savings of the traditional Routemaster buses re-engined and a reduction in emissions of some 10%. with more environmentally friendly units with the remainder to be converted during 1999. Although South West Trains does not own any of the rolling stock in use on its network, any All of our UK fleets have changed to use ultra-low internal purchasing decision considers health and sulphur fuel. This is a much cleaner diesel, which safety and environmental implications and also meets BS EN590 standards and will be used by all longer term disposal issues. Substances such as oil the worldwide fleet, as it becomes available. Swebus and ferrous metals used in the depots are collected has been further ahead in this field for some time and sold for recycling. Similarly, the supply of water where over 1,200 buses use CRTs (particulate traps) and electricity to carriage-washing facilities is by combined with ultra-low sulphur fuel, surpassing automatic remote control, reducing wastage, and current EU minimum standards by some way. Trials any waste water is disposed of by specialist companies. with alternative fuels have taken place but as yet the capital costs do not make them feasible solutions for mass implementation. There are compressed natural gas buses in service at Swebus and also under contract at Stagecoach Cambus.

24 STAGECOACH HOLDINGS PLC There are many different ways of lessening our impact on the environment. In the area of transportation the most critical aspect is to lessen the public's dependence on private vehicles by improving the frequency, quality and accessibility of public transport.

DIAGRAM OF A PARTICULATE TRAP

Exhaust fumes go in

Cleaner emissions come out

STAGECOACH HOLDINGS PLC 25 Waterloo Station is the site of Stagecoach's Learning Centre, providingself-development opportunities for staff. This excitingnew initiative is beingdevelopedandruninpartnership with our unions and will be rolled out across our rail and bus operations throughout the coming year.

Some Stagecoach employees have the opportunity to volunteer to work with schools on Real Maths projects. Here the children of Dunchurch Primary School are learning to read the 24 hour clock and timetables.

26 STAGECOACH HOLDINGS PLC Chief executive's review People and management

As a group, we continue to invest in our people who provide us with a competitive edge. In all group companies we are making significant improvements in developing the skills of employees to build for the future and ensure we deliver quality in all aspects of our work.

Our commitment to developing partnerships disciplines. We continue to support the New Deal across the group with our respective trade initiative launched by the Government and have unions is ongoing and we are actively working successfully offered a number of employment together towards partnership agreements that options across the division. build for a mutually beneficial future. Our graduate training programme is being expanded Various employee forums continue to be developed throughout the group and this year we will be that ensure employees are advised regularly offering pre-graduate and sponsorship programmes on business performance. These range from local in addition to our successful post-graduate briefing sessions to group wide forums such as recruitment programme. our European Works Council, National Liaison Committees and Health & Safety Committees. Stagecoach is very much in the people business We were the first large UK transport group to and, as such, we understand the key role that establish a European Works Council well ahead our employees play in providing high quality, of any legal requirement to do so. safe and affordable services for our customers. Investment is ongoing and will provide us with Stagecoach is totally committed to establishing the necessary skills, knowledge and resource to lifelong learning built around the open learning support the future growth of the group. concept. Open learning will provide employees with the opportunity to improve their skills base and Management assist them in managing their own development. Significant progress has been made in We successfully launched open learning in South strengthening the group's management team and West Trains earlier this year and achieved a 20% structure during the last 12 months within both take up from employees in the first two months. our operating divisions and at a group level We are now establishing further open learning including new senior appointments in Corporate centres in the UK and overseas bus divisions to Communications, Human Resources and create an integrated network of learning throughout Information Technology. the Stagecoach group. Divisional management structures have been Comprehensive training programmes are being revised in order to maximise the operational implemented in the group to ensure we have the focus and accountability of management. These right leadership in the future and maximise the skills changes give the group a strong base from which of our employees to further improve service to our to further improve operational performance customers. Courses include management and and grow the business. supervisory development, customer service and technical training. For example, we are investing Across the group we are establishing succession »1 million in a major customer service training planning to ensure we develop the necessary talent programme in South West Trains involving to fulfil future needs. Our objective is to ensure that employees at all levels within the company. the majority of our future managers are developed internally as part of our career development Within our UK bus division we are actively programme. continuing our programmes to establish and deliver national training standards (NVQ/SVQ) in all

STAGECOACH HOLDINGS PLC 27 Chief executive's review Outlook

Each division has shown improved financial and operating performance over the last 12 months and we are confident that this can be sustained in the current year.

The UK bus division is well placed to continue to Porterbrook, our rolling stock company, has strong benefit from new commercial initiatives and the financial and engineering expertise and is ideally Government's focus on public transport. Taken placed to benefit from orders that will follow together with the scope for further cost savings from franchise extension re-negotiations. The arising from restructuring last year, we believe that Government's demand for a modern railway further margin improvements can be achieved and with the withdrawal of old slam door trains and we have already experienced passenger growth in forecast growth in passenger numbers, means the the first period of the current year. market for new rolling stock is also set to show substantial growth. Restructuring of recent overseas acquisitions is proceeding well in New Zealand and Hong Glasgow Prestwick International Airport is Kong and we view both these markets as having well positioned to respond to further demands significant growth potential. Our overseas operations in the freight and low-cost passenger airline contribute to our management knowledge and markets and has the infrastructure already in place expertise and provide a springboard to other to achieve substantial growth. potential growth projects. Citybus, in particular, provides us with management and specialist skills Both of Stagecoach's strategic investments in Road from which we can develop operations in China. King and Virgin Rail have shown good returns In Sweden, a sound base has now been and create synergies with Stagecoach's operating established to support further profits growth. companies. Virgin Rail now has a strengthened In addition, our strong management team in management team and has secured financing for the New Zealand is committed to delivering further new rolling stock. This will allow them to concentrate improvements including the full integration of on operational improvements in the coming year. Yellow Bus into the Stagecoach New Zealand operations. Our proposed acquisition of Coach USA provides us with a strong market presence and a committed and At South West Trains, the UK's largest commuter experienced management team from which we can railway, we are committed to improving customer expand our presence in North America. services and delivering a better railway. A clear focus on performance, along with new rolling stock, additional staff and continued training, will ensure this is delivered and will provide a strong platform Mike Kinski to support our bid for a franchise extension. Group Chief Executive

As we approach the new century there are many opportunities before us.

28 STAGECOACH HOLDINGS PLC Brian Cox (52) Board of Directors Executive Director Barry Hinkley (50) Keith Cochrane (34) Executive Director Group Finance Director

6Mike Kinski (47) Group Chief Executive 55Brian Souter (45) Chairman

5Barry Sealey CBE (63) Non-Executive Director

5Ewan Brown CBE (57) Non-Executive Director

55Robert Speirs (62) Non-Executive Director

555Ann Gloag (56) Executive Director

Brian Souter (45), Chairman is responsible Brian Cox (52), Executive Director is Chairman Barry Sealey CBE (63), Non-executive Director Robert Speirs (62), Non-executive Director, for Stagecoach's new business development. of South West Trains and Island Line. He was was appointed in December 1992. He is also a was appointed in March 1995 and is Chairman He is also a board member of Road King also appointed Group Commercial Director in Non-executive Director of South West Trains of the Remuneration Committee. He was Infrastructure. January 1999 to focus on intensifying and Chairman of the Audit Committee. He formerly the Group Finance Director of The integrated transport and other commercial spent the major part of his career with Royal Group plc. He is Mike Kinski (47), Group Chief Executive has development opportunities across the Christian Salvesen plc serving as Managing chairman of Direct Line Insurance Limited and overall responsibility for the management of business. Director from 1981 to 1989. He is currently an BellGroupplcandisanon-executivedirectorof all of the group's business operations. He is independent director serving on the boards of CanaryWharfGroupplc,CrystalMediaLimited, also a non-executive director of the Post Barry Hinkley (50), Executive Director is Scottish American Investment Company plc MacfarlaneGroupplcandMartinCurrieIncome Office. Chairman of the UK Bus Division and also and Wilson Byard plc, amongst other andGrowthTrustplc. supports the Group Chief Executive in the companies. Keith Cochrane (34), Group Finance Director a development of the overseas bus division. chartered accountant, is responsible for the Ewan Brown CBE (57), Non-executive Director group's overall financial policy and treasury (56), Executive Director co-founded since December 1988. He is an Executive management. He is also a director of Stagecoach in 1980 with her brother Brian Director of Noble Grossart Ltd, chairman of Porterbrook, Road King Infrastructure and the Souter. She is currently responsible for Lloyds TSB Scotland plc and Dunedin Income Virgin Rail Group. property management. Growth Investment Trust plc, and a non- executive director of John Wood Group plc and Lloyds TSB.

STAGECOACH HOLDINGS PLC 29 Summary financial statement

Important note be consulted. All shareholders receive the Annual Review This summary financial statement is a summary of and summary financial statement. A copy of the full 1999 information in the 1999 Annual Report and Accounts. Annual Report and Accounts may be obtained, free of It does not contain sufficient information to allow for charge, from the company's registrar at the address and a full understanding of the results of the Group and telephone number shown on page 36. If you wish to state of affairs of the company or the group. For further receive the full Annual Report and Accounts for all future information, the full annual accounts, the auditors' report financial years you should inform Lloyds TSB Registrars in on those accounts and the report of the directors should writing, at the same address.

Summary directors' report

Activities and Business Review requirements of the Code throughout the financial year The group's principal activity is the provision of public except as follows: transport services in the and overseas. õ During the year there was no formally recognised A review of the business for the year ended 30 April 1999, senior independent non-executive director. Barry proposed dividends, recent events, and likely future Sealey was formally appointed senior non-executive developments is contained on pages 2 to 28. director on 14 May 1999. õ Certain UK executive directors have service contracts Directors which are terminable by the group with two years' The names, biographical details and photographs of notice. The Board believe it is in the best interests the directors are shown on page 29. Brian Souter, of shareholders to retain key executive directors. Keith Cochrane and Ewan Brown retire by rotation and being eligible offer themselves for re-election. A full corporate governance statement is contained in the company's 1999 Annual Report and Accounts. Report of the auditors The auditors' report on the full accounts for the year Remuneration report ended 30 April 1999 was unqualified. In line with the Listing Rules of the , which implemented the recommendations of Corporate Governance ^ the Greenbury Committee on Directors' Remuneration and Combined Code statement adopted the Greenbury Committee Code of Best Practice, The group recognises the importance of, and is committed the Board's remuneration report to the shareholders is to, high standards of corporate governance. The Combined contained in the company's 1999 Annual Report and Code on corporate governance was issued by the Hampel Accounts. Committee and the London Stock Exchange in June 1998, and therefore the provisions have not been in effect for Summary details for all directors of individual emoluments the full financial year. The group has complied with the are shown in the following table (amounts in »'000):

Performance Money purchase Non-pensionable Salary/fees related bonus Benefits in kind contributions allowances Total 1999 1998 1999 1998 1999 1998 1999 1998 1999 1998 1999 1998

A Executive directors Brian Souter 400 334 200 200 1 1 50 50 n/a n/a 651 585 Mike Kinski 360 31 218 250 8 Nil n/a n/a 191 Nil 777 281 Keith Cochrane 185 150 60 70 13 13 n/a n/a 20 Nil 278 233 Brian Cox 185 175 51 40 11 11 n/a n/a n/a n/a 247 226 Ann Gloag 85 85 25 20 9 14 50 50 n/a n/a 169 169 Barry Hinkley 200 180 55 60 11 10 n/a n/a n/a n/a 266 250 Sandy Anderson n/a 57 n/a Nil n/a 5 n/a n/a n/a n/a n/a 62 Non-executive directors Ewan Brown 20 17 Nil Nil Nil Nil n/a n/a n/a n/a 20 17 Barry Sealey 35 28 Nil Nil Nil Nil n/a n/a n/a n/a 35 28 Robert Speirs 20 20 Nil Nil Nil Nil n/a n/a n/a n/a 20 20

A Total 1,490 1,077 609 640 53 54 100 100 211 Nil 2,463 1,871

Non-pensionable allowances represent additional taxable remuneration paid to provide pension entitlements which are broadly aligned with those provided to certain other executive directors.

30 STAGECOACH HOLDINGS PLC Auditors' statement to the shareholders

We have examined the summary financial statement on Opinion pages 32 to 34. In our opinion the summary financial statement is consistent with the full financial statements and directors' Respective responsibilities of directors report of Stagecoach Holdings plc for the year ended and auditors 30 April 1999 and complies with the requirements of The summary financial statement is the responsibility of the Companies Act 1985, and the regulations made the directors. It is our responsibility to report to you our thereunder, applicable to summary financial statements. opinion on its preparation and consistency with the full financial statements and directors' report.

Our report on the company's full financial statements Arthur Andersen includes information on the responsibilities of directors Chartered Accountants and Registered Auditors and auditors relating to the preparation and audit of 191 West George Street financial statements and on the basis of our opinion on Glasgow G2 2LB the full financial statements. 30 June 1999

Basis of opinion We conducted our workin accordance with the Auditing Guideline ``The auditor's statement on the summary financial statement'' adopted by the Auditing Practices Board.

STAGECOACH HOLDINGS PLC 31 Summary consolidated profit and loss account

for the year ended 30 April 1999

1999 1998 Restated »m »m

A Turnover: Group and share of joint venture 1,548.4 1,347.0 Less: Share of joint venture turnover (134.9) Nil

A Group turnover 1,413.5 1,347.0

A Continuing operations 1,368.7 1,319.3 Acquisitions during the current year 38.9 Nil

A 1,407.6 1,319.3 Discontinued operations 5.9 27.7

A 1,413.5 1,347.0 Operating costs (including goodwill amortisation »1.8m (1998 ^ »Nil)) (1,248.0) (1,219.2) Other operating income 106.7 99.4 Group overheads (14.9) (10.9)

A Operating profit of group companies 257.3 216.3

A Share of operating profit from interest in joint venture 9.4 Nil Goodwill amortised on joint venture (4.4) Nil Share of operating profit from interest in associate 12.4 Nil

A Total operating profit: group and share of joint venture and associate 274.7 216.3

A Represented by: Continuing group operations 254.9 217.5 Acquisitions of subsidiary operations during the year 3.9 Nil Joint ventures and associates 17.4 Nil

A 276.2 217.5 Discontinued operations (1.5) (1.2)

A Total operating profit: group and share of joint venture and associate 274.7 216.3 Profit on sale of properties ^ continuing operations 0.2 0.3 Loss on disposal of investments in Africa (3.8) (2.9)

A Profit on ordinary activities before interest and taxation 271.1 213.7 Interest payable (net) (61.0) (58.0)

A Profit on ordinary activities before taxation 210.1 155.7 Taxation on profit on ordinary activities (51.8) (42.1)

A Profit on ordinary activities after taxation 158.3 113.6 Minority interests 0.1 (0.1)

A Profit for the financial year 158.4 113.5 Dividends (40.9) (30.0)

A Retained profit for the year 117.5 83.5

A Earnings per share ^ Basic 12.0p 9.5p

A ^ Basic before goodwill amortisation and exceptional items 12.7p 9.6p

A ^ Diluted 11.9p 9.4p

A

32 STAGECOACH HOLDINGS PLC Summary consolidated balance sheet

as at 30 April 1999

1999 1998 Restated »m »m

A Fixed assets Intangible assets 123.5 Nil Tangible assets 1,720.4 1,468.7 Investments ^ Investment in joint venture Goodwill 104.3 Nil Share of gross assets 87.4 Nil Share of gross liabilities (60.4) Nil Shareholder loan notes 20.0 Nil

A 151.3 Nil ^ Investment in associates 108.1 49.8 ^ Other investments 2.5 1.6

A 2,105.8 1,520.1

A

Current Assets Debtors and prepaid charges ^ due within one year 167.0 145.5 ^ due after more than one year 27.6 22.0 Cash at bank and in hand 321.8 163.5

A 516.4 331.0 Creditors: Amounts falling due within one year (706.3) (600.0)

A Net current liabilities (189.9) (269.0)

A Total assets less current liabilities 1,915.9 1,251.1

Creditors: Amounts falling due after more than one year (950.8) (741.7) Provisions for liabilities and charges (234.1) (239.3)

A Net assets 731.0 270.1

A Capital and reserves Equity share capital 6.9 6.1 Share premium account 391.4 509.0 Profit and loss account 325.0 207.4 Revaluation reserve 5.6 5.9 ESOP distribution reserve 2.1 1.5 Other reserves Nil (460.1)

A Shareholders' funds ^ Equity 731.0 269.8 Minority interests ^ Equity Nil 0.3

A Total capital employed 731.0 270.1

A

The summary financial statement on pages 32 to 34 was approved by the Board of Directors on 30 June 1999.

Brian Souter Keith Cochrane Chairman Group Finance Director

STAGECOACH HOLDINGS PLC 33 Summary consolidated cashflow statement

for the year ended 30 April 1999

1999 1998 Restated »m »m

A Net cash inflow from operating activities 452.3 413.4 Dividends from joint venture and associate 3.1 nil

A Returns on investments and servicing of finance Interest paid (82.1) (69.1) Interest element of HP and lease finance (11.4) (10.9) Interest received 36.6 21.9 Eurobond issue costs Nil (0.6)

A Net cash outflow from returns on investments and servicing of finance (56.9) (58.7)

A Taxation (44.3) (47.4)

A Capital expenditure and financial investment Purchase of tangible fixed assets (93.6) (129.9) Maintenance capital expenditure (74.4) (83.0) Sale of tangible fixed assets 22.0 18.6

A Net cash outflow for capital expenditure and financial investment (146.0) (194.3)

A Acquisitions and disposals Acquisition of subsidiaries (203.3) (13.5) Net cash/(overdraft)acquired with subsidiaries 8.8 (4.0) Purchase of goodwill Nil (4.8) Purchase of investments in joint venture and associate (152.6) (67.5) Purchase of other investments (0.1) (0.7) Disposal of subsidiaries net of cash 0.6 2.2

A Net cash outflow from acquisitions and disposals (346.6) (88.3)

A Equity dividends paid (32.3) (22.5)

A Net cash (outflow)/inflow before management of liquid resources and financing (170.7) 2.2

A Financing Issue of Eurobonds Nil 124.1 Sale of tokens 15.6 17.4 Redemption of tokens (14.7) (12.6) Issue of share capital for cash 307.2 0.2 Costs of issuing new shares (5.4) (0.1) Increase/(decrease)in collateral balances 1.3 (7.9) Repayment of loan notes (1.0) (2.7) Increase in overseas borrowings 56.3 7.3 Increase/(decrease)in UK borrowings 65.5 (85.4) Repayments of hire purchase and lease finance (93.5) (68.7)

A Net cash inflow/(outflow)from financing 331.3 (28.4)

A Increase/(decrease)in cash during the year 160.6 (26.2)

A Free cash flow 279.8 224.3

A Free cash flow per share 21.2p 18.7p

A

34 STAGECOACH HOLDINGS PLC Five year financial summary

1999 1998* 1997 1996 1995 »m »m »m »m »m

A Results Total turnover 1,548.4 1,347.0 1,152.8 501.2 337.7 Total operating profit 274.7 216.3 148.0 55.8 39.8 Net interest payable (61.0) (58.0) (44.6) (12.8) (8.4) Profit before tax 210.1 155.7 120.5 43.6 32.6 Tax (51.8) (42.1) (34.6) (11.8) (9.3) Profit attributable to ordinary shareholders 158.4 113.5 85.5 31.0 22.4

A Net assets Fixed assets 2,105.8 1,520.1 1,439.9 356.5 266.2 Net current liabilities (189.9) (269.0) (269.3) (96.9) (71.5) Long term creditors (950.8) (741.7) (684.5) (118.4) (93.6) Provisions (234.1) (239.3) (300.9) (26.9) (17.6)

A Tangible fixed assets Additions 263.1 288.9 110.8 72.0 68.8 Depreciation (186.2) (190.3) (87.2) (27.1) (20.0)

A Cash and debt Cash at bank and in hand and overdrafts 321.8 163.0 181.5 69.7 8.4 Gross debt (1,226.7) (1,001.0) (915.2) (196.6) (126.9) Securitised debt (included within gross debt) (482.7) (420.1) (503.8) Nil Nil Net debt (904.9) (838.0) (733.7) (126.9) (118.5)

A Cash flow Free cash flow 279.8 224.3 172.7 67.7 62.6

A RatiosÀ Basic earnings per share 12.0p 9.5p 7.9p 3.9p 3.2p Dividends per ordinary share 3.0p 2.4p 1.8p 1.3p 1.0p

Free cash flow per ordinary share 21.2p 18.7p 16.0p 8.6p 8.9p

Shares in issue at year endÀ 1,382.5m 1,216.9m 1,198.8m 833.6m 741.3m

A Average number of employees 31,920 32,640 31,418 21,889 17,837

A

*1998 summary information has been restated following adoption of FRS11 and FRS12 and after the elimination of intra-segment turnover. ÀRestated to take account of 5 for 1 share split in October 1998.

Operating profit Capital investment Free cash flow Dividends per ordinary share in » million in » million in » million in pence

STAGECOACH HOLDINGS PLC 35 Shareholder information

Analysis of shareholders as at 30 April 1999

Range of Number of holdings holders % Shares held %

1- 25,000 34,557 97.12 51,836,540 3.75 25,001- 250,000 655 1.84 55,792,145 4.03 250,001- 500,000 110 0.31 39,391,611 2.85 500,001-3,750,000 191 0.54 260,420,500 18.84 Over 3,750,001 66 0.19 975,087,711 70.53

35,579 100 1,382,528,507 100

Classification of Number of shareholders holders % Shares held %

Individuals 30,444 85.57 349,230,260 25.26 Other corporate bodies 124 0.35 6,541,749 0.47 Banks and Nominees 3,938 11.07 963,922,121 69.72 Insurance and assurance companies 8 0.02 18,630,580 1.35 Limited companies 1,057 2.97 41,039,576 2.97 Pension funds 8 0.02 3,164,221 0.23

35,579 100 1,382,528,507 100

Payment of dividends by BACS Stagecoach Individual Savings Accounts Many shareholders have already arranged for The company has appointed Bank of Scotland as dividends to be paid by mandate directly to their an ISA provider and shareholders who would like bank or building society account. The company further information should contact the help desk mandates dividends through the BACS (Bankers' on 0131 442 8271. Automated Clearing Services) system. The benefit to shareholders of the BACS system is that the registrar Low cost share dealing facility posts the taxvouchers directly to them, whilst the The group has set up a low cost execution only dividend is credited on the payment date to the share dealing facility with Stocktrade exclusive to shareholder bank or building society account. Stagecoach shareholders. The commission is 0.6% Shareholders who wish to benefit from this service subject to a »15 minimum. Shareholders who would should request the company's registrar (address like further information should write to Stocktrade, below) to send them a dividend/interest mandate PO Box1076, 10 George Street, Edinburgh EH2 2PZ. form or alternatively complete the mandate form Telephone 0131 529 0101. Stocktrade is a member attached to the next dividend tax voucher they of the London Stock Exchange. receive. Company secretary Company number Registrar and Transfer Office Derek Scott SC 100764 All administrative enquiries relating to shareholdings should, in the first instance, be directed to the Registered office company's registrar and clearly state the Charlotte House shareholder's name and address. Please write to: 20 Charlotte Street Lloyds TSB Registrars Scotland, 117 Dundas Street, Perth PH1 5LL Edinburgh EH3 5ED. Telephone 0870 601 5366. Telephone 01738 442 111

36 STAGECOACH HOLDINGS PLC Advisers

Merchant Bankers Principal Bankers Solicitors Noble Grossart Limited Bank of Scotland Shepherd & Wedderburn WS 48 Queen Street Uberior House Saltire Court Edinburgh EH2 3NH 61Grassmarket 20 Castle Street Edinburgh EH11 2JF Edinburgh EH12ET Stockbrokers Credit Suisse First Boston de Zoete The Royal Bank of Scotland plc Herbert Smith Bevan Limited Drummond House Exchange House 1Cabot Square 1Redheugh Avenue Primrose Street London E14 4QJ Edinburgh EH12 9JN London EC2A 2HS

Auditors Arthur Andersen 191 West George Street Glasgow G2 2LB

Thank you to our staff across the group who contributed to the preparation of this annual review and the report and accounts.

The paper used for this report is manufactured in the UK from 75% post-consumer recycled waste, the remainder being made from virgin pulp from sustainable forests overseas. The manufacturing process is totally chlorine-free.

Design and produced by McKinstrie & Wilde Ltd, Edinburgh. Photography by Nick Wood, Annabel Pretty, Paul Bock and Michael St Maur Sheil. Printed by Pillans and Wilson Greenaway, Edinburgh CHARLOTTE HOUSE 20 CHARLOTTE STREET PERTH PH1 5LL

TELEPHONE 01738 442 111 FACSIMILE 01738 643 648

WEBSITE www.stagecoachplc.com