Stagecoach Group plc

A n n u a l   Re p o r t   2 0 0 6

STAGECOACH GROUP PLC Company No. SC100764

Business highlights

Financial highlights

Results reported under International Financial Reporting Standards (“IFRS”)
accounting policies 
• 11.6% increase in earnings per share, excluding amortisation of intangible

assets and exceptional items

• 42.7% increase in basic earnings per share

Results excluding
intangible asset
amortisation and
exceptional items
2005
2006

Revenue from continuing 
operations, excluding
acquisitions (£m)
Total operating profit (£m)
Profit before taxation (£m)
Earnings per share (pence)
Proposed final dividend (pence) 
Full year dividend (pence) 
Free cash flow (£m) 
Net debt (£m) 

1,530.0
156.6
140.6
10.6p
2.6p
3.7p
175.5
135.9

1,413.4
153.1
131.2
9.5p
2.3p
3.3p
173.6
214.6

Reported results

2006

2005

1,530.0
136.1
115.0
10.7p
2.6p
3.7p
175.5
135.9

1,413.4
132.9
104.9
7.5p
2.3p
3.3p
173.6
214.6

• Strong operational and financial performance across the Group

– Fourth year of successive earnings growth
– Dividend increased by 12.1%
• Innovation driving growth at UK Bus

– 2.1% like for like passenger volume growth excluding London and

megabus.com

– Acquisition of bus operations in Merseyside, Yorkshire, Lincolnshire

and Tayside

– Named UK Bus Operator of the Year

• Excellent performance in UK Rail

– Revenue up 5.7%
– South West Trains operational performance among best in London

and South East

– £66.7m of revenue and profit share payable to DfT
– Shortlisted for South Western rail franchise – innovative and value-for-
money bid to build on record of operational and financial achievement 

– Named Rail Passenger Operator of the Year

• Further growth in North America

– Strong revenue growth – overall US$ revenue from continuing

operations up 11.0%

– Continued margin growth despite significant cost pressures
– Launch of budget inter-city coach service in United States
• Improved performance and revenue growth at Virgin Rail Group
– Good progress on renegotiation of West Coast franchise
• Conditional sale of London bus business agreed for £263.6m

– Bus division strategy to focus on less regulated bus operations outside

London

• Disposal of New Zealand operations resulting in gain of £22.5m
• Appointment of Sir George Mathewson as a non-executive director

Adjusted earnings per share

Dividend per ordinary share

6.3p

6.4p

6.7p

10.6p

9.5p

2.6p

2.6p

2.9p

3.3p

3.7p

2002

2003

2004
Year ended 30 April

2005

2006

2002

2003

2004
Year ended 30 April

2005

2006

Adjusted earnings per share is earnings per share before the amortisation
of intangible assets and exceptional items. 2002 to 2004 are UK GAAP
figures and 2005 and 2006 are IFRS figures.

The Group has faced a number of challenges following its acquisition of
Coach USA in 1999. Management changes were made in 2002, including
Brian Souter’s return to the role of Chief Executive. Since 2002, the
Group’s businesses have been stabilised and management has delivered
significant growth in earnings per share as illustrated above.

The Group seeks to grow the dividend per ordinary share as earnings 
grow. Since the restructuring of the Group commenced in 2002, the
dividend per ordinary share has grown at an average cumulative annual
growth rate of 9.2% and in addition, £241.3m was returned to shareholders
in September 2004.

Contents

2

3

4

18

19

22

Chairman’s statement

Chief Executive’s review

Operating and Financial Review

Directors’ biographies

Directors’ report

Corporate governance report

26

27

27

28

35

Audit Committee report

Nomination Committee report

Health, Safety and Environmental
Committee report

Remuneration Committee report

Group independent auditors’ report

36

95

96

Consolidated financial statements

Company independent auditors’ report

Company financial statements

103 Shareholder information

104 Five year financial summary

Stagecoach Group plc | page 1

1. Chairman’s statement

Stagecoach has achieved another strong set of results as we continue to
deliver shareholder value through our successful organic growth strategy in
our bus and rail operations in the UK and North America. 

progressive dividend growth. The proposed final dividend is payable to
shareholders on the register at 1 September 2006 and will be paid on 4
October 2006.

We have produced further revenue growth in our continuing businesses and
enhanced our reputation for delivering high quality public transport services
through market-leading innovation, effective marketing of our products and
planning for the future through targeted investment. 

During the year ended 30 April 2006, we acquired additional bus operations
in the UK with the prospect of attracting even more passengers to our
services. Our excellent rail performance, both operationally and financially,
has also put us in a strong position when competing for new franchises.

During the year, we completed the disposal of our New Zealand operations
and on 23 June 2006, we agreed the conditional sale of our London bus
business to Macquarie Bank Limited for £263.6m. The London bus business
has been a key part of the Group’s success since 1994 and the sales price
represents an excellent return for our shareholders. The sale is subject to
regulatory approval and other closing conditions, and at the present time,
we expect the sale to be completed within three months. In UK Bus, we will
continue to pursue our successful growth strategy outside London, where
we are leading our peer group in attracting new passengers to public
transport.

Cost pressures, including fuel and insurance, remain a challenge for the
Group, and we are continuing to manage these as part of our overall cost
base. We believe that we have achieved the correct balance of retaining and
growing our customer base, while maintaining a financially robust business. 

The results for the year ended 30 April 2006 are the first full-year results to
be reported in accordance with International Financial Reporting Standards
(“IFRS”) and the comparative amounts for the year ended 30 April 2005
have been restated accordingly. Group revenue for the year ended 30 April
2006 was £1,568.5m (2005: £1,420.5m). Operating profit before
amortisation of intangible assets and exceptional items* was £156.6m
(2005: £153.1m). Earnings per share before amortisation of intangible
assets and exceptional items were up 11.6% at 10.6p (2005: 9.5p), the
fourth year of successive earnings growth following the substantial
restructuring of the Group in 2002.

Given the Board of Directors’ confidence in the future prospects and
financial strength of the Group, we are proposing a final dividend of 2.6p
per share (2005: 2.3p), giving a total dividend for the year of 3.7p (2005:
3.3p). This is an increase of 12.1% and based on continued strong, stable
cash flows and profits within the business, we will look to continue

Stagecoach has made a promising start to the new financial year to 30 April
2007 and the current trading of the Group remains in line with our
expectations. We are confident of achieving our objectives for the year.

At the heart of our strong performance this year have been our employees
across all our operations. Their personal commitment to first-class customer
service is crucial as we pursue our organic growth strategy. I would once
again like to thank all our employees for their continued hard work and
support. 

I would like to welcome to the Group, Sir George Mathewson, who has
joined Stagecoach as a Non-Executive Director. He has a formidable
business background, including substantial experience with major UK-listed
companies.

Graham Eccles retired as an Executive Director of the Group on 30 April
2006. I am very grateful to Graham for his significant contribution to the
Group and to the UK rail industry over many years.

Russell Walls retires by rotation at the next Annual General Meeting due to
be held in August 2006, and he has indicated that he does not intend to
seek re-election. The Group has benefited significantly over the last six years
from Russell’s skills and experience. Russell is the Senior Independent Non-
Executive Director and the Chairman of the Audit Committee. The Board
will determine his successor to each of these roles in due course.

Graham and Russell leave the Group with all our best wishes for the future.

Our Group strategy is driven by innovation and investment, and we will
continue to look for opportunities to increase shareholder value by growing
our bus and rail businesses in the UK and North America. 

Robert Speirs
Chairman

*Exceptional items are defined in note 1 on page 42

page 2 | Stagecoach Group plc

2. Chief Executive’s review

This has been another excellent year for the Group and we have again
achieved our objective of driving growth in our business, both organically
and through targeted acquisitions. Our strong performance and success has
resulted in independent recognition with Stagecoach companies named
Britain’s best bus operator and best rail passenger operator. 

Stagecoach has further enhanced its reputation for innovation in both the
bus and rail passenger transport markets through the development of new
products and new ideas to attract more customers to our services.

The Group has been able to largely offset the significant cost pressures,
particularly in relation to fuel, being experienced by all bus operators,
through its focus on continued revenue growth and close management of
controllable costs. The Group anticipates that these costs pressures will
continue into the financial year to 30 April 2007 and it will remain proactive
in seeking to offset the impact of these costs. 

During the year, we made two key acquisitions in our UK Bus business,
which have expanded our reach in new areas of the country and brought
new opportunities to grow the market for bus travel. The integration of
Glenvale Transport in Merseyside and the Traction Group operations in
Yorkshire, Lincolnshire and Tayside is progressing well.

Our continued investment in new, accessible vehicles and industry-leading
marketing campaigns has resulted in further organic passenger growth in
our UK Bus division. Our telemarketing unit, which has been highly
successful in attracting thousands of new bus users in the UK, has been
expanded this year and we believe this approach can deliver further
impressive results. 

Our market-leading budget inter-city travel service, megabus.com, has again
grown revenue this year, and we are excited by the prospects for our joint
venture with ComfortDelGro to provide inter-city coach services in Scotland.

Stagecoach continues to develop productive partnerships with local
authorities and this approach has produced passenger volume growth at 
our regional UK bus companies. We were the most successful of the major
UK bus operators in our bids for Government-funded Kickstart schemes 
this year.

Since the end of the financial year, we have agreed the sale of our London
bus operations. Stagecoach has been able to buck the national trend and
achieve organic growth in its bus operations both inside and outside
London although we believe there will be more moderate levels of growth
in London in the future. Against that background, our UK Bus division will
focus on less regulated bus operations outside London where we can drive
growth through innovation, investment and strong marketing.

Our UK Rail division continues to perform strongly, combining good
profitability with excellent operational performance and improved customer
satisfaction. 

The current South West Trains and Island Line franchises run until February
2007. Stagecoach is one of four remaining bidders for the new South
Western franchise, which will combine the operations of South West Trains
and Island Line from February 2007. We have transformed the South West
Trains franchise, investing in new trains, driving up punctuality and

improving customer satisfaction. Building on these achievements, we will
submit a powerful, value-for money bid that we believe will put us in a
strong position to win the new franchise.

The two Virgin Rail Group (“VRG”) franchises, West Coast and CrossCountry,
have delivered improved punctuality and customer satisfaction over the last
year. Virgin CrossCountry is carrying a record 20m passengers a year,
following the replacement of the entire train fleet and improved services
and connections. On West Coast, passenger volumes have increased by
nearly 40% in the last eight years and there are plans to run an
unprecedented 20-minute frequency on the key London-Manchester
corridor by 2008.

The renegotiation of the West Coast franchise is a central priority for the
Group and we have been encouraged by the commitment shown by both
VRG’s management and the Department for Transport (“DfT”) to agreeing
revised commercial terms for the period through to 2012. We look forward
to these terms being finalised over the next few months, resulting in a
sustainable agreement in the long-term interests of passengers, taxpayers
and shareholders.

Like the West Coast franchise, Virgin CrossCountry continues to operate on
the basis of annual budgets set by the DfT. Stagecoach intends to bid jointly
with Virgin for the new CrossCountry franchise when the tender process
starts later this year. The new CrossCountry franchise is scheduled to start in
November 2007.

Stagecoach is also excited by the opportunities to grow its rail portfolio and
we will consider bids for the East Midlands and West Midlands operations
when the Government announces its specification for these new franchises.

In North America, we have driven up revenue in our United States and
Canada bus operations by concentrating on operational delivery, marketing
of our core services, small bolt-on acquisitions and winning and retaining
contract business. Despite fuel and insurance cost pressures, we have
maintained our market position and we have achieved particularly
impressive growth in our sightseeing operations where we have made
improved use of online bookings via the Internet.

The tremendous commitment of our employees and managers has been
central to the growth of our business over the past year. I believe that,
despite significant cost pressures, the Group has the potential to achieve
even more in the year ahead.

Brian Souter
Chief Executive

Stagecoach Group plc | page 3

3. Operating and Financial Review

Statement of compliance

3.1
The Operating and Financial Review that follows is intended largely to reflect
the recommendations of the Accounting Standard Board’s 2006 reporting
statement of best practice on the Operating and Financial Review. The
statement has only recently been published and we intend to monitor
developments in best practice with a view to further tailoring our Operating
and Financial Review in the future to enhance its usefulness to readers of the
Annual Report.

Cautionary statement

3.2
The Operating and Financial Review has been prepared for the shareholders
of the Company, as a body, and no other persons. Its purpose is to assist
shareholders of the Company to assess the strategies adopted by the
Company and the potential for those strategies to succeed and for no other
purpose. This Operating and Financial Review contains forward looking
statements that are subject to risk factors associated with, amongst other
things, the economic and business circumstances occurring from time to
time in the countries, sectors and markets in which the Group operates. It is
believed that the expectations reflected in these statements are reasonable
but they may be affected by a wide range of variables which could cause
actual results to differ materially from those currently anticipated. No
assurances can be given that the forward looking statements in this
Operating and Financial Review will be realised. The forward looking
statements reflect the knowledge and information available at the date of
preparation.

3.3 Group business objectives and long- 

term strategy

3.3.1 Business objectives and long-term strategy
The  key  elements  of  Stagecoach  Group’s  business  strategy  to  deliver  long-
term shareholder value are:
• To deliver organic growth across all of the Group’s operations;
• To acquire businesses that are complementary to the Group’s existing

operations, in areas where the Group’s management has proven expertise
and which offer prospective returns on capital in excess of the Group’s
weighted average cost of capital;

• In addition to organic and acquisition growth, to maintain and grow the
Group’s UK Rail division by bidding for selected rail franchises and to seek
to secure new franchises where the risk/return trade-off is acceptable. This
part of the strategy includes working with VRG to secure an acceptable
renegotiated West Coast Trains franchise.

A fundamental objective underlying this strategy is the continued provision
of safe and reliable services to passengers.

Stagecoach Group has demonstrated particular strength in managing bus
and coach businesses that operate scheduled services in a relatively
deregulated environment. The Group’s focus is on operations with critical
mass in their own local markets. In rail, Stagecoach’s skill centres on organic
revenue and passenger volume growth, the management of significant
change projects, the delivery of improved operational performance, and
driving up customer satisfaction.

3.3.2 Key Performance Indicators
The Group uses a wide range of key performance indicators (“KPIs”) across its
various businesses and at a Group level. The most important of these KPIs at a
Group level focus on five key areas:
• Profitability
• Organic growth
• Safety
• Service delivery
• Staff retention

3.3.2.1 Profitability
The Group seeks to increase long-term value to its shareholders. While the
Group aims to take a long-term perspective on shareholder value, it also
monitors the financial performance of each of its businesses in the shorter
term. For the Group as a whole, the key measure of short-term financial 

page 4 | Stagecoach Group plc

performance is earnings per share, before exceptional items and the
amortisation of intangible assets (“Adjusted EPS”). Adjusted EPS is calculated
based on the profit attributable to equity shareholders (adjusted to exclude
exceptional items and the amortisation of intangible assets) divided by the
weighted average number of ordinary shares ranking for dividend during the
relevant period.

Adjusted EPS was as follows:

Adjusted EPS

Year ended 30 April

2006
pence

10.6p

2005
pence

9.5p

Organic growth

3.3.2.2
A key element underpinning the Group’s strategy is to deliver organic growth
in revenue. The following measures of organic growth are monitored in
respect of the Group’s three divisions:
• UK Bus – growth in passenger journeys (excluding London where

Transport for London (“TfL”) receives the passenger revenue) measured as
the percentage increase in the number of passenger journeys relative to
the equivalent period in the previous year.

• Rail – growth in passenger miles measured as the percentage increase in
the number of miles travelled by passengers relative to the equivalent
period in the previous year.

• North America – growth in US$ revenue from continuing operations

measured as the percentage increase in revenue relative to the equivalent
period in the previous year.

The measures vary by division reflecting differences in the underlying
business – for example, not all passenger revenue in North America is
determined on a “per passenger” basis.

All of these growth KPIs involve a degree of estimation in respect of
passenger volumes and are normalised to exclude businesses that have not
been held by the Group for the whole of both periods. The organic growth
KPIs were as follows:

UK Bus passenger journeys
UK Rail passenger miles
– South West Trains
– VRG – West Coast
– VRG – CrossCountry
North America revenue

Year ended 
30 April 2006 
Growth %

2.1%

1.3%
21.3%
4.3%
11.0%

Safety

3.3.2.3
In addition to providing reliable services, we seek to ensure the safety of our
passengers, staff and others.

Health and safety matters are discussed on pages 15 and 16 of this Annual
Report. Safety is monitored in various ways, including through a range of
KPIs. Group level KPIs include the number of passenger injuries per million
miles and staff lost time accidents per 100,000 hours worked.

Disposed businesses are excluded from the safety KPIs.

The safety KPIs were as follows:

Passenger injuries per million miles
Staff lost time accidents per 100,000  
hours worked

Year ended 30 April

2006

2005

1.39

0.83

1.47

0.98

3.3.2.4 Service delivery
We aim to provide a reliable service to support our organic growth strategy.
Our measures of service delivery include:
• UK Bus – lost mileage measured as the percentage of planned miles to be

operated that were not operated.

• Rail – punctuality measured on the basis of the DfT’s Public Performance
Measure (moving annual average) being the percentage of trains that
arrive at their destination within 5 minutes (or 10 minutes for inter-city
services) of their scheduled arrival time having called at all scheduled
stations.

3.4.2 North America
Stagecoach is a major provider of transport services in North America where
the market is highly fragmented with several thousand operators. Our
businesses include commuter services, tour and charter, sightseeing and
school bus operations. 

Due to the nature of the North American business, there is no single measure
of service delivery for the North American division as a whole.

The service delivery KPIs were as follows:

UK Bus lost mileage
UK Rail punctuality

– South West Trains
– VRG – West Coast
– VRG – CrossCountry

Year ended 30 April

2006
%

0.5%

90.0%
84.2%
81.3%

2005
%

0.8%

82.5%
72.5%
77.5%

3.3.2.5 Staff retention
As noted on page 15, the Group’s most important resource is its employees.
We  monitor  staff  turnover  which  is  measured  as  the  number  of  employees
who left the Group (other than through business disposals) during the period
as  a  proportion  of  the  total  average  employees  during  the  period.  Staff
turnover for the last two years was as follows:

UK Bus staff turnover
UK Rail staff turnover
– South West Trains
– VRG

North America staff turnover

Year ended 30 April

2006
%

2005
%

18.1%

22.4%

8.8%
6.2%
21.9%

10.7%
7.7%
24.0%

3.4 Description of the business
Stagecoach Group is a leading international public transportation group, with
extensive operations in the UK, United States and Canada. The Group,
including its London bus operations, employs around 31,000 people, and
operates bus, coach, rail, and tram services. The Group has three main
divisions – UK Bus, UK Rail and North America. 

Stagecoach Group plc is a public limited company that is incorporated,
domiciled and has its registered office in Scotland. Its shares are publicly
traded and it is not under the control of any single shareholder. 

Throughout this Annual Report, Stagecoach Group plc is referred to as “the
Company” and the group headed by it is referred to as “the Group”.

3.4.1 UK Bus
Our UK Bus division connects communities in more than 100 towns and
cities across the country on a network stretching from the Highlands of
Scotland to south-west England. It includes major city bus operations in ,
Liverpool, Newcastle, Hull, Manchester, Oxford, Sheffield and Cambridge. 

Our UK Bus division, including our London bus business, operates a fleet of
more than 8,000 buses across 20 regional companies. Each regional
operating company is managed independently and is led by a Managing
Director, reporting directly to the head of the UK Bus division.

Stagecoach operates express coach services linking major towns within its
regional operating company areas. The Group also runs the market-leading
budget inter-city coach service, megabus.com, which has a network covering
40 locations. 

Our local and express bus services carry around two million passengers a day in
rural and urban areas. Stagecoach’s bus and coach services in the UK are
operated on a commercial basis in a largely deregulated market. We also operate
tendered services, including schools contracts, on behalf of local authorities. In
our London bus business, routes are operated under contract to TfL. 

The United States business is headed by a Chief Operating Officer. Stagecoach
runs  around  2,600  vehicles  in  the  United  States  where  our  operations  are
centred on the states of New York, New Jersey, Pennsylvania, West Virginia,
Ohio, northern Indiana, northern Illinois and southern Wisconsin. Our services
operate in major cities such as New York City, Newark, Pittsburgh, Chicago and
Milwaukee. 

In Canada, we own four operating companies, which together operate
around 500 vehicles in the Provinces of Quebec and Ontario.

3.4.3 UK Rail
Stagecoach  Group  has  major  rail  operations  and  has  an  involvement  in
operating  around  a  quarter  of  the  UK  passenger  rail  network.  The  UK  rail
market is split into a number of separate franchises, which are awarded by the
Government for set time periods to a specification set by the DfT on the basis
of bids by train operators. 

The Group’s principal wholly-owned rail business is South West Trains, the
UK’s biggest commuter franchise, which runs around 1,600 trains a day in
south-west England out of London Waterloo railway station. The Group’s
other franchise is Island Line on the Isle of Wight. Both franchises are
operated under contract until February 2007. We also operate Supertram, a
28km light rail network incorporating three routes in the city of Sheffield, on
a 27-year concession running until 2024.

Stagecoach Group’s rail division is headed by a Chief Executive, who reports
directly to the Group Chief Executive. South West Trains, Island Line and
Supertram each has a Managing Director, who reports to the Chief Executive
of the Group’s rail division, who is also Chairman of South West Trains.

3.4.4 New Zealand
In November 2005, Stagecoach Group sold all of its New Zealand operations
to Infratil Limited, a company listed on the New Zealand Exchange that is a
specialist  investor  in  infrastructure  and  utility  assets.  The  New  Zealand
business operates bus services in the Wellington and Auckland areas of New
Zealand, and ferry services in the Auckland area. The net cash inflow from the
disposal was £97.9m comprising the consideration of £107.0m less disposal
costs of £3.1m and £6.0m of net cash disposed of. The sale resulted in a net
gain on disposal of £22.5m. 

3.4.5 Joint Ventures
3.4.5.1 Virgin Rail Group
Stagecoach Group has a 49% shareholding in Virgin Rail Group (“VRG”), which
operates  the  West  Coast  and  CrossCountry  rail  franchises.  The  other
shareholder in VRG is the Virgin Group of Companies. The Chief Executive of
Stagecoach Group’s Rail division is Joint Chairman of VRG. The joint venture
intends to bid for a new expanded CrossCountry franchise, which is being re-
tendered  by  the  Government  and  will  run  from  November  2007.  The  West
Coast  franchise  runs  until  2012  and  negotiations  are  underway  to  put  the
franchise, currently run on the basis of budgets set annually by the DfT, back
on a commercial basis. Each franchise has a Managing Director, who reports to
the VRG board, which includes Stagecoach Group representatives.

3.4.5.2 Scottish Citylink Coaches Limited
In Scotland, Stagecoach has a joint venture (Scottish Citylink Coaches Limited)
with  transport  group  ComfortDelGro  to  operate  megabus.com  and  Scottish
Citylink coach services. Stagecoach owns 35% of the share capital of Scottish
Citylink Coaches Limited and ComfortDelGro owns the remaining 65%. The
joint  venture  is  the  leading  provider  of  express  coach  services  in  Scotland.
Stagecoach is responsible for the day-to-day operational management of the
business, which is overseen by a joint board.

Stagecoach Group plc | page 5

Operating and Financial Review

3.5

Resources and relationships

Resources

3.5.1
Stagecoach Group has a range of resources that underpin its business and
support its strategy. These assist in giving the Group a competitive advantage
in the markets in which it operates. We continue to invest in the areas listed
below to maintain our position among the market leaders in the public
transportation sector.

Employees

3.5.1.1
Stagecoach Group’s most important resource is its employees. We seek to
recruit and retain the best employees in our sector, offering an excellent
package of benefits, which allows us to deliver good customer service to our
passengers. The Group’s individual divisions invest significantly in the
training and development of our people and we operate a successful
graduate training scheme which provides one source of training the
managers of the future. We also encourage our people to give something
back to their local community and many are regularly involved in fundraising,
payroll giving and in-kind support to a wide range of good causes. Further
information about our commitment to corporate social responsibility is set
out on pages 14 to 17.

3.5.1.2 Market research
An important element of the Group’s success in growing its customer base
lies in a track record of product innovation and new ideas on developing
effective public transport systems. The Group invests significantly each year
in market research. We have a dedicated telemarketing unit in the UK that
communicates with current and non-users to build a detailed profile of what
attracts people to use our services.

3.5.1.3
Corporate reputation, brand strength, and market position
Stagecoach is one of the best known public transport operators in the UK and is
consistently rated highly for the quality of its services in research by Government
and other independent organisations. We value our reputation, both as a public
transport provider and as a key part of the communities in which we operate.
Stagecoach has a strong set of brands that support our strategy of organic
growth in our business and that help maintain our leading market position.

Natural resources and manufacturing technology

3.5.1.4
Operating our bus and rail services requires considerable use of natural
resources, including diesel and electricity. We have arrangements in place
to ensure that these resources are sourced as efficiently as possible and
that our supplies are maintained to ensure the smooth functioning of our
business. A number of experienced manufacturers supply our buses,
coaches, trains and trams, which are produced to detailed specifications
relevant to the individual markets in which they are required. We have
carried out consultation with customer groups to ensure vehicle interiors
meet the needs of our passengers.

3.5.2 Relationships
Stagecoach Group works closely with a range of bodies in each of the
markets where we provide public transport services. Our stakeholders include:

Our People – we have established strong working relationships with trade
unions and work in partnership with them on a range of issues, including
training and development, occupational health matters, pensions and other
employee benefits. We also communicate with our people face to face and
through a number of internal publications.

Investors and the financial community – our shareholders are critical to our
business success. We have a regular programme of meetings with investors
and provide frequent updates to the markets and financial community on
our performance. We are a constituent of the FTSE4Good index, which sets
standards and tracks the performance of the leading socially responsible
companies around the globe.

Customers – millions of people use our services every day, including
commuters, schoolchildren, concessionary fares passengers and leisure
travellers. We conduct extensive customer research to monitor our
performance and to determine how we can improve the delivery and
accessibility of our services.

Customer Interest Groups – our businesses have a regular and ongoing
dialogue with bus and rail user groups. This includes presentations from
senior managers on detailed aspects of our service as well as consultation and
information sharing on particular issues.

Government – senior executives have an ongoing dialogue with national and
local government in all our countries of operation to ensure the effective
delivery of government transport policy and to assist in meeting wider
objectives. In the UK, we work closely with the DfT, the Scottish Executive,
Transport Scotland, the Welsh Assembly, and TfL.

Transport Authorities – we work closely with local authorities, including
Passenger Transport Executives, Regional Transport Committees and Transit
Authorities, in the delivery and planning of bus and rail services. Many of our
businesses have partnership agreements in place to improve the delivery of
public transport in their areas.

Government Advisory Bodies and Lobbying Groups – we also have
constructive dialogue with organisations such as the Commission for
Integrated Transport, which provides advice to the UK Government, and
lobbying groups such as Transport 2000.

Transport and Industry Representation Groups – we are active members of
industry groups, such as the Confederation of Passenger Transport UK
(which covers buses and light rail) and the Association of Train Operating
Companies.

Licences

3.5.1.5
Various licences are held by Stagecoach giving authority to operate our public
transport services and these are maintained up to date as required.

Suppliers – we rely on a range of suppliers to provide goods and services
linked to our bus and rail operations. These include vehicle and rolling stock
manufacturers, fuel suppliers, IT companies and clothing manufacturers.

page 6 | Stagecoach Group plc
page 6 | Stagecoach Group plc

3.6 Overview of financial results
Stagecoach Group has produced an excellent set of results for the year ended 30 April 2006. Revenue from continuing operations (excluding acquisitions
during the year) increased by £116.6m (8.2%) from £1,413.4m to £1,530.0m. Operating profit before exceptional items and intangible asset amortisation has
increased from £153.1m to £156.6m.

Revenue by division (excluding the discontinued New Zealand operations) is summarised below:

REVENUE

2006

2005

2006

2005

Continuing Group operations

UK Bus
North America 
UK Rail

Acquisitions during the year

UK Bus – Glenvale
UK Bus – Traction

Discontinued Group operations

North America 

£m

Currency

Local Currency
(m)

775.7
247.6
506.7

720.3
213.7
479.4

£
US$
£

775.7
439.5
506.7

720.3
396.0
479.4

Growth
%

7.7
11.0
5.7

1,530.0

1,413.4

17.4
21.1

38.5

Nil

Nil

Nil
Nil

Nil

7.1

7.1

£
£

17.4
21.1

Nil
Nil

n/a
n/a

US$

Nil

13.1

(100.0)

Total Group revenue

1,568.5

1,420.5

Operating profit by division (excluding the discontinued New Zealand operations) is summarised below: 

OPERATING PROFIT

2006

2005

2006

2005

% of
revenue

Currency

Local Currency
(m)

12.2%
7.0%
–
10.4%

£
US$
US$
£

88.6
31.5
(1.5)
58.9

87.7
28.7
Nil
50.0

Continuing Group operations

UK Bus
North America – excluding megabus
North America – megabus
UK Rail
Group overheads
Restructuring costs

Acquisitions during the year

UK Bus – Glenvale
UK Bus – Traction

Joint ventures and associates

Virgin Rail Group
Citylink
Other

Total operating profit before intangible asset 
amortisation and exceptional items

Intangible asset amortisation
Exceptional items (net)

Total operating profit

£m

% of
revenue

11.4%
7.1%
n/a
11.6%

88.6
17.7
(0.8)
58.9
(10.0)
(1.5)

152.9

(2.3)
0.4

5.5
0.1
Nil

156.6
(20.5)
Nil

136.1

£m

87.7
15.5
Nil
50.0
(9.0)
(1.4)

142.8

Nil
Nil

10.7
Nil
(0.4)

153.1
(18.8)
(1.4)

132.9

Stagecoach Group plc | page 7
Stagecoach Group plc | page 7

Operating and Financial Review

3.7 Divisional Performance
3.7.1 UK Bus
Revenue in our UK Bus division, excluding acquisitions during the year, has
increased by 7.7% to £775.7m (2005: £720.3m) and operating profit* is up to
£88.6m, compared to £87.7m in the previous year. Operating margin was
11.4% compared to 12.2% in 2005. We are particularly pleased to report that
excluding acquisitions, we have grown operating profit against a background
of significant increases in fuel and other costs. In addition, the acquisitions in
the year contributed £38.5m of revenue and a £1.9m operating loss.

The integration of Traction and Glenvale is progressing well. In Merseyside,
we are focusing on developing strong core services as well as operating
tendered routes on behalf of Merseytravel. We have completed a major
vehicle replacement programme, which has resulted in more than half of the
Glenvale fleet being upgraded. Following the decision by the Office of Fair
Trading not to refer the acquisition of Traction to the Competition
Commission, we have made a number of improvements to integrate the
business into our UK Bus operations. A new integrated bus and tram network
has been launched in Sheffield, delivering cheaper fares and better services to
people in the city.

Investment, innovation and growth
Stagecoach has an excellent track record of operating high-quality bus and
coach services. We have delivered further growth in passenger volumes at our
UK Bus division during the year as a result of our emphasis on new product
development, investment and tailored marketing initiatives. We are
attracting more people out of their cars and on to our public transport
services and total passenger volumes on a like for like basis, excluding
London and megabus.com, were up 2.1%. More than £50m has been spent
in the past 12 months modernising our fleet, delivering more low-floor
accessible buses and a more comfortable travelling environment for
passengers. 

We have expanded the reach of our UK Bus operations with the acquisition of
two significant independent bus businesses in the past year, Glenvale
Transport Limited (“Glenvale”) and Traction Group Limited (“Traction
Group”). As we anticipated at the time we acquired it, Glenvale has incurred
losses as we restructure the operations. Revenue from the date of acquisition
to 30 April 2006 was £17.4m and the operating loss was £2.3m. Traction
Group, which has operations in Yorkshire, Lincolnshire and Tayside,
contributed £21.1m to revenue and made an operating profit of £0.4m in
the period since acquisition to 30 April 2006.

megabus.com, our market-leading inter-city bus service now has a network
of services covering more than 40 locations in the UK. More modern
double-decker coaches and a comprehensive package of press, billboard,
radio and web-based marketing have helped drive further passenger growth.
Around two million passengers have travelled with megabus.com during the
year and we have improved both the average load factor and the average
fare. 

Provincial and city networks
We have achieved further organic passenger growth in our UK Bus division.
Growth in our provincial and city networks has been driven by our focus on
customer profiling research and targeted marketing. Our telemarketing unit
at our headquarters in Perth has been expanded to launch new campaigns in
the UK to encourage non-users to switch to bus travel. These campaigns,
which include the offer of a week’s free travel and focus in particular on
parents and car users, have resulted in significant numbers of non-users
switching to the bus.

Impressive passenger volume growth has been achieved in a number of our
provincial networks, including Newcastle, Sheffield, Basingstoke, Devon,
Thanet, Banbury, Barrow, and Merthyr. We have also achieved further
passenger growth in our flagship operations in Cambridge on the “citi”
branded network, supported by the introduction of real time information on
some services. In Oxford, we have attracted more passengers on our Oxford
Tube high-frequency express coach service to and from London and grown
our market share on this competitive corridor. In Scotland, we have achieved
passenger volume growth of 1.8% in our Western business, which was
named 2005 UK Bus Operator of the Year. 

London
In June 2006, the Group agreed the conditional sale of its London bus
operations to Macquarie Bank Limited. The business operates bus services in
south and south-east London on behalf of TfL. The proceeds are expected to
be around £264m and the sale will result in a consolidated net gain on
disposal of approximately £120.0m.

Partnership
Stagecoach continues to work closely with a range of stakeholders at local
and national level to improve the quality of bus provision for our customers.
Strong partnerships are the key to improving services and delivering value for
money to taxpayers, a view that has been endorsed by the Government. We
welcome the DfT’s review of competition arrangements to make it easier to
achieve sensible co-operation between operators on timetables and fares
where this is in customers’ interests. In Scotland and Wales, we continue to
work with the devolved administrations to successfully deliver the
concessionary fares schemes. We welcome the recent commitment by the
Government to introduce a national free travel scheme for the elderly in
England from 2008. Our bus companies are also looking forward to building
relationships with Transport Scotland, the new National Transport Agency
for Scotland, and the regional transport partnerships. Stagecoach is working
with a number of local authorities on smartcard, multi-operator ticketing
schemes and real time information, in places such as Manchester, Cambridge
and south-west England, to make travel easier for passengers. Several of our
companies also have close links with businesses and educational
establishments to encourage travel by public transport.

Park and ride 
We believe there is significant potential to develop park and ride around the
UK as a solution to the problem of increasing congestion. Stagecoach is a
partner with local authorities in a number of major park and ride sites where
there has been significant growth. In November 2005, as part of our dynamic
bus strategy for Manchester, we unveiled proposals for a series of park and
ride sites at key interchanges on the M60 motorway to help cut city centre
congestion and promote bus use. Stagecoach is also investigating the
potential of “commercial” park and ride operations around the UK, where the
operator would also buy and manage the facility, drawing on experience in
the United States.

Kick Start
Stagecoach was the most successful large bus operator in the UK in the latest
round of funding allocations from the DfT for Kickstart schemes to fund new
bus services. More than 40% of the funding available was allocated to
Stagecoach partnership schemes, which was a reflection of our success in
using this model to generate organic passenger growth. We are also
operating a number of Bus Route Development Grant schemes with support
from the Scottish Executive and other initiatives backed by the devolved
administration in Wales.  

*References to the operating profit/loss or operating margin of a particular business throughout the Operating and Financial Review mean operating
profit/loss (or operating margin) before amortisation of intangible assets, exceptional items and restructuring costs.

page 8 | Stagecoach Group plc

3.7.2 North America
North American trading continues to be encouraging, despite ongoing cost
pressures in relation to fuel and insurance. Cost pressures have resulted in the
closure of a number of smaller competitors and in some areas we have been
able to absorb the additional customer base.

In March 2006, we launched our budget coach operation, megabus.com, in
the United States. Passengers can travel on daily non-stop express coach
services between Chicago and other Midwest cities from as low as US$1.

Revenue from North America for the year ended 30 April 2006 was
US$439.5m (2005: US$409.1m). On a like for like basis, revenue was up by
9.7%. Operating profit excluding megabus was US$31.5m (2005: US$28.7m),
resulting in an operating margin of 7.2%, compared to 7.0% the previous year.
Converted to sterling, revenue for the year was £247.6m (2005: £220.8m).
Operating profit excluding megabus for the year was £17.7m (2005: £15.5m),
and the operating loss of megabus in North America was £0.8m (2005: £Nil),
including marketing and other start-up costs.

We continue to experience strong revenue growth in our highly successful
sightseeing businesses. The growth has been helped by the introduction of
new double-decker buses and improved tours and marketing. 

We have also seen further revenue growth in our express, commuter and
scheduled airport services. 

We have achieved a 100% contract retention rate in the past year and have
been awarded a number of new contracts in our Chicago, Wisconsin and
Pittsburgh businesses, while our Chicago tour operations have expanded
services.

Student transportation services in Wisconsin have continued to grow and we
have expanded in the state through the acquisition of a 30-school bus
contract. 

Charter revenues are up year on year and forward bookings are ahead of the
same period last year, assisted by improved online booking capabilities
through our redesigned Coach USA website. We have made a small bolt-on
acquisition of a charter business in southern Pennsylvania. During the year,
we closed some small under-performing charter locations in western New
York State and reduced our casino services.

In Canada, revenue has grown by more than 25% despite a very competitive
environment. Significant new contracts have been secured with the Greater
Toronto Airports Authority and strong growth has also been achieved in
transit contracts.

3.7.3 UK Rail
The Group’s rail division has had another excellent year, with continued
growth in revenue, including strong season ticket sales.

Revenue from our UK Rail subsidiaries for the year ended 30 April 2006 was
up by 5.7% to £506.7m (2005: £479.4m). Operating profit increased to
£58.9m (2005: £50.0m), with an operating margin of 11.6% (2005: 10.4%).
Revenue was adversely affected by the terrorist attacks in London in July
2005, particularly revenue from off-peak travel. The impact on profit was less
significant due to the revenue and profit share arrangements that South
West Trains has with the DfT.

The reported operating profit is are after deducting £66.7m (2005: £46.0m)
of amounts payable to the DfT under the revenue and profit sharing
arrangements at South West Trains.

Rail bid costs of £11.7m (2005: £3.0m) were expensed during the year ended
30 April 2006 in arriving at the UK Rail operating profit of £58.9m (2005:
£50.0m). These were principally in relation to the ongoing work on the bid
for the South Western franchise and the unsuccessful bids on the Greater
Western, Great Northern/Thameslink and Integrated Kent franchises.

South West Trains
South West Trains was named Passenger Operator of the Year and Rail
Business of the Year within the past 12 months, reflecting our commitment to
excellence. Recent operational performance at what is arguably the UK’s
biggest and most complex franchise is amongst the best achieved by train
operating companies in London and the South East, with 90% of trains
arriving on time (punctuality measured on the basis of the DfT’s Passenger
Performance Measure – see section 3.3.2.4 for the definition of this measure).

Providing a clean, safe, punctual and reliable service has resulted in the
highest ever overall passenger satisfaction ratings achieved to date at South
West Trains, jumping from 78% last spring to 83% in Spring 2006 (measured
as the percentage of passengers surveyed who were satisfied with their
overall journey experience). 

In the last year, together with third parties, we have invested more than £7m
in station refurbishments and security enhancements across the South West
Trains’ network.

megatrain.com, our budget rail service offering seats on off-peak services
from just £1 plus booking fee, has attracted 50,000 passengers since we
launched the first two trial routes in November 2005. The service has
proved extremely successful in making the most efficient use of the
capacity on the rail network. megatrain.com was extended to seven
additional locations on the South West Trains network in April 2006,
offering 5,000 cheap seats a week, and since June 2006, megatrain.com
has started selling tickets on more than a fifth of all Virgin CrossCountry
services. We are in discussions with the DfT about making the
megatrain.com pilot project permanent.

South West Trains continues to work hard to maximise capacity on the
network. We have entered into a lease for a further 17 Desiro class 450 trains,
which will provide an extra 4,500 seats during peak times, and all units are
expected to be in passenger service by the end of the franchise. Agreement
has also been reached to lease nine three-car Class 158 trains to replace
existing two-car trains on the West of England line, with the first of these
expected to enter service in October 2006.

The £67m refurbishment of the Class 455 fleet operating on suburban routes
is progressing well. The partnership project with the DfT, TfL, Porterbrook
and Bombardier is expected to be completed by Spring 2008, delivering
improved reliability and better passenger circulation due to the revised
internal layout of the units. 

Island Line
Island line became the first rail operation in the UK to be designated as a
Community Rail route by the DfT in March 2006. Designation changes the
approach to running the line, with greater emphasis on local management
and meeting local needs. Various initiatives have been and are being
implemented on this line, including additional car parking and a park and ride
scheme. Separately, Island Line is being assisted by South West Trains on a
project to modernise its ticketing machines.

Supertram
Passenger volumes at Sheffield Supertram continue to grow and the tram
operation is now carrying a record 13 million people a year. A major three-
year project has been launched to refresh the livery and interiors of the 25-
strong tram fleet and the first of the improved vehicles entered service in
January 2006. The programme will improve comfort and accessibility for
passengers, as well as help to maintain the fleet’s high standard of
reliability. Stagecoach launched a new integrated tram and bus network in
Sheffield in May 2006, offering joint tram and bus ticketing. Further
marketing activity has focused on students and an improved website. 

Rail franchising opportunities
Stagecoach is delighted to have been shortlisted for the new South Western
franchise, which runs from February 2007 and is made up of the current
South West Trains and Island Line networks. We believe our record of
achievement at South West Trains will enhance the Group’s bid for the new
franchise. Passengers are benefiting from record investment in new trains,
consistently high operational performance, as well as innovation with new
ideas such as our budget train service, megatrain.com. We are delivering for
passengers, taxpayers and our shareholders, and we will be submitting
innovative and competitive proposals to the Government by 30 June. A final
decision is expected from Government in Autumn 2006.

We were disappointed that our bids for the Thameslink/Great Northern and
Greater Western franchises and our joint bid with DSB for the Integrated Kent
franchise were unsuccessful. However, we will continue to bid for future rail
franchises on what we believe to be an acceptable risk profile, offering good
value for both the Government and our shareholders. We are excited by the
opportunities to grow our rail portfolio, which include the new East Midlands
and West Midlands franchises. Stagecoach also plans to bid jointly with Virgin
for the new CrossCountry franchise when it is tendered later this year. All
three of these new franchises are expected to commence in November 2007.

Stagecoach Group plc | page 9

Operating and Financial Review

3.7.4 New Zealand
The results of the discontinued New Zealand division are included within the
profit for the year from discontinued operations line on the face of the
income statement with the prior year comparative results also reclassified to
this line. The disposed New Zealand operations contributed profit after
taxation of £4.3m (2005: £7.3m) to the overall Group profit. The disposal of
New Zealand also resulted in a gain of £22.5m in the current year.

3.7.5 Joint Ventures
3.7.5.1 Virgin Rail Group
Our share of VRG’s revenue for the 12-month period amounted to £357.4m
(2005: £315.2m) and our share of profit after finance income and taxation
was £5.5m (2005: £10.7m). Of this, operating profit was £5.3m (2005:
£14.2m), net finance income was £1.7m (2005: £1.7m) and the net tax
charge was £1.5m (2005: £5.2m). 

Both of VRG’s franchises currently operate on the basis of annual budgets
set by the DfT whereby the franchises earn a specified profit before tax
margin. VRG’s negotiations with the Government over new commercial
terms for the West Coast franchise that extends through to 2012 are
progressing well and we look forward to an agreement being reached later
this year. Our objective is to secure an arrangement which is sustainable and
in the long-term interests of passengers, taxpayers and shareholders. 

In our announcement of our interim results for the six months ended 31
October 2005, we explained that the results included the benefit of
additional financial support that VRG expected to receive from the DfT. We
are pleased to report that VRG and the DfT have now agreed the total
financial support for VRG’s financial year to 4 March 2006 and the DfT has
now paid this in full to VRG.

Passenger numbers are continuing to grow on West Coast, with annual
journeys now approaching 19 million – an increase of 20% on the previous
year. Revenue has also increased significantly as the improved performance
of the Pendolino trains continue to generate new traffic. VRG has been
particularly successful in competing with the airlines on the key
London–Manchester route. Over the last two years, rail’s share of the
combined rail/airline market has increased from one third to around two
thirds on that route. Customer service has also improved and, in the latest
National Passenger Survey (Spring 2006), 90% of passengers were satisfied
with their overall journey experience.

The Virgin CrossCountry franchise has grown passenger journeys by 7% over
the past year and now carries in excess of 20 million passengers a year.
Customer satisfation has been further improved and in the latest National
Passenger Survey (Spring 2006), 84% of passengers were satisfied with their
overall journey experience. 

The Government announced in October 2005 that a new CrossCountry
franchise would be created by incorporating the current Central Trains inter-
regional routes into the existing CrossCountry network. As part of the re-
mapping process, the DfT also announced its decision to re-let the
CrossCountry franchise and the pre-qualification process is expected to
begin in the summer of 2006. Stagecoach and Virgin plan to submit a joint
bid for the franchise through VRG. Based on its strong track record of
passenger growth and performance improvements, we believe VRG will be
well placed to win any tender for the new CrossCountry franchise.

Scottish Citylink Coaches Limited

3.7.5.2
We are excited by the prospects for our joint venture with ComfortDelGro to
operate inter-city coach services in Scotland, which we believe can compete
strongly with existing rail services and attract car users to public transport.

Our share of Scottish Citylink Coaches Limited’s (“Citylink”) revenue from
the inception of the joint venture in September 2005 to 30 April 2006
amounted to £3.8m and our share of operating profit was £0.1m. The
business is seasonally strongest over the Summer and therefore these
results do not reflect the most profitable part of the year.

The Office of Fair Trading decided in March 2006 to refer the Citylink joint
venture to the Competition Commission. While we were surprised and

disappointed at this decision, we are assisting the Commission with its
enquiries and have had positive discussions to date. We are confident that
the Commission will realise the main competition to the coach is the car
and inter-city rail services and that the joint venture can deliver the biggest
improvement to inter-city coach services in Scotland in years.

3.8 Other financial matters
3.8.1 Depreciation and amortisation
Earnings before interest, taxation, depreciation, intangible asset amortisation
and exceptional items from continuing businesses (pre-exceptional EBITDA)
amounted to £225.1m (2005: £219.4m) and is analysed in note 2(f) to the
consolidated financial statements. Total depreciation for the year was £68.7m
(2005: £62.8m). Amortisation of intangible assets increased from £18.8m to
£20.5m. This principally reflects the charge in relation to new intangibles
acquired this year coupled with the full year effect of the charge in relation to
intangibles acquired during the course of last year partly offset by the decrease
in the goodwill charge for VRG which totalled £13.1m (2005: £14.7m).

During the year ended 30 April 2005, the Directors reviewed the period over
which the goodwill in respect of VRG was being expensed, in light of the
status of negotiations on VRG’s franchises. As a result, it was decided that the
expensing of goodwill in respect of VRG should be accelerated. This led to an
increased charge in the six months to 30 April 2005 and the six months to 31
October 2005 with goodwill charges in the six months to 30 April 2006
reducing as a result of this previous acceleration. Although IFRS 3 ‘Business
Combinations’ does not generally allow the amortisation of goodwill, the
West Coast and CrossCountry train franchises that VRG operates have finite
lives therefore the goodwill is charged to the income statement in line with
the remaining term of these franchises.

Amortisation of £2.9m (2005: £2.9m) was charged on the intangible asset
that arises from the Group’s right to operate its rail franchises, £2.0m (2005:
£1.1m) was charged in relation to non-compete contracts, £2.4m (2005:
£Nil) was charged in relation to customer contracts acquired as part of
business combinations and £0.1m (2005: £0.1m) was charged in relation to
software costs.

3.8.2 Exceptional items
The definition of exceptional items is contained within note 1 to the
consolidated financial statements on page 42.

A net exceptional gain before tax of £17.4m (2005: loss of £7.5m) was
recorded. This comprised a gain on the sale of the New Zealand division of
£22.5m, a net loss in respect of other disposed and closed operations of
£7.0m, a gain on sale of other investments of £1.1m and a gain on the sale
of properties of £0.8m. 

A tax credit of £2.8m (2005: £1.6m) was recognised in respect of exceptional
items resulting in net exceptional gains after tax of £20.2m (2005: loss of
£5.9m).

3.8.3 Net finance costs 
Net  finance  costs  decreased  from  £21.9m  to  £16.0m  as  a  result  of  a  lower
average net debt during the year. The ratio of pre-exceptional EBITDA from
continuing businesses to net finance charges was 14.1 times compared to 10.0
times in 2005, reflecting the reduced finance costs.

3.8.4 Taxation
The tax charge and the effective tax rate for the year is analysed in the table on
page 11.

Including the tax charge that is presented as a component of the share of
profit from joint ventures but excluding any tax in relation to discontinued
operations, the tax charge for the year of £27.9m (2005: £30.5m)
represented an effective tax rate of 23.9% (2005: 27.7%). The equivalent
effective tax rate before the amortisation of intangible assets and exceptional
items was 23.2% (2005: 24.3%).

page 10 | Stagecoach Group plc

TAXATION

Excluding intangible asset amortisation and exceptional items
– Before joint ventures
– Joint ventures

Intangible asset amortisation
Exceptional items

Joint venture tax

Pre-tax
profit
£m

135.0
7.1

142.1
(20.5)
(5.1)

116.5
(1.5)

2006

Tax
£m

Effective
Rate
%

Pre-tax
profit
£m

(31.4) 23.3%
(1.5) 21.1%

(32.9) 23.2%

2.2
2.8

(27.9) 23.9%

1.5

120.5
15.9

136.4
(18.8)
(7.5)

110.1
(5.2)

104.9

2005

Tax
£m

(28.0)
(5.2)

(33.2)
1.1
1.6

(30.5)
5.2

(25.3)

Effective
Rate
%

23.2%
32.7%

24.3%

27.7%

Reported in income statement

115.0

(26.4)

The above table excludes the profit and tax in respect of discontinued New Zealand operations.

Earnings and dividends

3.8.5
Overall earnings per share before intangible asset amortisation and
exceptional items increased by 11.6% to 10.6 pence, compared to 9.5 pence
in 2005, reflecting the strong trading performance. Basic earnings per share
(taking account of all exceptional items and intangible asset amortisation)
were 10.7 pence (2005: 7.5 pence).

3.8.7 Shares in issue
The weighted average number of ordinary shares during the year used to
calculate basic earnings per share was 1,075.8m (2005: 1,154.5m). The
number of shares ranking for dividend at 30 April 2006 was 1,088.3m (2005:
1,063.0m), with a further 5.3m (2005: 6.5m) of ordinary shares held by
employee trusts and not ranking for dividend.

Dividend cover (before intangible asset amortisation and exceptional items)
was 3.1 times (2005: 3.0 times). The total proposed dividend in respect of
ordinary shares for the year is 3.7 pence (2005: 3.3 pence). 

The Group has authority to repurchase 107,675,827 ordinary shares. This
authority expires at the 2006 AGM and shareholders will be asked to renew
the general authority to repurchase up to 10% of the issued ordinary share
capital.

3.8.6 Liquidity
The Group has complied with all of its banking covenants throughout the
financial year. The Group is subject to certain market standard banking
covenants which include a limit on the level of net debt compared to
EBITDA.

As at 30 April 2006, the Group’s committed credit facilities were £644.3m
(2005: £688.8m), £295.1m (2005: £327.4m) of which were utilised,
including utilisation for the issuance of bank guarantees, bonds and letters of
credit. These facilities include £375.0m of bank facilities maturing in 2009.

The Group’s liquidity position improved during the year following the cash
received in relation to the disposal of the New Zealand division offset by the
cash cost of the acquisitions of Glenvale and Traction.

Although there is an element of seasonality in the Group’s bus and rail
operations, the overall impact of seasonality on working capital and liquidity
is not considered significant.

The rail operations maintain cash balances to meet working capital
requirements and the franchise agreement restrict the transfer of this cash:
unless DfT consent is obtained, cash can only be transferred by loan or
dividend to the extent that the relevant train operating company has
distributable profits.

Had the Group’s rail franchises ended on the balance sheet date, consolidated
net debt would have increased by £122.7m (2005: £95.2m) as a result of
train operating company cash of £89.2m (2005: £61.3m) and the repayment
of inter-company loans of £36.7m (2005: £35.1m) offset by distributable
reserves of £3.2m (2005: £1.2m).

£33.0m (2005: £33.5m) of cash is held as collateral against a bank guarantee
issued in relation to £37.7m (2005: £38.3m) of the Group’s loan note
holders and £0.8m (2005: £0.8m) is held in relation to North America
restricted cash balances.

The Group is able to meet current and future funding requirements through
free cash flow and available committed facilities. In addition, the Group has
an investment grade rating which should allow it access at short notice to
additional bank and capital markets debt funding.

3.8.8 Net assets
Net assets at 30 April 2006 were £211.6m (2005: £115.4m) with the
increase principally reflecting the strong reported profit for the year 
of £115.4m, which includes the gain on sale of the Group’s New Zealand
division.

3.8.9 Retirement benefit obligations
The reported net assets of £211.6m (2005: £115.4m) are after taking
account of retirement benefit obligations of £222.2m (2005: £220.9m) and
related deferred tax assets. The overall increase in these obligations of £1.3m
includes net obligations of £21.5m in respect of the defined benefit pension
schemes of companies acquired during the year. Excluding the impact of
these acquisitions, the retirement benefit obligations fell by £20.2m during
the year.

Of the total retirement benefit obligations, £176.3m (2005: £160.3m) relates
to the Stagecoach Group Pension Scheme (“SGPS”). The Group will make
additional pension contributions prior to the planned sale of its London bus
operations, which will reduce retirement benefit obligations by approximately
£60.0m.

3.8.10 Cash flows
The strong cash generative nature of the Group is once again highlighted by
free cash flow of £175.5m (2005: £173.6m). Net cash outflows from
investing activities were £9.9m (2005: £50.8m), including £104.4m (2005:
£14.7m) of cash inflows from the disposal of subsidiaries and other
businesses, which for the year ended 30 April 2006 primarily related to the
disposal of our New Zealand division.

Stagecoach Group plc | page 11

Operating and Financial Review

3.8.11 Net debt
IFRS does not explicitly define net debt. The Group will therefore continue to
use the UK GAAP definition of net debt.

period from 1 May 2005 to the date of disposal, and was included within
“profit for the year from discontinued operations” in the consolidated
income statement.

Net debt decreased from £214.6m at 30 April 2005 to £135.9m at 30 April
2006. This decrease reflects the benefit of ongoing cash generation from our
core operations coupled with the disposal of the New Zealand division.
Offsetting this is the redemption of the remaining redeemable ‘B’ preference
shares of £13.9m and the £48.6m impact from acquisitions of subsidiaries.

The impact of purchases of property, plant and equipment (excluding those
acquired as part of business combinations) for the year on net debt was
£102.6m (2005: £99.7m). This primarily related to expenditure on passenger
service vehicles, and comprised cash outflows of £91.9m (2005: £73.5m) and
new hire purchase debt of £10.7m (2005: £26.2m).

3.8.12 Capital Expenditure
Additions to property, plant and equipment (excluding those acquired as part
of business combinations) for the year were:

UK Bus
North America
UK Rail
Discontinued operations

2006

2005

£m

£m

73.2
25.5
1.9
3.2

51.4
33.8
7.5
10.8

103.8

103.5

The differences between the amounts shown above and the impact of capital
expenditure on net debt arose from movements in fixed asset deposits and
creditors.

Capital expenditure in the year ending 30 April 2007 is anticipated to be of
an amount similar to that reported above. Capital expenditure in the longer-
term is expected to moderate but to remain in excess of depreciation.

3.8.13 Acquisitions and disposals
The Group acquired the entire share capital of Glenvale on 12 July 2005. The
consideration paid for the shares was £3.4m in cash and the Group assumed
the net debt of Glenvale at acquisition totalling £7.8m. The fair value of the
net liabilities acquired totalled £6.4m (including the £7.8m of assumed net
debt) resulting in goodwill of £9.8m. In the period from acquisition to 30
April 2006, Glenvale contributed £17.4m to revenue and made an operating
loss of £2.3m.

On 12 September 2005, the Group acquired 35% of the share capital of
Citylink in return for transferring certain rights to the Motorvator and
megabus.com operations in Scotland. Stagecoach accounts for its
investment in the combined business as a joint venture. In the period from
creation to 30 April 2006, the joint venture made a £0.1m contribution to
the Group’s operating profit.

On 14 December 2005, the Group acquired the entire share capital of
Traction. The consideration paid for the shares was £26.0m, which was
satisfied by £21.5m in cash and the issue of 4,022,070 Stagecoach ordinary
shares of 12/19th pence each. Stagecoach has assumed Traction’s net debt of
£11.0m. The fair value of the net assets acquired totalled £17.8m (including the
£11.0m of assumed net debt) and acquisition costs of £0.4m were incurred
resulting in goodwill of £8.6m. In the period from acquisition to 30 April 2006,
Traction contributed £21.1m to revenue and made an operating profit of
£0.4m.

On 29 November 2005, the Group disposed of its entire New Zealand
operations to Infratil Limited, a company listed on the New Zealand
Exchange that is a specialist investor in infrastructure and utility assets. The
net cash inflow from the disposal was £97.9m comprising the consideration
of £107.0m less disposal costs of £3.1m and £6.0m of net cash disposed of.
After transaction costs and the impact of the Group’s foreign exchange
hedges, the disposal resulted in a gain of £22.5m. Operating profit of £5.5m
(2005: £8.7m) was reported in respect of the New Zealand division in the

page 12 | Stagecoach Group plc

3.8.14 Capital
The Group regards its capital as comprising its equity, cash, borrowings and
any similar items. As at 30 April 2006, the Group’s capital comprised:

2006

2005

£m

£m

Market value of ordinary shares in issue

1,183.8

1,101.6

Cash
Borrowings

198.5
(334.4)

140.0
(354.6)

Net debt (see section 3.8.11)

(135.9)

(214.6)

The Group manages its capital centrally and its objective in managing capital
is to optimise the returns to its shareholders whilst safeguarding the Group’s
ability to continue as a going concern and as such its ability to continue to
generate returns for its shareholders. The Group also takes account of the
interests of other stakeholders when making decisions on its capital structure.

The capital structure of the Group is kept under regular review and will be
adjusted from time to time to take account of changes in the size or
structure of the Group, economic developments and other changes in the
Group’s risk profile. The Group will adjust its capital structure from time to
time by any of the following: issue of new shares, dividends, return of capital
to shareholders and borrowing/repayment of debt. There are a number of
factors that the Group considers in evaluating capital structure, including the
likely funding requirements for retirement benefit obligations and
maintaining the Group's investment grade credit rating. The principal ratios
that the Directors consider are (1) Net Debt to EBITDA, (2) EBITDA to
interest and (3) Net Debt to market capitalisation. It is a matter of judgement
as to what the optimal levels are for these ratios. 

3.8.15 Treasury policies and objectives
Risk management is carried out by a central treasury department (“Group
Treasury”) under policies approved by the Board. Group Treasury identifies,
evaluates and hedges financial risks in close co-operation with the Group’s
operating units. The Board provides written principles for overall risk
management, as well as written policies covering specific areas, such as
foreign exchange risk, interest rate risk, credit risk, use of derivative financial
instruments and investing excess liquidity.

Treasury risk management
For details of the Group’s treasury risk management see note 27 to the
consolidated financial statements.

Liquidity and funding 
The policy is to finance the Group through a mixture of bank, lease and hire
purchase debt, capital markets issues and cash generated by the business.

Fuel hedging
For details of the Group’s fuel hedging see note 27 to the consolidated
financial statements.

Currency rate risk
For details of how the Group manages currency rate risk see note 27 to the
consolidated financial statements.

Credit risk
For details of how the Group controls credit risk see note 27 to the
consolidated financial statements.

Major financing transactions
During the year the Group entered into various hire purchase and 
finance lease arrangements as described in note 31 to the consolidated
financial statements.

Interest rate risk management
For details of how the Group manages interest rate risk see note 27 to the
consolidated financial statements.

3.8.16 Critical accounting policies
The Group’s material accounting policies are set out in note 1 to the
consolidated financial statements. 

Preparation of the consolidated financial statements in accordance with IFRS
requires directors to make estimates and assumptions that affect the
reported amounts in the consolidated financial statements and
accompanying notes. Actual outcomes could differ from those estimated.

The Directors believe that the accounting policies discussed below represent
those accounting policies that require the greatest exercise of judgement.
The Directors have used their best judgement in determining the estimates
and assumptions used in these areas but a different set of judgements could
result in material changes to our reported results. The discussion below
should be read in conjunction with the full statement of accounting policies.

Goodwill and impairment
In certain circumstances, IFRS requires property, plant and equipment,
intangible assets and goodwill to be reviewed for impairment. When a review
for impairment is conducted, the recoverable amount is assessed by reference
to the net present value of the expected future cash flows of the relevant
cash-generating unit (“CGU”) or net realisable value, if higher. The discount
rate applied in determining the present value of future cash flows is based on
the Group’s estimated weighted average cost of capital with appropriate
adjustments made to reflect the specific risks associated with the CGU.
Estimates of cash flows are consistent with management’s plans and
forecasts. The estimation of future cash flows and the discount rate involves
a significant degree of judgement. Actual results can differ from those
assumed and there can be no absolute assurance that the assumptions used
will hold true.

Insurance
The Group receives claims in respect of traffic incidents and employee
incidents. The Group protects against the cost of such claims through third
party insurance policies. An element of the claims is not insured as a result of
the “excess” or “deductible” on insurance policies. Provision is made for the
estimated cost to the Group (net of insurance recoveries) to settle claims for
incidents occurring prior to the balance sheet date. The estimation of the
balance sheet insurance provisions is based on an assessment of the expected
settlement on known claims together with an estimate of settlements that
will be made in respect of incidents occurring prior to the balance sheet date
but for which claims have not been reported to the Group. The eventual
settlements on such claims may differ from the amounts provided for at the
balance sheet date. This is of greater risk in “younger” operations with a
shorter claims history from which to make informed estimates of provisions.

Taxation 
The Group’s tax charge is based on the pre-tax profit for the year and tax
rates in force. Estimation of the tax charge requires an assessment to be
made of the potential tax consequences of certain items that will only be
resolved when agreed by the relevant tax authorities. Assessment of the likely
outcome is based on historical experience, professional advice from external
advisors, and the current status of any judgemental issues. However, the final
tax cost to the Group may differ from the estimates.

Pensions
The determination of the Group’s pension benefit obligation and expense for
defined benefit pension plans is dependent on the selection by the Directors
of certain assumptions used by actuaries in calculating such amounts. Those

assumptions are described in note 26 to the consolidated financial
statements and include among others, the discount rate, expected long-term
rate of return on plan assets and annual rate of increase in future salary levels. A
portion of the plan assets is invested in equity securities. Equity markets have
experienced volatility, which has affected the value of the pension plan assets.
This volatility may make it difficult to estimate the long-term rate of return on
plan assets. The Directors’ assumptions are based on actual historical
experience and external data. While we believe that the assumptions are
appropriate, significant differences in actual experience or significant changes in
assumptions may materially affect the pension obligation and future expense.

Property, plant and equipment
Property, plant and equipment, other than land, are depreciated on a
straight-line basis to write off the cost or valuation less estimated residual
value of each asset over their estimated useful lives. Useful lives are estimated
based on a number of factors, including the expected usage of the asset,
expected deterioration and technological obsolescence. If another
depreciation method (for example, reducing balance) was used or different
useful lives were applied, this could have a material effect on the Group’s
depreciation charge and net profit.

3.9 Current trading and outlook
The current financial year to 30 April 2007 has started well and trading is in
line with our expectations.There are a number of exciting opportunities
across the Group and we are confident of achieving our objectives for the
year.

3.10 Principal risks and uncertainties
Like most businesses, there are a range of risks and uncertainties facing the
Group and the matters described below are not intended to be an exhaustive
list of all possible risks and uncertainties.

Generally, the Group is subject to risk factors both internal and external to its
businesses. External risks include global political and economic conditions,
competitive developments, supply interruption, regulatory changes, foreign
exchange, materials and consumables (including fuel) prices, pensions
funding, environmental risks, strikes and litigation. Internal risks include risks
related to capital expenditure, acquisitions, regulatory compliance and failure
of internal controls. Details of risk management procedures are given on
pages 24 and 25. 

The focus below is on those specific risks and uncertainties that the Directors
believe could have the most significant impact on the Group’s long-term
performance.

3.10.1 Sustainability of rail profits
A significant element of the Group’s revenues and profits are generated by
UK rail franchises. There is a risk that the Group’s revenues and profits could
be significantly affected (either positively or negatively) as a result of the
Group winning new franchises or failing to retain its existing franchises.

In particular, the Group operates the South West Trains and Island Line
franchises, which end in February 2007. The Group is one of four remaining
bidders short-listed in the tender for a new South Western franchise that will
replace the South West Trains and Island Line franchises. There is a risk that
the Group does not win the new franchise or wins it on less favourable terms
than at present. The successful bidder is due to be announced later in 2006.
If the Group wins the new franchise, the Directors expect profits from the
new franchise to be less than those earned by the equivalent existing
franchises.

The Group’s joint venture, Virgin Rail Group, operates the CrossCountry rail
franchise (due to be re-tendered for a new franchise to run from November
2007) and the West Coast rail franchise, which is currently being
renegotiated. There is a risk that Virgin Rail Group does not win the new
CrossCountry franchise or wins it on unfavourable terms. There is a further
risk that Virgin Rail Group is unable to renegotiate the West Coast franchise
or renegotiates it on unfavourable terms.

Stagecoach Group plc | page 13

Operating and Financial Review

There are opportunities for the Group to win new franchises, including the
West Midlands franchise and the East Midlands franchise which are due to be
tendered with a view to new franchises running from November 2007.

In order to manage the risks, the Group has devoted significant management
resource and financial investment to bidding for new rail franchises, including
the new South Western franchise. Appropriately experienced personnel are
retained to work on rail bids and third party consultants are engaged to
provide additional expertise. The Board approves the overall rail bidding
strategy and the key parameters for each bid. 

3.10.2 Breach of franchise
The Group is required to comply with certain conditions as part of its rail
franchise agreements. If it fails to comply with these conditions, it may be liable
to penalties including the potential termination of one or more of the rail
franchise agreements. This would result in the Group losing the right to
continue operating the affected operations and consequently, the related
revenues or cash flows. The Group may also lose some or all of the amounts set
aside as security for the performance bonds and the season ticket bonds. As the
holder of a 49% joint venture interest in Virgin Rail Group, the Group has less
control over the joint venture’s operations and that means the Group’s
management may be less able to prevent a breach of the Virgin Rail Group
franchise agreements.

Compliance with franchise conditions are closely managed and monitored and
procedures are in place to minimise the risk of non-compliance.

3.10.3 Pension scheme funding
The Group participates in a number of defined benefit pension schemes.
There is a risk that the cash contributions required to these schemes
increases or decreases due to changes in factors such as investment
performance, the rates used to discount liabilities and life expectancies.

Decisions on pension scheme funding, asset allocation and benefit promises
are taken by management in consultation with the pension scheme trustees,
trade unions and suitably qualified advisors. A Pensions Oversight Committee
has been established comprising the Finance Director, a Non-Executive
Director and other senior executives, to oversee the Group’s overall pensions
strategy. The Board participates in major decisions on the funding and design
of pension schemes.

3.10.4 Insurance and claims environment
The Group receives claims in respect of traffic incidents and employee claims.
The Group protects against the cost of such claims through third party
insurance policies. An element of the claims is not insured as a result of the
“excess” on insurance policies.

There is a risk that the number or magnitude of claims are not as expected
and that the cost to the Group of settling these claims is significantly higher
or lower than expected. In the US, in particular, there is a risk given the size of
the “excess”, that a small number of large-value claims could have a material
impact on the Group’s financial performance.

The Group has a proactive culture that puts health and safety at the very top
of its agenda and this helps mitigate the potential for claims arising. Further
details on the Group’s management of health and safety are provided on
pages 15 and 16.

Where claims do arise, they are managed by dedicated insurance and claims
specialists in order to minimise the cost to the Group. Where appropriate,
legal advice is obtained from appropriately qualified advisors. The balance
between insured and retained risks is re-evaluated at least once a year and
insurance and claims activity is monitored closely.

3.10.5 Regulatory changes and availability of 

public funding

Public transport is subject to varying degrees of regulation across the
locations in which the Group operates. There is a risk that changes to the
regulatory environment could impact the Group’s prospects. 

Similarly, many of the Group’s businesses benefit from some form of
financial support from government including direct financial support,
government contracts and concessionary fare schemes. There is a risk that
the availability of sufficient government financial support differs due to
regulatory or other changes.

Management closely monitors relevant proposals for changes in the
regulatory environment and communicates the Group’s views to key
decision makers and bodies. The Group actively participates in various
industry and national trade bodies along with domestic and international
government forums. The Group seeks to maintain good, co-operative
relationships with all levels of government, including the introduction of
ideas that offer cost-effective ways of improving public transport.

3.10.6 Management and Board succession
Whilst the Group currently has sufficient personnel to manage its business,
there is a risk that this does not remain the case.

Succession planning for the Directors and senior management is a key issue
and as such is considered by the Nomination Committee and the Board. The
appropriate level of management deals with recruitment and retention of
other staff.

3.10.7 Catastrophic events
There is a risk that the Group is involved (directly or indirectly) in a major
operational incident resulting in significant human injuries. This could have a
significant impact on claims against the Group, the reputation of the Group
and its chances of winning and retaining contracts or franchises.

The Group has a proactive culture that puts health and safety at the very top
of its agenda in order to mitigate the potential for major incidents. In the
unlikely event that a major incident did occur, the Group has procedures in
place for responding to such incidents.

3.10.8 Treasury risks
Details of the Group’s treasury risks are discussed in note 27 to the
consolidated financial statements, and include the risks arising from
movements in fuel prices.

3.11 Corporate social responsibility
Stagecoach Group takes its corporate responsibilities seriously and the
responsible way we do business is firmly embedded in our Group’s culture.
From our approach to safety and the environment, to how we treat our
people, our customers, our local communities and other key stakeholders, 
we have a very clear set of values.

As well as providing a range of economic and environmental benefits, our
bus and rail services help promote social inclusion and bring people
together. We are committed to encouraging more people to use public
transport. This is central to our growth strategy, to the future success of
our Group, and also important to the future of the communities in which
we operate around the world. We have the same long-term goal of
sustainable development as our stakeholders and it is in our collective
interest to have an ongoing dialogue on how that can best be achieved.

Our Code of Business Conduct, which can be found on our website at
www.stagecoachgroup.com/scg/media/publications/policydocs/codeofconduct.pdf,
confirms our core values and policies in a number of areas: how we deal
with our employees, suppliers, customers, competitors, and the wider
communities in which we work. These values apply to every director,
manager and employee in all our companies across our global operations.

It is one thing to have a vision, but how that vision is implemented is
equally important. Like any business in any sector, we can get better. We
are continually striving to improve our policies, practices and service
delivery to make an increasingly positive impact on society and the
environment. Building trust with our stakeholders in the wider community
is vital and providing clear information on our progress and performance
is part of that process.

Stagecoach has put in place a number of performance indicators that
reflect our engagement with a range of stakeholders and these are tracked
on a regular basis.

page 14 | Stagecoach Group plc

3.11.1 Stakeholders
Stagecoach Group works in partnership with a range of bodies in each of the
markets where we provide public transport services.

year ending 30 April 2007. We are also helping provide demand responsive
transport services in the UK, which are meeting the needs of those with
mobility problems who require a service from their front door. 

Further information on our stakeholders and how we build relationships with
them can be found on page 6.

3.11.2 Our People
Stagecoach is a people business and it is the quality of our employees that
ensure we can deliver a first-class quality of service day in, day out. They are
crucial to our objective of attracting more people to public transport. None of
this happens by chance. We invest significant time and resources to ensure
we have the right people on board to deliver what our customers need.

We respect and value our staff, and we have a strong commitment to equal
opportunities and partnership working with trade unions.

As a major employer, we also recognise the need for ongoing training and
development, not just so our people can do their job, but so they can develop
individually. In our UK Bus division, we have one of the best vocational
training programmes of any UK Bus operator, designed to raise standards
among and recognise the key contribution of our drivers. To date, some
60.9% of our UK Bus drivers have either achieved or are working towards the
S/NVQ qualification. Our close focus on recruitment and retention has
resulted in achieving a full complement of drivers. This has been assisted by
improved pay, better training and mentoring schemes. 

South West Trains achieved Investors in People status in September 2005 as
a result of its huge investment in its employees to ensure they have the right
skills, knowledge, experience and behaviour to provide a first-class service to
passengers. South West Trains’ centralised Recruitment Centre and the state
of the art Operations Training Centre are continuing to deliver benefits to
our employees and better service to our customers. South West Trains also
has in place vocational training, support for managers, employee recognition
programmes and round-the-clock open learning access for its staff.

In North America, we have set up a centralised driver training school, which
has improved our recruitment and training processes. Our Canadian business
has focused closely on improved screening of job applicants prior to training
and this has resulted in improvements in the quality of employees recruited.

We are also looking to develop the managers of the future through our
graduate recruitment initiative at Stagecoach UK Bus and South West Trains.
Our engineering apprenticeship programme in the UK promotes careers
through local schools and career development agencies. We have also worked
closely with government-funded enterprise agencies to get the long-term
unemployed back into work, because many have vital skills that are being
overlooked.

Stagecoach wants to be there to help our people when they need it most. For
example, at South West Trains we have a partnership with Care First, which
offers an employee assistance programme that includes a 24-hour
confidential counselling service and legal helpline.

We are one of a number of employers across the UK involved in a pilot
scheme to research and test various ways to improve financial capability in
the workplace. The multi-agency project - co-ordinated by the Financial
Services Authority (“FSA”), the independent financial watchdog - involves
offering our staff one to one surgeries and hard copy material. The workplace
is seen as an ideal way to get information and education on finance to adults
and active participation by employers is vital.The pilot is part of a national
strategy to improve access to information, advice and personal finance
education, so that consumers are better equipped to make sound choices
when looking after their money and their future financial security.

3.11.3 Accessibility
We recognise that every customer we serve has their own specific individual
needs and accessibility is a key factor in providing attractive public transport
services. As far as possible within the resources we have available, we are
continuing to make it easier for people to use our bus and rail services. This
includes tailoring our network and frequency of services to meet demand.

We have made further progress during the year on our long-term
programme to ensure all our buses in the UK are fully low-floor. We have
announced a further investment in new accessible vehicles in the UK for the

Significant investment is also taking place in our North American business,
where we continue to lead the industry in terms of accessibility. As well as
introducing new coaches that meet the Americans with Disabilities Act
legislation, we have an ongoing programme to retro-fit coaches with lifts
each year.

On the South West Trains network, we provide station-based ramps to
enable wheelchair users to board and alight trains with maximum
convenience.To support the access of wheelchair users to our network, we
are now committed to providing wheelchair users with accessible taxis to and
from stations with step-free access at no extra charge.

Access for all is also about staff training and we continue to maintain links
with disability groups to ensure both the needs of our passengers and
employees are considered. At Sheffield Supertram, for example, the first of
our trams have been refreshed with textured grab rails and improved seating
layouts to help passengers with visual impairment. We are also currently
undertaking trials of new higher visibility destination blinds and investigating
the potential for automated public address announcements.

Many people now access transport information online and our award-
winning Stagecoach Group website, www.stagecoachgroup.com, has been
developed in line with accessibility guidelines drawn up by the Royal National
Institute for the Blind.

3.11.4 Health and Safety
As a major international public transport operator, a commitment to the
highest standards of safety is at the heart of our business. We strictly adhere
to legislative regulations in all our areas of operation. Breach of these
regulations could result in criminal and/or civil legal proceedings, fines and
potential loss of contracts and licences to operate. Stagecoach has an
excellent safety record and we have a proactive culture across the Group that
ensures the health and safety of our customers and our employees is our top
priority. Health and safety is monitored and reported on across Stagecoach
Group and immediate action is taken to address issues in our business
processes. We have a Health, Safety and Environmental Committee that
considers health, safety and environmental issues across the Group and
reports to the Board on these matters. The Committee is chaired by a non-
executive director. Safety matters are also considered at the Board and
management meetings of each of our businesses. Our employees are
provided with appropriate health and safety training and encouraged to
report any concerns. We expect our suppliers and contractors to have a
similar commitment to complying with appropriate regulations in this area. 

Safety and security issues around public transport were highlighted by the
terrorist attacks in London in July 2005. Stagecoach operated both of the
buses that were targeted in the attacks and our employees have been
commended for their response to these tragic incidents. We will continue to
stress the need for vigilance by our staff and customers, while at the same
time ensuring accessibility to our public transport services.

In our UK Bus division, we are working in partnership with government and
other agencies to improve bus safety and security. While crime and vandalism
rates are relatively low, we are aware they can discourage people from
travelling on buses. Stagecoach signed the UK’s largest single order for CCTV
in buses in the UK in April 2006. The £1.2m deal will ensure all new buses
ordered by Stagecoach for delivery during the year ending 30 April 2007 will
be fitted with state-of-the-art digital CCTV systems from LOOK CCTV. As well
as assisting in our drive to increase on-board security for our passengers and
employees, the systems can check the movement of traffic and pedestrians
as part of an accident prevention campaign.  

Stagecoach has a number of joint programmes in place with schools and the
police to deter anti-social behaviour and educate the next generation of 

Stagecoach Group plc | page 15

Operating and Financial Review

public transport users. We are also working with a number of local authorities
in areas such as Oxford, Mansfield, Cheltenham and Gloucester to develop
late night bus networks to help reduce town centre crime. At an operational
level, we have in place a process of route risk assessments to identify
potential safety issues. As well as our own investment in ongoing driver
training, we are supporting the work of the Road Operators’ Safety Council to
drive up standards in the industry. Stagecoach has also helped fund safety
campaigns focused on other road users, including cyclists and drivers of
agricultural vehicles.

South West Trains (“SWT”) is involved in the ground-breaking TravelSafe
Officer security and anti-crime partnership with British Transport Police. The
initiative continues to help reduce crime across the network and SWT has
also received 47 Secure Station awards, more than any other train operating
company. The successful withdrawal of Mark 1 rolling stock and the full
introduction of the Desiro fleet has helped deliver a safer and more secure
railway. Passengers are also benefiting from CCTV improvements and better
lighting at 53 South West Trains stations within the London area. Work has
also been undertaken to further enhance SWT’s Safety Management System,
supported by training and briefing programmes for employees.
Implementation of our Engineering Competency Management System is also
continuing. As well as improved contractor management, SWT has
developed a new safety training programme for trade union health and
safety representatives. This total commitment to safety led to SWT winning
the Sir Robert Horton Safety Award at the National Rail Awards in 2005.

In North America, we continue to meet or exceed all Federal and State
regulations in the area of safety. Regular safety audits are carried out at our
facilities to ensure high standards of health and safety are maintained. We
have enhanced our driver recruitment and training policies, as well as
reducing the maximum permitted continuous hours of service for drivers, as
part of our commitment to a safe, well-rested team. Management
performance incentives include targets related to the reduction of
preventable accidents. The management team in the United States has
continued to support the work of the Federal Government and other
agencies in implementing anti-terrorism measures. We have now installed
GPS tracking in more than 1,000 coaches for security and monitoring
purposes. In Canada, we have a dedicated Occupational Health and Safety
Policy Committee whose members are drawn equally from management and
workforce representatives.

Public transport – whether by bus, coach, train or tram - remains the safest
way to travel. Stagecoach Group itself has a good safety record, but we are
not complacent and we constantly keep our safety arrangements under
review.

3.11.5 Environment
The Group is committed to making continuing progress in improving the
environmental management of its operations and helping to build a
sustainable environment. Across our global operations, we provide support
and training for our employees to ensure compliance with legislation, as well
as effective waste management, and improved energy consumption and
environmental performance. Our Environmental Policy sets out our
commitment to good environmental stewardship and we have put in place
stretching targets to reduce emissions, cut water and energy consumption,
minimise waste and identify opportunities for recycling.

Stagecoach has made further progress this year in improving the
environmental management of our operations and helping to build a
sustainable environment. We believe public transport can play a significant
part in reducing pollution, cutting congestion and contributing to a higher
quality of life in our communities. Stagecoach is also taking steps to ensure
its operations are carried out in a responsible manner.

We  have  worked  closely  with  consultants  Arthur  D  Little  to  measure  the
environmental  impact  of  our  transport  operations  in  the  past  12  months.
Arthur D Little have also assisted in setting new stretching targets as part of
our commitment to good environmental stewardship. These key performance
indicators  cover  reductions 
lower  water  and  energy
consumption, minimising waste and identifying opportunities for recycling. 

in  emissions, 

Our internal processes designed to track environmental data have been
further strengthened this year and have extended the measurement of our
performance to cover our operations in Canada. New Zealand operations,
which were divested in December 2005, are not included in the data for the
year ended 30 April 2006.

Full details of our performance, compiled in conjunction with Arthur D Little,
can be found on the Stagecoach Group website at
http://www.stagecoachgroup.com/scg/csr/environment/performance/.

We have delivered further improvement in the direct emissions per passenger
journey from our bus and train fleets. This has been achieved through our
investment in new vehicles and rolling stock, as well as through the use of
new fuels and cleaner technologies. Stagecoach has ordered a number of
new Euro 4 engined vehicles for our bus operations in the UK, which have the
potential to deliver improved fuel consumption and engine reliability. The
use of biodiesel has been increased to around 1,800 buses in the UK and we
are continuing to use the Envirox fuel additive across our UK Bus fleet.
Stagecoach is also involved in a number of projects to fit exhaust gas re-
circulation systems to some of our vehicles in the UK. More than 1500 of our
buses in the UK are now fitted with CRTs, a 24% increase from 30 April 2005.
In our North American operations, we are the first company in New York to
fit our buses for use with low sulphur fuel, which significantly reduces
emissions. The Group has also introduced more accurate calculation methods
to assess our performance in the area of direct emissions, particularly in our
UK Rail division.

Indirect emissions from our bus operations on a per passenger journey basis
have dropped significantly over the past 12 months. As well as being
influenced by the growth in passenger volumes, this has been assisted in
particular by ongoing efforts to reduce energy consumption at our UK Bus
sites. We are working with Manchester-based Vickers Electronic Limited to
introduce a specialist Energy Management System, which is in use at more
than 50 sites. As well as cost savings, the system is benefiting the
environment. Consumption savings at 29 gas-fired Stagecoach sites are
running at more than 11,000,000 kWh per annum, which represents an
emissions reduction of more than 4,000 tonnes of carbon dioxide per year.
While indirect emissions per passenger journey and in total have increased in
our rail operations, this reflects the continued introduction of Desiro trains.
As well as offering a greatly improved travelling experience for passengers,
these state-of-the-art trains use higher levels of electricity than earlier rolling
stock. Since 2003, the Group’s indirect emissions from energy consumption
at offices and depots have reduced by 14.4%.

Water consumption in our bus operations has reduced per passenger journey
by more than 50%, assisted by the introduction of upgraded wash facilities,
better wash management and initiatives to identify and repair water system
leaks. The water consumption at our rail operations on a per passenger
journey basis has remained at similar levels to the previous year.

The Group is continuing to focus on improving the collection of data around
the production of vehicle maintenance and other waste in its UK and North
American operations. South West Trains, for example, has introduced a
complete waste management system called Garbology where pressure
crushers are used to compress waste and maximise the space available for
waste disposal. We are also reviewing what measures can be taken to
increase the proportion of waste recycled from our bus and rail operations.
While waste recycled from our rail operations has increased from 6.2% in the
12 months to 30 April 2005 to 40.0% in the 12 months to 30 April 2006,
waste recycled from our bus operations has dropped from 31.9% in the 12
months to 30 April 2005 to 29% in the 12 months to 30 April 2006. 

Across our operations, we provide support and training for our employees to
ensure compliance with legislation, as well as effective waste management,
and improved energy consumption and environmental performance. The
environmental training programme at our UK Bus division has been fully
revised. Around 200 depot managers, safety representatives and supervisors
have been trained in the last two years, with all key personnel to be trained
every three years on a rolling programme. In Manchester, a campaign is
currently underway on all new double deck vehicles to reduce engine idling
time to a maximum of 15 minutes, after which the engine will shut down.

page 16 | Stagecoach Group plc

social behaviour. Stagecoach is backing an innovative education, prevention
and intervention programme designed to educate parents, and other carers,
about drugs. The initiative, developed by the national charity Care for the
Family, gives parents the information and skills they need to help their
children understand the harmful use of drugs, alcohol and tobacco. With the
support of Stagecoach, more than 1,000 parents in South Manchester will be
able to benefit from tailored How to Drug Proof Your Kids courses. Our
support also assists many local initiatives that help provide opportunities for
young people. Stagecoach recently pioneered the Park & Read concept in
Cambridge as part of World Book Day, offering quick read books on all park &
ride services. In Scotland, we are involved in innovative street football and
twilight league initiatives in conjunction with local clubs and the police.

Stagecoach is also helping promote social inclusion with our communities to
help those who are the most vulnerable. A national agreement with Guide
Dogs for the Blind, for example, allows the dog trainers free travel on our
buses.

We have continued to support the UK educational charity businessdynamics,
which provides courses designed to build the skills and confidence of young
people as they prepare to enter the worlds of work and further education. 

Our South West Trains rail franchise operates services in 13 different English
counties, where we are involved in many projects to boost social inclusion
across our extensive network. The Lymington Heritage Line was launched last
year with the purchase and refurbishment of two trains, now in their original
British Rail livery. The initiative, which is helping to make the line more cost
effective and safeguard its future, has won a National Community Rail Award.
The DfT is now concluding consultation regarding proposed designation of
the route as a Community Rail Line.

Overseas, a convoy of coaches from our United States operations helped
assist the Hurricane Katrina relief effort in New Orleans. The support team
helped evacuate some of the thousands of people made homeless by the
disaster. Coach USA employees also donated bottled water, food items and
toiletries, which were delivered to the American Red Cross to be distributed
to those in need.

These are only a small number of examples of our work in supporting and
working with our local communities. This approach has been a cornerstone
of our business philosophy for more than a quarter of a century and we will
continue to work hard to be a responsible part of these communities in the
future.

We have also continued our support for the road safety charity Brake and
other organisations to benchmark and share good practice in safe driving and
driving methods designed to improve fuel efficiency. At South West Trains,
Wimbledon Traincare depot has achieved ISO14001 accreditation and other
units are currently being assessed by the British Standards Institute as part of
our commitment to continuous improvement in environmental
management.

In many areas, Stagecoach is working in partnership with major employers to
help develop travel plans that reduce the dependence of employees on the
car to get to work. 

Stagecoach has made further improvements and investment in the area of
environmental sustainability over the past year, however we recognise that
we can do more. We want to build on the progress we have made and, as
part of our commitment, we have set new stretching environmental targets
across our business.

3.11.6 Community investment and charitable activities
For more than 25 years, Stagecoach has been a key part of local communities
around the world. As well as providing lifeline transport services and
significant job opportunities, the Group is committed to investing in each of
the communities we serve. We want local people to share in our success and
that is why every year we help fund the vital work of local, national and
international charities. 

During the year ended 30 April 2006, Stagecoach Group donated £0.6m
(2005: £0.3m) to help many worthwhile causes, including many health
charities and local community projects in areas where we provide lifeline
public transport services.

In July 2005, many people lost their lives as a result of the terrorist attack in
London and these shocking events touched our Group directly. The Group
donated £100,000 to the London Bombings Relief Fund, which was set up by
the Mayor of London in association with the British Red Cross to help provide
practical assistance to the victims’ families. Stagecoach also matched the
fund-raising of its employees around the country who wanted to play their
part in responding positively to these tragic events. 

Hundreds of our employees devote their own time every day to local projects
that make a real difference in their area. Our businesses provide much-
needed in-kind support, while our people also give charities the benefit of
their expertise during secondments. We also believe in recognising the
contribution local people make in their own communities every year, which is
why we have co-sponsored Scotland’s annual Our Heroes Awards.

Much of the backing we provide is focused on education and young people,
assisting organisations such as the National Society for the Prevention of
Cruelty to Children, NCH, the children’s charity, and PiggybankKids, which
supports a wide range of children’s projects.

We work closely with schools and police on local crime prevention initiatives
and education of youngsters about the dangers and consequences of anti-

Stagecoach Group plc | page 17

Robert Speirs

Brian Souter

Martin Griffiths

Graham Eccles

Ann Gloag OBE

Ewan Brown CBE

Iain Duffin

Sir George Mathewson

Dr Janet Morgan

Russell Walls

4.7 Ann Gloag OBE, Non-Executive Director
Ann Gloag co-founded Stagecoach in 1980 and served as an executive director until
May 2000. She became a member of the Health, Safety and Environmental Committee
in June 2005. She is a past winner of the Businesswoman of the Year Award and
European Women in Achievement Award. She is an international Board member of
Mercy Ships. In June 2004, she was awarded an OBE for services to charity. Aged 63.

4.8 Sir George Mathewson, Non-Executive Director
Sir George Mathewson joined the Group as a non-executive director on 8 June 2006. 
He was Chairman of The Royal Bank of Scotland Group plc (“Royal Bank”) until his
retirement on 28 April 2006. Sir George is currently an advisor to the Royal Bank and is
also a director of the Scottish Investment Trust plc. In November 2001, he was
appointed to the Board of Directors of the Institute of International Finance and in June
2005, he became president of the International Monetary Conference. Sir George
joined the Advisory Committee of Bridgepoint Capital Limited in January 2004 and in
November 2004, he was appointed a member of the Financial Reporting Council. Sir
George is also chairman of Toscafund Holdings, a hedge fund. Aged 66.

4.9 Dr Janet Morgan, Non-Executive Director
Dr Janet Morgan, Lady Balfour of Burleigh, became a non-executive director in April
2001. She is Chairman of the Health, Safety & Environmental Committee and is a
member of the Audit, Remuneration and Nomination Committees. She is also
Chairman of the Nuclear Liabilities Fund and is a non-executive director of Murray
International Investment Trust and other companies. She was a non-executive director
of BPB plc until December 2005. Dr Morgan is a Fellow of the Royal Society of
Edinburgh, a Trustee of the Carnegie Trust for the Universities of Scotland and a
Trustee of the National Library of Scotland. She was a member of the Central Policy
Review Staff of the Cabinet Office. Aged 60.

4.10 Russell Walls, Non-Executive Director
Appointed as a non-executive director in June 2000, Russell Walls is the Chairman of
the Audit Committee and is a member of the Remuneration Committee and the
Nomination Committee. He is the senior independent non-executive director. He is
Chairman of Delphic Europe Limited, a non-executive director of Signet Group plc and
Aviva plc and is a member of the Conflicts Clearance Committee of the ABN AMRO
Infrastructure Capital Equity Fund. He was previously Group Finance Director of BAA plc
and Wellcome PLC. For many years he worked abroad with Coats Viyella plc where he
was Group Finance Director from January 1990. He is a fellow of the Association of
Chartered Certified Accountants. Russell Walls retires by rotation at the 2006 AGM and
has indicated that he does not intend to seek re-election. Aged 62.

4. Directors’ biographies

Details of corporate governance, including the operation of the Board of Directors, are
given in section 6 of this Annual Report. A brief biography of each director is given
below.

4.1 Robert Speirs, Non-Executive Chairman
Robert Speirs has been a non-executive director of the Group since March 1995. In July
2002, he was appointed by the Board as Non-Executive Chairman. He is currently a
non-executive director of Victoria Mortgage Funding Ltd and Chairman of the Miller
Group Ltd. He is a former Group Finance Director of The Royal Bank of Scotland plc.
Robert Speirs is Chairman of the Nomination Committee. Aged 69.

4.2 Brian Souter, Chief Executive
The co-founder of Stagecoach, Brian Souter is the architect of the Group’s strategy and
philosophy. He has extensive knowledge of the ground transportation industry around
the world and is responsible for managing all of the Group’s operations. He is also
Chairman of ScotAirways Group Ltd. He was named Businessman of the Year at the
Insider Elite Awards 2004 and is a Chartered Accountant. Aged 52.

4.3 Martin Griffiths, Finance Director
Appointed Finance Director in April 2000, Martin Griffiths is responsible for the Group’s
overall financial policy, taxation and treasury management. He also has responsibility
for the overall management of the Group’s property portfolio and supports the Chief
Executive in all aspects of new business development across the Group. He is a member
of the Group’s Pension Oversight Committee and was a director of Trainline Holdings
Limited up until June 2006. He won the Young Scottish Finance Director of the Year
Award in 2004 and is a Chartered Accountant. Aged 40.

4.4 Graham Eccles, Executive Director Rail (retired 30 April 2006)
Graham Eccles has over 40 years’ experience in the rail industry and has held a number
of senior management posts. Up until his retirement in April 2006, he was a member
of the Board, which he joined in September 2000 and prior to that was Managing
Director of South West Trains from 1999. He was responsible for the management of
all the Group’s rail operations. In addition, he had main board responsibility for Group
safety matters and was also a member of the Health, Safety and Environmental
Committee until earlier this year. Aged 59.

4.5 Ewan Brown CBE, Non-Executive Director
Ewan Brown has been a non-executive director of the Group since 1988 and chairs the
Group’s Pensions Oversight Committee. He is a non-executive director of Noble
Grossart Ltd and Lloyds TSB Group plc where he chairs the Audit Committee. He is also
Chairman of Lloyds TSB Scotland plc and was a non-executive director of John Wood
Group plc until May 2006. Aged 64. 

4.6 Iain Duffin, Non-Executive Director
Iain Duffin became a non-executive director of the Group in September 2001. He was
appointed Chairman of the Remuneration Committee on 1 May 2003 and is also a
member of the Audit Committee and Health, Safety and Environmental Committee. He
is a non-executive Chairman of Origo Services and Beattie Media Group. He has
previously held executive positions in the UK and the US with a number of
organisations including Macfarlane Group plc, Lucas Varity plc, ITT Corporation and
Hughes Aircraft. Aged 59.

page 18 | Stagecoach Group plc

5. Directors’ report

Principal activity 

5.1
The Group’s principal activity is the provision of public transport services in
the UK and overseas.

Business review

5.2
The Group is required to produce a business review complying with the
requirements of section 234ZZB of the Companies Act. The Group has
complied with these minimum requirements as part of the Operating and
Financial Review, which also provides significant information over and above
the statutory minimum.

A review of the Group’s business performance, developments during the
year, its position at the year end and likely future prospects, is set out in the
Chairman’s statement on page 2, the Chief Executive’s review on page 3 and
the Operating and Financial Review on pages 4 to 17. 

5.3 Group results and dividends 
The results for the year are set out in the consolidated income statement
on page 36. 

An interim dividend of 1.1 pence per ordinary share was paid on 8 March
2006. The Directors recommend a final dividend of 2.6 pence per ordinary
share making a total dividend of 3.7 pence per ordinary share for the year.
Subject to approval by shareholders, the final dividend will be paid on 
4 October 2006 to those ordinary shareholders on the register at 
1 September 2006. 

A dividend of 0.318271 pence per ‘‘B’’ share was paid on 30 September
2005. The remaining “B” shares in issue at 30 September 2005 were
mandatorily redeemed on that date. This dividend on “B” shares is
classified within finance costs under IFRS for the year ended 30 April
2006.

5.4 Directors and their interests 
The names, responsibilities and biographical details of the Directors appear
on page 18. Their participation in full Board meetings and meetings of
committees is given in the Corporate governance report on page 24.

Graham Eccles retired as a director on 30 April 2006. Russell Walls will
retire by rotation at the 2006 AGM and has indicated that he does not
intend to seek re-election. Sir George Mathewson was appointed as a
director on 8 June 2006 and will offer himself for election at the 2006
AGM.

Martin Griffiths retires by rotation at the 2006 Annual General Meeting in
accordance with the Articles of Association and being eligible offers himself
for re-election. As explained in the Corporate governance report on page
22, Ewan Brown is considered to be an independent non-executive director
by the Board. However, in recognition of the factors suggested by the
Combined Code for determining independence, Ewan Brown offers himself
for annual re-election. Robert Speirs, Chairman, and Ann Gloag, who is a
Non-Executive Director but is not independent, also offer themselves for
annual re-election.

The Board reviews the development plans for the Board at least annually as
part of its performance evaluation. The assessment involves a
consideration of the balance of skills, knowledge and experience of the
Directors. The Board also considers whether the Directors have sufficient
time to properly discharge their duties, which includes a consideration of
any other appointments that each director has. The re-elections of Robert
Speirs, Martin Griffiths, Ewan Brown and Ann Gloag and the election of Sir
George Mathewson will be proposed at the 2006 Annual General Meeting
and are consistent with the results of the Board’s assessment. The Board
believes that the performance of each of these Directors continues to be
effective and that they continue to demonstrate commitment to their
respective roles. The Board therefore considers it is appropriate that each of
these Directors be re-elected/elected at the 2006 Annual General Meeting. 

Tables A, B and C, set out opposite, give the interests of the Directors and
connected persons in the share capital of the Company.

TABLE A 

Number of ordinary shares

Ordinary shares of 12/19thp each
Brian Souter 

beneficial 
non-beneficial 

Graham Eccles*
Martin Griffiths 
Ewan Brown 
Iain Duffin 
Ann Gloag 

beneficial 
non-beneficial 

Sir George Mathewson
Janet Morgan 
Robert Speirs 
Russell Walls 
* retired 30 April 2006

30 April and
28 June 2006

30 April and 
22 June 2005 

141,910,060
14,108,591
111,766
15,830
Nil
31,670
116,352,145
1,598,820
Nil
2,058
14,645
15,833

141,910,060
14,108,591
109,229
15,830
Nil
31,670
116,352,145
1,598,820
Nil
2,058
14,645
15,833

TABLE B 

Number of ‘B’ shares

30 April and
28 June 2006

30 April and 
22 June 2005 

Redeemable B shares of 18p each
Brian Souter 

beneficial 
non-beneficial 

Graham Eccles*
Martin Griffiths 
Ewan Brown 
Iain Duffin 
Ann Gloag 

beneficial 
non-beneficial 

Sir George Mathewson
Janet Morgan 
Robert Speirs 
Russell Walls 
* retired 30 April 2006

Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil

1,388,888
Nil
257
257
Nil
Nil
1,388,888
Nil
Nil
Nil
Nil
Nil

TABLE C 

Number of ordinary shares under option

Number of Ordinary shares of 
12/19thp each held under option 
Brian Souter 
Graham Eccles* 
Martin Griffiths 
Ewan Brown 
Iain Duffin 
Ann Gloag 
Sir George Mathewson
Janet Morgan 
Robert Speirs 
Russell Walls 
* retired 30 April 2006

30 April and
28 June 2006

30 April and 
22 June 2005 

4,585,671
948,057
781,579
Nil
Nil
Nil
Nil
Nil
Nil
Nil

4,585,671
2,172,157
1,958,066
Nil
Nil
Nil
Nil
Nil
Nil
Nil

In addition to their individual interests in shares, Brian Souter and Martin
Griffiths are potential beneficiaries of the Stagecoach Group Employee
Benefit Trust 2003, which held 4,690,333 (30 April 2005: 4,690,333)
ordinary shares of 12/19th pence each as at 30 April 2006. Martin Griffiths is
also a potential beneficiary of the Stagecoach Group Qualifying Employee
Share Trust (“QUEST”), which held 628,285 (30 April 2005: 1,811,212)
ordinary shares of 12/19th pence each as at 30 April 2006. Full details of
options held as at 30 April 2006 are contained in the Remuneration report
on pages 28 to 34.

No director had a material interest in the loan stock or in the share capital of
any subsidiary company.

Stagecoach Group plc | page 19

5. Directors’ report

Indemnification of Directors and Officers

5.5
The Company maintains Directors’ and Officers’ Liability Insurance in respect
of legal action that might be brought against its Directors. The Companies
(Audit, Investigations and Community Enterprise) Act came into force on 6
April 2005. This Act extends the indemnities that a company can provide to
its directors. The Company has subsequently indemnified each of its directors
and certain of the Group’s other officers against certain liabilities.

5.6 Substantial shareholdings 
On 27 June 2006 (being the latest practical date prior to the date of this
report), the only disclosable shareholdings in excess of 3% (other than certain
Directors’ shareholdings) were as follows:

Standard Life Investments Ltd
Marathon Asset Management Ltd
Capital International Ltd
Legal & General Investment Management Ltd
Schroder Investment Management (UK) Ltd

4.76%
4.55%
4.28%
3.49%
3.16%

Employment policies

5.7
The Group strives to meet its business objectives by motivating and
encouraging its employees to be responsive to the needs of its customers
and to maintain and, where possible, improve operational performance. The
Group is also committed to providing equality of opportunity to employees.
This applies to appropriate training, career development and promotion
opportunities for all employees regardless of physical disability, gender,
religion or belief and racial or ethnic origin. The Group gives full
consideration to applications for employment from disabled persons where a
disabled person can adequately fulfil the requirements of the job. Where
existing employees become disabled, it is the Group’s policy wherever
practicable to provide continuing employment under normal terms and
conditions and to provide training and career development and promotion
to disabled employees wherever appropriate. 

The Group is committed to employee participation and uses a variety of
methods to inform, consult and involve its employees. Employees participate
directly in the success of the business through the Group’s bonus and other
remuneration schemes and are encouraged to invest through participation in
share option schemes. Since 1996, there have been four invitations to UK
employees to subscribe to the Group’s Sharesave (‘‘SAYE’’) scheme, all of
which have met with encouraging levels of response. 

The Group periodically arranges meetings that bring together representatives
from management and trade unions. Discussions take place regularly with the
trade unions representing the vast majority of the Group’s employees on a
wide range of issues. The Group also produces a range of internal newsletters
and information circulars that keep employees abreast of developments.
Employees are encouraged to discuss matters of interest to them and subjects
affecting day-to-day operations of the Group with management. 

The Group is committed to developing a culture of openness across all its
businesses and ensuring the highest standards of probity and accountability.
The Board actively encourages employees with serious concerns about the
interests of others or the Group to come forward. During the financial year
ended 30 April 2005, the Group issued an updated policy called ‘‘speaking
up’’ to employees, which is designed to ensure processes exist where
employees can raise serious concerns constructively without fear of
victimisation, subsequent discrimination or disadvantage.

5.8 Directors’ responsibilities 
Company law requires the Directors to prepare financial statements for each
financial year that present fairly, in accordance with IFRS, the state of affairs
of the Group, and the profit or loss of the Group for that period. The
Directors are also responsible for preparing financial statements for each
financial year that give a true and fair view, in accordance with UK GAAP, of
the state of affairs of the Company for that period. In preparing those
financial statements, the Directors are required to: 
• select suitable accounting policies and then apply them consistently; 
• make judgements and estimates that are reasonable and prudent; 
• state that the financial statements of the Group comply with IFRS and the

financial statements of the Company comply with UK GAAP;

page 20 | Stagecoach Group plc

• prepare the financial statements on a going concern basis unless it is
inappropriate to presume that the Group will continue in business. 

The Directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
Company and of the Group, and enable them to ensure that the financial
statements of the Group comply with the Companies Act 1985 and Article 4
of the IAS regulation and the financial statements of the Company and the
Remuneration report comply with the Companies Act 1985. The Directors
are also responsible for safeguarding the assets of the Company and of the
Group, and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities. 

5.9 Supplier payment policy and practice 
It is the Group’s policy to agree appropriate terms of payment with suppliers
for each transaction or series of transactions, and to abide by those terms
based on the timely submission of satisfactory invoices. The policies
followed by each of the major UK operating subsidiaries are disclosed in the
financial statements of those companies. As the Company is a holding
company, trade creditor days is not a relevant figure. For the Group as a
whole, the trade creditors outstanding at the year-end represented 32 days’
purchases (2005 : 31 days).

5.10 Land and buildings 
In the opinion of the Directors, the open market value of the Group’s
interest in land and buildings exceeded the net book value. As part of the
transition to IFRS, the net book value of certain land and buildings has
been revalued upwards by £53.9m as of 1 May 2004. The revaluation is not
expected to give rise to additional tax liabilities.

5.11 Financial risk management
Information regarding the Group’s financial risk management objectives and
policies and exposure to price, credit, liquidity and cash flow risks can be
found in note 27 to the consolidated financial statements.

5.12 Charitable and political contributions 
Group companies made charitable donations of £0.6m (2005 : £0.3m)
during the year. 

It is the Group’s policy not to make political contributions and, accordingly,
there were no payments for political purposes during the year (2005 : £Nil). 

5.13 Authority for company to purchase its 

own shares 

At the 2005 Annual General Meeting, the Company was granted authority
by its shareholders under section 166 of the Companies Act 1985 to
repurchase up to 10% of its ordinary shares. During the year, no ordinary
shares were repurchased. Under the existing authority, the Company may
repurchase up to 107,675,827 shares. This authority will expire on 31
December 2006 unless revoked, varied or renewed prior to this date.

A resolution will be placed at the next Annual General Meeting that the
Company be authorised to repurchase its ordinary shares at the Directors’
discretion up to a maximum number equal to 10% of the shares that are
outstanding at the time of the Annual General Meeting. If passed, the
resolution will lapse on or before 31 December 2007. If the resolution is
approved, the existing authority that was granted at the 2005 Annual
General Meeting will lapse.

5.14 Post balance sheet events 
On 23 June 2006, the Group agreed to sell its London bus operations to
Macquarie Bank Limited. The sale is subject to regulatory approval and other
closing conditions and at the present time the Group anticipates the sale will
complete within three months. The total proceeds for the sale are £263.6m
in cash, subject to adjustments dependent on the net assets of the London
bus operations at completion. The Group’s consolidated gain on disposal is
estimated at £120.0m although the gain will depend on the final
determination of the net assets at completion of the sale.

5.15 Going Concern 
On the basis of current financial projections and the facilities available, the
Directors are satisfied that the Group has adequate resources to continue for
the foreseeable future and, accordingly, consider it appropriate to adopt the
going concern basis in preparing the financial statements. 

5.16 Auditors 
In the case of each of the persons who were directors of the Company at the
date when this report was approved:
• so far as each of the Directors is aware, there is no relevant audit
information (as defined in the Companies Act 1985) of which the
Company’s auditors are unaware; and

• each of the Directors has taken all the steps that he/she ought to have
taken as a Director to make himself/herself aware of any relevant audit
information (as defined) and to–establish that the Company’s auditors are
aware of that information.

A resolution to re-appoint PricewaterhouseCoopers LLP as auditors to the
Company will be proposed at the next Annual General Meeting. A resolution
will also be proposed that the Directors be authorised to fix the remuneration
of the auditors.

By order of the Board 

Ross Paterson
Company Secretary 

28 June 2006

Stagecoach Group plc | page 21

6. Corporate governance report

Introduction

6.1
The Stagecoach Board is accountable to shareholders for the Group’s
activities and is responsible for the effectiveness of corporate governance
practices within the Group in conformity with the Combined Code.

This section of the report discusses Stagecoach Group’s corporate
governance arrangements and management structures. It also includes the
disclosures recommended by the Combined Code, and describes how the
principles of good corporate governance that are set out in the Combined
Code have been applied. In line with best practice, separate reports are
provided from each of the Audit Committee, Nomination Committee,
Health, Safety and Enviromental Committee and Remuneration Committee.

Compliance with the Combined Code

6.2
The Directors believe that the Group currently complies with all of the
recommendations contained in the Combined Code.

Composition of the Board

6.3
The Combined Code suggests that independent Non-Executive Directors
should make up at least half of the Board (excluding the Chairman).
Following Graham Eccles retirement on 30 April 2006 and Sir George
Mathewson’s appointment on 8 June 2006, the Company’s Board comprises
nine Directors. Excluding the Chairman, the Board considers there to be five
independent Non-Executive Directors.

Independent
Non-Executive
Director

Other
Director

Chairman

(cid:2)

Robert Speirs

Chairman

Ewan Brown

Non-Executive Director

Iain Duffin

Non-Executive Director

Sir George 
Mathewson

Non-Executive Director

Janet Morgan

Non-Executive Director

Russell Walls

Senior Independent Non-Executive Director

Ann Gloag

Non-Executive Director

Brian Souter

Chief Executive

Martin Griffiths

Finance Director

(cid:2)

(cid:2)

(cid:2)

(cid:2)

(cid:2)

(cid:2)

(cid:2)

(cid:2)

Ewan Brown, one of the five independent Non-Executive Directors, has
served on the Board since 1988 and is a non-executive director of Noble
Grossart, which is an advisor to the Company. The Company recognises and
understands investor concerns over longer-serving Non-Executive Directors
but nevertheless continues to regard Ewan Brown as independent. Ewan
Brown’s long association with the Group enables him to provide a robust and
effective challenge to management because of the sound and detailed
knowledge of the Group’s business that he has developed. The Board believes
that Ewan Brown’s length of service enhances his effectiveness as a non-
executive director and that he remains independent in character and
judgement. In recognition of the factors suggested by the Combined Code
for determining independence, Ewan Brown will stand for annual re-election
as a director. In addition, Ewan Brown does not now serve on the
Remuneration Committee or the Audit Committee. In assessing
independence, the Board takes into account the wider composition and
balance of the Board as a whole.

In determining the independence of Non-Executive Directors, the Board
considers a number of factors. In particular the Board satisfies itself on the
following questions:
• Does the Director provide a robust and effective challenge to

management?

• Is the Director prepared to challenge others’ beliefs, assumptions and
viewpoints for the overall good of the Group and its shareholders?
• Does the Director effectively contribute to constructive debate by the

Board?

page 22 | Stagecoach Group plc

• Is the Director willing to stand up to defend his or her own beliefs and
viewpoints for the overall good of the Group and its shareholders?
• Does the Director have a sound and detailed knowledge of the Group’s
business that enables him or her to effectively question strategy and
management’s running of the business?

6.4 Operation of the Board
The Board is scheduled to meet six times each year. Additional meetings of
the Board are held to consider matters arising between scheduled Board
meetings, where a decision of the Board is required prior to the next
scheduled meeting.

The Chairman ensures that meetings of the Board and shareholders are
properly conducted and is responsible for setting and moving forward the
Board’s agenda. Leadership of the Board (by the Chairman) is not the same
as the leadership required (from the Group Chief Executive) to turn the
Board’s strategic and policy decisions into actions. The Group Chief Executive
has day-to-day responsibility for all business of the Group and carries out the
agreed strategy and policies of the Board. The split of the Chairman’s and
Chief Executive’s responsibilities is in writing and has been approved by the
Board.

The Directors’ biographies appear on page 18 of this Annual Report and
illustrate the Directors’ range of experience, which ensures an effective Board
to lead and control the Group. The Non-Executive Directors bring an
independent viewpoint and create an overall balance.

The Executive and Non-Executive Directors have a complementary range of
financial, operational and entrepreneurial experience that ensures no one
director or viewpoint is dominant in the decision-making process. The
Chairman and the Non-Executive Directors periodically meet without the
Executive Directors being present. In addition, the Non-Executive Directors,
led by the Senior Independent Non-Executive Director, meet without the
Chairman at least annually.

All Directors meet regularly with other senior management and staff of the
Group, have access to confidential advice from the Company Secretary and
may take independent legal or other professional advice at the Group’s
expense where it is considered necessary for the proper discharge of their
duties as Directors. The Company Secretary, whose appointment and
removal is a matter for the Board as a whole, is responsible to the Board for
ensuring the Board procedures are complied with.

All Directors submit themselves for election by shareholders at the Annual
General Meeting following their appointment and all Directors are required
to stand for re-election by shareholders at least every three years. Non-
Executive Directors who are not considered by the Board to be independent,
or are considered independent but have served on the Board for more than
nine years, submit themselves for annual re-election. Each director receives
induction training on appointment and subsequently such training or
briefings as are considered necessary to keep abreast of matters affecting
their roles as Directors. The Chairman endeavours to ensure that all Directors
(including any newly appointed Directors) attend the Annual General
Meeting, providing an opportunity for shareholders to meet the Directors.

The number of full Board meetings during the year was 6. The full Board
meets once a year at an operational location and regular verbal
communication is maintained by the Chairman between meetings to ensure
all Directors are well informed on strategic and operational issues.

The Board has a number of matters reserved for its consideration, with
principal responsibilities being to agree the overall strategy and investment
policy, to approve major capital expenditure, to monitor performance and
risk management procedures of senior management, to ensure that there are
proper internal controls in place and to consider major acquisitions or
disposals. The Directors have full and timely access to information with Board
papers distributed in advance of meetings.

The Board keeps the roles and contribution made by each director under
review and changes in responsibilities are made where necessary to improve
the Board’s effectiveness. To provide a more manageable process and better
control, certain of the Board’s powers have been delegated to committees.

6.7 Audit Committee
Following Ewan Brown’s resignation from the Audit Committee on 2
December 2005, the Audit Committee now comprises three independent
Non-Executive Directors. It receives reports from major business functions
including the Risk Assurance Function. It also receives reports from the
external auditors. It considers the scope and results of the audit, the interim
and annual financial statements and the accounting and internal control
systems in place throughout the Group. The Audit Committee reviews the
cost effectiveness, independence and objectivity of the internal and external
auditors. 

The Audit Committee report is set out on page 26.

6.8 Remuneration Committee
The Remuneration Committee makes recommendations to the Board for
ensuring that the Executive Directors’ remuneration is appropriate to attract,
motivate and retain Executive Directors of the quality needed to run the
Group’s business successfully. The constitution and operation of the
Remuneration Committee complies with the principles and provisions of the
Combined Code and this is detailed in the Remuneration Committee report
laid out on pages 28 to 34.

6.9 Nomination Committee
The Nomination Committee currently comprises four Non-Executive
Directors (one of whom is the Chairman of the Company) that the Board
considers to be independent. The Committee is responsible for evaluating
the balance of skills, knowledge and experience of the Board, and where
appropriate suggesting new appointments.

The Nomination Committee report is set out on page 27.

6.10 Health, Safety and Environmental

Committee

The Health, Safety and Environmental Committee is chaired by an independent
Non-Executive Director, Janet Morgan, and comprises one other independent
Non-Executive Director, Iain Duffin, and one other Non-Executive Director,
Ann Gloag who joined the Committee in June 2005. One Executive Director,
Graham Eccles was also a member of the Committee until his retirement on 30
April 2006. The Committee was established to discuss health, safety and
environmental issues across the Group and to report regularly to the Board on
these matters. It has access to internal safety executives and also external
consultants.

The Health, Safety and Environmental Committee report is set out on 
page 27.

Minutes are taken of each meeting of the Board and its Committees. Where
any director has significant concerns that cannot be resolved about the
running of the Group or a proposed action, these concerns are recorded in
the minutes. It is also the Group’s policy that where a director resigns, the
director is asked to provide a written statement to the Chairman of any
concerns leading to his or her resignation.

6.5 Operational Management of the Group

The Board delegates the operational management of the Group to the Group
Chief Executive and Executive Directors. The Executive Directors maintain
day-to-day contact and meet regularly face-to-face or in videoconferences
with non-board senior management. Following the Group’s disposal of its
New Zealand operations in November 2005, there are three principal
operating divisions (UK Bus: headed by a Managing Director, North America:
headed by two Chief Operating Officers and UK Rail: headed by a Chief
Executive) which each comprise a varying number of autonomous business
units, each headed by a chairman or managing director who is responsible for
the day-to-day performance of the business unit. Each chairman or
managing director is supported by his/her own management teams.

A Rail Business Development Committee, comprising the two Group
Executive Directors and other senior management, oversees the performance
and development of the Group’s rail business, including bidding on new rail
franchises.

The Group’s joint venture, Virgin Rail Group, is headed by a Chief Executive.
Virgin Rail Group board meetings were attended by the Group Executive
Director of Rail and the Company Secretary during the year. On the Group
Executive Director of Rail’s retirement, the Chief Executive of the Rail division
assumed this role. 

6.6 Performance evaluation
The Board assesses its own performance and the performance of each
individual Board member; this assessment is co-ordinated and directed by
the Chairman with the support of the Company Secretary. The Senior
Independent Non-Executive Director co-ordinates the Board’s assessment of
the performance of the Chairman. As part of the assessment process, the
Non-Executive Directors meet without the Executive Directors being present.
The Non-Executive Directors also meet without the Chairman being present.
The Chairman obtains feedback from each individual Director on the
performance of the Board and other Board members – this involves the
completion of a questionnaire and a follow-up discussion. In the same way,
the Senior Independent Non-Executive Director obtains feedback from each
individual director on the performance of the Chairman. A similar process is
undertaken to assess the performance of each of the Board’s committees.

The Directors have reviewed the effectiveness of the Board as a whole and its
committees. Each Director has assessed the effectiveness of the Board and
each committee of which he or she is a member.

The assessment of effectiveness included :
• Consideration of the effectiveness of the formal Board and committee

meetings;

• The nature and extent of the Board’s interaction with the management of

the Group;

• The timeliness, relevance and accuracy of the information provided to the

Board and its committees;

• The allocation of the Board’s time between differing priorities including
the time spent on strategic considerations relative to other matters; and

• The composition of the Board and its committees.

The Board has considered the results of these assessments and has concluded
that overall the Board and the committees continue to operate in an
effective and constructive manner.

Stagecoach Group plc | page 23

Corporate governance report

6.11 Individual director participation at meetings
The following is a table of participation in full Board meetings and meetings of committees by Director during the year ended 30 April 2006:

PARTICIPATION
IN MEETINGS 

Full Board 
meetings

Audit
Committee

Remuneration
Committee

Health, Safety and
Environmental Committee 

Nomination
Committee

Robert Speirs

Brian Souter

Martin Griffiths

Graham Eccles

Ewan Brown

Iain Duffin

Ann Gloag

Sir George Mathewson

Janet Morgan

Russell Walls

Actual

Possible

Actual

Possible

Actual

Possible

Actual

Possible

Actual

Possible

6

6

6

6

6

6

6

n/a

5

5

6

6

6

6

6

6

6

n/a

6

6

n/a

n/a

n/a

n/a

2

4

n/a

n/a

3

4

n/a

n/a

n/a

n/a

2

4

n/a

n/a

4

4

n/a

n/a

n/a

n/a

n/a

3

n/a

n/a

3

3

n/a

n/a

n/a

n/a

n/a

3

n/a

n/a

3

3

n/a

n/a

n/a

3

n/a

3

2

n/a

3

n/a

n/a

n/a

n/a

3

n/a

3

3

n/a

3

n/a

1

1

n/a

n/a

1

n/a

n/a

n/a

0

0

1

1

n/a

n/a

1

n/a

n/a

n/a

0

0

6.12 Relations with shareholders
The Board endeavours to present a balanced and understandable assessment
of the Group’s position and prospects in all of its communications with
shareholders.

The Board considers communications with shareholders, whether large or
small, external or employee, to be extremely important. The Group holds
periodic meetings with representatives of major institutional shareholders,
other fund managers and representatives of the financial press.

The programme of investor relations includes presentations in London of the
full-year and interim results and meetings with institutional investors in the
UK and overseas. Investor and analyst feedback is sought after presentations
to ensure key strategies, market trends and actions being taken are being
effectively communicated and shareholder objectives are known. During the
year, written responses are given to letters or e-mails received from
shareholders and all shareholders receive interim and annual reports or the
summary annual report. Each shareholder is given the opportunity to elect
which document they require and this allows our reporting to be more
focused towards the needs of individual shareholders. Information is also
available on the Group’s website (http://www.stagecoachgroup.com).

The Board receives regular updates on the views of shareholders through
briefings from the Chairman and the Executive Directors, reports from the
Company’s brokers and reports from the Company’s Financial PR consultants.
The Senior Independent Non-Executive Director is available to shareholders
where contact through the normal channels is inappropriate, or has failed to
resolve concerns.

Private and institutional shareholders are welcome to attend and participate
at the Annual General Meeting and any Extraordinary General Meetings. The
Group aims to ensure that all Directors, including the chairmen of the Audit,
Remuneration, Nomination and Health, Safety and Environmental
Committees are available at the Annual General Meeting to answer
questions. The Annual General Meeting provides an opportunity for
shareholders to question the Chairman and other Directors on a variety of
topics and further information is provided at the Annual General Meeting on
the Group’s principal business activities. It is the Company’s policy to propose
a separate resolution at the Annual General Meeting for each substantially
separate issue. Resolutions are proposed annually in respect of the financial
statements, and the Remuneration report. At each Annual General Meeting,
the Chairman reports, after each show of hands, details of all proxy votes
lodged for and against each resolution, and the number of abstentions.
Details of the proxy votes are also published on the Group’s website at
http://www.stagecoachgroup.com/scg/ir/shareholder/agm/ 
The Company and its Registrars have established procedures to ensure that
votes cast are properly received and recorded.

6.13 Risk management
The Group has an ongoing process for identifying, evaluating and managing
the significant risks that it faces. The Board regularly reviews the process, and
the Board considers that the process accords with the Turnbull Guidance on
internal control.

The principal risks and uncertainties facing the Group are discussed on pages
13 and 14.

The Board considers acceptance of appropriate risks to be an integral part of
business and unacceptable levels of risk are avoided or reduced and, in some
cases, transferred to third parties. Internal controls are used to identify and
manage acceptable levels of risk. The Directors acknowledge their
responsibility for establishing and maintaining the Group’s system of internal
control, and for reviewing its effectiveness. Although the system can provide
only reasonable and not absolute assurance of material misstatement or loss,
the Group’s system is designed to provide the Directors with reasonable
assurance that any risks or problems are identified on a timely basis and dealt
with appropriately. The Group has established an ongoing process of risk
review and certification by the business heads of each operating unit.

Certain of the Group’s businesses are subject to significant risk. Each
identified business risk is assessed for its probability of occurrence and its
potential severity of occurrence. Where necessary, the Board considers
whether it is appropriate to accept certain risks that cannot be fully controlled
or mitigated by the Group.

The Group’s risk management process is presently being introduced to those
businesses recently acquired by the Group but was embedded throughout
the rest of the businesses during the financial year ended 30 April 2006 and
up to the date of the approval of this report. The Board has carried out a
review of the effectiveness of the Group’s internal control environment and
such reviews are supported on an ongoing basis by the work of the Audit
Committee. The Board is satisfied that the processes are in place to ensure
that risks are appropriately managed.

The Board has designated specific individuals to oversee the internal control
and risk management processes, while recognising that it retains ultimate
responsibility for these. The Board believes that it is important that these
processes remain rooted throughout the business and the managing director
of each operating unit is responsible for the internal control framework
within that unit. The Audit Committee meets with representatives of
operating units because this is one way for an independent and objective
appraisal of risk management to be obtained.

Self-assessment of risk conducted by the Directors and senior management is
ongoing and has been considered at several levels, with each division
maintaining a separate risk profile.

page 24 | Stagecoach Group plc

The Group Risk Assurance function, which is outsourced to and managed by
Deloitte, reports to the Audit Committee and is utilised in monitoring risk
management processes to determine whether internal controls are
effectively designed and properly implemented. A risk-based approach is
applied to the implementation and monitoring of controls. The monitoring
process also forms the basis for maintaining the integrity and improving
where possible the Group’s full risk management process in the context of
the Group’s overall goals.

The Audit Committee reviews Group Risk Assurance plans, as well as external
audit plans and any business improvement opportunities that are
recommended by the external auditors.

Virgin Rail Group has its own audit committee and internal audit function.
The Group’s risk management process does not specifically cover Virgin Rail
Group, but the Group maintains an overview of Virgin Rail Group’s business
risk management process through representation on the board and audit
committee. Stagecoach management representatives also meet regularly
with representatives of Virgin Rail Group to ensure that the joint venture
follows appropriate risk management procedures. The Group’s Audit
Committee reviews the financial statements of Virgin Rail Group together
with the minutes, external audit presentations, management presentations
and internal audit presentations from the Virgin Rail Group audit committee
meetings.

6.14 Internal control
The wider process described above and the key procedures noted below,
enable the Directors to confirm that they have reviewed the effectiveness of
the system of internal control of the Group during the year. The key
procedures, which the Directors have established, are as follows:
• an annual budgeting process with periodic re-forecasting of out-turn,
identifying key risks and opportunities. All budgets are presented to a
panel consisting of Executive Directors and/or senior managers by each
business unit’s management team, before being approved by the Board.

• reporting of financial information to the Board encompassing income
statement, cash flow, balance sheet and key performance indicators.
Group management monitors the results throughout each financial year.

• a Risk Assurance function which reviews key business processes and
business controls, reporting directly to the Audit Committee.

• third party reviews commissioned periodically by the Group of areas where

significant inherent risks have been identified, such as treasury
management, insurance provisioning, pensions strategy and competition
policy.

• a decentralised organisation structure with clearly defined limits of

responsibility and authority to promote effective and efficient operations.

• control over the activities of joint ventures and associated undertakings

through Stagecoach representation on the boards of the entities together
with regular contact between Stagecoach management and the
management of the relevant entities.

• a performance management appraisal system covers the Group’s senior
management and is based on agreed financial and other performance
objectives, many of which incorporate managing risk.

• significant emphasis is placed on cash flow management. Bank balances
are reviewed on a daily basis, cash flows are compared to budget on a
four-weekly basis and any material variances between earnings and
expected cash flows are investigated.

• regular reporting to the Board and/or its Committees on specific matters

including updated key risks, taxation, pensions, insurance, treasury
management, foreign exchange, interest and commodity exposures. The
Board regulates treasury management policies and procedures.

• defined capital expenditure and other investment approval procedures,

including due diligence requirements where material businesses are being
acquired or divested.

• each operating unit maintains controls and procedures appropriate to the

business. A written certificate is provided at least annually by the
management of each business confirming that they have reviewed the
effectiveness of the system of internal control during the year. As might be
expected, a number of minor internal control weaknesses were identified
by this procedure. None of the weaknesses have resulted in any material
losses, contingencies or uncertainties that would require disclosure in the
Group’s Annual Report. This process is considered to be an integral part of
the maintenance and improvement of our risk management procedures.
• a competition compliance programme, which the Board has approved and

which is subject to regular monitoring.

6.15 Pension schemes 
The assets of the Group’s pension schemes are held under trust, separate
from the assets of the Group and are invested with a number of
independent fund managers. There are twelve trustees for the principal UK
scheme of whom five are employee representatives nominated by the
members on a regional basis and one is a pensioner trustee. The chairman
of the trustees of the principal UK scheme served for eight years as a fund
member elected representative on the National Association of Pension
Funds’ investment council. He also sits independently on two industry-wide
schemes, as a DTI appointed trustee of the Mineworkers’ Pension Scheme
and as an elected representative of all railway employers on the board of the
Railways Pension Scheme. The other trustees of the principal UK scheme
include senior Group and UK Bus executives. 

PricewaterhouseCoopers LLP acts as the actuary and investment advisor for a
pension scheme acquired as part of the acquisition of Traction Group Limited
during the year, The Yorkshire Traction Company Limited Pension Plan.
Pricewaterhouse Coopers do not act as actuaries or advisors of any of the
other principal UK pension schemes. 

During the financial year ended 30 April 2005, a Pensions Oversight
Committee was established. This Committee is chaired by a Non-Executive
Director and also comprises one Executive Director and other members of
senior management. The Committee operates at a strategic level and its
remit covers all matters affecting the Group’s pension schemes from the
perspective of the Group, and it will consider, develop and propose
recommendations to the Board in respect of such issues as may arise. The
Committee reviews pension scheme funding issues and implications,
investment strategy, and the related administration for all of the employee
pension schemes of the Group and its wholly owned subsidiaries.

Stagecoach Group plc | page 25

7. Audit Committee report

7.1
Composition of the Audit Committee
The Audit Committee presently comprises three independent Non-Executive
Directors. At the present time, its members are Russell Walls (Chairman),
Janet Morgan and Iain Duffin. Russell Walls is a former Finance Director of a
FTSE 100 company. The Committee therefore has significant recent and
relevant financial expertise and is appropriately qualified to undertake its
duties in an effective manner. Ewan Brown resigned from the Committee on
2 December 2005.

7.2 Operation of the Audit Committee
The Audit Committee met four times during the year and has met a further
time in June 2006. It receives reports from major business functions
including the Risk Assurance Function (internal audit), which is outsourced
and managed by Deloitte. It also receives reports from the external auditors.
It considers the scope and results of the audit, the interim and annual
financial statements and the accounting and internal control systems in place
throughout the Group. The Audit Committee reviews the cost effectiveness,
independence and objectivity of the internal and external auditors.

The terms of reference of the Audit Committee are available on the Group’s
website at
http://www.stagecoachgroup.com/scg/csr/corpgov/committees/audit.pdf

Review of External Auditors

7.3
The Audit Committee has the delegated responsibility for making
recommendations on the appointment, reappointment, removal and
remuneration of the external auditors. There have been no instances of
disagreements between the Board and the Audit Committee relating to the
external auditors.

Subject to the annual appointment of auditors by the shareholders, the Audit
Committee conducts a continuous review of the relationship between the
Group and the auditors. This review includes:
• the consideration of audit fees that should be paid and advance approval
of any other fees in excess of £50,000 cumulative which are payable to
auditors or affiliated firms in respect of non-audit activities;
• the consideration of the auditors’ independence and objectivity;
• the nature and scope of the external audit and the arrangements which

have been made to ensure co-ordination where more than one audit firm
or offices of the same firm are involved; and

• discussions on such issues as compliance with accounting standards.

The Committee formally assesses the effectiveness of the external audit
process on an annual basis.

The Audit Committee, having considered the external auditors’ performance
during their period in office, recommends re-appointment. The audit fees of
£0.7m for PricewaterhouseCoopers LLP and non-audit related fees of £0.1m
were discussed by the Audit Committee and considered appropriate given
the current size of the Group and the level of corporate activity undertaken
during the year. The Committee believes the level and scope of non-audit
services does not impair the objectivity of the auditors and that there is a
clear benefit obtained from using professional advisors who have a good
understanding of the Group’s operations. Other accounting or consulting
firms have been used where the Group recognises them as having particular
areas of expertise or where potential conflicts of interest for the auditors are
identified.

7.4

Policy on the Auditors Providing 
Non-Audit Services

Procedures in respect of other services provided by the auditors are :
• Audit related services - These are services that the auditors must
undertake or are best placed to undertake by virtue of their role as
auditors. Such services include formalities relating to bank financing,
regulatory reports, and certain shareholder circulars. The auditors would
generally provide all such services, subject to approval by the Audit
Committee.

• Tax consulting - It is the Group’s policy to select the advisor for each

specific piece of tax consulting work who has the most appropriate skills
and experience for the work required. The Group uses a range of advisors
for tax consulting, including the auditors where they are best suited to the
work being undertaken, subject to approval by the Audit Committee.
• General consulting - For other consulting work, the Group will select an
advisor after taking account of the skills and experience required and the
expected cost of the work. The Group uses a range of advisors for general
consulting, including the auditors where they are best suited to the work
being undertaken. The auditors are only permitted to provide general
consulting when the Group, the Audit Committee and the auditors are
satisfied that there are no circumstances that would lead to a threat to the
audit team’s independence or a conflict of interest.

Review of Risk Assurance Function

7.5
The Audit Committee has the delegated responsibility for making
recommendations on the appointment, reappointment, removal and
remuneration of the Group Risk Assurance Function (internal auditors).
There have been no instances of disagreements between the Board and the
Audit Committee relating to the Risk Assurance Function.

The Audit Committee conducts a continuous review of the relationship
between the Group and the Risk Assurance Function. This review includes a
consideration of independence and objectivity, the overall level of fees, the
quality of the risk assurance process, and the role of the function in the
context of the broader sources of risk assurance.

The Committee formally assesses the effectiveness of the risk assurance
function on an annual basis.

“Speaking Up” Policy

7.6
The Audit Committee reviews the Group’s “Speaking Up” policy, which
provides a mechanism for employees with serious concerns about the
interests of others or the Group to come forward. The Committee ensures
that appropriate arrangements are in place to receive and act proportionately
upon a complaint about malpractice. The Committee takes a particular
interest in any reports of possible improprieties in financial reporting.

Russell Walls
Chairman of the Audit Committee

28 June 2006

page 26 | Stagecoach Group plc

8. Nomination Committee report

8.1

Composition of the Nomination
Committee

The Nomination Committee currently comprises four Non-Executive
Directors that the Board considers to be independent, Robert Speirs (who
acts as Chairman), Ewan Brown, Russell Walls and Janet Morgan. The
Committee may also include, by invitation, the other Non-Executive
Directors, as necessary. Brian Souter resigned from the Nomination
Committee during the year.

8.2 Operation of the Nomination Committee
The Committee is responsible for evaluating the balance of skills, knowledge
and experience of the Board, and where appropriate suggesting new
appointments. Based on its assessment, the Committee will prepare a
description of the role and the required attributes for each particular
appointment. The description will include a job specification, the estimate of
the time commitment expected, and the Group’s policy on Directors having
other significant commitments. Potential candidates will be asked to disclose
their other commitments and confirm that they will have sufficient time to
meet what is expected of them. The Directors are also required to report any
significant changes in their other commitments as they arise. The Committee
will identify suitable candidates and make proposals for each appointment,
although final appointments are the responsibility of the Board as a whole.

Non-Executive Directors receive a letter of appointment. For any new
appointments, the letter of appointment will set out the expected time
commitment.

No Director of the Company is currently a chairman of a FTSE 100 company. 

8.3
Succession Planning Arrangements
The Board and the Nomination Committee recognise the importance of
succession planning to ensure that the Group continues to prosper in the
longer term. The Group operates a decentralised organisational structure
with clearly defined limits of responsibility and authority, and oversight from
head office. This structure provides the opportunity for managers to develop
in some of the Group’s smaller business units before progressing to wider
and more responsible roles. The Group has a history of developing good
managers who have progressed to take on senior positions within the Group.
The Group operates a graduate recruitment programme, and some of the
graduates recruited have gone on to become Managing Directors of
individual business units.

The Nomination Committee is mindful of the need to ensure appropriate
succession arrangements are in place for the Directors. The Nomination
Committee and the Board seeks to identify new Directors and senior
managers to ensure succession of Directors is conducted in a managed way,
without significant disruption to the ongoing business of the Group.

Robert Speirs
Chairman of the Nomination Committee

The terms of reference of the Nomination Committee are available on the
Group’s website at
http://www.stagecoachgroup.com/scg/csr/corpgov/committees/nom.pdf

28 June 2006

9. Health, Safety and Environmental Committee report

9.1

Composition of the Health, Safety and 
Environmental Committee

The Health, Safety and Environmental Committee is chaired by an
independent Non-Executive Director, Janet Morgan, and comprises one other
independent Non-Executive Director, Iain Duffin, and one other Non-
Executive Director, Ann Gloag who joined the Committee in June 2005. One
Executive Director, Graham Eccles was also a member of the Committee until
his retirement on 30 April 2006. 

The terms of reference of the Health, Safety and Environmental Committee
are available on the Group’s website at http://www.stagecoachgroup.com/scg
/csr/corpgov/committees/health.pdf

9.2 Operation of the Health, Safety and

Environmental Committee

The Committee was established to discuss health, safety and environmental
issues across the Group and to report regularly to the Board on these
matters. The Committee also approves the Group’s overall strategic safety
network. It has access to internal safety executives and also external
consultants. 

Managers from each of the Group’s key divisions attend meetings of the
Committee from time to time providing the Committee with an opportunity

to question and challenge management on health, safety and environmental
matters.

The Committee visits operational locations to observe health, safety and
environmental management in practice.

The Committee receives reports on trends in health and safety indicators
across the Group as well as information on significant accidents involving the
Group.

Details of the Group’s health, safety and environmental policies and activities
are contained in section 3.11.4 on pages 15 and 16 of this Annual Report.

Janet Morgan
Chairman of the Health, Safety and Environmental Committee

28 June 2006

Stagecoach Group plc | page 27

10. Remuneration Committee report

The Board supports the principles of good corporate governance relating to
Directors’ remuneration and has applied them as described below.

In accordance with Schedule 7A “Directors’ Remuneration Report” of the
Companies Act 1985, those paragraphs that have been audited have been
highlighted as such.

10.1 Composition of the Remuneration 

Committee

During the year ended 30 April 2006, Iain Duffin chaired the Remuneration
Committee and the other members were Russell Walls and Janet Morgan, all
three of whom are independent Non-Executive Directors. The Committee,
which was established in December 1992, has delegated responsibility for
approving the remuneration and terms of employment for the Executive
Directors and the Chairman, including pensions rights and any compensation
payments. The Remuneration Committee also monitors and makes
appropriate recommendations with respect to the remuneration of other
senior management.

The Board of Directors as a whole, having given due regard to the required
time commitment and responsibilities, sets the fees and expenses payable to
the Non-Executive Directors. Non-Executive Directors do not hold any share
options, nor do they participate in any incentive plans or pension schemes
with the exception of Ann Gloag who receives a pension accrued when she
was an executive director. The members of the Remuneration Committee

have no personal interest in the matters to be decided other than as
shareholders, no potential conflicts of interest arising from cross-
directorships and no day-to-day involvement in running the businesses of
the Stagecoach Group.

Both the constitution and operation of the Remuneration Committee
comply with the principles incorporated in the Combined Code. In preparing
this Remuneration report, the Remuneration Committee has followed the
provisions of the Combined Code.

The terms of reference of the Remuneration Committee are available on the
Group’s website at http://www.stagecoachgroup.com/scg/csr/corpgov/
committees/remun.pdf

10.2 Performance graph
The graph below charts the performance of the Stagecoach Group Total
Shareholder Return (‘‘TSR’’) (share value movement plus reinvested
dividends) over the 5 years to 30 April 2006 compared with that of the FTSE
Transport and Leisure All-Share Index, the FTSE Mid 250 Index and the FTSE
All-Share Index. We have included a further graph to highlight the
Company’s more recent performance, charting TSR for the 12 months up to
30 April 2006.

In assessing the performance of the Company’s TSR the Board believes the
comparator groups it has chosen represent a fair benchmark both in terms of
the nature of the business activity and size of company.

Stagecoach TSR Comparative Performance since 30 April 2001

Stagecoach TSR

FTSE Transport & Leisure TSR

FTSE A/S TSR

FTSE 250 TSR

275

250

225

200

175

150

125

100

75

50

25

0

Apr-01

Jun-01

Aug-01

Oct-01

Dec-01

Feb-02

Apr-02

Jun-02

Aug-02

Oct-02

Dec-02

Feb-03

Apr-03

Jun-03

Aug-03

Oct-03

Dec-03

Feb-04

Apr-04

Jun-04

Aug-04

Oct-04

Dec-04

Feb-05

Apr-05

Jun-05

Aug-05

Oct-05

Dec-05

Feb-06

Apr-06

Stagecoach 1 Year TSR Comparative Performance to 30 April 2006

Stagecoach TSR

FTSE Transport & Leisure TSR

FTSE A/S TSR

FTSE 250 TSR

160

150

140

130

120

110

100

90

Apr-05

May-05

Jun-05

Jul-05

Aug-05

Sept-05

Oct-05

Nov-05

Dec-05

Jan-06

Feb-06

Mar-06

Apr-06

page 28 | Stagecoach Group plc

10. Remuneration Committee report

10.3 Remuneration Policy
The Remuneration Policy was approved by our shareholders at the 2005
Annual General Meeting. The Remuneration Committee follows the
Combined Code in designing performance-related remuneration schemes.

In determining appropriate levels of remuneration for the Executive
Directors, the Remuneration Committee aims to provide overall packages of
terms and conditions that are competitive in the UK and will attract, retain
and motivate high quality executives capable of achieving Stagecoach
Group’s objectives and to ensure that they are fairly rewarded for their
individual responsibilities and contributions to the Group’s overall
performance. The Remuneration Committee believes that such packages
should contain significant performance-related elements and that these
performance-related elements should be designed to align the interests of
the Executive Directors and other senior managers with the interests of
shareholders. Performance targets are established to achieve consistency with
the interests of shareholders, with an appropriate balance between short-
and long-term targets. Performance targets include traditional financial
indicators and personal targets, successful investment, innovation, staff
development, customer satisfaction and achievement of regulatory
requirements, including health and safety and environmental targets.

To this end, the Remuneration Committee reviews the existing remuneration
of the Executive Directors, in consultation with the Chief Executive, making
comparisons with peer companies of similar size and complexity and with
other companies in the public transport industry in the UK and overseas.
Proposals for the forthcoming year are then discussed in the light of the
prospects for the Group. The Remuneration Committee is also kept informed
of the salary levels of other senior executives employed by the Stagecoach
Group and of average earnings for all employees. With regard to pensions,
the Remuneration Committee has access to reports from the trustees and
scheme actuaries regarding the cost of pension obligations.

Shareholders are invited to specifically approve all new long-term
remuneration plans (whether share-settled or cash-settled plans) and any
significant changes to existing plans, except where otherwise permitted by
the Listing Rules. New arrangements were approved by shareholders at the
2005 Annual General Meeting and the Committee considers that the
arrangements that were approved by shareholders remain appropriate.

The Remuneration Committee believes that remuneration packages should

reward the efforts of all staff since a motivated workforce is a key element of
Group performance. The Committee recognises that Executive Directors bear
the greatest responsibility for delivering corporate strategy that underpins
long-term sustainable performance. While the Remuneration Committee’s
report focuses on incentive schemes for senior executives, there are also a
number of performance-related bonus schemes within Group companies, in
addition to the UK-only SAYE scheme.

10.4 Remuneration of Executive Directors and 

Other Executives (audited)

The remuneration of the Executive Directors and other executives may
comprise a number of elements from the following:
• Basic salary;
• Performance-related annual cash bonuses;
• Executive Participation Programme (“EPP”);
• Benefits in kind and other allowances;
• Pension arrangements;
• Share options;
• Long Term Bonus Scheme (“LTBS”); and 
• Long Term Incentive Plan (“LTIP”).

The participation of the three Executive Directors in the above arrangements
during the year ended 30 April 2006 is summarised in Table 1. The Executive
Directors have not received executive share options in the year ended 30
April 2006 and the LTBS has been unwound following shareholder approval
of the EPP and LTIP at the 2005 AGM.

Each Executive Director’s remuneration package is tailored to the individual
to ensure an appropriate balance of reward for responsibilities, motivation,
retention and share participation, whilst ensuring the overall packages are
appropriate to recruit and retain high quality executives capable of achieving
the Group’s objectives.

Directors’ remuneration for the year ended 30 April 2006 is shown in Table 2
below and Directors’ pension benefits are shown in Table 3 on page 30.

TABLE 1 – DIRECTORS’
PARTICIPATION

Brian Souter
Graham Eccles
Martin Griffiths 

Basic
Salary/Annual
bonus

YES
YES
YES 

EPP

YES
NO‡
YES 

Benefits in
kind

YES
YES 
YES 

Pension

YES
YES 
YES 

Share
Options

NO*
NO* 
NO* 

LTBS

NO
YES†
NO 

LTIP

YES
NO‡
YES 

* The Executive Directors have not received further awards of executive share options, following the approval of the EPP and LTIP at the 2005 AGM

† The LTBS has now been unwound following Graham Eccles’ retirement on 30 April 2006

‡Graham Eccles has not participated in the EPP nor the LTIP because he retired as a Director on 30 April 2006

TABLE 2 – DIRECTORS’ REMUNERATION
(amounts in £000) 

Salary/fees 

Performance
related bonus (cash)

Performance related
bonus (EPP)

Benefits in
kind

Non-pensionable
allowances†

Total

2006

2005

2006

2005

2006

2005

2006

2005

2006

2005

2006

2005

Executive directors
Brian Souter
Graham Eccles
Martin Griffiths
Non-executive directors
Ewan Brown
Ann Gloag
Robert Speirs
Russell Walls
Janet Morgan
Iain Duffin

499
269
242

38
38
110
38
38
38

484
261
220

32
32
90
32
32
32

204
161
103

Nil
Nil
Nil
Nil
Nil
Nil

339
183
154

Nil
Nil
Nil
Nil
Nil
Nil

204
Nil
103

Nil
Nil
Nil
Nil
Nil
Nil

Total

1,310

1,215

468

676

307

Nil
Nil
Nil

Nil
Nil
Nil
Nil
Nil
Nil

Nil

17
25
20

Nil
Nil
Nil
Nil
Nil
Nil

62

17
24
20

Nil
Nil
Nil
Nil
Nil
Nil

61

n/a
44
36

n/a
n/a
n/a
n/a
n/a
n/a

80

n/a
46
33

n/a
n/a
n/a
n/a
n/a
n/a

924
499
504

38
38
110
38
38
38

840
514
427

32
32
90
32
32
32

79 2,227

2,031

† Non-pensionable allowances represent additional taxable remuneration paid to provide pension benefits

Stagecoach Group plc | page 29

TABLE 3 – DIRECTORS ’ PENSION BENEFITS
(amounts in £000)

Additional
accrued benefits 
in the year

Excluding Including
inflation
inflation

Accrued
pension 

Accrued lump
sum

Transfer value
of increase
(excluding inflation)

Increase in 
transfer value less
Directors’ contributions

2006

2005

2006

2005

2006

2005

Executive directors
Brian Souter
Graham Eccles
Martin Griffiths

51
11
12

70
14
15

264
25
30

244
21
26

489
74
89

439
64
78

167
35
13

146
33
12

135
35
13

Graham Eccles and Martin Griffiths were not members of the Group pension
schemes before the introduction of the pensionable salary cap in June 1989.
They are each paid a non-pensionable allowance, which is equivalent to the
cost of a money purchase contribution of 20% of their salary in excess of the
pensionable salary cap.

During the year ended 30 April 2002, the remaining proceeds of a small self
administered money purchase scheme (‘‘SSAS’’) established for Brian Souter
and Ann Gloag in 1992 were transferred into the Stagecoach Group Pension
Scheme to secure additional final salary type benefits equivalent in actuarial
value to the proceeds transferred. The additional benefits are reflected in the
disclosure of Brian Souter’s accrued benefits above. In Ann Gloag’s case, her
share of the SSAS assets along with the cash equivalent of her benefits in the
Stagecoach Group Pension Scheme were transferred into a personal pension
arrangement that provides her with an annual pension of £81,000. Employer
contributions to the SSAS ceased in 2000 for Ann Gloag and in 2001 for
Brian Souter.

Directors who are members of the Stagecoach Group Pension Scheme have
the option to pay additional voluntary contributions (‘‘AVCs’’). Neither the
contributions nor the resulting benefits of any AVCs are included in the table
above.

Each of the elements of remuneration is discussed further below.

10.5 Basic salary
The salary of individual Executive Directors is reviewed at 1 May each year.
Account is taken of individual achievements, together with any changes in
responsibilities that may have occurred and, as stated above, the salaries for
similar roles in comparable companies.

10.6 Performance-related annual cash bonuses
An annual discretionary bonus scheme for the Executive Directors was first
introduced in 1993. Bonuses are non-pensionable.

At the start of each financial year, the Board agrees specific objectives for
each Executive Director. Following the end of each financial year, the
Remuneration Committee determines the performance-related annual cash
bonus for each Executive Director for the year just ended. This is based on the
Director’s performance in achieving the objectives agreed. These comprise
both financial and non-financial objectives. For Executive Directors, the
financial objectives for the year ended 30 April 2006 were to better the
Group’s financial targets for the financial year with respect to measures of
earnings before interest and taxation, earnings per share, and net debt. The
non-financial objectives are specific to each Executive Director and cover
matters such as safety targets, environmental targets, successful investment,
innovation, staff development, customer satisfaction, successful business
acquisitions/disposals and regulatory requirements.

TABLE 4 – DIRECTORS’ BONUSES

Actual bonus as a 
percentage of 
basic salary

Maximum potential
bonus as a
percentage of
basic salary

Director

Cash

Shares

Cash

Brian Souter
Graham Eccles
Martin Griffiths

41%
60%
42.5% 42.5%

41%
Nil

50%
70%
50%

Shares

50%
Nil
50%

50% of the actual annual bonus payable to Brian Souter and Martin Griffiths
is settled in cash, with the balance deferred as shares under the EPP (see
section 10.7).

For the year ending 30 April 2007, Brian Souter and Martin Griffiths each
have a maximum potential bonus of up to 100% of basic salary, 70% for
meeting demanding financial objectives and 30% for meeting personal non-
financial objectives. 50% of any actual bonus will be deferred as shares under
the EPP.

10.7 Executive Participation Programme
A new Executive Participation Programme (‘‘EPP’’) was approved at the 2005
Annual General Meeting. The first awards under the EPP will be for the financial
year ended 30 April 2006, with deferred shares allocated in June or July 2006.

The intention of the EPP is to further align the interests of managers with
shareholders by giving managers a greater direct interest in the performance of
the Company’s shares. The EPP is such that the executives can benefit from
both capital growth (i.e. increases in share price) and dividend yield. The EPP is
also designed to provide an incentive for managers to remain with the Group
and forms a core part of the Group’s succession and management
development plans.

Awards under the EPP can be to Executive Directors and other managers.
Participants are required to sacrifice 50% of their actual annual bonus award
and are awarded deferred shares with an initial market value approximately
equal to the amount of the actual cash bonus foregone.

Absolute and full entitlement to the shares is deferred for three years.

There are no specific performance conditions attaching to the release of
deferred shares because the annual bonus is already subject to performance
conditions and there are no awards of matching shares in respect of annual
bonuses - the EPP is to encourage executives to invest an element of their
annual bonus in the Company’s shares. The EPP is an effective retention
programme in that a participant would lose his or her entitlement to the
deferred shares if he/she left of his/her own volition during the three-year
deferral period.

Where an individual receives an award under the EPP, he or she does not also
receive an award of executive share options in the same financial year.

In making its judgement of performance for the last financial year, the
Remuneration Committee had particular regard to the results as recorded
elsewhere in the Annual Report, and relative total return to shareholders over
the year, as well as other strategic developments and operating
improvements. Bonuses awarded to Executive Directors in respect of the year
ended 30 April 2006 are shown in Table 4.

10.8 Benefits in kind and other allowances
Certain Executive Directors receive car, fuel, telephone and healthcare taxable
benefits. Other allowances may be provided as an additional cash payment:
for example, an Executive Director may receive a cash allowance in lieu of a
company car. The value of such benefits is included within Table 2 on page
29 of this report.

page 30 | Stagecoach Group plc

10. Remuneration Committee report

10.9 Pension arrangements
Under the terms of their service agreements, Executive Directors are entitled
to become members of one of the Stagecoach Group’s defined benefit
pension schemes or, if preferred, to receive payment of a proportion of salary
for personal pension schemes. The Stagecoach Group pension schemes are
designed to provide a pension for Executive Directors of up to two-thirds of
final pensionable salary completed up to normal retirement age, subject to
HMRC (formerly Inland Revenue) limits.

The Remuneration Committee has reviewed the implications of the new
pensions regime introduced by the Pensions Act 2004. A notional
pensionable earnings cap has been introduced to replace the previous
statutory pensionable earnings cap and no other changes have been made to
date. The Committee will look to work to the general principle of not
increasing the rate of accrual of pensions benefit nor to increase the annual
cost to the Group as a result of the new regime.

Martin Griffiths and Graham Eccles were subject to the statutory pensionable
earnings cap that existed until 5 April 2006 and since then, the Company has
continued to impose a notional pensionable earnings cap. The Company
makes cash contributions to Martin Griffiths and Graham Eccles for the part
of their salary that exceeds the cap. Only basic salary is pensionable. Life
assurance of four times basic annual salary is provided under the Group
pension scheme.

10.10 Share options (audited)
The Executive Directors are not expected to receive further awards of
executive share options, following the approval of the EPP and LTIP by
shareholders at the 2005 AGM. However, the Executive Directors continue to
hold executive share options that were previously awarded.

Two Directors exercised Executive share options during the year. Details are
shown in Table 5 below.

The interests of Directors who have options to subscribe for ordinary shares
of the Company, together with movements during the year, are shown in
Table 6 on page 32. All of the share options were granted for nil
consideration. The exercise price of the share options reflects the mid-market
price immediately preceding the time of the award: the Group’s policy is not
to offer executive share options at a discount to the mid-market price. The
mid-market price of the underlying ordinary shares at 30 April 2006 was
£1.08 per share (30 April 2005: £1.03 per share). The Company’s ordinary
shares traded in the range £1.01 to £1.23 (year ended 30 April 2005: £0.76
to £1.23) during the year to that date.

Share options are subject to certain performance criteria as discussed on 
page 32.

In addition to the share options shown in Table 6 on page 32, one Director
holds options issued under the Group’s Save As You Earn scheme. Details are
shown in Table 7 on page 32.

Further information on these options is detailed in note 29 to the
consolidated financial statements on pages 81 and 82.

TABLE 5 – OPTIONS EXERCISED IN YEAR
Original date of grant

Date of exercise/sale

Number of
ordinary shares
under option

Exercise price
per share
£

Average selling
price per share
£ 

Gain before
transaction costs
and taxes
£

Graham Eccles
Shares sold immediately on exercise of options
23 July 2002
5 December 2002

Martin Griffiths
Shares sold immediately on exercise of options
23 July 2002
5 December 2002

Total

7 December 2005
7 December 2005

480,000
703,704

0.3750
0.2700

1.1612
1.1612

1,183,704

22 February 2006
7 December 2005

480,000
666,667

0.3750
0.2700

1.1400
1.1612

1,146,667

2,330,371

377,376
627,141

1,004,517

367,200
594,134

961,334

1,965,851

Stagecoach Group plc | page 31

TABLE 6 – EXECUTIVE
SHARE OPTIONS
Grant Date

Brian Souter
23 July 2002
5 December 2002
26 June 2003
12 December 2003
25 June 2004
10 December 2004

Graham Eccles
19 October 1998
19 July 1999
23 July 2002
5 December 2002
26 June 2003
12 December 2003
25 June 2004
10 December 2004

Martin Griffiths
19 October 1998
19 July 1999
23 July 2002
5 December 2002
26 June 2003
12 December 2003
25 June 2004
10 December 2004

TABLE 7
SAYE OPTIONS

Martin Griffiths

As at
1 May 2005

Exercised in year 
(see Table 5)

Lapsed in year

As at 30 April 2006

Exercise price
£

Date from which 
exercisable

Expiry date

1,226,667
1,703,704
582,645
291,022
564,548
217,085

4,585,671

40,396
61,524
480,000
703,704
309,917
154,799
304,665
117,152

Nil
Nil
Nil
Nil
Nil
Nil

Nil

Nil
Nil
Nil
Nil
Nil
Nil

Nil

Nil
Nil
(480,000)
(703,704)
Nil
Nil
Nil
Nil

(40,396)
Nil
Nil
Nil
Nil
Nil
Nil
Nil

1,226,667
1,703,704
582,645
291,022
564,548
217,085

4,585,671

Nil
61,524
Nil
Nil
309,917
154,799
304,665
117,152

2,172,157

(1,183,704)

(40,396)

948,057

29,820
35,519
480,000
666,667
254,132
126,935
256,997
98,822

Nil
Nil
(480,000)
(666,667)
Nil
Nil
Nil
Nil

(29,820)
Nil
Nil
Nil
Nil
Nil
Nil
Nil

Nil
35,519
Nil
Nil
254,132
126,935
256,997
98,822

1,948,892

(1,146,667)

(29,820)

772,405

0.3750
0.2700
0.6050
0.8075
0.8575
1.1150

2.2280
2.0310
0.3750
0.2700
0.6050
0.8075
0.8575
1.1150

2.2280
2.0310
0.3750
0.2700
0.6050
0.8075
0.8575
1.1150

23 Jul 2005
5 Dec 2005
26 Jun 2006
12 Dec 2006
25 Jun 2007
10 Dec 2007

23 Jul 2009
5 Dec 2009
26 Jun 2010
12 Dec 2010
25 Jun 2011
10 Dec 2011

19 Oct 2001
19 Jul 2002
23 Jul 2005
5 Dec 2005
26 Jun 2006
12 Dec 2006
25 Jun 2007
10 Dec 2007

19 Oct 2005
19 Jul 2006
23 Jul 2009
5 Dec 2009
26 Jun 2010
12 Dec 2010
25 Jun 2011
10 Dec 2011

19 Oct 2001
19 Jul 2002
23 Jul 2005
5 Dec 2005
26 Jun 2006
12 Dec 2006
25 Jun 2007
10 Dec 2007

19 Oct 2005
19 Jul 2006
23 Jul 2009
5 Dec 2009
26 Jun 2010
12 Dec 2010
25 Jun 2011
10 Dec 2011

At 1 May 2005 and 30 April 2006
No. of ordinary shares

9,174

The executive share options shown in Table 6 that were awarded on or
before 5 December 2002 have vested and may be exercised at any time. 

All of the outstanding executive share options shown in Table 6 were
issued under The Stagecoach Unapproved Executive Share Option
Scheme (‘‘the Scheme’’). The Scheme was established in September
1997, when it was approved by shareholders at the Annual General
Meeting. The scheme was amended by shareholder approval at an
Extraordinary General Meeting in January 2002. This scheme is also used
to reward senior executives throughout the Group, at the Board’s
discretion.

In December 2004, the Board and the Remuneration Committee agreed
to remove from the Scheme, the ability to award ‘‘Super Options’’.
Therefore, all executive share options awarded on or after 4 December
2004, are ‘‘Ordinary Options’’ which are exercisable between three and
seven years after the date of award. The maximum level of executive
share options that can now be issued to a given individual in any financial
year is two times that individual’s salary, calculated by comparing the
salary to the total number of shares covered by the options multiplied by
the exercise price. The Board and the Remuneration Committee also
agreed to remove from the Scheme, the facility for the performance
condition to be re-tested. Re-testing is prohibited for all executive share
options awarded on or after 4 December 2004. Accordingly, the exercise

of executive share options awarded on or after 4 December 2004 is
subject to earnings per share outperforming inflation over three
consecutive financial years by 3% per annum cumulatively - the base year
is the latest financial year ended prior to the award of the option and the
performance condition may not be re-tested. For ordinary options
awarded up until June 2001, exercise of the options is subject to earnings
per share outperforming inflation over three consecutive financial years
by 2% per annum cumulatively. For ordinary options awarded after June
2001 but prior to 4 December 2004, exercise of the options is subject to
earnings per share outperforming inflation over three consecutive
financial years by 3% per annum, or earnings per share outperforming
inflation over four consecutive financial years by 4% per annum, or
earnings per share outperforming inflation over five consecutive financial
years by 5% per annum.

No awards were made to Directors under this scheme in the financial year
ended 30 April 2006. This follows the new EPP and LTIP remuneration
arrangements put in place for the year ended 30 April 2006, following
shareholder approval at the 2005 AGM.

Under the rules of the Company’s share option schemes, and consistent
with guidance issued by the Association of British Insurers (‘‘ABI’’), there
are limits on the number of share options that can be granted that are to
be satisfied with the issue of new shares. Following the consolidation of

page 32 | Stagecoach Group plc

10. Remuneration Committee report

ordinary shares related to the return of capital in September 2004, the
number of executive share options that had been granted in the previous
10 years exceeded 5% of the issued number of ordinary shares -
therefore, it is not possible to satisfy any new grants of share options
under the executive share option schemes with newly issued shares since
to do so would exceed the limits under the share schemes. Accordingly,
the Board and the Remuneration Committee has determined that all
future grants of share options under the executive share option schemes
will be satisfied with existing shares until such time as there is sufficient
headroom available under the new issue share limits.

The Group’s Employee Share Ownership Trusts are used to acquire and
finance shares to meet contingent obligations under share based
incentive schemes that are not expected to be satisfied through the issue
of new shares. At 30 April 2006, these trusts held 5,318,618 (2005:
6,501,545) 12/19th Ordinary Shares in the Company, representing 0.5%
(2005: 0.6%) of the total issued Ordinary Shares. The Company follows
the ABI guideline that the shares held by Employee Share Ownership
Trusts should not exceed 5% of the total shares in issue. The Employee
Share Ownership Trusts have waived the right to receive dividends on the
shares held by them.

10.11 Long Term Bonus Scheme
The Long Term Bonus Scheme was intended to motivate and retain certain
key executives at the Board’s discretion. It has been unwound following
shareholder approval of the LTIP and EPP remuneration arrangements at the
2005 AGM and Graham Eccles retirement on 30 April 2006.

Graham Eccles and Martin Griffiths were the only participants in The
Stagecoach Executive Directors’ Long Term Bonus Scheme. Under this Scheme,
Graham Eccles could be awarded an additional annual bonus of £100,000 per
financial year for each of the three years commencing 1 May 2003. The
performance condition of the Scheme was such that the bonuses were payable
if the growth in earnings per share each financial year outperformed inflation
by at least 5%. The performance conditions in respect of the years ended 30
April 2004, 30 April 2005 and 30 April 2006 were satisfied.

In conjunction with the introduction of the new long-term remuneration
schemes, Martin Griffiths waived his entitlement to any current or future
amounts under the existing Long Term Bonus Scheme. As Graham Eccles
retired on 30 April 2006 his existing arrangement under the Long Term
Bonus Scheme remained in place and the final payment will be made in June
2006, all the necessary conditions having been satisfied.

10.12 Long Term Incentive Plan
For a small number of senior executives, including Executive Directors, a new
long-term incentive plan (‘‘LTIP’’) was approved at the 2005 AGM. The LTIP
introduces stringent performance criteria related to total shareholder return
(‘‘TSR’’). TSR is calculated as the movement in share value after taking
account of re-invested dividends. TSR is measured against a comparator
group, which is the list of FTSE 250 companies. The first awards under the
LTIP were made in August 2005, and the awards to Directors are shown in
Table 8 below.

Under the LTIP, executives are awarded notional units with each unit having
a value equal to one of the Company’s ordinary shares, at the discretion of
the Remuneration Committee. The maximum award in relation to any
financial year for an individual is limited to 150% of the individual’s basic
salary.

The individual would need to remain with the Company for three years in
order to receive full entitlement to the deferred shares. The number of shares
that would be released after the three years is calculated as follows:
• If TSR is negative, irrespective of the TSR of the comparator group, no

shares are released;

• If TSR is positive but is less than the median TSR of the comparator group,

no shares are released ;

• If TSR exceeds the median of the comparator group, 33% of the shares are

released ;

• If TSR is in the top quartile of the comparator group, 100% of the shares

are released ;

• If TSR is higher than the median but less than the top quartile, the

proportion of shares to be released would be between 33% and 100%
depending on the exact ranking against the comparator group.

Accordingly, the awards are closely tied to the rewards to shareholders as a
whole. An independent third party will calculate the TSR measures for the
purposes of determining the extent to which the performance condition is
satisfied.

There is no re-testing of LTIP performance conditions.

10.13 International Financial Reporting 

Standards (“IFRS”)

The Remuneration Committee has taken steps to ensure that it can continue
to measure financial performance on a consistent basis notwithstanding the
transition from UK GAAP to IFRS accounting policies.

Certain elements of remuneration are determined based on the financial
performance of the Group or a part of the Group. In determining financial
performance, the Remuneration Committee will ensure that financial
performance is determined on a consistent basis. Where available, the
Committee will determine financial performance with reference to amounts
determined in accordance with IFRS. For the financial year ended 30 April
2004 and prior, no IFRS amounts are available. Where performance is being
measured relative to any period ending on or before 30 April 2004, the
Committee will use UK GAAP amounts and where necessary, ensure that the
performance measures for later periods (including those periods where the
primary financial statements are reported in accordance with IFRS) are
restated to UK GAAP.

Where there is any doubt about whether targets or bonus arrangements 
have been fulfilled as a consequence of the transition from UK GAAP to 
IFRS, the Remuneration Committee will work with the Audit Committee 
on the matter.

TABLE 8 ––
LTIP GRANTED IN YEAR
Grant Date

Brian Souter
26 August 2005

Martin Griffiths
26 August 2005

Awards granted
in year
(notional units)

Dividends
in year
(notional units)

Outstanding at
end of year
(notional units)

Vesting
Date

450,293

13,875

464,168

26 Aug 2008

218,510

6,732

225,242

26 Aug 2008

Stagecoach Group plc | page 33

10.14 Directors’ service agreements
The details of the Executive Directors’ service contracts are summarised in the
table below:

Name of director

Brian Souter

Graham Eccles*
Martin Griffiths

* now retired

Date of contract

Notice period

2 April 1993
(amended 26 
January 1996)
27 October 2000
8 August 2000

12 months 

12 months
12 months

It is the Company’s policy that Executive Directors should have 12-month
rolling service contracts providing for a maximum of one year’s notice. Due
to the nature of the Group’s businesses, the service contracts contain
restrictive covenants that will be rigorously applied.

Non-Executive Directors are appointed by a letter, which makes no specific
provision for notice periods. Non-Executive Directors are subject to election
and re-election by shareholders as described on page 22.

10.15 Early termination
If the Company terminates an Executive Director’s contract, the costs for
which the Company is liable will vary depending on length of service and are
subject to mitigation. The costs will include a termination payment of up to
one times annual salary only and certain benefits and retirement benefits
funded under the Company’s pension schemes.

10.16 Change of control
The following apply where there is a change in control of the Company:
• Executive Directors are entitled to normal termination benefits as outlined
above, except where the Director is offered and has refused employment
on terms and conditions that were no less favourable to those in place
prior to the change of control ;

• With respect to Executive Share Options, options can be exercised within
six months of the change of control. For options granted prior to 14
January 2002, the performance condition will not apply. For options
granted on or after 14 January 2002, the extent to which the performance
condition is applied shall be determined by the Remuneration Committee;

• Under the EPP, shares deferred would automatically vest on a change of

control;

• Under the LTIP, LTIP units would vest on a pro-rata basis taking account of

the proportion of the vesting period that had expired and the TSR
performance condition.

10.17 Outside appointments
Under the terms of their service agreements, Executive Directors require
Board approval before accepting any external appointment. Details of
remuneration earned where an Executive Director serves as a Non-Executive
Director elsewhere are disclosed in note 34 to the financial statements on
page 87. 

10.18 Transactions in which Directors have had 

a material interest (audited)

10.18.1 Noble Grossart Limited
Ewan Brown (a Non-Executive Director of Stagecoach) is a former executive
director and current non-executive director of Noble Grossart Limited that
provided advisory services to the Group during the year. Total fees payable to

Noble Grossart Limited in respect of the year amounted to £20,100 (2005:
£145,950), including £Nil (2005: £125,500) in respect of Noble Grossart’s
role as financial advisor in connection with the return of capital in September
2004. Noble Grossart Investments Limited, a subsidiary of Noble Grossart
Limited, held at 30 April 2006 6,354,443 (2005: 6,354,443) ordinary shares
in the Company, representing 0.6% (2005: 0.6%) of the ordinary shares in
issue and Nil (2005: 8,026,665) B shares in the Company. The prior year B
share figure represented 10.4% of the B shares in issue at that date. The
remaining B shares in issue were all redeemed on 30 September 2005. 

10.18.2 Alexander Dennis Limited

On 21 May 2004, Brian Souter (Chief Executive of Stagecoach) and Ann
Gloag (a Non-Executive Director of Stagecoach) together gained control of
39.3% of the shares and voting rights in Alexander Dennis Limited. Noble
Grossart Investments Limited (see 10.18.1 above) controls a further 29.5% of
the shares and voting rights of Alexander Dennis Limited. None of Brian
Souter, Ann Gloag or Ewan Brown is a director of Alexander Dennis Limited
nor do they have any involvement in the management of Alexander Dennis
Limited. Furthermore, they do not participate in deciding on and negotiating
the terms and conditions of transactions between the Group and Alexander
Dennis Limited.

For the year ended 30 April 2006, the Group purchased £46.5m (period from
21 May 2004 to 30 April 2005: £25.5m) of vehicles from Alexander Dennis
Limited and £2.9m (period from 21 May 2004 to 30 April 2005: £2.4m) of
spare parts and other services. 

For new orders placed with Alexander Dennis Limited for vehicles, the Group
has consulted with the UK Listing Authority and taken the appropriate
measures to ensure that the transactions with Alexander Dennis Limited
comply with the Listing Rules. For the year ended 30 April 2006, the Group
has placed orders totalling £41.6m (period from 21 May 2004 to 30 April
2005: £49.3m) with Alexander Dennis Limited for the purchase of new
vehicles. Of this £41.6m (period from 21 May 2004 to 30 April 2005:
£49.3m), vehicles accounting for £3.9m (period from 21 May 2004 to 30
April 2005: £5.1m) were delivered prior to 30 April 2006 and are included in
the total purchases of £46.5m (period from 21 May 2004 to 30 April 2005:
£25.5m) referred to above.

10.18.3 ScotAirways Group Ltd
Brian Souter is Chairman of ScotAirways Group Ltd. During the year the
Group purchased flights from ScotAirways Group Ltd totalling £76,168
(2005: £74,905).

10.19 Remuneration policy approval
An ordinary resolution to receive and approve this Remuneration Report will
be proposed at the 2006 Annual General Meeting.

On behalf of the Board

IAIN DUFFIN
Chairman of the Remuneration Committee

28 June 2006

page 34 | Stagecoach Group plc

INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF 
STAGECOACH GROUP PLC

We have audited the Group financial statements of Stagecoach Group plc for
the year ended 30 April 2006 which comprise the Consolidated Income
Statement, the Consolidated Balance Sheet, the Consolidated Statement of
Recognised Income and Expense, the Consolidated Cash Flow Statement, the
Consolidated Statement of Changes in Equity and the related notes. These
Group financial statements have been prepared under the accounting policies
set out therein.

We have reported separately (on page 95) on the parent company financial
statements of Stagecoach Group plc for the year ended 30 April 2006 and on
the information in the Remuneration Committee report that is described as
having been audited.

Respective responsibilities of directors and
auditors
The Directors’ responsibilities for preparing the Annual Report and the Group
financial statements in accordance with applicable law and International
Financial Reporting Standards (“IFRSs”) as adopted by the European Union
are set out in the Statement of Directors’ Responsibilities on page 20.

Our responsibility is to audit the Group financial statements in accordance
with relevant legal and regulatory requirements and International Standards
on Auditing (UK and Ireland). This report, including the opinion, has been
prepared for and only for the Company’s members as a body in accordance
with Section 235 of the Companies Act 1985 and for no other purpose. We
do not, in giving this opinion, accept or assume responsibility for any other
purpose or to any other person to whom this report is shown or into whose
hands it may come save where expressly agreed by our prior consent in
writing.

We report to you our opinion as to whether the Group financial statements
give a true and fair view and whether the Group financial statements have
been properly prepared in accordance with the Companies Act 1985 and
Article 4 of the IAS Regulation. We report to you whether in our opinion the
information given in the Directors’ Report is consistent with the Group
financial statements. The information given in the Directors’ Report includes
that specific information presented in the Operating and Financial Review
that is cross referred from the Business Review section of the Directors’
Report. We also report to you if, in our opinion, we have not received all the
information and explanations we require for our audit, or if information
specified by law regarding directors’ remuneration and other transactions is
not disclosed.

We review whether the Corporate Governance report reflects the Company’s
compliance with the nine provisions of the 2003 FRC Combined Code
specified for our review by the Listing Rules of the Financial Services
Authority, and we report if it does not. We are not required to consider
whether the Board’s statements on internal control cover all risks and
controls, or form an opinion on the effectiveness of the Group’s corporate
governance procedures or its risk and control procedures.

We read other information contained in the Annual Report and consider
whether it is consistent with the audited Group financial statements. The
other information comprises only the Chairman’s Statement, the Directors’
report, the Chief Executive’s review, the Operating and Financial Review, the
Corporate Governance report, the Audit Committee report, the Nomination
Committee report and the Health, Safety and Environmental Committee

report. We consider the implications for our report if we become aware of
any apparent misstatements or material inconsistencies with the Group
financial statements. Our responsibilities do not extend to any other
information.

Basis of audit opinion
We conducted our audit in accordance with International Standards on
Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit
includes examination, on a test basis, of evidence relevant to the amounts
and disclosures in the Group financial statements. It also includes an
assessment of the significant estimates and judgements made by the
Directors in the preparation of the Group financial statements, and of
whether the accounting policies are appropriate to the Group’s
circumstances, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the Group financial
statements are free from material misstatement, whether caused by fraud or
other irregularity or error. In forming our opinion we also evaluated the
overall adequacy of the presentation of information in the Group financial
statements.

Opinion
In our opinion:
• the Group financial statements give a true and fair view, in accordance

with IFRSs as adopted by the European Union, of the state of the Group’s
affairs as at 30 April 2006 and of its profit and cash flows for the year then
ended; 

• the Group financial statements have been properly prepared in accordance
with the Companies Act 1985 and Article 4 of the IAS Regulation; and 
• the information given in the Directors’ report is consistent with the Group

financial statements.

Separate opinion in relation to IFRSs
As explained in Note 1 to the Group financial statements, the Group in
addition to complying with its legal obligation to comply with IFRSs as
adopted by the European Union, has also complied with the IFRSs as issued
by the International Accounting Standards Board.

In our opinion the Group financial statements give a true and fair view, in
accordance with IFRSs, of the state of the Group’s affairs as at 30 April 2006
and of its profit and cash flows for the year then ended.

PricewaterhouseCoopers LLP
Chartered Accountants and Registered Auditors
Glasgow

28 June 2006

Stagecoach Group plc | page 35

Consolidated income statement
For the year ended 30 April 2006

2006

2005

Performance 
pre intangibles
and
exceptional items
£m

Intangibles and
exceptional
items
£m

Notes

Performance 
pre intangibles
and
exceptional items
£m

Intangibles and
exceptional
items
£m

Results for
the year
£m

Revenue
Operating costs
Other operating income 

Operating profit of Group companies
Share of profit/(loss) of joint ventures – 
after finance income and taxation

Share of profit/(loss) of joint ventures:
Operating profit/(loss)
Finance income (net)
Taxation

Share of loss from interest in associate – 
after finance charges and taxation

Total operating profit: Group and 
share of joint ventures and associates
Gain on sale of properties
Loss on disposed operations and sale of investments

Profit before interest and taxation
Finance costs
Finance income

Profit before taxation
Taxation

2
3
4

2

2
3
3

5
5

7

Profit for the year from continuing operations
Profit for the year from discontinued operations

17

1,568.5
(1,627.2)
209.7

Nil
(7.4)
Nil

1,568.5
(1,634.6)
209.7

1,420.5
(1,453.8)
176.1

Nil
(5.5)
Nil

151.0

(7.4)

143.6

142.8

(5.5)

137.3

5.6

(13.1)

5.4
1.7
(1.5)

5.6

(13.1)
Nil
Nil

(13.1)

(7.5)

(7.7)
1.7
(1.5)

(7.5)

10.7

(14.7)

14.2
1.7
(5.2)

10.7

(14.7)
Nil
Nil

(14.7)

Nil

Nil

Nil

(0.4)

Nil

156.6
Nil
Nil

156.6
(24.6)
8.6

140.6
(31.4)

109.2
4.3

(20.5)
0.8
(5.9)

(25.6)
Nil
Nil

(25.6)
5.0

(20.6)
22.5

136.1
0.8
(5.9)

131.0
(24.6)
8.6

115.0
(26.4)

88.6
26.8

153.1
Nil
Nil

153.1
(35.2)
13.3

131.2
(28.0)

103.2
7.3

(20.2)
1.3
(7.4)

(26.3)
Nil
Nil

(26.3)
2.7

(23.6)
Nil

Results for
the year
£m

1,420.5
(1,459.3)
176.1

(4.0)

(0.5)
1.7
(5.2)

(4.0)

(0.4)

132.9
1.3
(7.4)

126.8
(35.2)
13.3

104.9
(25.3)

79.6
7.3

86.9

Profit for the year

113.5

1.9

115.4

110.5

(23.6)

Profit attributable to equity 
shareholders of the parent

Earnings per share 
– Adjusted/Basic
– Diluted

Earnings per share from continuing operations
– Adjusted/Basic
– Diluted

Dividends per ordinary share
– Interim paid
– Final proposed

113.5

1.9

115.4

110.1

(23.6)

86.5

10.6p
10.4p

10.2p
10.0p

9
9

9
9

8
8

9.5p
9.3p

8.9p
8.7p

10.7p
10.6p

8.2p
8.1p

1.1p
2.6p

7.5p
7.3p

6.9p
6.7p

1.0p
2.3p

The accompanying notes form an integral part of this consolidated income statement.

page 36 | Stagecoach Group plc

Consolidated balance sheet
As at 30 April 2006

ASSETS
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Interests in joint ventures
Interests in associate
Financial assets: Available for sale and other investments
Deferred tax asset
Other receivables

Current assets
Inventories
Trade and other receivables
Financial assets: Derivative instruments at fair value
Cash and cash equivalents

Total assets

LIABILITIES
Current liabilities
Trade and other payables
Current tax liabilities
Financial liabilities: Borrowings
Financial liabilities: Derivative instruments at fair value
Provisions

Non-current liabilities
Other payables
Financial liabilities: Borrowings
Deferred tax liabilities
Provisions 
Retirement benefit obligations

Total liabilities

Net assets

EQUITY
Ordinary share capital
Redeemable ‘B’ preference shares
Share premium account
Retained earnings
Capital redemption reserve
Own shares
Translation reserve
Available for sale reserve
Cash flow hedging reserve

Total equity

2006

Notes

£m

100.1
17.3
708.8
52.0
1.0
4.2
8.4
1.6

893.4

13.2
179.9
3.7
198.5

395.3

2005

£m

93.6
9.2
694.2
56.1
1.0
1.8
4.1
6.7

866.7

12.5
169.2
Nil
140.0

321.7

1,288.7

1,188.4

341.3
29.0
66.3
2.8
63.2

502.6

9.2
291.2
5.2
46.7
222.2

574.5

1,077.1

211.6

6.9
n/a
174.8
(212.1)
243.0
(6.1)
4.0
1.9
(0.8)

211.6

357.6
33.3
126.5
Nil
55.6

573.0

8.1
228.1
5.5
37.4
220.9

500.0

1,073.0

115.4

6.8
13.9
163.4
(294.4)
229.1
(6.8)
3.4
Nil
Nil

115.4

10
11
12
13
14
15
24
20

19
20
27
21

22

23
27
25

22
23
24
25
26

28
28
30
30
30
30
30
30
30

These financial statements have been approved for issue by the Board of Directors on 28 June 2006.

Brian Souter
Chief Executive
The accompanying notes form an integral part of this consolidated balance sheet.

Martin A Griffiths
Finance Director

Stagecoach Group plc | page 37

Consolidated statement of recognised income and expense
For the year ended 30 April 2006

Income and expense recognised directly in equity
Foreign exchange differences on translation of foreign operations (net of hedging)
Actuarial gains/(losses) on Group defined benefit pension schemes
Actuarial gains/(losses) on joint ventures’ defined benefit pension schemes
Net fair value gains on cash flow hedges
Net fair value gains on available for sale investments

Transfers to the income statement
Exchange differences on disposal of foreign operations
Cash flow hedges reclassified and reported in profit for the year

Tax on items taken directly to or transferred from equity
Tax on foreign exchange differences on translation of foreign operations
Tax effect of actuarial (gains)/losses on Group defined benefit pensions schemes
Tax effect of share of actuarial (gains)/losses on joint ventures’ defined benefit pension schemes
Tax effect of cash flow hedges
Tax effect of share based payments

Net income/(expense) not recognised in income statement
Profit for the year attributable to equity shareholders of the parent

Total recognised income and expense for the year 
attributable to equity shareholders of the parent

Effect of changes in accounting policy:
Balances recognised on the adoption of IAS 32 and IAS 39, net of taxation

2006

Notes

£m

26

27
15

17
27

7

4.7
13.9
5.2
9.2
1.9

34.9

(3.9)
(17.3)

(21.2)

(0.2)
(4.2)
(1.5)
Nil
2.9

(3.0)

10.7
115.4

126.1

(7.7)

2005

£m

3.4
(50.9)
(9.1)
Nil
Nil

(56.6)

Nil
Nil

Nil

Nil
15.3
2.7
Nil
Nil

18.0

(38.6)
86.5

47.9

Nil

The accompanying notes form an integral part of the consolidated statement of recognised income and expense.

page 38 | Stagecoach Group plc

Consolidated cash flow statement
For the year ended 30 April 2006

Cash flows from operating activities
Cash generated from operations
Tax paid

Net cash from operating activities (“free cash flow”)

Cash flows from investing activities
Acquisition of subsidiaries, net of cash acquired
Disposals of subsidiaries and other businesses, net of cash disposed of
Purchases of property, plant and equipment
Disposals of property, plant and equipment
Purchase of intangible assets
Purchase of other investments
Disposal of other investments
Movement in loans to joint ventures
Purchase of investments in joint ventures

Net cash used in investing activities

Cash flows from financing activities
Issue of shares
Redemption of ‘B’ shares
Expenses on issue of ‘B’ shares
Redemption of ‘B’ shares by employee ownership trusts
Investment in own ordinary shares by employee share ownership trusts
Sale of own ordinary shares by employee share ownership trusts
Repayments of hire purchase and lease finance
Proceeds of sale and leaseback transaction
Repayment of borrowings
Dividends paid on ordinary shares
Sale of tokens
Redemption of tokens

Net cash used in financing activities

Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Exchange rate effects

2006

Notes

£m

31

31
17

31

203.0
(27.5)

175.5

(27.7)
104.4
(91.9)
8.2
(0.6)
(2.8)
0.6
0.3
(0.4)

(9.9)

7.0
(13.9)
Nil
Nil
Nil
0.7
(35.1)
49.5
(73.9)
(36.6)
7.4
(11.4)

(106.3)

59.3
138.5
0.5

Cash and cash equivalents at the end of year

21

198.3

The accompanying notes form an integral part of this consolidated cash flow statement.

2005

£m

200.7
(27.1)

173.6

(5.9)
14.7
(73.5)
7.1
(0.3)
(0.2)
0.6
6.7
Nil

(50.8)

5.3
(227.4)
(0.4)
1.7
(1.9)
4.8
(92.5)
Nil
(110.1)
(37.2)
10.2
(10.9)

(458.4)

(335.6)
476.5
(2.4)

138.5

Stagecoach Group plc | page 39

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page 40 | Stagecoach Group plc

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to the consolidated financial statements

Note 1 IFRS accounting policies 
These consolidated financial statements are the first full-year financial statements of the Group to be presented in accordance with International
Financial Reporting Standards (“IFRS”).

The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below. These policies have been
consistently applied to all the years presented, unless otherwise stated.

• Basis of preparation
The consolidated financial statements have been prepared in accordance with IFRS, International Financial Reporting Interpretations Committee
(“IFRIC”) interpretations and with those parts of the Companies Act 1985 applicable to companies reporting under IFRS for the first time. The financial
statements have also been prepared in accordance with IFRSs as endorsed by the European Union and therefore comply with Article 4 of the EU IAS
Regulation. 

The consolidated financial statements are presented in pounds sterling, the functional and presentational currency of the Group, and all values are
rounded to the nearest one hundred thousand (£0.1m) except where otherwise indicated. 

• IFRS transitional arrangements and new standards adopted early
When preparing the Group’s IFRS balance sheet at 1 May 2004, the date of transition to IFRS, the following optional exemptions from full
retrospective application of IFRS accounting policies have been adopted: 

• Business combinations – the provisions of IFRS 3 ‘Business Combinations’ have been applied prospectively from 1 May 2004. For business

combinations prior to 1 May 2004, the accounting for the combinations was not restated on the adoption of IFRS.

• Employee benefits – the accumulated actuarial gains and losses in respect of employee defined benefit plans have been recognised in full at the
date of transition. The Group has also adopted the amendment to IAS 19 ‘Employee Benefits’ early, allowing actuarial gains and losses to be
charged to the statement of recognised income and expense in the period they arise.

• Share based payment transactions – the requirements of IFRS 2 ‘Share-based Payment’ have not been applied to equity instruments that were

granted before 7 November 2002 or equity instruments that were granted after 7 November 2002 that had vested before the date of transition,
being 1 May 2004.

• Financial instruments – the Group has chosen not to restate comparative information with respect to IAS 32 ‘Financial Instruments: Disclosure

and Presentation’ and IAS 39 ‘Financial Instruments: Recognition and Measurement’.

• Cumulative translation differences – the accumulated translation difference at the date of transition has been set at zero for all foreign

operations.

• Fair value as deemed cost – the Group has chosen to use the exemption allowing it to adopt the fair value of certain fixed assets as deemed cost

on transition to IFRS.

The Group has also early adopted the amendment to IAS 1 ‘Presentation of Financial Statements – Capital Disclosures’.

The disclosures required by IFRS 1 ‘First-time adoption of International Financial Reporting Standards’ concerning the transition from UK GAAP to
IFRSs are given in note 36. 

• New standards and interpretations not applied
During the year, the IASB and IFRIC have issued the following standards and interpretations with an effective date for financial years beginning on or
after the dates disclosed below and therefore after the date of these financial statements:

• IFRS 4 – Insurance contracts (Amendment to IAS 39 and IFRS 4)
• IFRS 7 – Financial instruments: Disclosures
• IAS 21 – Amendment, Net investment in foreign operations
• IAS 39 – Amendments to IAS 39, Fair value option
• IAS 39 – Amendments to IAS 39, Transition and initial recognition of financial assets and liabilities (Day 1 profits)
• IAS 39 – Amendments to IAS 39, Cash flow hedge accounting
• IAS 39 – Amendments to IAS 39 and IFRS 4, Financial guarantee contracts
• IFRIC 4 – Determining whether an arrangement contains a lease
• IFRIC 5 – Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds
• IFRIC 6 – Liabilities arising from participating in a specific market - Waste electrical and electronic equipment
• IFRIC 7 – Applying the Restatement Approach under IAS 29, ‘Financial Reporting in Hyperinflationary Economies’
• IFRIC 8 – Scope of IFRS 2, ‘Share-based payment’
• IFRIC 9 – Re-assessment of embedded derivatives

Effective date

1 January 2006
1 January 2007
1 January 2006
1 January 2006
1 January 2006
1 January 2006
1 January 2006
1 January 2006
1 January 2006
1 December 2005
1 March 2006
1 May 2006
1 June 2006

Upon adoption of IFRS 7, the Group will need to expand the disclosures in relation to the fair value of its financial instruments and its risk exposure.
The adoption of this standard is not expected to materially impact the Group’s profit or net assets.

The Directors do not anticipate that that adoption of any of the other above standards or interpretations will have a material impact on the Group’s
financial statements in the period of initial application. 

• Comparatives
Where necessary, comparative figures have been adjusted to conform with changes in presentation in the current year.

• Basis of consolidation
The consolidated financial statements include the financial statements of the Company, its subsidiary undertakings, joint ventures and associates
made up to 30 April in each year.

The consolidated income statement includes the results of businesses purchased from the effective date of acquisition and excludes the results of
disposed operations and businesses sold from the effective date of disposal.

Stagecoach Group plc | page 41

Notes to the consolidated financial statements

Note 1 IFRS accounting policies (continued)

• Subsidiaries, associates and joint ventures
(i) Subsidiaries

Subsidiaries, which are those entities in which the Group has an interest of more than one half of the voting rights or otherwise has power to
govern the financial and operating policies, are consolidated. 

The existence and effect of potential voting rights that are presently exercisable or presently convertible are considered when assessing whether
the Group controls another entity.

Subsidiaries are consolidated from the date on which control is transferred to the Group and are no longer consolidated from the date that control
ceases. The purchase method (also known as the acquisition method) of accounting is used to account for the acquisition of subsidiaries. The cost
of an acquisition is measured as the fair value of the assets given up, shares issued or liabilities undertaken at the date of acquisition plus costs
directly attributable to the acquisition. The excess of the cost of acquisition over the fair value of the net assets of the subsidiary acquired is
recorded as goodwill. 

Intercompany transactions, balances, income and expenses are eliminated on consolidation.

(ii) Associates and joint ventures

Investments in associates and joint ventures are accounted for using the equity method of accounting.

Joint ventures are enterprises that the Group has the power to jointly govern the enterprises’ financial and operating policies with other investors
based on contractual agreement.

Associates are enterprises, other than joint ventures, that are not controlled by the Group over which the Group generally has between 20% and
50% of the voting rights, or over which the Group has significant influence.

Under the equity method of accounting, the Group’s consolidated income statement includes the Group’s share of profits less losses of joint
ventures and associates, while the share of net assets of joint ventures and associates is included in the Group’s consolidated balance sheet. Where
the Group’s share of losses in a joint venture or associate exceeds its interest in that enterprise, the Group does not recognise further losses, unless
it has incurred obligations or made payments on behalf of the joint venture or associate.

Unrealised gains on transactions between the Group and its joint ventures and associates are eliminated to the extent of the Group’s interest in
each business: unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.

The Group’s investment in joint ventures and associates includes goodwill on acquisition.

The Group applies its own accounting policies and estimates when accounting for its share of joint ventures and associates, making appropriate
adjustments where necessary, having due regard to all relevant factors.

• Presentation of income statement and exceptional items
Where applicable, income statement information has been presented in a columnar format, which separately highlights the amortisation of intangible
assets and exceptional items. This is intended to enable users of the financial statements to determine more readily the impact of the amortisation of
intangible assets and exceptional items on the results of the Group.

Unlike UK GAAP, there is no definition of “exceptional items” in IFRS. For this purpose, “exceptional items” are items which individually or, if of a similar type,
in aggregate, need to be disclosed by virtue of their size or incidence if the financial statements are to present fairly the financial performance of the Group.

• Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
for the period. Although these estimates and assumptions are based on management’s best knowledge, actual results may ultimately differ from those
estimates and assumptions used.

The key sources of estimation uncertainty that have a significant risk of causing material adjustments to the carrying amounts of assets and liabilities
within the next financial year are the measurement of retirement benefit obligations, the measurement and impairment of goodwill and the
measurement of insurance provisions. The measurement of retirement benefit obligations requires the estimation of future changes in salaries,
inflation, the expected return on scheme assets and the selection of a suitable discount rate (see note 26). The Group determines whether goodwill
arising on business combinations is impaired on an annual basis and this requires the estimation of value in use of the cash generating units to which
the goodwill is allocated. This requires estimation of future cash flows and the selection of a suitable discount rate (see note 10). The estimation of the
insurance provisions is based on an assessment of the expected settlement on known claims together with an estimate of settlements that will be
made in respect of incidents occurring prior to the balance sheet date but for which claims have not been reported to the Group. 

Those accounting policies that the Directors believe require the greatest exercise of judgement are described on page 13.

• Revenue
Revenue represents gross revenue earned from public transport services and excludes payments received on account. Amounts receivable for tendered
services and concessionary fare schemes are included as part of revenue. Where appropriate, amounts are shown net of rebates and VAT. Revenues
incidental to the Group’s principal activity (including advertising income and maintenance income) are reported as miscellaneous revenue (see note 4).

Rail revenue includes amounts attributable to the train operating companies, based principally on agreed models of route usage, by Railway
Settlement Plan Limited (which administers the income allocation system within the UK rail industry) in respect of passenger receipts. Franchise
agreement receipts from the Department for Transport (“DfT”) and local Passenger Transport Executives are treated as other operating income
(see note 4). Franchise agreement payments to the DfT/SRA are recognised in operating costs.

Revenue is recognised by reference to the stage of completion of the customer’s travel or services provided under contractual arrangements as a
proportion of total services to be provided. 

page 42 | Stagecoach Group plc

Note 1 IFRS accounting policies (continued)

• Revenue (continued)
Net compensation receivable by UK Rail companies in respect of service disruption under the performance regime provisions of the track access
agreements with Network Rail is recognised over the expected period of disruption and is shown as other operating income.

Income from advertising and other activities is recognised as the income is earned.

Finance income is recognised as interest accrues using the effective interest method.

• Government grants 
Grants from the government are recognised where there is reasonable assurance that the grant will be received and the Group will comply with all
attached conditions.

Government grants relating to costs are deferred and recognised in the income statement over the period necessary to match them with the costs
they are intended to compensate.

Government grants relating to the purchase of property, plant and equipment are recorded as liabilities and are credited to the income statement on a
straight-line basis over the expected lives of the related assets.

Revenue grants receivable in respect of the operation of rail franchises in the UK are credited to the income statement in the period in which the
related expenditure is recognised in the income statement or where they do not relate to any specific expenditure, in the period in which the grant is
receivable. These rail franchise grants are classified within other operating income.

• Share based payments
The Group issues equity-settled and cash-settled share based payments to certain employees. 

The Group has applied the optional exemption contained within IFRS 1, which allows it to apply IFRS 2 only to equity instruments granted after 7
November 2002 that have not vested before the date of transition, being 1 May 2004. 

Equity-settled transactions
The cost of equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted and is
recognised as an expense over the vesting period. In valuing equity-settled transactions, no account is taken of any non-market based vesting
conditions and no expense is recognised for awards that do not ultimately vest as a result of a failure to satisfy a non-market based vesting condition.
None of the Group’s equity-settled transactions have any market based performance conditions.

Fair value for equity-settled share based payments is estimated by use of the Black-Scholes pricing model. 

At each balance sheet date, before vesting, the cumulative expense is calculated based on management’s best estimate of the number of equity
instruments that will ultimately vest taking into consideration the likelihood of achieving non-market based vesting conditions. The movement in this
cumulative expense is recognised in the income statement, with a corresponding entry in equity.

Where an equity-settled award is cancelled by the Group, it is treated as if it had vested on the date of cancellation and any cost not yet recognised in
the income statement for the award is expensed immediately. Any compensation paid up to the fair value of the award at the cancellation or
settlement date is deducted from equity, with any excess over fair value being treated as an expense in the income statement.

Cash-settled transactions
The cost of cash-settled transactions is measured at fair value. Fair value is estimated initially at the grant date and at each balance sheet date
thereafter until the awards are settled. Market based performance conditions are taken into account when determining fair value. 

Fair value for cash-settled share based payments (being only those that relate to the Long Term Incentive Plan) is estimated by use of a 
simulation model.

During the vesting period, a liability is recognised representing the estimated fair value of the award and the portion of the vesting period expired as at
the balance sheet date. Changes in the carrying amount of the liability are recognised in the income statement for the period.

Choice of settlement
The Company can choose to settle awards under the Long Term Incentive Plan in either cash or equity, although it currently intends to settle all such
awards in cash. Awards under the Long Term Incentive Plan are accounted for as cash-settled transactions (see above).

• Operating profit
Operating profit is stated after charging restructuring costs and after the share of after-tax results of associates and joint ventures but before finance
income, finance costs, non-operating exceptional items, taxation and profit from discontinued operations.

• Taxation
Corporation tax is provided on taxable profits at the current rate applicable. Tax charges and credits are accounted for through the same primary
statement as the related pre-tax item.

Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and
their carrying amounts in the financial statements. Deferred income tax is measured at tax rates that are expected to apply in periods in which the
temporary differences reverse based on tax rates and law enacted or substantively enacted at the balance sheet date.

Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences
can be utilised.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries, associates and joint ventures, except where the
timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable
future.

• Dividends
Dividends on ordinary shares are recorded in the Group’s financial statements in the period in which they are approved by the Group’s shareholders, or
in the case of interim dividends, in the period in which they are paid.

Stagecoach Group plc | page 43

Notes to the consolidated financial statements

Note 1 IFRS accounting policies (continued)

• Segment reporting
A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different
from those of other business segments. 

A geographical segment is engaged in providing products or services within a particular economic environment that are subject to risks and returns
that are different from those of segments operating in other economic environments.

Due to the nature of the Group’s operations, the business segments can be directly aligned with the geographical segments. The Group is managed,
and reports internally on a basis consistent with its three segments which consist of UK Bus, North America, and UK Rail. The New Zealand division
was disposed of during the year ended 30 April 2006 and its results for that year (up to the date of disposal) and for the comparative year are now
included within the profit for the year from discontinued operations. 

• Foreign currency translation
The financial statements of overseas subsidiaries are maintained in the local currencies in which the entities transact business. The trading results of
overseas subsidiaries are translated into sterling using average rates of exchange. Exchange differences arising on the translation of the opening net assets
and results of overseas operations, together with exchange differences arising on net foreign currency borrowings and foreign currency derivatives, to the
extent they hedge the Group’s investment in overseas operations, are recognised as a separate component of equity being the translation reserve.

Foreign currency assets and liabilities are translated into sterling at the rates of exchange ruling at the balance sheet date. Foreign currency transactions
arising during the year are translated into sterling at the rate of exchange ruling on the date of the transaction. 

On disposal of a foreign subsidiary, the amount of any exchange differences relating to the subsidiary that has been deferred in the translation reserve is
recognised in the income statement within the reported gain or loss on disposal. The Group has taken the IFRS 1 exemption which allows accumulated
exchange differences at the date of transition, being 1 May 2004, to be set to zero for all foreign subsidiaries.

PRINCIPAL RATES OF EXCHANGE

2006

2005

New Zealand Dollar
Period end rate – (2006 is as at date of disposal)
Average rate – (2006 is average up to date of disposal)
US Dollar:
Year end rate
Average rate
Canadian Dollar:
Year end rate
Average rate

2.4606
2.5641

1.8176
1.7751

2.0368
2.1079

2.6088
2.7240

1.9099
1.8530

2.3969
2.3621

• Business combinations and goodwill
On the acquisition of a business, fair values are attributed to the net assets acquired. Goodwill arises where the fair value of the consideration given for
a business exceeds the fair value of such net assets. 

Goodwill arising on acquisitions is capitalised and is subject to impairment review, both annually and when there are indications that the carrying value
may not be recoverable. Prior to 1 May 2004, goodwill was amortised over its estimated useful life; such amortisation ceased on 30 April 2004 but
goodwill amortisation expensed prior to 1 May 2004 was not reversed. 

For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash generating units expected to benefit from the synergies of the
combination. Cash generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an
indication that the unit may be impaired. If the recoverable amount of the cash generating unit is less than the carrying amount of the unit, then the
impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata
on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period.

Any impairment of goodwill is recognised immediately in the income statement. 

Where goodwill forms part of a cash generating unit and all or part of that unit is disposed of, the associated goodwill is included in the carrying
amount of the disposed operation when determining the overall gain or loss on disposal.

Goodwill arising on acquisitions in the year ended 30 April 1998 and earlier periods was written off directly to reserves in accordance with the UK
accounting standards then in force. Under IFRS 1 and IFRS 3, such goodwill will remain eliminated against reserves.

• Impairment of non-current assets
Property, plant and equipment, intangible assets (excluding goodwill), financial assets and other non-current assets are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. 

An impairment loss is recognised for the amount by which the carrying amount of the asset exceeds its recoverable amount, which is the higher of fair
value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest level for which there are separately
identifiable cash flows.

page 44 | Stagecoach Group plc

Note 1 IFRS accounting policies (continued)

• Impairment of non-current assets (continued)
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks specific to the asset. Any impairment loss is recognised immediately in the income
statement.

• Intangible assets
Intangible assets acquired separately from a business combination are capitalised at cost. The initial cost recognised is the aggregate amount paid plus
the fair value of any other consideration given to acquire the asset. Intangible assets acquired as part of a business combination are capitalised,
separately from goodwill, at fair value at the date of acquisition if the asset is separable or arises from contractual or legal rights and its fair value can
be measured reliably. 

Amortisation is calculated on the straight-line method to write-off the cost or fair value at acquisition (as the case may be) of each asset over their
estimated useful lives shown below. Goodwill is not amortised unless it relates to a rail franchise of a finite duration.

Customer contracts
Right to operate rail franchise
Non-compete contracts
Software costs

over the life of the contract (1 to 6 years for current contracts)
over the life of the franchise (3 years from February 2004 to February 2007 for current franchises)
between 2 and 5 years for current contracts
2 to 5 years

Marketing costs incurred during the start-up phase of a new activity are charged to the income statement as incurred.

• Property, plant and equipment
On transition to IFRS the Group adopted the optional exemption contained within IFRS 1 ‘First-time adoption of International Financial Reporting
Standards’ allowing it to use the fair value of certain property, plant and equipment as deemed cost.

Property, plant and equipment acquired as part of a business combination is stated at fair value at the date of acquisition less accumulated
depreciation and any provision for impairment. All other property, plant and equipment is stated at cost less accumulated depreciation and any
provision for impairment.

Depreciation is calculated on the straight-line method to write off the cost, fair value at acquisition or deemed cost of each asset to their residual
values over their estimated useful lives as follows:

Heritable and freehold buildings and long leasehold properties
Short leasehold properties
IT and other equipment, furniture and fittings
Public Service Vehicles (“PSVs”) and transportation equipment 
Motor cars and other vehicles 

50 years
period of lease
3 to 10 years
7 to 16 years
3 to 5 years

Heritable and freehold land is not depreciated

The carrying value of items of property, plant and equipment are reviewed for impairment if events or changes in circumstances indicate that the
current carrying value may not be recoverable. Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written
down immediately to its recoverable amount. The useful lives and residual values of property, plant and equipment are reviewed annually and, where
applicable, adjustments are made on a prospective basis.

An item of property, plant or equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued
use of the asset. Gains and losses on disposals are determined by comparing the proceeds received with the carrying amount of the asset and are
included in the income statement. Any gain or loss on derecognition of the asset is included in the income statement in the period of derecognition.

Repairs and maintenance are charged to the income statement during the financial period in which they are incurred. The cost of major renovations is
included in the carrying amount of the asset when it is probable that future economic benefits in excess of the originally assessed standard of
performance of the existing asset will flow to the Group. Major renovations are depreciated over the remaining useful life of the related asset.

• Inventories
Inventories are stated at the lower of cost and net realisable value after making due allowance for obsolete or slow moving items. Cost is determined
using the first-in, first-out (“FIFO”) or average cost method. Net realisable value is the estimated selling price in the ordinary course of business, less
the costs of completion and selling expenses. 

• Pre-contract costs
The costs associated with securing new rail franchises are expensed as incurred, except where it is highly probable that a contract will be awarded in
which case they are recognised as an asset and are charged to the income statement over the life of the franchise.

• Hire purchase and lease obligations
Assets acquired under hire purchase and finance lease arrangements, where substantially all the risks and rewards of ownership of the asset have
passed to the Group, are capitalised at the inception of the lease at the fair value of the leased asset or, if lower, at the present value of the minimum
lease payments. Lease payments are apportioned between the finance charges, and the reduction of the lease liability so as to achieve a constant rate
of interest on the remaining balance of the liability. Finance charges are charged directly against income.

Assets capitalised under finance leases and other similar contracts are depreciated over the shorter of the lease terms and their useful economic lives.

Assets capitalised under hire purchase contracts are depreciated over their useful economic lives.

Rentals under operating leases are charged on a straight-line basis over the lease term.

The principal restriction on assets held under finance lease or hire purchase agreements is a restriction on the right to dispose of the assets during the
period of the agreement.

Stagecoach Group plc | page 45

Notes to the consolidated financial statements

Note 1 IFRS accounting policies (continued)

• Tokens
Tokens issued by National Transport Tokens Limited, a subsidiary of the Group, are credited to a token redemption provision to the extent they are
expected to be redeemed. Redemptions are offset against this provision and associated handling commission paid to third parties is included in
operating costs. Funds from the sale of tokens required for token redemption are included as a financing activity in the consolidated cash flow
statement.

The estimate of the balance sheet provision for token redemption is remeasured at each balance sheet date and is based on the value of tokens issued
by the Group but not yet redeemed at the balance sheet date. Allowance is made for the estimated proportion of tokens in issue that will never be
redeemed. This allowance is estimated with reference to historic redemption rates. At 30 April 2006, it has been estimated that 97% (30 April 2005:
97%) of tokens in issue will be redeemed.

• Environmental provisions
Provisions for environmental costs are recognised when the Group has a legal or constructive obligation to undertake environmental clean-ups or
other work in respect of environmental matters and the associated costs can be reasonably estimated.

The amounts recognised are the best estimate of the expenditure that will be required to meet the Group’s obligations.

• Insurance
The Group receives claims in respect of traffic incidents and employee claims. The Group protects against the cost of such claims through third party
insurance policies. An element of the claims is not insured as a result of the “excess” on insurance policies.

Provision is made on a discounted basis for the estimated cost to the Group to settle claims for incidents occurring prior to the balance sheet date. The
estimate of the balance sheet insurance provisions is based on an assessment of the expected settlement of known claims together with an estimate
of settlements that will be made in respect of incidents occurring prior to the balance sheet date but for which claims have not yet been reported to
the Group. The provision is set after taking account of advice from third party actuaries.

• Retirement benefit obligations
The Group contributes to a number of pension schemes. The principal defined benefit occupational schemes are as follows:

• The Stagecoach Group Pension Scheme (“SGPS”)
• The South West Trains section of the Railways Pension Scheme (“RPS”)
• The Island Line section of the Railways Pension Scheme (“RPS”)
• A number of UK local Government Pension Schemes (“LGPS”)
• The Yorkshire Traction Company Limited Pension Plan (“YTC”)
• The Strathtay Scottish Omnibuses Limited Pension and Life Assurance Scheme (“SSO”)

The Group accounts for pensions and similar benefits in accordance with IAS 19 “Employee Benefits”, as amended to allow actuarial gains and losses
to be charged to the statement of recognised income and expense in the period they arise. In respect of these defined benefit plans, obligations are
measured at discounted present value whilst plan assets are recorded at market value. The operating and financing costs of such plans are included
within operating profit and are disclosed separately in the notes to the financial statements; service costs are spread systematically over the lives of
employees and financing costs are recognised in the periods in which they arise. Actuarial gains and losses are recognised immediately in the
statement of recognised income and expense. 

A full actuarial valuation is undertaken triennially for each scheme with the deficit being updated annually by independent actuaries using the
projected unit credit method. The present value of the scheme obligations is determined by discounting the estimated future cash outflows using
interest rates of high quality corporate bonds which have terms to maturity equivalent to the terms of the related obligations.

The liability recognised for the relevant sections of RPS represents only that part of the net deficit of each section that the employer expects to fund
over the life of the franchise to which the section relates. 

For defined contribution schemes, the Group pays contributions to privately administered pension plans. Once the contributions have been paid, the
Group has no further payment obligations. The Group’s contributions to defined contribution schemes are charged to the income statement in the
period to which the contributions relate.

• Financial instruments
The Group has opted to apply IAS 32 ‘Financial Instruments: Disclosure and Presentation’ and IAS 39 ‘Financial Instruments: Recognition and
Measurement’ prospectively from 1 May 2005 without restating prior periods. Consequently, the Group’s prior accounting policies under UK GAAP has
been used for the 2005 comparatives. The policy under UK GAAP for derivative financial instruments is shown on page 48. The effect of the adoption
of IAS 32 and IAS 39 on reserves at 1 May 2005, is a cumulative reduction to net assets of £7.7m as detailed in the consolidated statement of changes
in equity on page 40. The main adjustments were reclassifying the Group’s redeemable preference shares from equity to debt resulting in a £13.9m
reduction to net assets and the recognition of the fair value of the Group’s fuel price swaps as a hedge leading to the creation of a £7.3m cash flow
hedging reserve and a net increase in net assets of £6.6m. The disclosure of the accounting policies that follow for financial instruments are those that
apply under IAS 32 and IAS 39.

Financial assets
Financial assets are classified, as appropriate, as financial assets at fair value through profit or loss; loans and receivables; held to maturity investments
or as available for sale. They include cash and cash equivalents, trade receivables, other receivables, loans, other investments and derivative financial
instruments. The Group determines the classification of its financial assets at initial recognition. When financial assets are recognised initially, they are
measured at fair value, normally being the transaction price plus, in the case of financial assets not at fair value through profit or loss, directly
attributable transaction costs. The subsequent measurement of financial assets depends on their classification, as follows:

page 46 | Stagecoach Group plc

Note 1 IFRS accounting policies (continued)

• Financial instruments (continued)
Financial assets (continued)
Financial assets at fair value through profit or loss: Financial assets classified as held for trading and other assets designated as such on inception are
classified as financial assets at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for sale in the short-term.
Derivatives are also classified as held for trading unless they are designated as hedging instruments. Assets in this category are carried on the balance
sheet at fair value with gains or losses recognised in the income statement.

Loans and receivables: Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active
market, do not qualify as trading assets and have not been designated as either fair value through profit or loss or available-for-sale. Such assets are
carried at amortised cost using the effective interest method. Gains and losses are recognised in the income statement when the loans and receivables
are derecognised or impaired, as well as through the amortisation process.

Held-to-maturity investments: Non-derivative financial assets with fixed or determinable payments and fixed maturity are classified as held-to-maturity
when the Group has the positive intention and ability to hold the investment to maturity. Held-to-maturity investments are carried at amortised cost
using the effective interest method. Held-to-maturity gains and losses are recognised in the income statement when the assets are derecognised or
impaired, as well as through the amortisation process. Investments intended to be held for an undefined period cannot be included in this
classification.

Available-for-sale financial assets: Available-for-sale financial assets are those non-derivative financial assets that are designated as such or are not
classified in any of the above categories. After initial recognition, available-for-sale financial assets are measured at fair value, with gains or losses being
recognised as a separate component of equity until the asset is derecognised or until the asset is determined to be impaired, at which time the
cumulative gain or loss reported in equity is included in the income statement.

Financial liabilities
When a financial liability is recognised initially, the Group measures it at its fair value plus, in the case of a financial liability not at fair value through
profit or loss, transaction costs that are directly attributable to the issue of the financial liability. Financial liabilities include trade payables, other
payables, borrowings and derivative financial instruments. Subsequent measurement depends on its classification as follows:

Financial liabilities at fair value through profit or loss: Financial liabilities classified as held for trading and derivative liabilities that are not designated as
effective hedging instruments are classified as financial liabilities at fair value through profit or loss. Liabilities are carried on the balance sheet at fair
value with gains or losses being recognised in the income statement.

Other: All other financial liabilities not classified as fair value through the profit or loss are measured at amortised cost using the effective interest
method.

Fair values
The fair value of quoted investments is determined by reference to appropriate market prices at the close of business on the balance sheet date. Where
there is no active market, fair value is determined using valuation techniques. These include using pricing models and discounted cash flow analysis.
Otherwise assets are carried at cost.

Derivative financial instruments
From 1 May 2005, derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and
are subsequently re-measured at fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is
negative.

For those derivatives designated as hedges and for which hedge accounting is desired, the hedging relationship is documented at its inception. This
documentation identifies the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how effectiveness will be
measured throughout its duration. Such hedges are expected at inception to be highly effective.

For the purpose of hedge accounting, hedges are classified as:

–

–

–

Fair value hedges when hedging the exposure to changes in the fair value of a recognised asset or liability;

Cash flow hedges when hedging exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised
asset or liability or a highly probable forecast transaction, including intra-group transactions; or

Hedges of net investment in a foreign entity.

Net gains or losses arising from changes in the fair value of all other derivatives, which are classified as held for trading, are taken to the income
statement. These may arise from derivatives for which hedge accounting is not applied because they are either not designated or not effective as
hedging instruments from an accounting perspective.

The treatment of gains and losses arising from revaluing derivatives designated as hedging instruments depends on the nature of the hedging
relationship, as follows:

Fair value hedges: For fair value hedges, the carrying amount of the hedged item is adjusted for gains and losses attributable to the risk being hedged;
the derivative is remeasured at fair value and gains and losses from both the derivative and the hedged item are taken to the income statement. 

The Group discontinues fair value hedge accounting if the hedging instrument expires or is sold, terminated or exercised, the hedge no longer meets
the criteria for hedge accounting or the Group revokes the designation.

For hedged items carried at amortised cost, the hedge adjustment is amortised through the income statement such that it is fully amortised by
maturity. 

Cash flow hedges: For cash flow hedges, the effective portion of the gain or loss on the hedging instrument is recognised in the statement of
recognised income and expense, while the ineffective portion is recognised in the income statement. Amounts recorded in the statement of
recognised income and expense are transferred to the income statement when the hedged transaction affects profit or loss, such as when a forecast
sale or purchase occurs. For cash flow hedges of forecast fuel purchases, the transfer is to operating costs within the income statement.

Stagecoach Group plc | page 47

Notes to the consolidated financial statements

Note 1

IFRS accounting policies (continued)

• Financial instruments (continued)
Derivative financial instruments (continued)
If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked,
amounts previously recorded in the statement of recognised income and expense remain in equity until the forecast transaction occurs and are then
transferred to the income statement. If a forecast transaction is no longer expected to occur, amounts previously recognised in the statement of
recognised income and expense are transferred to the income statement.

Hedges of net investment in a foreign entity: For hedges of the net investment in a foreign entity, the effective portion of the gain or loss on the hedging
instrument is recorded in the statement of recognised income and expense, while the ineffective portion is recognised in the income statement.
Amounts recorded in the statement of recognised income and expense are transferred to the income statement when the foreign entity is sold.

Non-derivative financial liabilities can be designated as hedges of a net investment in a foreign entity and are subject to the same requirements as
derivative hedges of a net investment in a foreign entity.

Trade and other receivables
Trade debtors and other receivables are carried at original invoice amount less provision made for impairment of these receivables. Where the time
value of money is material, receivables are carried at amortised cost. A provision for impairment of trade receivables is established when there is
objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the
provision is the difference between the carrying amount and the recoverable amount. The recoverable amount is the present value of expected cash
flows, discounted at the market rate of interest for similar borrowers.

Cash and cash equivalents
For the purposes of the cash flow statement, cash and cash equivalents comprise cash on hand, deposits held at call with banks and other short-term
highly liquid investments, less bank overdrafts. Bank overdrafts are included within borrowings in current liabilities on the balance sheet.

Interest bearing loans and borrowings
Borrowings are recognised initially at the proceeds received, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost
using the effective yield method; any difference between proceeds (net of transaction costs) and the redemption value is recognised in the income
statement over the period of the borrowings.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement for at least 12 months after the balance
sheet date.

Trade and other payables
Trade payables are not interest bearing and are stated at amortised cost which approximates to nominal value due to creditors days being relatively low.

Preferred shares
From 1 May 2005, preferred shares, which are redeemable on a specific date or at the option of the shareholder, or which carry non-discretionary
dividend obligations, are classified as liabilities. The dividend on these preferred shares is recognised in the income statement as an interest expense.
Prior to 1 May 2005, preferred shares were recognised in equity and the dividends were recognised as an appropriation of profit.

Derivative financial instruments under UK GAAP
Prior to 1 May 2005, the policy for derivative financial instruments under UK GAAP was as set out below.

For a forward foreign exchange contract to be treated as a hedge, the instrument must be related to actual foreign currency assets or liabilities or to a
probable commitment. It must involve the same currency or similar as the hedged item and must also reduce the risk of foreign currency exchange
movements on the Group. Gains and losses arising on these contracts are either held off balance sheet or deferred on balance sheet and recognised
either in the income statement or as adjustments to the carrying amount of fixed assets, only when the hedged transaction has itself been reflected in
the Group’s financial statements. Gains and losses arising on derivatives hedging overseas net investments are recognised in the statement of
recognised income and expense.

For interest rate and commodity swaps to be treated as a hedge, the instrument must be related to actual assets or liabilities or a probable
commitment and must change the nature of the interest rate or fuel cost by converting a fixed rate to a variable rate or vice versa. Cash flows under
these swaps are recognised by adjusting net interest payable and fuel costs over the periods of the contracts. Gains and losses arising from the
termination of these contracts are deferred on balance sheet and amortised to the income statement over the remaining period of the related hedged
item or recognised immediately in the income statement where the hedge item no longer exists.

If an instrument ceases to be accounted for as a hedge, for example because the underlying hedged position no longer exists or the hedge is no longer
effective, provision is made for any fair value loss on the instrument at that time.

• Share capital
Ordinary shares are classified as equity. 

Incremental external costs directly attributable to the issue of new ordinary shares, other than in connection with business combinations, are shown in
equity as a deduction, net of tax, from the proceeds. Share issue costs incurred directly in connection with a business combination are included in the
cost of acquisition.

Where the Company, its subsidiaries or employee share ownership trusts sponsored by the Company purchases the Company’s ordinary share capital,
the consideration paid including any attributable incremental external costs net of income taxes is deducted from equity. Where such shares are
subsequently sold or reissued, any consideration received is included in equity.

The accounting policy in relation to preferred shares is included in the accounting policy for financial instruments above.

page 48 | Stagecoach Group plc

Note 2 Segmental information 

The Group is managed, and reports internally, on a basis consistent with its three continuing business segments which consist of UK Bus, North
America and UK Rail. The Group’s New Zealand operations were disposed of during the year ended 30 April 2006 and therefore there is no segment
income statement information provided for the New Zealand segment, however balance sheet segment information is provided for the comparative
year in note 2(c). Due to the nature of the services the Group provides, the primary and secondary segments coincide. The IFRS accounting policies set
out in these financial statements are applied consistently, where appropriate to each segment.

The segmental information provided in this note is on the basis of three primary segments, and gives the details for both business segments and
geographical segments as follows:

Segment name
UK Bus
North America
UK Rail

Business segment
Coach and bus operations
Coach and bus operations
Rail operations

Geographical segment
United Kingdom
North America
United Kingdom

UK Bus and North America provide coach and bus services while UK Rail provides rail services.

The Group has interests in two joint ventures: Virgin Rail Group that operates in UK Rail and Citylink that operates in UK Bus. The results of these joint
ventures are shown separately in notes 2(b) and 2(f).

(a) Revenue
Due to the nature of the Group’s business, the origin and destination of revenue is the same in all cases.

No material part of each segment’s revenue shown below relates to transactions with other segments.

Continuing operations
UK Bus – continuing excluding acquisitions in year
UK Bus – acquisitions in year
North America 

Total bus continuing operations
UK Rail

Total continuing operations

Discontinued operations
North America

Group revenue

2006

£m

775.7
38.5
247.6

1,061.8
506.7

1,568.5

Nil

1,568.5

2005

£m

720.3
Nil
213.7

934.0
479.4

1,413.4

7.1

1,420.5

The discontinued revenue from North America for the prior year is shown above rather than being reclassified to the profit on discontinued operations
line on the face of the income statement. This is due to the fact that the expenses and profit from the discontinued element of North America for the
prior year are not clearly distinguishable due to certain “shared” costs that relate to North America as a whole. Consequently, as we cannot reallocate
the expenses and profit from the discontinued element of North America to the profit on discontinued operations in the income statement, the
discontinued element of the revenue remains above. The profit from the discontinued element of North America is in any case believed to be
immaterial.

The revenue from the discontinued New Zealand division forms part of the profit for the year from discontinued operations line on the face of the
income statement on page 36 and is shown separately in note 17.

Total revenue (excluding revenue from discontinued operations) comprises:

Group revenue (shown above)
Other operating income (note 4)
Share of profit of joint ventures
Finance income

2006

£m

1,568.5
209.7
5.6
8.6

1,792.4

2005

£m

1,420.5
176.1
10.7
13.3

1,620.6

Stagecoach Group plc | page 49

Notes to the consolidated accounts

Note 2 Segmental information (continued) 

(b) Operating profit

2006

2005

Performance 
pre intangibles
and
exceptional items
£m

Intangibles and
exceptional
items
£m

Performance 
pre intangibles
and
exceptional items
£m

Intangibles and
exceptional
items
£m

Results for
the year
£m

Results for
the year
£m

88.6
(1.9)
16.9

103.6
58.9

162.5
(10.0)
Nil
(1.5)

Nil
Nil
Nil

Nil
Nil

Nil
Nil
(7.4)
Nil

88.6
(1.9)
16.9

103.6
58.9

162.5
(10.0)
(7.4)
(1.5)

87.7
Nil
15.5

103.2
50.0

153.2
(9.0)
Nil
(1.4)

(0.8)
Nil
Nil

(0.8)
Nil

(0.8)
(0.6)
(4.1)
Nil

86.9
Nil
15.5

102.4
50.0

152.4
(9.6)
(4.1)
(1.4)

151.0

(7.4)

143.6

142.8

(5.5)

137.3

5.5

5.3
1.7
(1.5)

5.5

0.1

0.1
Nil
Nil

0.1

Nil

Nil

Nil

Nil
Nil
Nil

Nil

Nil

Nil
Nil
Nil

Nil

5.5

5.3
1.7
(1.5)

5.5

0.1

0.1
Nil
Nil

0.1

(13.1)

(13.1)

10.7

14.2
1.7
(5.2)

10.7

Nil

Nil
Nil
Nil

Nil

Nil

Nil

Nil
Nil
Nil

Nil

Nil

Nil
Nil
Nil

Nil

10.7

14.2
1.7
(5.2)

10.7

Nil

Nil
Nil
Nil

Nil

(14.7)

(14.7)

Nil

Nil

(0.4)

Nil

(0.4)

Continuing operations
UK Bus – continuing, excluding acquisitions in year
UK Bus – acquisitions in year
North America 

Total bus continuing operations
UK Rail

Total continuing operations
Group overheads
Amortisation of intangible assets
Redundancy/restructuring costs

Total operating profit of continuing
Group operations

Share of profit of joint ventures – 
after finance income and taxation
– Virgin Rail Group

Operating profit
Finance income (net)
Taxation

– Citylink

Operating profit
Finance income (net)
Taxation

Goodwill charge on investment in 
continuing joint ventures 
Share of loss of associate – 
after finance charges and taxation
Continuing – other

Total operating profit: 
Group and share of joint ventures and associates

156.6

(20.5)

136.1

153.1

(20.2)

132.9

The operating profit from the discontinued element of North America for the prior year is not separately shown because it is not clearly
distinguishable due to certain “shared” costs that relate to North America as a whole. However, the discontinued element of North America’s
operating profit is not believed to be material in the context of the Group’s operating profit as a whole for the year ended 30 April 2005. The
operating profit from the discontinued New Zealand division forms part of the profit for the year from discontinued operations line on the face of the
income statement on page 36 and is shown separately in note 17.

page 50 | Stagecoach Group plc

Note 2 Segmental information (continued) 

(c) Gross assets and liabilities

UK Bus
North America
UK Rail
New Zealand (Discontinued)

Central functions
Joint ventures
Associate
Borrowings and cash
Taxation

Total 

2006

Gross
liabilities
£m

(187.4)
(45.1)
(196.9)
Nil

(429.4)
(256.0)
–
–
(357.5)
(34.2)

Gross 
assets
£m

626.0
244.8
89.7
Nil

960.5
68.3
52.0
1.0
198.5
8.4

Net assets/
(liabilities)
£m

438.6
199.7
(107.2)
Nil

531.1
(187.7)
52.0
1.0
(159.0)
(25.8)

2005

Gross
liabilities
£m

(189.0)
(62.0)
(184.0)
(11.1)

(446.1)
(233.5)
–
–
(354.6)
(38.8)

Gross
assets
£m

559.4
232.2
97.0
86.0

974.6
11.6
56.1
1.0
140.0
5.1

Net assets/
(liabilities)
£m

370.4
170.2
(87.0)
74.9

528.5
(221.9)
56.1
1.0
(214.6)
(33.7)

1,288.7

(1,077.1)

211.6

1,188.4

(1,073.0)

115.4

Central assets and liabilities include the token provisions, interest payable and receivable on Group debt and other net assets of the holding company.

(d) Capital expenditure on property, plant and equipment
The capital expenditure on property, plant and equipment shown below is on an accruals basis, not on a cash basis, and includes expenditure on
property, plant and equipment through business combinations.

UK Bus – continuing, excluding acquisitions in year
UK Bus – acquisitions in year
North America
UK Rail
Discontinued operations

2006

2005

£m

64.5
54.4
26.3
1.9
3.2

£m

51.4
1.2
33.9
7.5
10.8

150.3

104.8

(e) Capital expenditure on intangible assets
The capital expenditure on intangible assets (including goodwill)  shown below includes acquisitions through business combinations.

UK Bus – continuing, excluding acquisitions in year
UK Bus – acquisitions in year 
North America 
UK Rail

2006

2005

£m

Nil
35.4
0.2
0.4

36.0

£m

2.5
Nil
1.2
0.2

3.9

Stagecoach Group plc | page 51

Notes to the consolidated financial statements

Note 2 Segmental information (continued) 

(f) EBITDA, depreciation and amortisation expense
The results of each segment are further analysed below:

Year ended 30 April 2006

EBITDA
pre-exceptional
items
£m

Joint venture
interest and
tax
£m

Depreciation
expense
£m

Operating
profit sub-total
£m

Amortisation
of intangible
assets
£m

Exceptional
items
£m

Allocation
of restructuring
costs
£m

Operating
profit
£m

UK Bus - continuing, excluding 

acquisitions in year
UK Bus - acquisitions in year
North America
UK Rail – subsidiaries
UK Rail – joint venture (Virgin
Rail Group)
UK Bus – joint venture (Citylink)
Group overheads
Restructuring costs
Associate

133.0
0.5
32.9
64.7

5.3
0.1
(9.9)
(1.5)
Nil

225.1

Nil
Nil
Nil
Nil

0.2
Nil
Nil
Nil
Nil

0.2

(44.4)
(2.4)
(16.0)
(5.8)

Nil
Nil
(0.1)
Nil
Nil

88.6
(1.9)
16.9
58.9

5.5
0.1
(10.0)
(1.5)
Nil

(1.2)
(2.4)
(0.8)
(3.0)

(13.1)
Nil
Nil
Nil
Nil

(68.7)

156.6

(20.5)

Nil
Nil
Nil
Nil

Nil
Nil
Nil
Nil
Nil

Nil

(0.2)
(0.8)
Nil
(0.4)

Nil
Nil
(0.1)
1.5
Nil

87.2
(5.1)
16.1
55.5

(7.6)
0.1
(10.1)
Nil
Nil

Nil

136.1

Year ended 30 April 2005

EBITDA
pre-exceptional
items
£m

Joint venture
interest and
tax
£m

Depreciation
expense
£m

Operating
profit sub-total
£m

Amortisation
of intangible
assets
£m

Exceptional
items
£m

Allocation
of restructuring
costs
£m

Operating
profit
£m

UK Bus
North America
UK Rail – subsidiaries
UK Rail – joint venture (Virgin
Rail Group)

Group overheads
Restructuring costs
Associate

132.5
30.0
53.4

14.2
(8.9)
(1.4)
(0.4)

219.4

Nil
Nil
Nil

(3.5)
Nil
Nil
Nil

(3.5)

(44.8)
(14.5)
(3.4)

Nil
(0.1)
Nil
Nil

87.7
15.5
50.0

10.7
(9.0)
(1.4)
(0.4)

(62.8)

153.1

(0.5)
(0.7)
(2.9)

(14.7)
Nil
Nil
Nil

(18.8)

(0.8)
Nil
Nil

Nil
(0.6)
Nil
Nil

(1.4)

(0.4)
(0.1)
(0.8)

Nil
(0.1)
1.4
Nil

86.0
14.7
46.3

(4.0)
(9.7)
Nil
(0.4)

Nil

132.9

page 52 | Stagecoach Group plc

Note 3 Operating costs and exceptional items

Materials and consumables
Staff costs (note 6)
Depreciation on property, plant and equipment 
– owned assets
– leased assets under hire purchase agreements and finance leases
Loss on disposal of plant and equipment
Repairs and maintenance expenditure on property, plant and equipment
Amortisation of intangible assets
– customer contracts
– non-compete contracts 
– rail franchise 
– software costs
Network Rail charges
Operating lease rentals payable 
– Plant and equipment
– Property
Other external charges

2006

£m

169.9
782.6

56.2
12.5
1.9
18.1

2.4
2.0
2.9
0.1
147.2

117.0
5.7
316.1

2005

£m

145.2
712.8

42.3
20.5
3.0
16.1

Nil
1.1
2.9
0.1
128.2

116.6
5.6
264.9

Total operating costs – continuing operations

1,634.6

1,459.3

Included within external charges are fees paid to the Group’s auditors, an analysis of which is provided below:

Audit services
– statutory audit
– audit-related regulatory reporting
Other assurance services
Tax services
– compliance services
– advisory services
Provision of training and related materials
Advice re return of capital and related matters

Auditors’ remuneration – audit (Company)

£000

£000

680.0
2.5
87.9

Nil
17.0
18.0
Nil

805.4

20.0

590.0
72.0
71.4

6.4
67.0
0.5
140.0

947.3

20.0

In addition to the above charges included within profit before taxation for continuing businesses, £6.3m (2005: £13.1m) was incurred in relation to
materials and consumables, £17.5m (2005: £28.2m) was incurred for staff costs, £3.0m (2005: £4.5m) was incurred for depreciation on owned
property, plant and equipment, £3.0m (2005: £4.5m) was incurred in relation to repairs and maintenance, £0.1m (2005: £0.1m) was incurred for plant
and equipment operating lease rental payments and £0.3m (2005: £0.5m) was incurred for property operating lease rental payments and £2.9m
(2005: £1.3m) was incurred in relation to external charges in relation to our disposed New Zealand business.
In addition to the above fees paid to the auditors for the Group’s continuing businesses which were included within profit before taxation, £Nil (2005:
£50,000) was incurred in relation to our disposed New Zealand business comprising £Nil (2005: £45,000) for statutory audit services and £Nil (2005:
£5,000) for other assurance services which is included within profit for the year from discontinued operations.
Fees paid for non-audit services in the UK totalled £111,805 (2005: £341,795).
The following items have been treated as exceptional:

Gain on sale of New Zealand operations
Gain on sale of other investments
Loss in respect of other disposed and closed operations
Return of capital costs
Impairment of minority investment
Loss re flooding at Carlisle depot
Gain on sale of properties

Tax effect of exceptional items

2006

£m

22.5
1.1
(7.0)
Nil
Nil
Nil
0.8

17.4
2.8

20.2

2005

£m

Nil
Nil
(7.4)
(0.3)
(0.3)
(0.8)
1.3

(7.5)
1.6

(5.9)

Stagecoach Group plc | page 53

Notes to the consolidated financial statements

Note 4 Other operating income

Miscellaneous revenue
Rail franchise support, excluding incentive payments
Rail liquidated damages
Rail incentive payments

2006

2005

£m

53.8 
111.1 
0.7 
44.1 

209.7

£m

46.4
91.9
2.6
35.2

176.1

In addition to the above, other operating income for continuing businesses, £1.2m (2005: £1.9m) was recognised in relation to miscellaneous revenue
in relation to our disposed New Zealand business.

Miscellaneous revenue comprises revenue incidental to the Group’s principal activity. It includes advertising income, maintenance income and property
income.

Rail franchise support is the gross amount of financial support receivable in respect of rail franchises from the DfT and formerly, the Strategic Rail
Authority (“SRA”). Partly offsetting this, the Group recognised amounts payable to the DfT/SRA under revenue and profit share agreements for the
South West Trains rail franchise totalling £66.7m (2005: £46.0m), which are included within operating costs.

Rail liquidated damages of £0.7m (2005: £2.6m) relate to amounts received by South West Trains for the late delivery and reliability of trains.

Rail incentive payments comprise receipts from/payments to the DfT/SRA in respect of the operational performance of our rail companies measured
against benchmarks set by the DfT/SRA. Payments are made to the DfT/SRA when performance is worse than the target benchmarks and conversely
payments are received from the DfT/SRA when performance is better than that set by the benchmarks. 

Note 5 Finance costs and income

Finance costs:
Bank loans, overdraft interest payable and other facility costs
Hire purchase and finance lease interest payable
Interest payable on notes
‘B’ share dividends
Unwinding of discount on provisions

Finance income:
Interest receivable
Fair value gains on financial instruments not qualifying as hedges
– interest rate swaps
– foreign exchange forward contracts

Net finance costs

2006

2005

£m

3.6
3.3
14.2
0.2
3.3

24.6

(8.3)

(0.2)
(0.1)

(8.6)

16.0

£m

4.0
8.3
19.7
n/a
3.2

35.2

(13.3)

Nil
Nil

(13.3)

21.9

In addition to the above net finance costs for continuing businesses, £0.1m (2005: £0.3m) of finance income was recognised in relation to our
disposed New Zealand business.

The remaining redeemable ‘B’ preference shares were redeemed on 30 September 2005. They attracted a non-cumulative preferential dividend set at
70% of 6 months’ LIBOR. The dividend was payable on the nominal amount of 18 pence per ‘B’ share and was paid twice yearly in arrears on 31 March
and 30 September. As explained in note 1, the Group has opted to apply IAS 32 and IAS 39 prospectively from 1 May 2005 without restating prior
periods and accordingly, the dividends on ‘B’ shares of £0.4m for the year ended 30 April 2005 have been deducted directly from equity and are not
deducted in arriving at the profit for that year.

page 54 | Stagecoach Group plc

Note 6 Staff costs

Staff costs
Wages and salaries
Social security costs
Pension costs – defined contribution plans
Pension costs – defined benefit plans
– current service cost
– interest cost
– expected return on assets
– unwinding of franchise adjustment
Share based payment costs

Summary of directors’ remuneration
Aggregate emoluments
Gains made by directors on exercise of share options

2006

£m

687.3
59.8
1.0

42.5
57.7
(65.9)
(1.9)
2.1

782.6

2006

£m

2.2
2.0

4.2

2005

£m

624.8
53.8
0.6

38.7
51.8
(57.5)
(0.7)
1.3

712.8

2005

£m

2.0
0.6

2.6

In addition to the above staff costs, £17.4m (2005: £28.1m) of wages and salaries and £0.1m (2005: £0.1m) of share based payment costs were
incurred in relation to our disposed New Zealand business.

Further information on directors’ remuneration, share options, incentive schemes and pensions is contained in the Remuneration Committee report
on pages 28 to 34.

The average monthly number of persons employed by the Group during the year (including executive directors but excluding discontinued operations)
was as follows:

UK operations
UK administration and supervisory 
Overseas

2006

2005

number

24,295
2,438
4,649

31,382

number

21,105
2,266
4,353

27,724

The average monthly number of persons employed by the Group during the year split by segment was as follows: 

UK Bus
North America
UK Rail
Central

2006

2005

number

22,078
4,649
4,528
127

31,382

number

18,633
4,353
4,615
123

27,724

Stagecoach Group plc | page 55

Notes to the consolidated financial statements

Note 7 Taxation

(a) Analysis of charge in the year

2006

2005

Performance 
pre intangibles
and
exceptional items
£m

Intangibles and
exceptional
items
£m

Notes

Performance 
pre intangibles
and
exceptional items
£m

Intangibles and
exceptional
items
£m

Results for
the year
£m

Results for
the year
£m

Current tax:
UK corporation tax at 30% (2005: 30%)
Prior year under provision for corporation tax
Foreign tax (current year)
Foreign tax (adjustments in respect of prior years)

Total current tax

Deferred tax:
Origination and reversal of timing differences
Adjustments in respect of prior years

Total deferred tax

Tax on profit on ordinary activities

(b) Factors affecting tax charge for the year

20.2
1.0
Nil
2.4

23.6

8.5
(0.7)

7.8

31.4

Nil
Nil
Nil
Nil

Nil

(5.0)
Nil

(5.0)

(5.0)

20.2
1.0
Nil
2.4

23.6

3.5
(0.7)

2.8

26.4

Profit on ordinary activities before tax

Profit on ordinary activities multiplied by standard rate of corporation tax in the UK of 30% (2005: 30%)
Effects of:
Intangible asset allowances/deductions
Non-deductible expenditure
Utilisation of tax losses not previously recognised as deferred tax assets
Foreign taxes differences
Adjustments to tax charge in respect of prior years
Tax effect of share of results of joint ventures 

Total taxation (note 7a)

25.3
0.3
0.5
0.1

26.2

3.8
(2.0)

1.8

28.0

2006

£m

115.0

34.5

3.9
6.8
(19.2)
(0.6)
2.7
(1.7)

26.4

(0.3)
Nil
Nil
Nil

(0.3)

(2.4)
Nil

(2.4)

(2.7)

25.0
0.3
0.5
0.1

25.9

1.4
(2.0)

(0.6)

25.3

2005

£m

104.9

31.5

4.5
6.3
(11.3)
(0.9)
(1.6)
(3.2)

25.3

(c) Factors that may affect future tax charges
There are no temporary differences associated with investments in overseas subsidiaries for which deferred tax liabilities have not been recognised.

Deductible temporary differences of £306.0m (2005: £370.0m) have not been recognised due to restrictions in the availability of their use.

(d) Tax on items charged to equity

Tax on foreign exchange differences on translation of foreign operations
Tax effect of actuarial (gains)/losses on Group defined benefit pensions schemes
Tax effect of share of actuarial (gains)/losses on joint ventures’ defined benefit pension schemes
Tax effect of cash flow hedges
Tax effect of share based payments

Total tax on items charged to equity

Tax recognised on the adoption of IAS 39

page 56 | Stagecoach Group plc

2006

2005

£m

(0.2)
(4.2)
(1.5)
Nil
2.9

(3.0)

0.5

£m

Nil
15.3
2.7
Nil
Nil

18.0

Nil

Note 8 Dividends

Amounts recognised as distributions in the year
Dividends on ordinary shares
Final dividend paid of 2.0p per share for the year ended 30 April 2004
Interim dividend paid of 1.0p per share for the year ended 30 April 2005
Final dividend paid of 2.3p per share for the year ended 30 April 2005
Interim dividend paid of 1.1p per share for the year ended 30 April 2006

Amounts recognised as distributions to equity holders in the year
Dividends on redeemable ‘B’ preference shares
Accrued for the period

Dividends proposed but neither paid nor included as liabilities in the financial statements
Dividends on ordinary shares
Final dividend paid of 2.3p per share for the year ended 30 April 2005
Final dividend proposed of 2.6p per share for the year ended 30 April 2006

2006

£m

–
–
24.6
12.0

36.6

n/a

36.6

–
28.4

28.4

2005

£m

26.5
10.7
–
–

37.2

0.4

37.6

24.4
–

24.4

The proposed final dividend in respect of the year ended 30 April 2006 is subject to approval by shareholders at the Annual General Meeting and has
not been included as a liability in these financial statements. If approved, the final dividend will be payable on 4 October 2006 to shareholders on the
register at close of business on 1 September 2006. 

The dividends proposed and the actual dividends recognised as distributions differ slightly due to the number of shares at the balance sheet date being
different to that at the record date.

The redeemable ‘B’ preference shares attracted a non-cumulative preferential dividend set at 70% of 6 months’ LIBOR. The dividend was payable on
the nominal amount of 18 pence per ‘B’ share and was paid twice yearly in arrears on 31 March and 30 September. On adoption of IAS 32 and IAS 39
on 1 May 2005, the preference shares are reclassified as debt rather than equity and subsequently any dividends accrued since that date are classified as
finance costs and are disclosed in note 5.

Note 9 Earnings per share

Basic earnings per share have been calculated by dividing the profit attributable to equity shareholders (net of any dividends on preference shares not
already deducted in arriving at the reported profit) by the weighted average number of ordinary shares in issue during the year, excluding any ordinary
shares held by employee share ownership trusts and not ranking for dividend.

The diluted earnings per share was calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all
dilutive potential ordinary shares in relation to share options and long-term incentive plans. In respect of share options, a calculation was done to
determine the number of ordinary shares that could have been acquired at fair value (determined based on the average annual market share price of
the Company’s ordinary shares) based on the monetary value of the subscription rights attached to outstanding share options. The number of
ordinary shares calculated as above is compared with the number of ordinary shares that would have been issued assuming the exercise of the share
options. The difference is added to the denominator as an issue of ordinary shares for no consideration and no adjustment is made to earnings
(numerator).

Basic weighted average ordinary share capital (number of shares, million)
Dilutive ordinary shares
– Executive Share Option Scheme
– Employee SAYE Scheme
– LTIP

2006

1,075.8

14.7
0.8
Nil

2005

1,154.5

20.0
3.6
Nil

Diluted weighted average ordinary share capital (number of shares, million)

1,091.3

1,178.1

Stagecoach Group plc | page 57

Notes to the consolidated financial statements

Note 9 Earnings per share (continued)

Profit after taxation 
Dividends on ‘B’ shares

Profit after taxation and dividends on ‘B’ shares (for basic EPS calculation)
Amortisation of intangible assets
Exceptional items (see note 3)
Tax effect of amortisation of intangible assets and exceptional items

Profit for adjusted EPS calculation

Basic
Adjusted basic
Diluted
Adjusted diluted

2006

£m

115.4
n/a

115.4
20.5
(17.4)
(5.0)

113.5

2005

£m

86.9
(0.4)

86.5
18.8
7.5
(2.7)

110.1

Earnings per
share

Earnings per
share

pence

10.7
10.6
10.6
10.4

pence

7.5
9.5
7.3
9.3

Earnings per share before the amortisation of intangible assets and exceptional items is calculated after adding back intangible asset amortisation and
exceptional items after taking account of taxation, as shown on the consolidated income statement on page 36. This has been presented to allow
shareholders to gain a clearer understanding of the underlying performance.

The basic and diluted earnings per share 
can be further analysed as follows:

2006

2005

Basic
– Continuing operations
– Discontinued operations

Adjusted basic
– Continuing operations
– Discontinued operations

Diluted
– Continuing operations
– Discontinued operations

Adjusted diluted
– Continuing operations
– Discontinued operations

Weighted
average number
of shares
Million

Earnings
£m

88.6
26.8

1,075.8
1,075.8

Earnings
per share
Pence

8.2p
2.5p

115.4

1,075.8

10.7p

109.2
4.3

1,075.8
1,075.8

113.5

1,075.8

88.6
26.8

1,091.3
1,091.3

10.2p
0.4p

10.6p

8.1p
2.5p

115.4

1,091.3

10.6p

109.2
4.3

1,091.3
1,091.3

113.5

1,091.3

10.0p
0.4p

10.4p

Weighted
average number
of shares
Million

Earnings
per share
Pence

Earnings
£m

79.2
7.3

86.5

102.8
7.3

110.1

79.2
7.3

86.5

102.8
7.3

110.1

1,154.5
1,154.5

1,154.5

1,154.5
1,154.5

1,154.5

1,178.1
1,178.1

1,178.1

1,178.1
1,178.1

1,178.1

6.9p
0.6p

7.5p

8.9p
0.6p

9.5p

6.7p
0.6p

7.3p

8.7p
0.6p

9.3p

The following executive share options could potentially dilute basic earnings per share in the future, but were not included in the calculation of diluted
earnings per share for the years ended 30 April 2005 and 30 April 2006 as they would have been anti-dilutive (that is, their inclusion would have
increased earnings per share) due to the exercise price exceeding the average share price for the year.

Award date

Outstanding as at 30 April 2005

Outstanding as at 30 April 2006

Exercise price £

Expiry date

8 September 1997
19 October 1998
19 July 1999
10 December 2004

41,472
273,548
519,158
1,592,013

Nil
Nil
407,657
1,435,008

1.2810
2.2280
2.0310
1.1150

8 September 2007
19 October 2005
19 July 2006
10 December 2011

Further details of executive share options are provided in note 29.

There have been no ordinary share transactions between the balance sheet date and date of approval of this report that would have significantly
changed the number of ordinary shares outstanding at 30 April 2006.

page 58 | Stagecoach Group plc

Note 10 Goodwill

Cost
At beginning of year
Acquired through business combinations
Sale/closure of subsidiary undertakings*
Translation adjustment

At end of year

Accumulated impairment losses
At beginning and end of year

Net book value at beginning of year

Net book value at end of year

2006

£m

93.6
20.7
(19.0)
4.8

100.1

Nil

93.6

100.1

2005

£m

99.4
Nil
(1.3)
(4.5)

93.6

Nil

99.4

93.6

*The disposed goodwill included within note 17 includes £Nil (2005: £3.4m) of goodwill that was held in a disposal group prior to the business being
sold and is threfore not included in the table above.

Details of acquisitions and disposals made during the year are contained within notes 16 and 17. 

During the year, goodwill was reviewed for impairment in accordance with IAS 36 “Impairment of Assets”. No impairment charges (2005: £Nil) arose as a
result of this review. 

Goodwill was allocated to individual cash generating units for this impairment testing on the basis of the Group’s operations. The carrying value of
goodwill by cash generating unit is as follows:

UK Bus
North America
New Zealand

*disposed of during the year

2006

£m

20.8 
79.3
n/a*

100.1

2005

£m

0.3
75.4
17.9

93.6

The assumptions used for the cash generating units included within the impairment reviews are as follows: 

UK Bus
North America
New Zealand

Discount rate applied to
cash flow projections

Growth rate used to extrapolate
cash flows beyond five year period of
management plan

2006

10.7%
9.0%
n/a*

2005

10.7%
9.0%
11.6%

2006

2.2%
2.75%
n/a*

2005

2.2%
2.75%
2.75%

* New Zealand was disposed of during the year ended 30 April 2006 therefore no impairment review has been undertaken for that year

The discount rates represent the risk adjusted weighted average cost of capital appropriate for the cash flow generated.

The calculation of value in use for each cash generating unit is most sensitive to the assumptions over gross margin, discount rates, and the growth rate.

The assumptions used are considered to be consistent with the historical performance of each unit and to be realistically achievable in the light of
economic and industry measures and forecasts.

Stagecoach Group plc | page 59

Notes to the consolidated financial statements

Note 11 Other intangible assets

Year ended 30 April 2006

Customer
contracts

Non-compete
contracts

Rail
franchise

Software
costs

£m

£m

Cost
At beginning of year
Acquired through business combinations
Additions
Translation adjustment

At end of year

Accumulated amortisation
At beginning of year
Amortisation for year

At end of year

Net book value at beginning of year

Net book value at end of year

Nil
14.7
Nil
Nil

14.7

Nil
(2.4)

(2.4)

Nil

12.3

6.6
Nil
0.2
0.2

7.0

(2.8)
(2.0)

(4.8)

3.8

2.2

£m

8.1
Nil
Nil
Nil

8.1

(2.9)
(2.9)

(5.8)

5.2

2.3

£m

0.3
Nil
0.4
Nil

0.7

(0.1)
(0.1)

(0.2)

0.2

0.5

Total

£m

15.0
14.7
0.6
0.2

30.5

(5.8)
(7.4)

(13.2)

9.2

17.3

Intangible assets relate to customer contracts purchased as part of the Group’s business combinations, non-compete contracts, the right to operate UK
Rail franchises and software costs.

The amortisation of each of the above intangible assets is included within the operating costs line of the income statement.

Intangible assets arising during the year (including those acquired through business combinations) and the amortisation periods are as follows:

Amortisation
period
years

Intangible
additions
£m

Subsidiaries – UK Bus business combinations additions
Subsidiaries – North America additions
Subsidiaries – UK Rail additions

5
2-5
2-5

Year ended 30 April 2005

Non-compete
contracts

Rail
franchise

Software
costs

Cost
At beginning of year
Acquired through business combinations
Additions
Sale/closure of subsidiary undertakings and other businesses
Translation adjustment

At end of year

Accumulated amortisation
At beginning of year
Amortisation for year
Sale/closure of subsidiary undertakings and other businesses

At end of year

Net book value at beginning of year

Net book value at end of year

£m

3.9
3.6
Nil
(0.7)
(0.2)

6.6

(1.9)
(1.1)
0.2

(2.8)

2.0

3.8

£m

8.1
Nil
Nil
Nil
Nil

8.1

Nil
(2.9)
Nil

(2.9)

8.1

5.2

£m

Nil
Nil
0.3
Nil
Nil

0.3

Nil
(0.1)
Nil

(0.1)

Nil

0.2

14.7
0.2
0.4

15.3

Total

£m

12.0
3.6
0.3
(0.7)
(0.2)

15.0

(1.9)
(4.1)
0.2

(5.8)

10.1

9.2

page 60 | Stagecoach Group plc

Note 12 Property, plant and equipment

Year ended 30 April 2006

Cost
At beginning of year
Additions
Acquired through business combinations
Disposals
Sale/closure of subsidiary undertakings and other businesses
Translation adjustment

At end of year

Depreciation
At beginning of year
Charge
Disposals
Sale/closure of subsidiary undertakings and other businesses
Translation adjustment

At end of year

Net book value at beginning of year

Net book value at end of year

Included in the above are:
Assets on hire purchase
Leased PSV assets
Short leasehold land and buildings
Long leasehold land and buildings

Land and
buildings

PSVs and
other assets

£m

£m

200.4
6.8
17.1
(5.0)
(7.9)
2.2

213.6

(3.4)
(4.7)
0.9
1.1
(0.7)

(6.8)

197.0

206.8

Nil
Nil
2.4
29.4

1,005.4
97.0
29.4
(30.9)
(101.8)
20.4

1,019.5

(508.2)
(67.0)
23.7
43.1
(9.1)

(517.5)

497.2

502.0

95.3
45.1
Nil
Nil

Total

£m

1,205.8
103.8
46.5
(35.9)
(109.7)
22.6

1,233.1

(511.6)
(71.7)
24.6
44.2
(9.8)

(524.3)

694.2

708.8

95.3
45.1
2.4
29.4

Heritable and freehold land amounting to £109.3m (2005: £98.2m) has not been depreciated.
Depreciation of £12.5m (2005: £20.5m) has been charged in the year in respect of assets held under hire purchase or finance lease agreements.

Year ended 30 April 2005

Cost
At beginning of year
Additions
Acquired through business combinations
Disposals
Sale/closure of subsidiary undertakings and other businesses*
Translation adjustment

At end of year

Depreciation
At beginning of year
Charge
Disposals
Sale/closure of subsidiary undertakings and other businesses*
Translation adjustment

At end of year

Net book value at beginning of year

Net book value at end of year

Included in the above are:
Assets on hire purchase
Leased PSV assets
Short leasehold land and buildings
Long leasehold land and buildings

Land and
buildings

PSVs and
other assets

£m

£m

190.4
14.9
Nil
(3.6)
Nil
(1.3)

200.4

(2.5)
(4.1)
2.8
Nil
0.4

(3.4)

187.9

197.0

Nil
Nil
1.0
20.2

967.6
88.6
1.3
(46.6)
Nil
(5.5)

1,005.4

(484.4)
(63.2)
35.3
Nil
4.1

(508.2)

483.2

497.2

124.3
2.6
Nil
Nil

Total

£m

1,158.0
103.5
1.3
(50.2)
Nil
(6.8)

1,205.8

(486.9)
(67.3)
38.1
Nil
4.5

(511.6)

671.1

694.2

124.3
2.6
1.0
20.2

*During the year ended 30 April 2005, various businesses in North America were disposed of. As a result, property, plant and equipment with a net book value of £0.6m (see note 17) were
disposed of. These are not included in the above table as these assets were transferred to a disposal group on transition to IFRS, being 1 May 2004.

IAS 16, “Property, plant and equipment”, requires the initial measurement of property, plant and equipment at cost less accumulated depreciation. The
exemption in IFRS 1 allow entities to use a value that is not depreciated cost as deemed cost on transition to IFRS. One of the options is to use fair
value of the item at the date of transition to IFRS and allocate this as deemed cost. Certain of our UK Bus division’s land and buildings have been
valued at the date of transition to IFRS, being 1 May 2004, on the basis of existing use value by independent qualified valuers. This resulted in an
increase of £53.9m to the carrying value of those land and buildings at 1 May 2004.

Stagecoach Group plc | page 61

Notes to the consolidated financial statements

Note 13 Interests in joint ventures 

The principal joint ventures are:

Country of
Incorporation

Number of
shares in issue
at 30 April 2006

Nominal Value
of share capital
in issue at
30 April 2006

Virgin Rail Group Holdings Limited
Scottish Citylink Limited

United Kingdom
United Kingdom

34,780
1,643,312

£3,478
£1,643,312

% interest
held

49%
35%

The Group has two joint ventures, Virgin Rail Group Holdings Limited (“VRG”) and Scottish Citylink Limited (“Citylink”). 

Virgin Rail Group Holdings Limited is the holding company of Virgin Rail Group Limited, which in turn is the holding company of CrossCountry Trains
Limited and West Coast Trains Limited.

The Virgin Rail Group Holdings shareholders’ agreement provides for joint decision making on key matters and equal representation on the Board. As
a consequence, the investment has been accounted for as a joint venture.

As part of the original acquisition, the Group acquired a £20m shareholder loan to Virgin Rail Group Limited, now a subsidiary of Virgin Rail Group
Holdings Limited. The shareholder loan bears interest at a fixed rate of 10% per annum. £10m of the original £20m loan was repaid on 28 April 2000,
£3.3m was repaid on 23 September 2004 and £3.4m was repaid on 27 September 2004.

Unless otherwise agreed by the shareholders of Virgin Rail Group Holdings Limited, Virgin Rail Group Limited is restricted from paying dividends until
any loans payable to the Virgin Rail Group Holdings Limited shareholders have been repaid. With the agreement of its shareholders, Virgin Rail Group
Holdings Limited has declared a dividend of £15.7m in respect of its financial year ended 4 March 2006.

The Directors undertook an impairment review as at 30 April 2006 of the carrying value of the Group’s 49% joint venture interest in VRG and
concluded that there had been no impairment loss. The discount rate applied to the cash flow projections for the impairment review was 10.7% and
the cash flows were based on the business plans for both of VRG’s West Coast and CrossCountry franchises, which cover the period until the end of
each franchise.

Stagecoach acquired 35% of the share capital of Citylink on 12 September 2005 in return for transferring certain rights to the Motorvator and
megabus.com operations in Scotland. The Citylink shareholder agreement provides for joint and unanimous decision making on all key matters and
therefore the investment has been accounted for as a joint venture.

VRG

£m

70.8
(3.3)

67.5
Nil
5.5

3.7
Nil
Nil
(0.1)

76.6

(14.7)
(13.1)

(27.8)

56.1

52.8

48.8

Citylink

£m

Nil
Nil

Nil
3.1
0.1

Nil
Nil
Nil
Nil

3.2

Nil
Nil

Nil

Nil

Nil

3.2

Total
2006

£m

70.8
(3.3)

67.5
3.1
5.6

3.7
Nil
Nil
(0.1)

79.8

(14.7)
(13.1)

(27.8)

56.1

52.8

52.0

Total
2005

£m

96.6
Nil

96.6
Nil
10.7

(6.4)
(23.5)
(6.7)
0.1

70.8

Nil
(14.7)

(14.7)

96.6

96.6

56.1

Cost
At beginning of year
1 May 2005 IAS 32/39 adjustments

At beginning of year, restated
Additions
Share of recognised profits
Share of actuarial gains/(losses) on defined benefit
pension schemes, net of tax
Dividends received
Loan repayment
Rounding

At end of year

Amounts written off
At beginning of year
Goodwill charged during year

At end of year

Net book value at beginning of year

Net book value at beginning of year, restated

Net book value at end of year

page 62 | Stagecoach Group plc

Note 13 Interests in joint ventures (continued)

The Group’s share of the net assets of its joint ventures is analysed below:

Non-current assets
Current assets
Non-current liabilities
Current liabilities

Share of net assets
Goodwill
Shareholder loan notes

VRG

£m

24.9
140.7
(11.1)
(135.4)

19.1
29.7
n/a

48.8

Citylink

£m

0.3
1.4
Nil
(1.1)

0.6
2.6
n/a

3.2

Total
2006

£m

25.2
142.1
(11.1)
(136.5)

19.7
32.3
n/a

52.0

Total
2005

£m

16.2
116.3
(21.3)
(101.2)

10.0
42.8
3.3

56.1

On transition to IAS 32 and IAS 39 on 1 May 2005, the shareholder loan notes of £3.3m receivable from VRG were reclassified as financial assets and
therefore as at 30 April 2006 were included within the current trade and other receivables line on the balance sheet.

The Group’s share of post tax results from joint ventures is analysed below:

Revenue
Expenses

Operating profit
Finance income (net)
Taxation

Share of profit of joint ventures

VRG

£m

357.4
(352.1)

5.3
1.7
(1.5)

5.5

Citylink

£m

3.8
(3.7)

0.1
Nil
Nil

0.1

Total
2006

£m

361.2
(355.8)

5.4
1.7
(1.5)

5.6

Total
2005

£m

315.2
(301.0)

14.2
1.7
(5.2)

10.7

A net actuarial gain after tax of £3.7m (2005: loss of £6.4m) was recognised in addition to the above in relation to VRG’s defined benefit pension schemes.

Note 14 Interests in associate

Cost and net book value
At the beginning of year
Share of recognised losses

At end of year

2006

2005

£m

1.0
Nil

1.0

£m

1.4
(0.4)

1.0

Stagecoach Group plc | page 63

Notes to the consolidated financial statements

Note 14 Interests in associate (continued)

The principal associate is:

Country of
Incorporation

Number of
shares in issue
at 30 April 2006

Nominal Value
of share capital
in issue at
30 April 2006

% interest
held

Prepayment Cards Limited

United Kingdom

340,000

£340,000

23.5%

The Group’s share of the net assets of its associate is analysed below:

2006

2005

Non-current assets
Current assets
Non-current liabilities
Current liabilities

Share of net liabilities
Goodwill

The Group’s share of post tax results from its associate is analysed below:

Revenue
Expenses

Share of loss from interest in associate

The finance costs and taxation of the associate were less than £0.1m for each year presented.

Note 15 Available for sale and other investments

Cost
At the beginning of year
Additions
Acquired through business combinations
Net fair value gains
Disposals
Sale/closure of subsidiary undertakings
Translation adjustment

At end of year

Amounts written off 
At the beginning of the year
Impairment charge for year

At end of year

Net book value at beginning of year

Net book value at end of year

£m

4.0
0.4
(0.5)
(4.5)

(0.6)
1.6

1.0

2006

£m

0.2
(0.2)

Nil

2006

£m

2.1
2.8
0.2
1.9
Nil
(2.6)
0.1

4.5

(0.3)
Nil

(0.3)

1.8

4.2

£m

4.1
0.3
Nil
(5.0)

(0.6)
1.6

1.0

2005

£m

0.3
(0.7)

(0.4)

2005

£m

2.3
0.4
Nil
Nil
(0.6)
Nil
Nil

2.1

Nil
(0.3)

(0.3)

2.3

1.8

Investments above include £3.3m in relation to the fair value of the Group’s investment in Oxonica plc which is listed on the Alternative Investment
Market (“AIM”) in the UK. The Group exercised options to acquire 2,035,485 ordinary shares during the year and the fair value of these shares is 
based on the quoted market “offer” price at 30 April 2006. The Group’s holding in Oxonica plc shares at 30 April 2006 was 4.9% of the total issued
share capital.

page 64 | Stagecoach Group plc

Note 16 Acquisitions

During the year 4 acquisitions of wholly owned subsidiaries have been concluded for a total consideration of £29.7m in cash and £4.5m in shares. The
fair value of the net assets acquired was £13.5m giving rise to goodwill of £20.7m which has been capitalised. Furthermore a joint venture (Citylink)
was formed between Stagecoach and ComfortDelGro during the year details of which are contained in note 13.

The aggregate fair value of the net assets acquired of wholly owned subsidiaries is as follows:

Fair value to Group
Intangible fixed assets 
(excluding goodwill)
Property, plant and 
equipment
Other net liabilities

Total (liabilities)/assets
Goodwill

Consideration
Add: Deferred consideration in respect of
businesses acquired in prior years
Less: Shares issued
Less: Net cash and cash equivalents  acquired

Net cash outflow

UK Bus

Glenvale

Traction

£m

£m

0.6

6.5
(13.5)

(6.4)
9.8

3.4

Nil
Nil
(2.2)

1.2

14.1

37.9
(34.2)

17.8
8.6

26.4

Nil
(4.5)
0.1

22.0

Other

£m

Nil

2.1
Nil

2.1
2.3

4.4

0.1
Nil
Nil

4.5

Total
2006

£m 

14.7

46.5
(47.7)

13.5
20.7

34.2

0.1
(4.5)
(2.1)

27.7

Total
2005

£m

3.6

1.3
(0.1)

4.8
Nil

4.8

1.1
Nil
Nil

5.9

Full details of the significant acquisitions of Glenvale Transport Limited and Traction Group Limited are below. The Group acquired some other small
businesses during the year in the UK and North America which are reflected in the “other” column above.

There were no adjustments to goodwill arising during the year ended 30 April 2006 which related to prior year acquisitions (2005: £Nil).

Glenvale Transport Limited

Existing goodwill of Glenvale
Intangible fixed assets (excluding goodwill)
Property, plant and equipment
Inventories
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Current tax liabilities
Borrowings
Deferred tax asset
Provisions
Retirement benefit obligations

Net liabilities acquired
Goodwill

Total consideration (settled in cash)
Less: Net cash and cash equivalents acquired

Net cash outflow

Initial book
value

Restatement
to fair value

Fair value to
the Group

£m

5.2
Nil
5.8
0.4
1.4
2.2
(2.4)
(1.2)
(10.0)
1.2
(1.2)
(2.5)

(1.1)

£m

(5.2)
0.6
0.7
(0.3)
(0.2)
Nil
(0.6)
0.8
Nil
0.1
(1.2)
Nil

(5.3)

£m

Nil
0.6
6.5
0.1
1.2
2.2
(3.0)
(0.4)
(10.0)
1.3
(2.4)
(2.5)

(6.4)
9.8

3.4
(2.2)

1.2

The Group acquired the entire share capital of Glenvale Transport Limited (“Glenvale”) on 12 July 2005. The consideration paid for the shares was
£3.4m in cash and the Group assumed the net debt of Glenvale at acquisition totalling £7.8m. The fair value of the net liabilities acquired totalled
£6.4m (including the £7.8m of assumed net debt) resulting in goodwill of £9.8m. In the period from acquisition to 30 April 2006, Glenvale
contributed £17.4m to revenue and made an operating loss of £2.3m. If the acquisition had been completed on the first day of the financial year,
Group revenues for the year ended 30 April 2006 would have been £4.8m higher and Group profit attributable to equity holders of the parent would
have been £0.2m lower.

Stagecoach Group plc | page 65

Notes to the consolidated financial statements

Note 16 Acquisitions (continued)

Traction Group Limited

Intangible fixed assets (excluding goodwill)
Property, plant and equipment
Inventories
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Current tax assets
Borrowings – bank overdrafts
Borrowings – other
Derivative financial instruments
Deferred tax assets
Provisions
Retirement benefit obligations

Net assets acquired
Goodwill

Total consideration

Net consideration
Acquisition costs

Total consideration
Less: shares issued
Less: Net cash and cash equivalents acquired

Net cash outflow

Initial book
value

Restatement
to fair value

Fair value to
the Group

£m

Nil
42.1
0.9
4.7
5.7
(8.7)
0.1
(5.8)
(10.9)
Nil
0.9
Nil
(19.0)

10.0

£m

14.1
(4.2)
(0.2)
Nil
Nil
(1.1)
0.1
Nil
Nil
2.8
0.4
(4.1)
Nil

7.8

£m

14.1
37.9
0.7
4.7
5.7
(9.8)
0.2
(5.8)
(10.9)
2.8
1.3
(4.1)
(19.0)

17.8
8.6

26.4

26.0
0.4

26.4
(4.5)
0.1

22.0

On 14 December 2005, Stagecoach acquired the entire share capital of Traction Group Limited (“Traction”). The consideration paid for the shares was
£26.0m (excluding £0.4m of directly attributable costs), which was satisfied by £21.5m in cash and the issue of 4,022,070 Stagecoach ordinary shares
of 12/19th pence each. The share price used to value the shares issued as consideration was £1.13. Stagecoach has assumed Traction’s net debt of
£11.0m. The fair value of the net assets acquired totalled £17.8m (including the £11.0m of assumed net debt) and acquisition costs of £0.4m were
incurred resulting in goodwill of £8.6m. In the period from acquisition to 30 April 2006, Traction contributed £21.1m to revenue and made an
operating profit of £0.4m. If the acquisition had been completed on the first day of the financial year, Group revenues for the year ended 30 April
2006 would have been £36.7m higher and Group profit attributable to equity holders of the parent would have been £1.3m higher.

page 66 | Stagecoach Group plc

Note 17 Disposals

The Group disposed of its New Zealand operations on 29 November 2005 to Infratil Limited. The disposal was believed by the Directors to be the best
way to maximise shareholder value from the New Zealand operations.

The results of the discontinued New Zealand operations that have been included in the consolidated income statement were as follows:

Revenue
Operating costs
Other operating income

Operating profit
Finance income
Taxation

Profit for the year before gain on disposal
Gain on disposal

Profit for the year from discontinued operations

2006

£m

37.4
(33.1)
1.2

5.5
0.1
(1.3)

4.3
22.5

26.8

2005

£m

59.0
(52.2)
1.9

8.7
0.3
(1.7)

7.3
Nil

7.3

A gain of £22.5m arose on the disposal of the New Zealand operations, being the proceeds of disposal less the carrying amount of the disposed
business’ net assets and goodwill at the date of disposal. No tax arose as a result of this gain.

In respect of the subsidiary undertakings that were disposed of during the year, the net assets disposed of were as follows:

New Zealand

Other

Goodwill
Other intangible assets
Property, plant and equipment
Investments
Cash and cash equivalents
Other current assets
Other liabilities
Provisions

Net assets disposed
Provisions and accruals for future costs associated 
with the disposals
Release of provision against receivable on prior year disposals
Foreign exchange recycled on disposal
Profit/(loss) on disposal

Net consideration

Total consideration
Less: disposal costs

Net consideration
Less: net cash disposed of
Less: deferred consideration outstanding 
Less: (net of provision for doubtful debts)

Net cash inflow: disposals in year
Net cash inflow: deferred consideration in respect of businesses
disposed in prior years

£m

19.0
Nil
64.1
2.6
6.0 
6.3
(13.2)
(4.4)

80.4

4.9
Nil
(3.9)
22.5

103.9

107.0
(3.1)

103.9
(6.0)

Nil

97.9

Nil

97.9

£m

Nil
Nil
1.4
Nil
Nil
Nil
Nil
Nil

1.4

9.6
(1.4)
Nil
(7.0)

2.6

2.6
–

2.6
Nil

Nil

2.6

3.9

6.5

2006
Total

£m

19.0
Nil
65.5
2.6
6.0
6.3
(13.2)
(4.4)

81.8

14.5
(1.4)
(3.9)
15.5

106.5

109.6
(3.1)

106.5
(6.0)

Nil

100.5

3.9

104.4

2005
Total

£m

4.7
0.5
0.6
Nil
Nil
4.5
(0.3)
Nil

10.0

7.9
(1.7)
Nil
(7.4)

8.8

8.8
Nil

8.8
Nil

(1.7)

7.1

7.6

14.7

Stagecoach Group plc | page 67

Notes to the consolidated financial statements

Note 18 Principal subsidiaries 

The principal subsidiary undertakings (ordinary shares 100% owned except where shown) as at 30 April 2006 were:

Company

Stagecoach Transport Holdings plc
SCOTO Limited
SCUSI Limited
Precis (1628) Limited
The Integrated Transport Company Limited
Stagecoach (South) Ltd
Stagecoach (North West) Ltd
East Midland Motor Services Ltd
Stagecoach Scotland Ltd
National Transport Tokens Ltd (99.9%)
East Kent Road Car Company Ltd
Stagecoach West Ltd
PSV Claims Bureau Ltd
Busways Travel Services Ltd
South East London and Kent Bus Co Ltd
East London Bus and Coach Co Ltd
Cleveland Transit Ltd
Cambus Ltd
Greater Manchester Buses South Ltd
Stagecoach Services Limited
The Yorkshire Traction Group Ltd
South West Trains Ltd
Gray Line New York Tours Inc
Trentway-Wager Inc

Country of
registration or
incorporation

Scotland
England
England
England
Scotland
England
England
England
Scotland
England
England
England
England
England
England
England
England
England
England
England
England
England
United States
Canada

Principal activity

Holding company
Holding company
Holding company
Holding company
Holding company
Bus and coach operator
Bus and coach operator
Bus and coach operator
Bus and coach operator
Transport tokens
Bus and coach operator
Bus and coach operator
Claims handling
Bus and coach operator
Bus and coach operator
Bus and coach operator
Bus and coach operator
Bus and coach operator
Bus and coach operator
Provision of accounting and payroll services
Bus and coach operator
Train operating company
Bus and coach operator
Bus and coach operator

All companies operate in the countries shown above and, except for Stagecoach Transport Holdings plc, are indirectly held. The companies listed
above include all those which principally affect the results and assets of the Group.The Group considers any subsidiary that has revenue greater than
£25.0m, profit before interest and taxation greater than £2.5m, gross assets greater than £25.0m or gross liabilities greater than £25.0m to be a
principal subsidiary. These thresholds exclude any intercompany amounts and investments in subsidiaries.

A full list of the Company’s subsidiary undertakings will be annexed to the next annual return of the Company.

Note 19 Inventories

Parts and consumables

2006

£m

13.2

2005

£m

12.5

All inventories are carried at cost less a provision to take account of slow moving and obsolete items. Changes in the provision for slow moving and
obsolete stock were as follows:

At beginning of year
Charged to income
Amount utilised
Acquired through business combinations
Disposal of businesses

At end of year

2006

2005

£m

1.7
0.1
Nil
0.2
Nil

2.0

£m

8.9
0.2
(1.1)
Nil
(6.3)

1.7

There was no material write down of inventories during the current or prior year. 

The provision of £8.9m as at 1 May 2004 predominantly related to a provision against the carrying value of taxicabs held in inventory. All of the
remaining businesses that held taxicabs in inventory were disposed of during the year ended 30 April 2005 and the provision reduced accordingly.

page 68 | Stagecoach Group plc

Note 20 Trade and other receivables

Non-current:
Other receivables

Current:
Trade receivables
Less: provision for impairment

Trade receivables – net
Other receivables
Prepayments and accrued income
VAT and other government receivables
Foreign tax receivable
Loan to joint venture

Note 21 Cash and cash equivalents

Cash at bank and in hand

2006

2005

£m

1.6

1.6

82.6
(2.8)

79.8
15.6
71.1
10.1
Nil
3.3

£m

6.7

6.7

77.2
(3.0)

74.2
22.9
61.3
9.8
1.0
n/a

179.9

169.2

2006

£m

198.5

2005

£m

140.0

At 30 April 2006, the effective interest rate on cash at bank and in hand was 4.6% (2005: 4.6%) and these were primarily overnight deposits having an
average maturity of one day (2005: one day).

For the purposes of the cash flow statement, the cash and cash equivalents comprise the following:

Cash and bank balances
Bank overdrafts (note 23)

Note 22 Trade and other payables

Current:
Trade payables
Accruals and deferred income
Deferred grant income
PAYE and NIC payable

Non-current:
Deferred grant income
Other payables

2006

£m

198.5
(0.2)

198.3

2006

£m

104.4
216.7
1.4
18.8

341.3

5.5
3.7

9.2

2005

£m

140.0
(1.5)

138.5

2005

£m

98.9
241.3
0.6
16.8

357.6

3.2
4.9

8.1

Stagecoach Group plc | page 69

Notes to the consolidated financial statements

Note 23 Borrowings

Current:
Bank overdrafts
Bank loans and loan notes
Hire purchase and lease obligations

Non-current:
Bank loans and loan notes
US Dollar 8.625% Notes
Hire purchase and lease obligations

Total borrowings 

The minimum lease payments under hire purchase and lease obligations fall due as follows:

Not later than one year
Later than one year but not more than five years
More than five years

Future finance charges on hire purchase and finance leases

Present value of hire purchase and finance lease liabilities

2006

£m

0.2
37.7
28.4

66.3

11.4
206.7
73.1

291.2

357.5

2005

£m

1.5
104.9
20.1

126.5

7.2
174.9
46.0

228.1

354.6

2006

2005

£m

31.7
70.8
8.6

111.1

(9.6)

101.5

£m

22.9
39.9
12.2

75.0

(8.9)

66.1

The Group in its ordinary course of business enters into hire purchase and finance lease agreements to fund or re-finance the purchase of vehicles. The
lease agreements are typically for periods of 5 to 10 years and do not have contingent rent or escalation clauses.

The agreements have industry standard terms and do not contain any restrictions on dividends, additional debt or further leasing.

(a) US Dollar 8.625% Notes
On 9 November 1999, the Group issued US$500m of 8.625% Notes due in 2009. Interest on the Notes is payable six monthly in arrears. Unless
previously redeemed or purchased and cancelled, the Notes will be redeemed at their principal amount on 15 November 2009.

The cumulative par value of Notes repurchased was US$165.9m at 30 April 2006 (2005: US$165.9m).

The Notes were issued at 99.852% of their principal amount. The consolidated carrying value of the Notes at 30 April 2006 was £206.7m (2005:
£174.9m), after taking account of the notes purchased by the Group, the discount on issue, issue costs, accrued interest and the gain on close out of
various interest rate swaps previously used to manage the interest rate profile of the Notes.

page 70 | Stagecoach Group plc

Note 23 Borrowings (continued)

(b) Borrowings are repayable as follows:

On demand or within 1 year
Bank overdraft
Bank loans and loan notes
Hire purchase and lease obligations
Within 1-2 years
Bank loans and loan notes
Hire purchase and lease obligations
Within 2-5 years
Bank loans and loan notes
US Dollar 8.625% Notes
Hire purchase and lease obligations
Over 5 years
Hire purchase and lease obligations

Total borrowings
Less current maturities

Non-current portion of borrowings

2006

£m

0.2
37.7
28.4

0.8
25.2

10.6
206.7
39.7

8.2

357.5
(66.3)

291.2

2005

£m

1.5
104.9
20.1

0.7
12.1

6.5
174.9
22.3

11.6

354.6
(126.5)

228.1

Interest terms on UK borrowings (except loan notes) are at annual rates between 0.35% and 0.65% over Bank of Scotland base rate or equivalent
LIBOR rates. Interest terms on overseas borrowings are at annual rates of 0.5% above applicable local market borrowing rates. Interest on loan notes
are at three months LIBOR or fixed interest. Loan notes amounting to £37.7m (2005: £38.3m) are backed by guarantees provided under Group
banking facilities.

The loan notes have been classified by reference to the earliest date on which the loan note holders can request redemptions.

UK bank loans, overdrafts and US$ Notes are unsecured.

(c) Interest rate and currency profile of financial liabilities
The interest rate and currency profile of the financial liabilities of the Group on which interest is paid at 30 April 2006 was as follows:

Currency

Floating rate

Fixed rate

Sterling
US Dollar
Canadian Dollar

Gross borrowings

£m

139.2
Nil
11.6

150.8

£m

Nil
206.7
Nil

206.7

Weighted average
fixed interest rate

Weighted average
period for which
rate is fixed 

%

n/a
6.7%
n/a

6.7%

Years

n/a
3.5
n/a

3.5

Total

£m

139.2
206.7
11.6

357.5

The figures shown in the above table take into account the close out of various interest rate swaps previously used to manage the interest rate profile
of borrowings.

The floating rate financial liabilities bear interest at rates fixed in advance for periods ranging from one to three months based on market rates.

The Group’s policies on managing interest rate risk and currency risk are explained in note 27.

The interest rate profile and currency profile of the financial liabilities of the Group on which interest is paid at 30 April 2005 was as follows:

Currency

Floating rate

Fixed rate

Sterling
US Dollar
Canadian Dollar

Gross borrowings

£m

170.9
1.5
7.3

179.7

£m

31.4
143.5
Nil

174.9

Weighted average
fixed interest rate

Weighted average
period for which
rate is fixed 

%

6.8%
6.8%
n/a

6.8%

Years

4.5
4.5
n/a

4.5

Total

£m

202.3
145.0
7.3

354.6

Stagecoach Group plc | page 71

Notes to the consolidated financial statements

Note 23 Borrowings (continued)

(c) Interest rate and currency profile of financial liabilities (continued)
The maturity profile of the Group’s borrowings was as follows:

Expiring within one year
Expiring in more than one year but less than two years
Expiring in more than two years but less than five years
Expiring beyond five years

Gross borrowings

2006

£m

66.3
26.0
257.0
8.2

357.5

2005

£m

126.5
12.8
203.7
11.6

354.6

(d) Interest rate and currency profile of financial assets
The Group’s financial assets on which floating interest is receivable comprise cash deposits and cash in hand of £198.5m (2005: £140.0m). The cash
deposits comprise deposits placed on money market at call, seven day, monthly rates and cash deposited with counterparty banks at commercially
negotiated interest rates. The currency analysis is as follows:

Currency

Sterling
US Dollar
New Zealand Dollar
Canadian Dollar

Cash at bank and in hand

Floating rate

2006
£m

186.8
11.7
Nil
Nil

198.5

2005
£m

124.5
10.3
4.7
0.5

140.0

Financial assets on which no interest is receivable total £4.2m (2005: £1.8m) and comprise other investments of £4.2m (2005: £1.8m). These assets
are denominated in Sterling £3.9m (2005: £0.5m), US dollars £0.3m (2005: £0.1m) and others £Nil (2005: £1.2m). Net financial assets (amounts due
after one year from balance sheet date) on which fixed interest is receivable total £0.9m (2005: £5.4m) and comprise US$ denominated loan notes
receivable. The net amount of £0.9m (2005: £5.4m) includes a provision for impairment of £1.3m (2005: £2.4m). The net financial assets have a
weighted average interest rate of 8.9% (2005: 7.8%) and an average maturity of 2.8 years (2005: 3.5 years).

Trade and other receivables on which no interest has been received are excluded from the disclosures above.

(e) Currency exposures
The Group’s objective in managing currency borrowings and net exposures arising from its investments in net assets of overseas subsidiaries is to
maintain a low cost of borrowing and to retain some potential for currency related appreciation whilst partially hedging against currency depreciation.
Foreign currency borrowings are taken out to provide for or to hedge against foreign net investments. Gains and losses arising from currency
borrowings taken out to provide a hedge against foreign net investments are recognised in the statement of recognised income and expense.

The Group reviews and considers hedging of actual and forecast foreign exchange transactional exposures up to one year forward. At 30 April 2006
and 30 April 2005 there were no material net transactional foreign currency exposures.

(f) Borrowing facilities
The Group had the following undrawn committed banking and hire purchase facilities

Expiring within one year
Expiring in more than one year but no more than two years
Expiring beyond two years

page 72 | Stagecoach Group plc

2006

£m

46.4
Nil
302.8

349.2

2005

£m

43.8
Nil
317.6

361.4

Note 24 Deferred tax

The Group movement in deferred tax during the year was as follows:

Deferred tax
liabilities

Deferred tax
asset

Beginning of year
Provided during year:
(Charge)/credit to income statement
Acquired through business combinations
Sale/closure of subsidiary undertakings and other businesses
Charge to equity

End of year

£m

(5.5)

(7.1)
2.5
6.8
(1.9)

(5.2)

£m

4.1

4.3
Nil
Nil
Nil

8.4

Net

£m

(1.4)

(2.8)
2.5
6.8
(1.9)

3.2

The deferred tax liability due after more than one year is £5.2m (2005: £5.5m). The deferred tax asset due after more than one year is £3.0m (2005:
£Nil). The deferred tax asset of £8.4m has been recognised in respect of tax losses. Based on tax workings scheduling the reversal of the asset, it is
expected to be utilised over the next three years.

Deferred taxation is calculated as follows:

Accelerated capital allowances
Pension temporary differences
Short-term temporary differences

The amount of deferred tax recognised in the income statement by type of temporary  difference is as follows:

Accelerated capital allowances
Pension temporary differences
Short-term temporary differences

Note 25 Provisions

Token redemption provision
Insurance provisions
Environmental provisions
Provision for onerous contracts

2006

£m

(90.4)
64.3
29.3

3.2

2006

£m

20.9
83.2
3.1
2.7

109.9

2005

£m

(89.8)
63.8
24.6

(1.4)

£m

(4.3)
(2.0)
3.5

(2.8)

2005

£m

25.5
63.6
3.9
Nil

93.0

The token redemption provision relates to tokens issued to third parties to be redeemed as payment for transportation services.
The insurance provisions relate to insurance reserves on incurred accidents up to 30 April in each year where claims have not been settled. These are based
on actuarial reviews and prior claims history.
The environmental provisions relate to legal or constructive obligations to undertake environmental work, such as an obligation to rectify land which has
been contaminated by fuel tanks or to eliminate the presence of asbestos. The provision is based on the estimated cost of undertaking the work required.
Provisions for onerous contracts relate to contracts that have been acquired through business combinations that have been identified as loss making.
The Group movement during the year was as follows:

Token redemption
provision

Insurance
provisions

Environmental
provisions

Provisions for
onerous contracts

Beginning of year
Provided during year
Unwinding of discount
Utilised in the year
Arising on sale of tokens during year
Acquired through business combinations
Redemption of tokens
Translation differences

End of year

30 April 2006:
Current
Non-current

30 April 2005:
Current
Non-current 

£m

25.5
Nil
Nil
Nil
7.2
Nil
(11.8)
Nil

20.9

13.4
7.5

20.9

16.3
9.2

25.5

£m

63.6
50.4
3.3
(37.7)
Nil
2.3
Nil
1.3

83.2

44.9
38.3

83.2

35.4
28.2

63.6

£m

3.9
0.2
Nil
(1.5)
Nil
0.4
Nil
0.1

3.1

3.1
Nil

3.1

3.9
Nil

3.9

£m

Nil
Nil
Nil
(1.1)
Nil
3.8
Nil
Nil

2.7

1.8
0.9

2.7

Nil
Nil

Nil

Total

£m

93.0
50.6
3.3
(40.3)
7.2
6.5
(11.8)
1.4

109.9

63.2
46.7

109.9

55.6
37.4

93.0

Stagecoach Group plc | page 73

Notes to the consolidated financial statements

Note 26 Retirement benefit obligations

The Group contributes to a number of pension schemes. The principal defined benefit occupational benefit schemes are as follows:
• The Stagecoach Group Pension Scheme (“SGPS”);
• The South West Trains section of the Railways Pension Scheme (“RPS”);
• The Island Line section of the Railways Pension Scheme (“RPS”);
• A number of UK Local Government Pension Schemes (“LGPS”);
• The Yorkshire Traction Company Limited Pension Plan (“YTC”)
• The Strathtay Scottish Omnibuses Limited Pension and Life Assurance Scheme (“SSO”).

These schemes are devised in accordance with local employment terms and conditions. Each scheme is administered independently of the employers
and the schemes assets are held in trusts that are managed by investment managers appointed by the schemes’ trustees.

The Directors believe that separate consideration should be given to RPS as the Group has no rights or obligations in respect of sections of the scheme
following expiry of the related franchises. Therefore, the liability recognised for the relevant sections of RPS only represents that part of the net deficit
of each section that the employer is obliged to fund over the life of the franchise to which the section relates. The restriction on the liabilities to show
the impact of this “franchise adjustment” is shown below.

In addition, the Group contributes to a number of defined contribution schemes.

The amounts recognised in the balance sheet are determined as follows:

Year ended 30 April 2006

Funded plans

SGPS

RPS

LGPS

YTC

SSO

Other

Unfunded
plans

Total

Equities
Bonds
Cash 
Property

Fair value of plan assets 
Present value of funded/unfunded obligations
– excluding franchise adjustment
– franchise adjustment

£m

£m

£m

444.5
54.2
40.5
37.5

324.8
20.9
19.7
6.9

174.5
39.2
18.5
8.5

576.7

372.3

240.7

£m

33.5
7.3
0.1
1.3

42.2

£m

5.0
0.5
Nil
Nil

5.5

(753.0)
Nil

(387.0)
8.6

(264.3)
Nil

(51.4)
Nil

(8.4)
Nil

Net liability recognised in the balance sheet

(176.3)

(6.1)

(23.6)

(9.2)

(2.9)

Year ended 30 April 2005

Funded plans

£m

0.7
0.9
0.4
Nil

2.0

(2.5)
Nil

(0.5)

£m

Nil
Nil
Nil
Nil

£m

983.0
123.0
79.2
54.2

Nil

1,239.4

(3.6)
Nil

(1,470.2)
8.6

(3.6)

(222.2)

SGPS

RPS

LGPS

Other

Unfunded
plans

Total

Equities
Bonds
Cash
Properties

Fair value of plan assets
Present value of funded/unfunded obligations
– excluding franchise adjustment
– franchise adjustment

£m

410.6
Nil
20.7
Nil

£m

236.7
17.1
14.7
3.1

£m

127.2
36.6
17.6
7.2

431.3

271.6

188.6

(591.6)
Nil

(314.5)
35.2

(237.1)
Nil

Net liability recognised in the balance sheet

(160.3)

(7.7)

(48.5)

The major categories of plan assets as a percentage of total plan assets are as follows:

Equities
Bonds
Cash
Property

page 74 | Stagecoach Group plc

£m

0.7
0.8
0.3
Nil

1.8

(2.5)
Nil

(0.7)

£m

Nil
Nil
Nil
Nil

Nil

£m

775.2
54.5
53.3
10.3

893.3

(3.7)
Nil

(1,149.4)
35.2

(3.7)

(220.9)

2006

%

79.3
9.9
6.4
4.4

2005

%

86.8
6.1
6.0
1.1

100.0

100.0

Note 26 Retirement benefit obligations (continued)

The amounts recognised in the income statement were as follows:

Year ended 30 April 2006

SGPS

RPS

LGPS

YTC

SSO

Other

Total

Funded plans

Defined benefit schemes:
Current service cost
Interest cost
Expected return on plan assets
Unwinding of franchise adjustment

Total defined benefit costs
Defined contribution costs

Total, included in staff costs (Note 6 )

£m

£m

£m

£m

£m

£m

£m

21.5
32.2
(36.8)
Nil

16.9
Nil

16.9

16.9
11.4
(13.5)
(1.9)

12.9
Nil

12.9

3.3
13.0
(14.5)
Nil

1.8
Nil

1.8

0.6
0.9
(1.0)
Nil

0.5
Nil

0.5

0.2
0.1
(0.1)
Nil

0.2
Nil

0.2

Nil
0.1
Nil
Nil

0.1
1.0

1.1

42.5
57.7
(65.9)
(1.9)

32.4
1.0

33.4

The actual return on plan assets for the year ended 30 April 2006 was £262.8m.

Year ended 30 April 2005

Defined benefit schemes:
Current service cost
Interest cost
Expected return on plan assets
Unwinding of franchise adjustment

Total defined benefit costs
Defined contribution costs

Total, included in staff costs (Note 6 )

Funded plans

SGPS

RPS

LGPS

Other

Unfunded
plans

Total

£m

£m

£m

£m

£m

£m

20.2
29.4
(32.2)
Nil

17.4
Nil

17.4

14.2
9.9
(12.0)
(0.7)

11.4
Nil

11.4

4.0
12.4
(13.2)
Nil

3.2
Nil

3.2

Nil
0.1
(0.1)
Nil

Nil
0.6

0.6

0.3
Nil
Nil
Nil

0.3
Nil

0.3

38.7
51.8
(57.5)
(0.7)

32.3
0.6

32.9

The actual return on plan assets for the year ended 30 April 2005 was £68.0m.

The movements in the net liability recognised in the balance sheet for the year ended 30 April 2006 were as follows:

Funded plans

Year ended 30 April 2006

SGPS

RPS

LGPS

YTC

SSO

Other

Unfunded
plans

Total

At beginning of year
Acquired as part of business combinations
Total expense – as shown above
Actuarial losses/(gains)
Employers’ contributions paid

£m

£m

£m

160.3
Nil
16.9
19.2
(20.1)

7.7
Nil
12.9
(0.6)
(13.9)

48.5
2.5
1.8
(25.2)
(4.0)

£m

Nil
14.9
0.5
(5.6)
(0.6)

At end of year

176.3

6.1

23.6

9.2

£m

Nil
4.1
0.2
(1.2)
(0.2)

2.9

£m

0.7
Nil
1.1
(0.5)
(0.8)

0.5

£m

3.7
Nil
Nil
Nil
(0.1)

£m

220.9
21.5
33.4
(13.9)
(39.7)

3.6

222.2

The movements in the net liability recognised in the balance sheet for the year ended 30 April 2005 were as follows:

Year ended 30 April 2005

At beginning of year
Total expense – as shown above
Actuarial losses
Employers’ contributions paid
Foreign exchange

At end of year

Funded plans

SGPS

RPS

LGPS

Other Unfunded

Total

£m

£m

120.4
17.4
43.5
(21.0)
Nil

8.1
11.4
1.4
(13.2)
Nil

£m

42.6
3.2
5.8
(3.1)
Nil

160.3

7.7

48.5

£m

0.3
0.6
0.2
(0.6)
0.2

0.7

plans

£m

3.5
0.3
Nil
(0.1)
Nil

£m

174.9
32.9
50.9
(38.0)
0.2

3.7

220.9

Stagecoach Group plc | page 75

Notes to the consolidated financial statements

Note 26 Retirement benefit obligations (continued)

The movements in the total present value of the defined benefit obligations were as follows:

At beginning of year
Current service cost
Defined contribution costs
Interest cost
Unwinding of franchise adjustment
Members’ contributions paid
Actuarial gains and losses
Benefits paid
Merger of small scheme
Acquired as part of business combination
Foreign exchange

At end of year

Movements in the total present value of fair value of scheme assets were as follows:

At beginning of year
Expected return on scheme assets
Actuarial gains and losses
Employers’ contributions paid
Members’ contributions paid
Benefits paid
Merger of small scheme
Acquired as part of business combination
Foreign exchange

At end of year

The amounts recognised in the statement of other recognised income and expense were as follows:

Actual return less expected return on pension scheme assets
Experience adjustment, arising on scheme liabilities
Changes in assumptions underlying the present value of the liabilities

Total actuarial gain/(loss) recognised

The history of experience adjustments is as follows:

Experience adjustments on scheme liabilities:
Experience adjustments (£m)
Scheme liabilities (£m)
Percentage of scheme liabilities (%)
Experience adjustments on scheme assets:
Experience adjustments (£m)
Scheme assets (£m)
Percentage of scheme assets (%)

2006

£m

1,114.2
42.5
1.0
57.7
(1.9)
23.2
183.0
(34.2)
Nil
76.0
0.1

1,461.6

2006

£m

893.3
65.9
196.9
39.7
23.2
(34.2)
Nil
54.5
0.1

1,239.4

2006

£m

196.9
(92.7)
(90.3)

13.9

2005

£m

969.3
38.7
0.6
51.8
(0.7)
22.3
61.4
(32.9)
3.5
Nil
0.2

1,114.2

2005

£m

794.4
57.5
10.5
38.0
22.3
(32.9)
3.5
Nil
Nil

893.3

2005

£m

10.5
(6.8)
(54.6)

(50.9)

2006

2005

(92.7)
(1,461.6)
6.3%

196.9
1,239.4
15.9%

(6.8)
(1,114.2)
0.6%

10.5
893.3
1.2%

The estimated amounts of contributions expected to be paid to the schemes during the financial year ending 30 April 2007 is £40.2m (2006:
£37.9m). The estimated contributions have not been adjusted to take into account the sale of our London bus business .

page 76 | Stagecoach Group plc

Note 26 Retirement benefit obligations (continued)

The principal actuarial assumptions used were as follows:

Rate of increase in salaries
Rate of increase of pensions in payment
– SGPS
– other defined benefit schemes
Discount rate
Inflation
Expected long-term rates of return as at 30 April were:
Equities*
Bonds
Cash
Property

* includes private equity

2006

2005

%

4.3

2.7
2.8
5.3
2.8

8.3
5.0
4.5
7.5

%

4.3

2.6
2.8
5.4
2.8

8.5
5.3
4.7
7.5

The expected return on plan assets is based on expectations at the beginning of the period for returns over the entire life of the benefit obligation. The
expected returns are set in conjunction with external advisors and take account of market factors, fund managers’ views and targets for future returns
and where appropriate, historical returns.

The life expectancy assumptions used for each scheme are periodically reviewed.

Note 27 Derivative financial instruments and hedging
(a) Derivative financial instruments
The Group’s activities expose it to a variety of financial risks, including the effects of changes in debt and equity market prices, foreign currency
exchange rates, interest rates and commodity prices. The Group’s overall risk management programme focuses on the unpredictability of financial
markets and seeks to minimise potential adverse effects on the financial performance of the Group. The Group uses derivative financial instruments to
reduce exposure to foreign exchange risk, commodity price risk and interest rate movements. The Group does not generally hold or issue derivative
financial instruments for speculative purposes.

Treasury risk management: The main areas of financial risk associated with the Group’s businesses are managed by a centralised Group Treasury
function. The Board regularly reviews these risks and approves the Group’s treasury policy, which covers the management of these risks. Financial
instruments are held to finance Group operations, to manage the financial risk exposures and to achieve greater certainty of future costs.

Fuel hedging: The Group’s UK and North American bus operations (including the London bus operations) consume the equivalent of 1.9m barrels of
diesel fuel per annum. As a result, the Group’s profits are exposed to the movement in the underlying price of crude oil, which is the major driver of
diesel prices. The Group manages the volatility in its fuel costs by maintaining an ongoing fuel-hedging programme whereby derivatives are used to fix
or cap the variable unit cost of a percentage of anticipated fuel consumption. If the Group had no hedging in place, a movement of US$10 in the price
of a barrel of crude oil would affect the Group’s fuel costs by approximately US$19m.

The Group’s fuel hedging levels are summarised below:

Financial year ended/ending 30 April

Proportion of actual/forecast fuel consumption hedged:
– Hedged by fuel swaps
– Hedged by fuel collars

2006

85%
–

2007

18%
75%

2008

–
44%

2009

–
38%

We will adjust our hedging levels where appropriate as and when the planned disposal of the Group’s London bus operations is completed. 

Currency rate risk: The Group is exposed to limited transactional currency risk due to the small number of foreign currency transactions entered into by
subsidiaries in currencies other than their functional currency. Forward buying of currencies is carried out by the Group Treasury function where appropriate.

Following the disposal of its New Zealand operations in November 2005, the Group now only has overseas investments in Canada and the USA. To
minimise balance sheet translation exposure, the Group hedges the sterling book value of overseas operations through borrowings denominated in their
functional currency or, where necessary, through the use of derivative financial instruments which effectively convert sterling borrowings into borrowings of
the functional currency, and through forward currency exchange contracts. It is Group policy to examine each overseas investment individually and to adopt
a strategy based on current and forecast political and economic climates. The policy aims to allow the Group to maintain a low cost of funds and to retain
some potential for currency appreciation whilst partially hedging against currency depreciation.

Credit risk: It is the Group’s policy to invest cash assets safely and profitably. To control credit risk, counterparty credit limits are set by reference to published
credit ratings and the counterparty’s geographical location. The Group considers the risk of material loss in the event of non-performance by a financial
counterparty to be low.

Interest rate risk management: To provide some certainty as to the level of interest cost, it is the Group’s policy to manage interest rate exposure through the
use of fixed and floating rate debt. Derivative instruments are also used where appropriate to generate the desired interest rate profile. At 30 April 2006, 70%
(30 April 2005: 63%) of the Group’s gross borrowings were fixed or capped.

For the year to 30 April 2006 floating rate Sterling borrowings of £50.0m (2005: £50.0m) were economically hedged with a collar with a cap rate of 8.5%
and a floor of 4.5%. The cap and floor were not exercised during the year to 30 April 2006. On 28 April 2006 the floor was cancelled by the counterparty in
accordance with the contract terms. Whilst the cap is considered an economic hedge of interest rate risk it has not been designated as an accounting hedge
due to its low market value and low volatility.

Stagecoach Group plc | page 77

Notes to the consolidated financial statements

Note 27 Derivative financial instruments and hedging (continued)

(b) Fair value of derivative financial instruments
The fair value of derivative financial instruments at 30 April 2006 is set out below:

At 30 April 2006
Derivatives held as cash flow hedges
Fuel derivatives

Derivatives held for trading
Interest rate cap
Foreign exchange forward contracts

Fair value 
of derivative
financial assets

Notional amount
of fuel usage covered 
by derivative
financial assets

Fair value  
of derivative
financial liabilities

Notional amount
of fuel usage covered
by derivative
financial liabilities

£m

3.7

3.7

Nil
Nil

3.7

53m litres

£m

(2.5)

(2.5)

(0.2)
(0.1)

(2.8)

478m litres

(c) Embedded derivatives
In accordance with IAS 39, ‘Financial Instruments: Recognition and Measurement’, all significant contracts to which the Group is a party have been
reviewed for embedded derivatives. One (2005: None) embedded derivative was identified that IAS 39 required to be separately accounted for, being a
fuel swap embedded in a Sale and Purchase Agreement. The embedded derivative had expired by 30 April 2006 and accordingly, no fair value is
attributed to it at 30 April 2006.

(d) Cash flow hedges
The Group uses a number of fuel derivatives to hedge the different types of fuel used in each of its divisions. Ultra low sulphur diesel used in the UK
Bus division is hedged by derivatives priced from the same type of fuel. Diesel used in the North American division is hedged by heating oil swaps that
have been determined to be effective hedges of the fuel used with a strong correlation in price movements between the two products. The fuel
derivatives hedge the underlying commodity price risk (denominated in US$) and in the case of the UK Bus division, they also hedge the currency risk
due to the commodity being priced in US$ and the functional currency of the UK Bus division being pounds sterling. The fuel derivatives include fixed
price swaps and collars. The collars are hedges against the price of fuel being above a certain capped level or below a certain floor level. Collars have
been used in preference to caps to reduce the overall cash cost of purchasing the cap protection.

The fair value of fuel derivatives as at 30 April 2006 was a net asset of £1.2m, shown in note 27(b) as an asset of £3.7m and a liability of £2.5m. The
movements in the fair value of fuel derivatives in the year ended 30 April 2006 were as follows:

Fuel derivatives
Fair value of as at 1 May 2005 (recognised on the adoption of IAS 32 and IAS 39)
Fair value at acquisition of derivatives acquired through business combinations
Changes in fair value during the year taken to cash flow hedging reserve
Changes in fair value during the year taken directly to income statement
Cash received during the year

Fair value as at 30 April 2006

£m

8.6
2.9
9.2
(1.3)
(18.2)

1.2

page 78 | Stagecoach Group plc

Note 27 Financial instruments (continued)

(d) Cash flow hedges (continued) 
The fair value of the fuel derivatives as at 30 April 2006 split by maturity was as follows:

At 30 April 2006
Within one year
1 to 2 years
2 to 3 years

Fair value of
assets

Fair value of
liabilities

£m

3.7
Nil
Nil

3.7

£m

(1.3)
(0.7)
(0.5)

(2.5)

The fair value of fuel derivatives is further analysed by currency and segment as follows

Sterling denominated – UK Bus
US Dollar denominated – North America
NZ Dollar denominated – New Zealand

30 April 2006

1 May 2005

Fair value

£m

0.9
0.3
Nil

1.2

Notional amount
of fuel usage covered
by derivatives
million litres

402.0
129.0
Nil

531.0

Fair value

£m

5.0
3.2
0.4

8.6

Notional amount
of fuel usage covered
by derivatives
million litres

173.7
97.7
20.5

291.9

The fair value of the fuel derivatives shown above at 1 May 2005 and at 30 April 2006 does not correspond to the amount of the related cash flow
hedging reserve at these dates. The amounts differ for two reasons: (1) the ineffective portion of the hedging instruments is dealt with directly in the
income statement and (2) the fair value at acquisition of cash flow hedging instruments acquired through business combinations is accounted for as
part of the accounting for the business combination.

The movements in the cash flow hedging reserve (all of which related to the above fuel derivatives) in the year ended 30 April 2006 were as follows:

Cash flow hedging reserve
Fair value of as at 1 May 2005 (recognised on the adoption of IAS 32 and IAS 39)
Changes in fair value during the year taken to cash flow hedging reserve
Cash flow hedges reclassified and reported in profit for the year

Cash flow hedging reserve as at 30 April 2006

£m

7.3
9.2
(17.3)

(0.8)

(e) Held for trading
At 30 April 2006, the Group had a US$20m forward foreign exchange contract whereby the Group purchases US$20m on 28 April 2007 and pays
£11.1m. This contract covers the US$20m principal of the US$ notes that have not been designated as a hedge of net investments in foreign entities.
The movement in fair value of the forward contract will offset movements in the US$ notes. Hedge accounting has not been sought due to the
treatment of this derivative as a fair value hedge being the same as for the forward contract being classified as a derivative held for trading. 

At 30 April 2006, the Group had an 8.5% interest rate cap which matures in October 2007. Due to the small fair value of the derivative, no hedge
effectiveness testing was performed on transition to IAS 32 and IAS 39 and therefore, whilst considered to be an effective risk management derivative,
it has been designated as a held for trading derivative.

There are no other derivative liabilities related to foreign exchange risks.

(f) Hedge of overseas net investments
At 30 April 2006 US$314.1m of the US$334.1m of US$ notes was designated as a hedge of net investments in foreign entities. The other US$20m of
US$ notes were notionally matched against a forward foreign exchange contract at 30 April 2006, as described in note 27 (e) above.

Stagecoach Group plc | page 79

Notes to the consolidated financial statements

Note 28 Called up share capital

Authorised
1,456,666,666 (2005: 1,456,666,666) ordinary shares of 12/19 pence each
2005: 1,388,888,889 redeemable ‘B’ preference shares of 18 pence each

Total

2006

£m

9.2
n/a

9.2

2005

£m

9.2
250.0

259.2

Allotted, called-up and fully-paid 
Ordinary shares of 12/19 pence each
At 1 May 
Allotted under share option schemes

At 9 September pre share consolidation
10 September share consolidation 
(19 shares for every 24 previously issued)

At 10 September post share consolidation
Allotted under share option schemes
Issued as part of business combination
Issued to employee share ownership trusts

At 30 April

Redeemable ‘B’ preference shares of 18 pence each
At 1 May
Issued during year
Redeemed during year

At 30 April

2006

2005

No of shares

£m

No of shares

£m

1,069,545,227
n/a

n/a

n/a

n/a
20,033,016
4,022,070
–

1,093,600,313

n/a
n/a
n/a

n/a

6.8
n/a

n/a

n/a

n/a
0.1
–
–

6.9

n/a
n/a
n/a

n/a

1,335,358,600
5,374,302

1,340,732,902

(279,319,355)

1,061,413,547
3,067,259
–
5,064,421

1,069,545,227

6.7
–

6.7

–

6.7
–
–
0.1

6.8

Nil
1,340,732,902
(1,263,543,261)

Nil
241.3
(227.4)

77,189,641

13.9

The balance on the share capital account represents the aggregate nominal value of all ordinary shares in issue.
The redeemable ‘B’ preference shares were classified as a component of equity prior to the adoption of IAS 32 and 39 on 1 May 2005. Therefore, the
comparatives for the year ended 30 April 2005 show the ‘B’ preference shares as equity. The ‘B’ preference shares were reclassified as liabilities on 
1 May 2005, being the date on which IAS 32 and IAS 39 were adopted by the Group. 
The redeemable ‘B’ preference shares attracted a non-cumulative preferential dividend set at 70% of 6 months’ LIBOR. The dividend was payable on
the nominal amount of 18 pence per ‘B’ share and was paid twice yearly in arrears on 31 March and 30 September. The redeemable ‘B’ shares were
redeemable at their nominal value of 18 pence per share at the option of holders on 31 March and 30 September each year. As a result of the number
of ‘B’ shares already redeemed, the Company was able to compulsorily redeem all the outstanding ‘B’ shares on 30 September 2005. The ‘B’ shares
were not listed on a recognised Stock Exchange.
The Group operates two Employee Share Ownership Trusts: the Stagecoach Group Qualifying Employee Share Ownership Trust (“QUEST”) and the
Stagecoach Group Employee Benefit Trust (“EBT”). Shares held by these trusts are treated as a deduction from equity in the Group’s financial
statements. Other assets and liabilities of the trusts are consolidated in the Group’s financial statements as if they were assets and liabilities of the
Group. As at 30 April 2006, the QUEST held 628,285 (2005: 1,811,212) ordinary shares in the Company and the EBT held 4,690,333 (2005:
4,690,333) ordinary shares in the Company.

page 80 | Stagecoach Group plc

Note 29 Share based payments

The Group operates an Executive Share Option Scheme, a Save as You Earn Scheme (“SAYE”) and a Long Term Incentive Plan (“LTIP”). The Group also
operates an Executive Participation Plan (“EPP”) but no awards have been made under the EPP on or before 30 April 2006. The Remuneration
Committee report on pages 28 to 34 gives further details of each of these arrangements. 

As disclosed in note 6, a share based payment charge of £2.2m (2005: £1.4m) has been recognised in the income statement during the year in
relation to the above schemes, including £0.1m (2005: £0.1m) in relation to our disposed New Zealand operations.

In accordance with the transitional provisions of IFRS, the requirements of IFRS 2 have not been applied to equity instruments that were granted
before 7 November 2002 or equity instruments that were granted after 7 November 2002 that had vested before the date of transition, being 1 May
2004. Therefore the following disclosures relate only to awards made after 7 November 2002 that had not vested by 1 May 2004.

Grant date

Share price at grant/award date (£)
Exercise price (£)
Number of employees holding options/units
Shares under option/
notional units at 30 April 2006
Vesting period (years)
Expected volatility
Option/award life (years)
Expected life (years)
Risk free rate
Expected dividends expressed 
as an average annual dividend yield
Expectations of meeting 
performance criteria
Fair value per option/
notional unit at grant date (£)

Executive Share Option Scheme

December 
2004

1.1150
1.1150
60

June
2004

0.8575
0.8575
59

December
2003

0.8075
0.8075
59

June
2003

0.6050
0.6050
33

December
2002(cid:2)

0.2700
0.2700
6

SAYE

February
2005

1.1800
1.0328
3,797

LTIP*

August
2005

1.1075
n/a
8

1,435,008
3
30%
7
4.4
4.75%

4,681,079
3
30%
7
4.4
4.64%

2,828,351
3
30%
7
4.4
4.64%

4,514,185
3
75%
7
4.4
3.79%

2,950,519 10,756,671
3
30%
3.5
3
4.56%

3
75%
7
3
4.40%

1,526,096
3
30%
3
3
n/a

3.14%

3.38%

3.34%

4.30%

9.63%

3.05% 

3.15%

100%

100%

100%

100%

100%

100%

†

0.26

0.20

0.19

0.28

0.09

0.30

0.42

(cid:2)These options became fully vested during the year to April 2006.
*LTIP awards are based on notional units. One notional unit has a value equal to one of the Company’s ordinary shares. LTIP awards are not share
options and are valued using a separate simulation model therefore some of the above disclosures are not applicable.
†Reflected in fair value.
Expected volatility was determined at the date of grant from historic volatility, adjusted for events that were not considered to be reflective of the
volatility of the share price going forward.

Executive Share Option Scheme
The movements in total Executive share options during the year were as follows:

Award date

11 October 1996*
8 September 1997*
19 October 1998*
19 July 1999*
15 June 2000*
20 June 2001*
23 July 2002*
5 December 2002
26 June 2003
12 December 2003
25 June 2004
10 December 2004

At 1 May 
2005

606,522
41,472
273,548
519,158
383,920
704,500
12,224,959
13,162,696
5,134,640
3,345,951
5,387,122
1,592,013

Exercised

(72,575)
–
–
–
(109,120)
(362,800)
(9,396,655)
(9,312,871)
(294,422)
(189,882)
(294,691)
–

Expired/
Forfeited

–
(41,472)
(273,548)
(59,883)
–
–
(400,000)
(555,556)
(185,950)
(140,331)
(181,459)
(74,964)

Cancelled

–
–
–
(51,618)
(150,000)
(63,600)
(247,500)
(343,750)
(140,083)
(187,387)
(229,893)
(82,041)

At 30 April 
2006

Exercise 
price £

Date from which 
exercisable

Expiry date

533,947
–
–
407,657
124,800
278,100
2,180,804
2,950,519
4,514,185
2,828,351
4,681,079
1,435,008

1.0900
1.2810
2.2280
2.0310
0.6250
0.7075
0.3750
0.2700
0.6050
0.8075
0.8575
1.1150

11 October 1999

19 October 2001
19 July 2002
15 June 2003
20 June 2004
23 July 2005
5 December 2005
26 June 2006

11 October 2006
8 September 2000 8 September 2007
19 October 2005
19 July 2006
15 June 2007
20 June 2008
23 July 2009
5 December 2009
26 June 2010
12 December 2006 12 December 2010
25 June 2011
10 December 2007 10 December 2011

25 June 2007

43,376,501

(20,033,016)

(1,913,163)

(1,495,872)

19,934,450

* The fair value of these options is not taken into account when determining the share based payment charge for the years ended 30 April 2006 or 30
April 2005 in accordance with the transitional provisions of IFRS 2 as the options were granted before 7 November 2002.

All options were granted for nil consideration. The mid-market price for the ordinary shares at 30 April 2006 was £1.08 (2005: £1.03). The Company’s
ordinary shares traded in the range of £1.01 to £1.23 (2005: £0.76 to £1.23) during the year to that date.

As share options are exercised continuously throughout the year, the weighted average share price during the year of £1.12 (2005: £0.97) is
representative of the weighted average share price at the date of exercise.

Stagecoach Group plc | page 81

Notes to the consolidated financial statements

Note 29 Share based payments (continued)

Save as You Earn Scheme
Two issues from the SAYE scheme were in operation during the year as follows:

Issue

C*
D

Option grant date

Savings contract start date

Exercise price

Date from which exercisable

Expiry date

15 February 2002
11 February 2005

1 April 2002
1 April 2005

60.0p
103.275p

1 April 2005
1 April 2008

30 September 2005†
30 September 2008†

* The fair value of these options is not taken into account when determining the share based payment charge for the years ended 30 April 2006 or 30
April 2005 in accordance with the transitional provisions of IFRS 2 as the options were granted before 7 November 2002.
†The expiry date of any individual SAYE option can be extended to be six months following the date of payment of the final amount due under the
related savings account but may be no later than six months after the applicable expiry date shown above. 
The changes in the number of participating employees and options over ordinary shares were as follows:

Beginning of year
Options exercised
Options lapsed

End of year

Issue C

Issue D

Number of
employees

Ordinary
shares under option

Number of
employees

Ordinary
shares under option

645
(385)
(260)

Nil

1,806,189
(1,287,852)
(518,337)

Nil

4,291
(5)
(489)

3,797

12,198,449
(2,271)
(1,439,507)

10,756,671

Long Term Incentive Plan
The first issue of LTIP awards was made in August 2005 therefore there is no information provided for the year ended 30 April 2005. Under the LTIP,
executives are awarded notional units with a value equal to one of the Company’s ordinary shares. A reconciliation of the notional units awarded for
the LTIP over the year to 30 April 2006 is as follows:

Award date

Awards granted
in year
(notional units)

Dividends
in year
(notional units)

Outstanding
at end of year
(notional units)

Fair value per LTIP
unit at grant date
£

Fair value per LTIP 
unit at 30 April 2006
£

TSR ranking
at 30 April 2006†

Vesting date

26 August 2005

1,495,120

30,976

1,526,096

0.4237

0.1232

210

26 Aug 2008

† TSR ranking is based on the Group’s TSR ranking in the FTSE 250 whereby 1 is top and 250 is bottom of the comparator group. The TSR ranking is
calculated by independent advisors.

Note 30 Reserves

Share premium account
Retained earnings
Capital redemption reserve
Own shares
Translation reserve
Available for sale reserve
Cashflow hedging reserve

2006

2005

£m

174.8
(212.1)
243.0
(6.1)
4.0
1.9
(0.8)

£m

163.4
(294.4)
229.1
(6.8)
3.4
Nil
Nil

A reconciliation of the movements in the above reserves is shown in the Consolidated statement of changes in equity on page 40.

The balance of the share premium account represents the amounts received in excess of the nominal value of the ordinary shares offset by issue costs,
bonus issues of shares and any transfer between reserves.
The balance held in the retained earnings reserve is the accumulated retained profits of the Group. The consolidated profit on ordinary activities after
taxation for the financial year includes £52.0m (2005: £87.1m) in respect of the Company.
Cumulative goodwill of £113.8m (2005: £113.8m) has been written off against reserves in periods prior to 1 May 1998 in accordance with the UK
accounting standards then in force and such goodwill will remain eliminated against reserves.
Details of own shares held are given in note 28. The own shares reserve represents the cost of shares in Stagecoach Group plc purchased in the market
and held by the Group’s two Employee Share Ownership Trusts to satisfy options under the Group’s share option schemes offset by any sales proceeds.
The translation reserve is used to record exchange differences arising from the translations of the financial statements of foreign operations. It is also
used to record the effect of hedging net investments in foreign operations.
The available for sale reserve records the changes in fair value on available-for-sale investments. On disposal, the cumulative changes in fair value are
recycled to the income statement.
The cash flow hedging reserve records the portion of the gain or loss on a hedging instrument in a cash flow hedge that is determined to be an effective
hedge. On maturity, the cumulative gain or loss is recycled to the income statement to match the recognition of the hedged item through the income
statement.

page 82 | Stagecoach Group plc

Note 31 Consolidated cash flows

(a) Reconciliation of operating profit to cash generated from operations

Operating profit of Group companies
Operating profit of discontinued operations
Depreciation 
– continuing operations
– discontinued operations 
Loss on disposal of plant and equipment 
Amortisation of intangible assets
Share based payment expense
– continuing operations 
– discontinued operations 
Impairment of investment

Increase in inventories
Increase in receivables
Increase in payables
Increase/(decrease) in provisions
Decrease in retirement benefit obligations

Interest paid
Interest received
Interest element of hire purchase contracts and finance lease payments
Non-equity dividends paid
Dividends received from joint ventures and associates

Cash generated from operations

(b) Proceeds from sale of property, plant and equipment

In the cash flow statement, proceeds from sale of property, plant and equipment comprise:

Net book values
Loss on disposal of plant and equipment
Gain on disposal of properties
Value of property, plant and equipment traded in
Movement in receivables for proceeds from sale of property, plant and equipment

Proceeds from sale of property, plant and equipment

(c) Reconciliation of net cash flow to movement in net debt

Increase/(decrease) in cash and cash equivalents
Bond repayments
Cash flow from decrease in debt and lease financing

Other movements
Borrowings acquired as part of business combinations

Decrease/(increase) in net debt
Opening net debt (UK GAAP definition - see note 31 (d) )

Closing net debt (UK GAAP definition - see note 31 (d) )

2006

£m

143.6
5.5

68.7
3.0
1.9
7.4

2.1
0.1
Nil

232.3
(0.9)
(24.4)
14.9
6.8
(6.3)

222.4
(24.4)
8.3
(3.3)
n/a
Nil

203.0

2006

£m

11.3
(1.9)
0.8
(2.0)
Nil

8.2

2005

£m

137.3
8.7

62.8
4.5
3.0
4.1

1.3
0.1
0.4

222.2
(0.4)
(13.2)
9.8
(14.8)
(5.1)

198.5
(26.2)
13.6
(8.3)
(0.4)
23.5

200.7

2005

£m

12.1
(3.0)
1.3
(6.1)
2.8

7.1

2006

2005

£m

59.3
Nil
48.8

108.1
(8.5)
(20.9)

78.7
(214.6)

(135.9)

£m

(335.6)
181.0
21.6

(133.0)
(14.0)
Nil

(147.0)
(67.6)

(214.6)

Stagecoach Group plc | page 83

Notes to the consolidated financial statements

Note 31 Consolidated cash flows (continued)

(d) Analysis of net debt
IFRS does not explicitly define “net debt”. The analysis provided below therefore shows analysis of net debt as UK GAAP defines it. The analysis below
further shows the other items classified as net borrowings in the consolidated balance sheet.

Cash
Cash collateral
Hire purchase and finance 
lease obligations
Bank loans and loan stock
Bonds

UK GAAP Net Debt
Accrued interest on bonds
Separate recognition of foreign 
exchange forward contract
Redeemable ‘B’ shares
Unamortised gain on early 
settlement of interest rate swaps

IAS 32 &
IAS 39
adoption

£m

Nil
Nil

Nil
Nil
Nil

Cashflows

£m

59.8
(0.5)

(14.4)
73.9
Nil

Nil
(6.9)

118.8
16.2

0.4
(13.9)

1.7
13.9

(23.5)

Nil

Opening

£m

104.2
34.3

(66.1)
(112.1)
(174.9)

(214.6)
n/a

n/a
n/a

n/a

Foreign
exchange
movements

£m

0.5
Nil

Nil
(0.3)
(8.6)

(8.4)
(0.4)

(2.1)
Nil

Nil

(Charged)/
credited to
income
statement

£m

Nil
Nil

Closing

£m

164.5
33.8

Nil
Nil
(0.1) 

(101.5)
(49.1)
(183.6)

Acquisitions

£m

Nil
Nil

(10.3)
(10.6)
Nil

(20.9)
Nil

(0.1)
(16.2)

(135.9) 
(7.3)

Nil
Nil

Nil

0.1
Nil

7.6

0.1
Nil

(15.9)

New hire
purchase

£m

Nil
Nil

(10.7)
Nil
Nil

(10.7)
Nil

Nil
Nil

Nil

Net borrowings

(214.6)

(43.9)

150.6

(10.7)

(10.9)

(20.9)

(8.6)

(159.0)

The net total of cash and cash collateral of £198.3m (2005: £138.5m) is classified in the balance sheet as £198.5m (2005: £140.0m) in cash and cash
equivalents and £0.2m (2005: £1.5m) as bank overdrafts within borrowings.

(e) Restricted cash
The cash collateral balance as at 30 April 2006 of £33.8m (2005: £34.3m) comprises balances held in trust in respect of loan notes of £33.0m (2005:
£33.5m) and North America restricted cash balances of £0.8m (2005: £0.8m). In addition, cash includes train operating company cash of £89.2m
(2005: £61.3m). Under the terms of the franchise agreements, train operating companies can only distribute cash out of retained profits.
Had the Group’s rail franchises ended on the balance sheet date, consolidated net debt would have increased by £122.7m (2005: £95.2m) as a result of
the train operating company cash of £89.2m (2005: £61.3m) and the repayment of inter-company loans of £36.7m (2005: £35.1m) offset by
distributable reserves of £3.2m (2005: £1.2m).

(f) Purchase of subsidiary undertakings

Net assets acquired at fair value (see note 16)
Goodwill (see note 10)

Consideration:
Shares issued in respect of acquisitions
Cash and acquisition expenses paid in year

The cash paid during the year in respect of the purchase of subsidiary undertakings was as follows:

Cash and acquisition expenses paid in year (see above)
Less: cash and cash equivalents acquired

Net cash paid in respect of acquisitions in year 
Deferred consideration in respect of businesses acquired in prior years

2006

£m

13.5
20.7

34.2

4.5
29.7

34.2

2006

£m

29.7
(2.1)

27.6
0.1

27.7

2005

£m

4.8
Nil

4.8

Nil
4.8

4.8

2005

£m

4.8
Nil

4.8
1.1

5.9

Details of net assets acquired and related considerations are set out in note 16. Businesses acquired in the year contributed £6.2m to the cash inflows
from operating activities and a net cash outflow of £7.2m in respect of investing activities.

page 84 | Stagecoach Group plc

Note 31 Consolidated cash flows (continued)

(g) Disposal of subsidiaries and other businesses
Details of net assets disposed of and the related sales proceeds are set out in note 17.

Businesses disposed of in the year contributed £5.1m to the cash inflows from operating activities, £4.2m of cash outflows in respect of investing
activities and £0.1m of cash inflows for financing activities.

(h) Non cash transactions
The principal non cash transactions are the issue of shares as consideration for the purchase of a subsidiary (Note 16) and the acquisition of property,
plant and equipment using new hire purchase.

Note 32 Contingencies

Contingent liabilities
(i) A performance bond backed by a bank facility for £44.3m (2005: £44.3m), a season ticket bond backed by an insurance arrangement for £33.7m
(2005: £32.5m) and a holding company guarantee of £15.7m (2005: £15.7m) have been provided to the DfT in support of the Group’s franchise
obligations at South West Trains Limited at 30 April 2006. These contingent liabilities are not expected to crystallise.

(ii) The Group and its joint venture, Virgin Rail Group Holdings Limited, have, in the normal course of business, entered into a number of long-term
supply contracts. The most significant of these relate to track, station and depot access facilities, together with new train lease and maintenance
arrangements.

(iii) Under UK Rail franchise agreements, the Group and its joint venture, Virgin Rail Group Holdings Limited, have agreed with the DfT annual

amounts receivable or payable in respect of the operation of rail franchises for future periods. Under these agreements, there is a requirement to
comply with a number of obligations. Failure to comply with these obligations would be a breach of the relevant franchise.

(iv) The Group and the Company are from time to time party to legal actions arising in the ordinary course of business. Liabilities have been

recognised in the financial statements for the best estimate of the expenditure required to settle obligations arising under such legal actions. As at
30 April 2006, the liabilities in the consolidated financial statements for such claims total £4.4m (2005: £4.6m).

Note 33 Guarantees and other financial commitments

(a) Capital commitments

Capital commitments are as follows:

Contracted for but not provided
For delivery in one year

2006

£m

55.4

(b) Operating lease commitments
The following are the future minimum contractual lease payments due under unexpired operating leases as at 30 April 2006:

Lease payments due in respect of:
Year ending 30 April 2007
Year ending 30 April 2008
Year ending 30 April 2009
Year ending 30 April 2010
Year ending 30 April 2011
1 May 2011 and thereafter

Land &
buildings

Buses & other
road transportation
equipment

Trains &
rolling stock

Plant &
machinery

£m

7.7
3.3
2.8
2.5
2.2
8.6

27.1

£m

14.5
10.1
10.3
1.3
0.1
Nil

36.3

£m

84.8
Nil
Nil
Nil
Nil
Nil

84.8

£m

3.2
0.9
0.5
0.1
0.1
Nil

4.8

2005

£m

57.8

Total

£m

110.2
14.3
13.6
3.9
2.4
8.6

153.0

All operating lease commitments associated with South West Trains are assumed to terminate in February 2007, in line with the franchise end.

Stagecoach Group plc | page 85

Notes to the consolidated financial statements

Note 33 Commitments (continued)

(b) Operating lease commitments (continued)
The following are the future minimum contractual lease payments due under unexpired operating leases as at 30 April 2005:

Lease payments due in respect of:
Year ending 30 April 2006
Year ending 30 April 2007
Year ending 30 April 2008
Year ending 30 April 2009
Year ending 30 April 2010
1 May 2010 and thereafter

Land &
buildings

Buses & other
road transportation
equipment

Trains &
rolling stock

Plant &
machinery

£m

11.8
10.0
5.5
4.0
3.7
13.8

48.8

£m

13.8
11.7
7.7
9.4
0.6
Nil

43.2

£m

122.4
87.3
Nil
Nil
Nil
Nil

209.7

£m

2.8
2.0
0.4
0.2
0.1
Nil

5.5

Total

£m

150.8
111.0
13.6
13.6
4.4
13.2

307.2

All operating lease commitments associated with South West Trains are assumed to terminate in February 2007, in line with the franchise end.

(c) Network Rail charges
South West Trains has contracts with Network Rail for access to the railway infrastructure (track, stations and depots) until February 2007.
Commitments for payments under these contracts are as follows:

Lease payments due in respect of:
Year ending 30 April 2007

All Network Rail charges are assumed to terminate in February 2007, in line with the franchise end.

2006

£m

2005

£m

141.0

101.3

(d) Joint ventures
Our share of commitments and contingent liabilities in joint ventures shown below are based on the latest statutory financial statements of the
relevant companies:

Annual commitments under non-cancellable operating leases
Capital commitments
Franchise performance bonds
Season ticket bond

2006

2005

£m

68.8
Nil
14.7
1.2

£m

71.4
Nil
14.7
1.2

page 86 | Stagecoach Group plc

Note 34 Related party transactions

Transactions in which directors have had a material interest and details of directors’ remuneration are disclosed in the Remuneration Committee report on
pages 28 to 34.
At 30 April 2006, the Group had loan notes receivable of £3.3m (2005: £3.3m) from Virgin Rail Group Limited. The Group earned interest of £0.3m (2005:
£0.7m) on the loan notes during the year. 
During the year, Graham Eccles and other members of the Group’s management were non-executive directors of Virgin Rail Group Holdings Limited. Fees of
£25,000 (2005: £25,000) were payable to the Group by Virgin Rail Group Holdings Limited in this regard. 
Brian Souter is Chairman of ScotAirways Group Ltd. During the year the Group purchased flights from ScotAirways Group totalling £76,168 (2005:
£74,905).
On 21 May 2004, Brian Souter (Chief Executive of Stagecoach) and Ann Gloag (a Non-Executive Director of Stagecoach) together gained control of 39.3% of
the shares and voting rights in Alexander Dennis Limited. Noble Grossart Investments Limited controls a further 29.5% of the shares and voting rights of
Alexander Dennis Limited. None of Brian Souter, Ann Gloag or Ewan Brown is a director of Alexander Dennis Limited nor do they have any involvement in
the management of Alexander Dennis Limited. Furthermore, they do not participate in deciding on and negotiating the terms and conditions of transactions
between the Group and Alexander Dennis Limited.
For the year ended 30 April 2006, the Group purchased £46.5m (period from 21 May 2004 to 30 April 2005: £25.5m) of vehicles from Alexander Dennis
Limited and £2.9m (period from 21 May 2004 to 30 April 2005: £2.4m) of spare parts and other services. 
For new orders placed with Alexander Dennis Limited for vehicles, the Group has consulted with the UK Listing Authority and taken the appropriate
measures to ensure that the transactions with Alexander Dennis Limited comply with the Listing Rules. For the year ended 30 April 2006, the Group has
placed orders totalling £41.6m (period from 21 May 2004 to 30 April 2005: £49.3m) with Alexander Dennis Limited for the purchase of new vehicles. Of
this £41.6m (period from 21 May 2004 to 30 April 2005: £49.3m), vehicles accounting for £3.9m (period from 21 May 2004 to 30 April 2005: £5.1m) were
delivered prior to 30 April 2006 and are included in the total purchases of £46.5m (period from 21 May 2004 to 30 April 2005: £25.5m) referred to above.
The Group’s defined benefit schemes are related parties of the Group. Details of contributions made to these schemes during the year are contained in note 26.

Note 35 Post balance sheet events

On 23 June 2006, the Group agreed to sell its London bus operations to Macquarie Bank Limited. The sale is subject to regulatory approval and other
closing conditions, and at the present time the Group anticipates that the sale will complete within three months.
The total proceeds for the sale are £263.6m in cash, subject to adjustments dependent on the net assets of the London bus operations at completion.
The Group’s consolidated gain on disposal is estimated at £120.0m although the gain will depend on the final determination of the net assets of the
London bus business at completion of the sale.

Note 36 Reconciliation of net assets and profit under UK GAAP to IFRS

Stagecoach Group plc (“the Group”) previously prepared its consolidated financial statements in accordance with UK Generally Accepted Accounting
Practice (“UK GAAP”) for periods up to and including 30 April 2005. From 1 May 2005 onwards, the Group is required to prepare its consolidated
financial statements in accordance with International Financial Reporting Standards (“IFRS”) and International Financial Reporting Interpretation
Committee interpretations as endorsed by the European Union (“EU”). The results for the year ended 30 April 2006 represent the Group’s first
financial statements prepared in accordance with accounting policies based on IFRS and accordingly the comparative figures for the year ended 
30 April 2005 have been restated in accordance with IFRS. Detailed transitional UK GAAP to IFRS reconciliations for the comparatives were issued on
29 September 2005 and can be found on the Group’s website at: http://www.stagecoachgroup.com/scg/ir/finanalysis/reports. 
In the announcement of 29 September 2005, we noted that the financial information presented may subsequently be impacted by changes in the
business or to IFRS or the interpretation thereof. The comparative information reported in these results differs from that previously reported as a result
of such changes.
The following changes have been made to the comparatives since 
the reconciliations published on 29 September 2005: 

Year ended 30 April 2005

Income statement
Increase in Group operating costs
Increase in Group other operating income
Increase in operating profit from joint ventures

Balance sheet
Increase in provisions within current liabilities
Decrease in provisions within non-current liabilities
Decrease in interests in joint ventures

Decrease in net assets and equity

£m

(3.0)
3.0
1.0

1.0

As at 30 April 2005

£m

(55.6)
55.6
(6.0)

(6.0)

A loss on sale of plant and equipment of £3.0m has been reclassified from Group other operating income to Group operating costs.
Provisions totalling £55.6m previously classified as non-current liabilities have been reclassified to current liabilities.
An intangible asset had been previously recognised in relation to VRG in our prior IFRS restatement which represented the right to operate both the
West Coast and CrossCountry franchises. This has been removed which results in an increase in profit for the year ended 30 April 2005 of £1.0m and a
decrease in net assets of £6.0m at that date. This change results from further analysis undertaken by VRG and its auditors with respect to the
application of IFRS to the contractual arrangements in respect of VRG’s franchises.
The transitional balance sheet shown at 1 May 2005 to comply with IAS 32 and IAS 39 in the restatement has changed with net assets at 1 May 2005
decreasing by a further £0.5m. This reflects the discounting of our North American receivables in respect of disposals in prior years.
The year ended 30 April 2005 comparatives have also been updated to reflect the disposal of our New Zealand operations, with all income and
expenses relating to the New Zealand division being reclassified to profit for the year from discontinued operations.

Stagecoach Group plc | page 87

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page 90 | Stagecoach Group plc

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reconciliation from UK GAAP to IFRS

Each of the adjustments required on pages 88 to 90 to restate the Group’s results to 30 April 2005 from UK GAAP to IFRS together with any
associated transitional arrangements, are explained below:

a IAS 19, “Employee Benefits” 
A summary of the impact of IAS 19 is detailed below:

Operating profit
Taxation

Profit for the year

Recognised gains and losses

Net assets

Profit

Statement of 
recognised income 
and expense

Equity

30 April 2005
£m

30 April 2005
£m

30 April 2005
£m

1 May 2004
£m

6.1
(1.8)

4.3

–

–

–
–

–

(42.0)

–

–
–

–

–

–
–

–

–

(188.7)

(151.0)

IAS 19 requires the separate disclosure of the operating and financing elements of defined benefits pensions (and similarly funded employee benefits)
but permits a number of alternatives for how these elements are classified in the income statement. The Group’s policy is to classify the full impact of
pensions on the income statement within operating costs.

The standard also permits a number of alternatives for the recognition of actuarial gains and losses. The Group’s policy is to recognise any actuarial
gains and losses in full immediately in the statement of recognised income and expense, as would have been required under FRS 17 in the UK. The
option to account for actuarial gains and losses in this way is part of an IASB amendment to IAS 19. The amendment will be effective from 1 January
2006 with earlier adoption allowed. The Group has applied the revised standard voluntarily from the Group’s transition date to IFRS of 1 May 2004. 

The cash funding of the plans, which may from time to time involve special payments, is designed, in consultation with independent qualified
actuaries, to ensure that present and future contributions should be sufficient to meet future liabilities. 

As a result of adopting IAS 19, for the year ended 30 April 2005, there is an increase in operating profit of £6.1m and a related increase in the tax
charge of £1.8m. Accordingly, profit for the year increased by £4.3m. 

The balance sheet impact of the implementation of this standard in the Group’s consolidated IFRS balance sheet was to reduce net assets by £151.0m
at 1 May 2004 and by a cumulative £188.7m at 30 April 2005. 

The rail franchise deficits reflected in the restated 30 April 2005 results reflect only that part of the deficits that we expect to fund over the life of the
franchises. A ‘franchise adjustment’ has been made to the deficits to adjust them to reflect only the deficits that the Group is expected to be obliged to
fund until the end of the relevant franchises.

On commencement of a rail franchise, an intangible asset is recognised which exactly offsets the initial recognition of that part of the rail deficit that
the Group is expected to be obliged to fund until the end of the relevant franchise. In accordance with IAS 38 “Intangible Assets”, this intangible asset
is subsequently amortised on a straight line basis over the expected duration of the franchise. Total amortisation of £2.9m for the year ended 30 April
2005 has been recognised in relation to the amortisation of these intangible assets.

b IFRS 3, “ Business Combinations”; IAS 38, “Intangible Assets”
A summary of the impact of IFRS 3 and IAS 38 is detailed below:

Operating profit
Loss on disposed operations
Taxation

Profit for the year

Recognised gains and losses

Net assets

Profit

Statement of 
recognised income 
and expense

Equity

30 April 2005
£m

30 April 2005
£m

30 April 2005
£m

1 May 2004
£m

7.2
(0.4)
(0.9)

5.9

–

–

–
–
–

–

(0.2)

–

–
–
–

–

–

–
–
–

–

–

6.5

0.8

IFRS 3 prohibits merger accounting and the amortisation of goodwill. The standard requires goodwill to be carried at cost with impairment reviews
both annually and also where there are indications that the carrying value may not be recoverable. 

Stagecoach Group plc | page 91

Reconciliation from UK GAAP to IFRS

b IFRS 3, “ Business Combinations”; IAS 38, “Intangible Assets” (continued)
Under the transitional arrangements of IFRS 1, a company has the option of applying IFRS 3 prospectively from the transition date to IFRS. The Group
has chosen this option rather than restate previous business combinations. The impact of IFRS 3 and associated transitional arrangements on the
Group are as follows: 

• all prior business combination accounting is frozen at the transition date of 1 May 2004; 
• except where goodwill relates to businesses that operate UK rail franchises with finite durations, the value of goodwill is frozen at 1 May 2004

and amortisation previously reported under UK GAAP for the year ended 30 April 2005 is removed for IFRS restatements; and

• any negative goodwill at 1 May 2004 is reversed.

The impact on the operating profit for the year ended 30 April 2005 is an increase of £7.2m due principally to the non-amortisation of subsidiary and
associates goodwill. The loss on disposed operations increases by £0.4m as a result of the non-amortisation of goodwill in relation to disposed
operations. The associated tax impact of these adjustments is to recognise an additional charge of £0.9m for the year. The impact on profit for the
year is therefore an increase of £5.9m. There is an additional £0.2m charge to the statement of recognised income and expense due to the affect the
non-amortisation of goodwill has on the retranslation of goodwill denominated in foreign currencies.

There remains an annual charge for goodwill in relation to our investment in Virgin Rail Group of £14.7m in our restated IFRS results for the year
ended 30 April 2005. This annual charge equals the goodwill amortisation recognised for Virgin Rail Group under our previously reported UK GAAP
results. In our IFRS results we will continue to recognise an annual charge for goodwill in relation to Virgin Rail Group, which will equate to the amount
we would have amortised under UK GAAP. Goodwill recognised in relation to the acquisition of a business operating a rail franchise has a finite life due
to the fact that a franchise ends on a particular date. We therefore have to reduce the goodwill in relation to Virgin Rail Group with an annual charge
to reflect the fact that we should have no goodwill left at the end of Virgin Rail Group’s rail franchises. Under IFRS, on winning any new franchises, any
consideration paid in excess of the relevant fair value of assets and liabilities acquired will represent a separate intangible asset, which would be
amortised over the life of the franchise. 

Net assets increased by £0.8m on transition at 1 May 2004 primarily due to the write back of negative goodwill within the share of net assets in Virgin
Rail Group.

IFRS 1, “First-time Adoption of International Financial Reporting Standards” requires that an impairment review of goodwill be conducted in
accordance with IAS 36, “Impairment of Assets” at the date of transition irrespective of whether an indication exists that goodwill may be impaired. A
review of all of the Group’s goodwill was undertaken in accordance with this standard and no further impairment losses arose as at 1 May 2004.

Under IAS 38, intangible assets are capitalised where they qualify for recognition by meeting the criteria specified within that standard. On transition
to IFRS, some of the Group’s already capitalised assets met the definition of an intangible asset contained within the standard and complied with the
criteria for separate recognition. The result was that assets were reclassified and separately recognised as intangible assets as follows:

At 1 May 2004
Additions in year
Disposals in year
Amortisation in year
Translation adjustment

At 30 April 2005

Reclassified from
goodwill
£m

Reclassified from
tangible fixed assets
£m

Reclassified from
receivables
£m

0.1
2.4
Nil
(0.5)
Nil

2.0

Nil
0.3
Nil
(0.1)
Nil

0.2

1.9
1.2
(0.5)
(0.6)
(0.2)

1.8

Total

£m

2.0
3.9
(0.5)
(1.2)
(0.2)

4.0

The total intangible asset amortisation recognised for the year ended 30 April 2005 was £4.1m. As mentioned in the employee benefits section on
page 91, intangible asset amortisation of £2.9m representing the amortisation of the intangible asset recognised on transition that offsets the rail
pension deficit is included in the total charge of £4.1m.

c IFRS 2, “Share based Payment”
A summary of the impact of IFRS 2 is detailed below:

Operating profit

Profit for the year

Net assets

Profit 

30 April 2005
£m

(1.4)

(1.4)

–

Equity

30 April 2005
£m

1 May 2004
£m

–

–

Nil

–

–

Nil

In accordance with IFRS 2, the Group has recognised a charge to income based on the fair value of outstanding employee share options granted to
employees. The fair value has been calculated using the Black-Scholes options valuation model and is charged to profit over the expected vesting
period of relevant options, adjusted to reflect actual and expected levels of vesting. 

The Group has applied the optional exemption within IFRS 1, which allows it to apply IFRS 2 only to share options granted after 7 November 2002 that
have not vested before the date of transition, being 1 May 2004.

The operating profit impact of adopting IFRS 2 for the year ended 30 April 2005 is a charge of £1.4m. There is no impact on net assets.

page 92 | Stagecoach Group plc

Reconciliation from UK GAAP to IFRS

d IAS 10, “Events After the Balance Sheet Date”
A summary of the impact of IAS 10 is detailed below:

Profit for the year

Net assets

Profit 

30 April 2005
£m

–

–

Equity

30 April 2005
£m

1 May 2004
£m

–

24.4

–

26.5

IAS 10 requires that dividends declared to equity shareholders after the balance sheet date should not be recognised as a liability at the balance sheet
date. This differs from the previously adopted UK GAAP treatment, which requires dividends declared after the balance sheet date to be treated as
adjusting events and therefore recognised as a liability at the balance sheet date. The effect of this is to increase net assets and consolidated retained
earnings at 1 May 2004 by £26.5m, representing the final dividend payable under UK GAAP for the year ended 30 April 2004, and to increase net
assets for the year ended 30 April 2005 by a cumulative £24.4m.

e IAS 28, “ Investments in Associates”
A summary of the impact of IAS 28 is detailed below:

Loss on disposed operations

Profit for the year

Net assets

Profit 

30 April 2005
£m

Equity

30 April 2005
£m

1 May 2004
£m

(1.0)

(1.0)

–

–

–

–

–

–

1.0

Under IAS 28, where a group’s share of losses of an associate exceeds its interest in the associate, that group should discontinue recognising its share
of any further losses. The same principles apply to any share of losses of joint ventures. The result for the Group on transition is to increase net assets
and consolidated retained earnings by £1.0m, being the reversal of the net liabilities of the Group’s joint ventures previously recognised under UK
GAAP. 

During the year ended 30 April 2005, the joint ventures mentioned above were disposed of and subsequently the loss on disposed operations for the
year ended 30 April 2005 was increased by £1.0m.

f IFRS 5, “Non-current Assets Held for Sale and Discontinued Operations”
A summary of the impact of IFRS 5 is detailed below:

Operating profit
Loss on disposed operations

Profit for the year

Net assets

Profit 

30 April 2005
£m

Equity

30 April 2005
£m

1 May 2004
£m

0.1
(0.1)

Nil

–

–
–

–

Nil

–
–

–

Nil

IFRS 5 requires that any assets or disposal groups held for sale should be separately classified on the balance sheet where they meet the held for sale
criteria contained within IFRS 5. At 1 May 2004 the Group’s North American taxi operations met the criteria to be classified as held for sale as a
disposal group. These businesses were disposed of by 30 April 2005. The impact on the consolidated opening balance sheet at 1 May 2004 is to
reclassify £8.1m of assets to this category and £0.8m of liabilities. The movement for the year to 30 April 2005 reflects the disposal of these taxi
companies contained within the disposal group at 1 May 2004. 

Under IFRS 5 any non-current assets classified as being held for sale, whether individually or within a disposal group, should not be depreciated from
the date they meet the criteria to be recognised as held for sale. Accordingly the effect of this is to increase operating profit by £0.1m, representing the
non-depreciation of property, plant and equipment within the assets held for sale. In addition, the effect is to increase the reported loss on disposal of
the taxi companies disposed of within the year to 30 April 2005 by £0.1m reflecting the increased asset values as a result of non-depreciation.

Stagecoach Group plc | page 93

Reconciliation from UK GAAP to IFRS

g IFRS 1, “First time adoption of International Financial Reporting Standards”
IAS 16, “Property, plant and equipment”, requires initial measurement of property, plant and equipment at cost less accumulated depreciation. The
exemption in IFRS 1 allows entities to use a value that is not depreciated cost as deemed cost on transition to IFRS. There are three possible values, any
of which may be applied to any individual item of property, plant and equipment, that may be used as the basis of deemed cost at the date of
transition. One of these is the option to use the fair value of the item at the date of transition to IFRS, and allocate this as deemed cost.

We have decided to adopt this exemption allowing us to adopt the fair value of certain fixed assets (being certain land and buildings of the UK Bus
division) on transition as deemed cost. A summary of the impact is detailed below.

Operating profit

Profit for the year

Net assets

Profit 

30 April 2005
£m

0.3

0.3

–

Equity

30 April 2005
£m

1 May 2004
£m

–

–

–

–

54.2

53.9

As a result of adopting the exemption in IFRS 1, for the year ended 30 April 2005, there is an increase in operating profit and profit for the year of
£0.3m, representing the reduced depreciation charge on the revalued assets. The impact is a reduction in depreciation due to the split of deemed cost
between land and buildings. Land is not depreciated whereas buildings are.

The balance sheet impact of the implementation of this standard in the Group’s consolidated IFRS balance sheet was to increase net assets by £53.9m
at 1 May 2004, and by a cumulative £54.2m at 30 April 2005.

h IAS 31, “Interests in joint ventures” 
A summary of the impact of IAS 31 is detailed below:

Operating profit
Finance costs (net)
Taxation

Profit for the year

Net assets

Profit 

30 April 2005
£m

Equity

30 April 2005
£m

1 May 2004
£m

(3.5)
(1.7)
5.2

Nil

–

–
–
–

–

Nil

–
–
–

–

Nil

IAS 31, “Interests in joint ventures” requires the use of either proportionate consolidation or the equity method to consolidate jointly controlled
entities. The Group will apply the equity method. Under UK GAAP requirements, only the gross equity method is allowed and there are a number of
line items in the income statement for which the investor’s share of its joint ventures results have to be included and disclosed: these include revenue,
operating profit, interest and taxation. There are no such requirements under IAS 31. As a result of this, for the year ended 30 April 2005 we have
reclassified £5.2m of tax charges and £1.7m of finance income relating to our joint venture, Virgin Rail Group, into a single line item in the income
statement. The results of the joint venture are now shown net of interest and taxation charges. This is an income statement reclassification and
therefore has no impact on overall net assets.

page 94 | Stagecoach Group plc

INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF 
STAGECOACH GROUP PLC

We have audited the parent company financial statements of Stagecoach
Group plc for the year ended 30 April 2006 which comprise the Balance
Sheet and the related notes. These parent company financial statements
have been prepared under the accounting policies set out therein. 

statements. We consider the implications for our report if we become aware
of any apparent misstatements or material inconsistencies with the parent
company financial statements. Our responsibilities do not extend to any
other information.

We have reported separately (on page 35) on the Group financial statements
of Stagecoach Group plc for the year ended 30 April 2006.

Respective responsibilities of directors and
auditors
The Directors’ responsibilities for preparing the Annual Report, Remuneration
Committee report and the parent company financial statements in
accordance with applicable law and United Kingdom Accounting Standards
(United Kingdom Generally Accepted Accounting Practice) are set out in the
Statement of Directors’ Responsibilities on page 20.

Our responsibility is to audit the parent company financial statements and
the part of the Remuneration Committee report to be audited in accordance
with relevant legal and regulatory requirements and International Standards
on Auditing (UK and Ireland). This report, including the opinion, has been
prepared for and only for the Company’s members as a body in accordance
with Section 235 of the Companies Act 1985 and for no other purpose. We
do not, in giving this opinion, accept or assume responsibility for any other
purpose or to any other person to whom this report is shown or into whose
hands it may come save where expressly agreed by our prior consent in
writing.

We report to you our opinion as to whether the parent company financial
statements give a true and fair view and whether the parent company
financial statements and the part of the Remuneration Committee Report to
be audited have been properly prepared in accordance with the Companies
Act 1985. We report to you whether in our opinion the information given in
the Directors’ Report is consistent with the parent company financial
statements. The information given in the Directors’ Report includes that
specific information presented in the Operating and Financial Review that is
cross referred from the Business Review section of the Directors’ Report. We
also report to you if, in our opinion, the Company has not kept proper
accounting records, if we have not received all the information and
explanations we require for our audit, or if information specified by law
regarding directors’ remuneration and other transactions is not disclosed.

We read other information contained in the Annual Report and consider
whether it is consistent with the audited parent company financial

Basis of audit opinion
We conducted our audit in accordance with International Standards on
Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit
includes examination, on a test basis, of evidence relevant to the amounts
and disclosures in the parent company financial statements and the part of
the Remuneration Committee report to be audited. It also includes an
assessment of the significant estimates and judgments made by the Directors
in the preparation of the parent company financial statements, and of
whether the accounting policies are appropriate to the Company’s
circumstances, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the parent company
financial statements are free from material misstatement, whether caused by
fraud or other irregularity or error. In forming our opinion we also evaluated
the overall adequacy of the presentation of information in the parent
company financial statements.

Opinion
In our opinion:
• the parent company financial statements give a true and fair view, in

accordance with United Kingdom Generally Accepted Accounting Practice,
of the state of the Company’s affairs as at 30 April 2006; and

• the parent company financial statements have been properly prepared in

accordance with the Companies Act 1985.

PricewaterhouseCoopers LLP
Chartered Accountants and Registered Auditors
Glasgow

28 June 2006

Stagecoach Group plc | page 95

Company balance sheet
As at 30 April 2006
Prepared using UK Generally Accepted Accounting Policies (UK GAAP)

Fixed assets
Tangible assets
Investments

Current assets
Debtors and prepaid charges – due within one year

Deferred tax asset
Derivative financial instruments at fair value

– due after more than one year

Creditors: Amounts falling due within one year
Trade and other payables
Derivative financial instruments at fair value

Net current liabilities

Total assets less current liabilities
Creditors: Amounts falling due after more than one year

Net assets excluding pension liability
Pension liability, net of deferred tax

Net assets including pension liability

Capital and reserves
Equity share capital
Redeemable ‘B’ preference shares
Share premium account
Profit and loss account
Capital redemption reserve
Own shares

Shareholders’ funds

Analysis of shareholders’ funds
Equity
Non-equity

These financial statements were approved by the Board of Directors on 28 June 2006 for issue.

2006

2005

Notes

£m

As restated
£m

2

3

4

4
5
7

6

7

6

8

9
9
10
10
10

10

0.1
964.9

965.0

13.7
172.2
0.4
4.0

190.3

(398.7)
(4.2)

(402.9)

(212.6)

752.4
(13.5)

738.9
(2.5)

736.4

6.9
n/a
174.8
317.8
243.0
(6.1)

736.4

736.4
n/a

736.4

0.1
924.3

924.4

21.6
166.6
0.6
Nil

188.8

(351.6)
Nil

(351.6)

(162.8)

761.6
(38.3)

723.3
(2.8)

720.5

6.8
13.9
163.4
314.1
229.1
(6.8)

720.5

706.6
13.9

720.5

Brian Souter
Chief Executive

The accompanying notes form an integral part of this balance sheet.

Martin A Griffiths
Finance Director

page 96 | Stagecoach Group plc

Notes to the financial statements

Note 1 UK GAAP accounting policies

The separate financial statements of the Company are presented as required by the Companies Act 1985. As permitted by that Act, the separate
financial statements have been prepared in accordance with UK GAAP.

Basis of accounting

•
The financial statements have been prepared under the historical cost convention and in accordance with applicable standards in the United Kingdom.

No profit and loss account is presented by the Company as permitted by Section 230 of the Companies Act 1985.

As permitted by FRS 1 (Revised), the Company has taken the exemption from preparing a cash flow statement.

Changes in accounting policy

•
The Company has adopted FRS 17, ‘Retirement benefits’, FRS 20 “Share-based payments”, FRS 21 “Events after the balance sheet date”, FRS 25
“Financial instruments: Disclosure and presentation” and FRS 26 “Financial instruments: Measurement”. The adoption of each of these standards
represents a change in accounting policy and the comparative figures have been restated accordingly except that the exemption within FRS 25 and FRS
26 not to restate comparatives has been taken. Details of the effects of the prior year adjustments are given in note 14.

The Company has also adopted FRS 23, ‘The Effects of Changes in Foreign Exchange Rates’, and FRS 28, ‘Corresponding amounts’, in the year. The
adoption of these did not have any impact on the overall reported results.

Tangible fixed assets

•
Tangible fixed assets are shown at their original historic cost net of depreciation and any provision for impairment as set out in note 2.

Depreciation is provided at rates calculated to write off the cost or valuation less estimated residual value of each asset on a straight-line basis over
their estimated useful lives, as follows:

IT and other equipment, furniture and fittings
Motor cars and other vehicles

3 to 10 years
3 to 5 years

The need for any fixed asset impairment write-down is assessed by comparison of the carrying value of the asset against the higher of net realisable
value and value in use.

Investments

•
Investments in subsidiary undertakings are stated at cost, less provision for impairment.

Taxation

•
Corporation tax is provided on taxable profits at the current rate applicable. Tax charges and credits are accounted for through the same primary
statement (either the profit and loss account or the statement of total recognised gains and losses) as the related pre-tax item.

In accordance with FRS 19, “Deferred Taxation”, full provision is made for deferred tax on a non-discounted basis in respect of all timing differences
except those arising from the revaluation of fixed assets where there is no binding sale agreement and undistributed profits of overseas subsidiaries. 

Deferred tax is calculated at rates at which it is estimated the tax will arise. Deferred tax assets are recognised to the extent they are more likely than
not to be recovered.

Foreign currencies

•
Foreign currency monetary assets and liabilities are translated into sterling at the rates of exchange ruling at the year end. Foreign currency
transactions arising during the year are translated into sterling at the rate of exchange ruling on the date of the transaction. Any exchange differences
so arising are dealt with through the profit and loss account.

For the principal rates of exchange used see the Group IFRS accounting policies on page 44.

Share based payment

•
The Company issues equity-settled and cash-settled share based payments to certain employees. 

The Company has applied the optional exemption contained within FRS 20, which allows it to apply the standard only to share options granted after 
7 November 2002 that have not vested before the date of transition, being 1 May 2004.

Equity-settled transactions
The cost of equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted and is
recognised as an expense over the vesting period. In valuing equity-settled transactions, no account is taken of any non-market based vesting
conditions and no expense is recognised for awards that do not ultimately vest as a result of a failure to satisfy a non-market based vesting condition.
None of the Group’s equity-settled transactions have any market based performance conditions.

Fair value for equity settled share based payments is estimated by use of the Black-Scholes pricing model. 

At each balance sheet date, before vesting, the cumulative expense is calculated based on management’s best estimate of the number of equity
instruments that will ultimately vest taking into consideration the likelihood of achieving non-market based vesting conditions. 

Stagecoach Group plc | page 97

Notes to the financial statements

Note 1 UK GAAP accounting policies (continued)

Share based payment (continued)

•
Cash-settled transactions
The cost of cash-settled transactions is measured at fair value. Fair value is estimated initially at the grant date and at each balance sheet date
thereafter until the awards are settled. Market based performance conditions are taken into account when determining fair value. 

Fair value for cash settled share based payments (being only those that relate to the Long Term Incentive Plan) is estimated by use of a 
simulation model.

During the vesting period, a liability is recognised representing the estimated fair value of the award and the portion of the vesting period expired as at
the balance sheet date. 

Choice of settlement
The Company can choose to settle awards under the Long Term Incentive Plan in either cash or equity, although it currently intends to settle all such
awards in cash. Awards under the Long Term Incentive Plan are accounted for as cash – settled transactions (see above).

Dividends

•
Dividends on ordinary shares are recorded in the financial statements in the period in which they are approved by the Company’s shareholders, or in
the case of interim dividends, in the period in which they are paid.

Financial instruments

•
The accounting policy of the Company under FRS 25 “Financial instruments: Disclosure and presentation” and FRS 26 “Financial instruments:
Measurement” for financial instruments is the same as the accounting policy for the Group under IAS 32 “Financial Instruments: Disclosure and
presentation” and IAS 39 “Financial instruments: Recognition and Measurement”. Therefore for details of the Company’s accounting policy for
financial instruments refer to pages  46 to 48. The Company has used the exemption within FRS 25 and FRS 26 not to restate comparatives and
therefore the previous UK GAAP accounting policies have been used for the 2005 comparatives. For details of the previous accounting policies for
derivative financial instruments refer to page 48.

Investment in own shares

•
In accordance with UITF Abstract 38, “Accounting for ESOP Trusts”, own shares held by the Group’s Employee Benefit Scheme and Qualifying
Employee Share Trust have been classified as deductions from shareholders’ funds.

Interest bearing loans and borrowings

•
Borrowings are recognised initially at the proceeds received, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost
using the effective yield method; any difference between proceeds (net of transaction costs) and the redemption value is recognised in the income
statement over the period of the borrowings.

Borrowings are classified as current liabilities unless the Company has an unconditional right to defer settlement for at least 12 months after the
balance sheet date.

Pensions

•
The Company accounts for pensions and similar benefits under FRS 17 “Retirement Benefits” and measures its obligations due at discounted present
value. 

Note 2

Tangible fixed assets

Cost
Beginning of year
Disposals

End of year

Depreciation
Beginning of year
Charge
Disposals

End of year

Net book value, beginning of year

Net book value, end of year

page 98 | Stagecoach Group plc

£m

0.9
(0.3)

0.6

(0.8)
Nil
0.3

(0.5)

0.1

0.1

Note 3

Investments

Cost
Beginning of year
FRS 20 adjustments

Beginning of year, restated
Additions
Disposals

End of year

Amounts written off
At beginning and end of year

Net book value, beginning of year

Net book value, beginning of year restated

Net book value, end of year

Note 4 Debtors and prepaid charges

Amounts falling due within one year are:

Trade debtors
Other prepayments and accrued income
VAT and other government debtors
UK corporation tax debtors
Amounts owed by Group companies 

Amounts falling due after more than one year are:

Amounts owed by Group companies

Subsidiary
undertakings

As restated 
£m

923.0
1.3

924.3
79.2
(38.6)

964.9

Nil

923.0

924.3

964.9

2005

£m

0.2
11.2
9.8
0.4
Nil

21.6

2005

As restated
£m

166.6

2006

£m

0.3
3.2
10.1
Nil
0.1

13.7

2006

£m

172.2

Credit risk with respect to debtors is low due to the fact that a large amount of the Company’s balances are with subsidiary undertakings that it
controls.

Note 5 Deferred tax asset

The Company movement during the year was as follows:

Beginning of year
FRS 17 adjustments (see note 14)

Beginning of year, restated
(Charge)/credit to profit and loss account

End of year

2006

2005

£m

1.5
(0.9)

0.6
(0.2)

0.4

£m

1.1
(0.9)

0.2
0.4

0.6

Stagecoach Group plc | page 99

Notes to the financial statements

Note 5 Deferred tax asset (continued)

The deferred tax asset recognised can be split as follows:

Short-term timing differences

Note 6 Creditors

(a) Creditors: Amounts falling due within one year

Bank overdrafts
Bank loans and loan notes
Trade creditors
Accruals and deferred income
Other creditors
– UK corporation tax payable
– PAYE and NIC payable
Amounts due to Group companies

Trade creditors are non-interest bearing and are normally settled on 30 day terms.

(b) Creditors: Amounts falling due after more than one year

Accruals and deferred income
Amounts due to Group companies

(c) Borrowings are repayable as follows

On demand or within 1 year
Bank overdraft
Bank loans and loan notes

Total borrowings

Note 7

Financial instruments

2006

£m

0.4

2006

£m

312.5
37.7
0.6
6.6

4.9
Nil
36.4

398.7

2006

£m

0.8
12.7

13.5

2006

£m

312.5
37.7

350.2

2005

As restated
£m

0.6

2005

As restated
£m

197.0
104.8
1.7
15.9

Nil
0.2
32.0

351.6

2005

£m

0.8
37.5

38.3

2005

£m

197.0
104.8

301.8

In accordance with the transitional arrangements for FRS 25 and FRS 26, the exemption regarding comparatives has been taken. Accordingly no
comparatives are given in this note. The fair value of derivative financial instruments at 30 April 2006 are set out below:

Forward foreign currency contracts – external
Forward currency contracts – internal
Fuel caps – external
Fuel caps – internal 
Interest rate swap – external

Fair value
assets
£m

Fair value
liabilities
£m

Nil
0.1
1.4
2.5
Nil

4.0

(0.1)
Nil
(2.5)
(1.4)
(0.2)

(4.2)

Those derivatives identified above as “internal” are where the counterparty is a subsidiary company. Those identified as “external” are where the
counterparty is a third party financial institution.

In accordance with FRS 26, “Financial Instruments: Recognition and Measurement” the Company has reviewed all significant contracts for embedded
derivatives that are required to be separately accounted for. None were identified.

There were no derivatives outstanding at the balance sheet date designated as hedges.

page 100 | Stagecoach Group plc

Note 8 Pension liability, net of deferred tax

Unfunded pension liability
Deferred tax asset

2006

£m

3.6
(1.1)

2.5

The Company no longer has any employees but has unfunded liabilities in respect of former employees which are shown above.

Note 9 Called up share capital

Authorised
1,456,666,666 (2005: 1,456,666,666) ordinary share of 12/19 pence each
2005: 1,388,888,889 redeemable ‘B’ preference shares of 18 pence each

Total

Allotted, called-up and fully paid
1,093,600,313 (2005: 1,069,545,227) ordinary shares of 12/19 pence each
2005: 77,189,641 redeemable ‘B’ preference shares of 18 pence each

Total

2006

£m

9.2
n/a

9.2

6.9
n/a

6.9

2005

As restated
£m

3.7
(0.9)

2.8

2005

£m

9.2
250.0

259.2

6.8
13.9

20.7

The redeemable ‘B’ preference shares attracted a non-cumulative preferential dividend set at 70% of 6 months’ LIBOR. The dividend was payable on
the nominal amount of 18 pence per ‘B’ share and was paid twice yearly in arrears on 31 March and 30 September. The redeemable ‘B’ shares were
redeemable at their nominal value of 18 pence per share at the option of holders on 31 March and 30 September each year. As a result of the number
of ‘B’ shares already redeemed, the Company was able to compulsorily redeem all the outstanding ‘B’ shares on 30 September 2005. The ‘B’ shares
were not listed on a recognised Stock Exchange.

In accordance with UITF 38, all shares held by employee trusts are deducted from shareholders’ funds and are not classified as assets.

The Company operates two Employee Share Ownership Trusts: the Stagecoach Group Qualifying Employee Share Ownership Trust (“QUEST”) and the
Stagecoach Group Employee Benefit Trust 2003 (“EBT”). Shares held by these trusts are treated as a deduction from shareholders’ funds in the
financial statements. Other assets and liabilities of the trusts are consolidated in the Company’s financial statements as if they were assets and
liabilities of the Company. As at 30 April 2006, the QUEST held 628,285 (2005: 1,811,212) ordinary shares in the Company and the EBT held
4,690,333 (2005: 4,690,333) ordinary shares in the Company.

Note 10 Reconciliation of shareholders’ funds

At 30 April 2005 (as previously stated)
Prior year adjustments (see note 14):
FRS 20
FRS 21

At 1 May 2005 (as restated)
Profit for the year
Credit in relation to share based payment
Dividends
Redemption of ‘B’ shares
Ordinary shares issued during the year
Own shares sold

Equity
share
capital

£m

6.8 

Nil
Nil 

6.8
Nil
Nil
Nil
Nil
0.1
Nil

6.9

Redeemable
‘B’ preference
shares

£m

13.9 

Nil 
Nil 

13.9 
Nil 
Nil
Nil
(13.9)
Nil
Nil

Share
premium 
account 

£m

163.4 

Nil
Nil

163.4 
Nil
Nil
Nil
Nil
11.4
Nil

Profit and
loss 
account 

Capital 
redemption 
reserve

£m

288.4 

1.3 
24.4

314.1 
52.0
2.2
(36.6)
(13.9)
Nil 
Nil

£m

229.1

Nil
Nil

229.1
Nil
Nil
Nil
13.9 
Nil
Nil

Own
shares

£m

Total

£m

(6.8)

694.8

Nil
Nil

(6.8)
Nil
Nil
Nil
Nil
Nil
0.7

1.3
24.4

720.5
52.0
2.2
(36.6)
(13.9)
11.5
0.7

Nil 

174.8 

317.8 

243.0

(6.1)

736.4

As permitted by S230 of the Companies Act 1985, the Company has not presented its own profit and loss account. 

Note 11 Share based payment

For details of share based payment awards and fair values see note 29 to the Group financial statements on pages 81 and 82. The Company accounts
for the share based payment charge for the year of £2.2m (2005: £1.3m) by recording an increase to its investment in subsidiaries for this amount and
recording a corresponding entry to the profit and loss account reserve to reflect the fact that the Company has no employees and all awards of share
options in the Company’s shares are to employees of subsidiary companies.

Stagecoach Group plc | page 101

Notes to the financial statements

Note 12 Guarantees, other financial commitment & contingent liabilities

(a)  The Company is party to bank guarantees in respect of guarantees, loans, overdrafts and other facilities provided to certain Group undertakings of
which £64.0m was outstanding at 30 April 2006 (2005: £81.4m) and provides cross-guarantees to certain subsidiary undertakings under VAT
group provisions.

(b)  Capital commitments
Capital commitments (where the Company has contracted to acquire assets on behalf of its subsidiaries) are as follows:

Contracted for but not provided 
For delivery in one year

(c) Operating lease commitments
Commitments for payments in the next year under operating leases are as follows:

2006

£m

53.5

Under one year
Between one year and five years
Five years and over

Note 13 Related party transactions

2006

2005

Land and buildings
£m

Nil
Nil
0.3

Other
£m

Nil
9.6
Nil

Land and buildings
£m

Nil
Nil
0.3

2005

£m

53.4

Other
£m

Nil
9.5
0.3

The Company has taken advantage of the exemption under FRS 8, “Related party disclosures” from having to provide related party disclosures in its
own financial statements when those statements are presented with consolidated financial statements of its group. Details of related party disclosures
provided by the Group can be found on page 87.

Note 14 Prior year adjustment

The Company policy for accounting for share based payments and dividends was changed during the year to comply with FRS 20, “Share based
payments” and FRS 21, “Events after the Balance Sheet Date”. The comparative figures in the primary statements and notes have been restated to
reflect the new policies.

FRS 20 requires the fair value of outstanding share options granted to employees to be recognised as a charge in the profit and loss account. Previous
UK GAAP treatment required the instrinsic value to be recognised as a charge in the profit and loss account. FRS 21 requires that dividends declared to
equity shareholders after the balance sheet date should not be recognised as a liability at the balance sheet date. This differs from the previous UK
GAAP treatment which required dividends declared after the balance sheet date to be recognised as a liability at the balance sheet date.

The effect of the changes for each of these is summarised below:

FRS 20, “Share based payments”
Balance sheet

Increase in investments in subsidiaries

Increase in net assets

Increase in profit and loss account reserve

FRS 21, “Events after the Balance Sheet Date”
Profit and loss account

Decrease in dividends recorded in the profit and loss account

Increase in profit for the financial year

Balance sheet

Decrease in dividend payable creditor

Increase in net assets

Increase in profit and loss account reserve

2006

2005

£m

2.1

2.1

2.1

4.0

4.0

4.0

4.0

4.0

£m

1.3

1.3

1.3

24.4

24.4

24.4

24.4

24.4

The adoption of FRS 17, “Retirement Benefits,” and FRS 23, “The Effects of Changes in Foreign Exchange Rates” have had no impact on overall
reported results. On the adoption of FRS 17, deferred taxation in respect of pension liabilities for the comparative year has been reclassified from
deferred tax asset within current assets to the pension liability, net of deferred taxation line on the face of the balance sheet. The adoption of FRS 25,
“Financial Instruments: Disclosure and Presentation” and FRS 26, “Financial Instruments: Measurement”, which requires all derivatives to be fair valued
in the balance sheet has also had no net impact on reported results due to the Company having external derivatives matched by equal and opposite
internal derivatives. 
page 102 | Stagecoach Group plc

Shareholder information
Analysis of shareholders as at 30 April 2006

Range of holdings

1 – 25,000
25,001 – 250,000
250,001 – 500,000
500,001 – 3,750,000
Over 3,750,000

Classification of shareholders

Individuals
Other corporate bodies
Banks and Nominees
Limited companies
Pension funds

Number of 
holders

48,958
555
78
145
54

%

98.33
1.11
0.16
0.29
0.11

Ordinary 
shares held

73,542,011
41,849,418
28,740,268
202,597,122
746,871,494

%

6.72
3.83
2.63
18.53
68.29

49,790

100.00 1,093,600,313

100.00

Number of 
holders

47,979
52
1,604
149
6

Ordinary 
%

96.36
0.11
3.22
0.30
0.01

shares held

%

312,185,842
10,234,740
715,840,728
55,297,868
41,135

28.55
0.94
65.45
5.06
0.00

49,790

100.00 1,093,600,313

100.00

Registrar
All administrative enquiries relating to shareholdings should, in the first instance, be directed to the Company’s registrar and clearly state the
shareholder’s name and address. Please write to: Lloyds TSB Registrars Scotland, PO Box 28506, Finance House, Orchard Brae, Edinburgh EH4 1WQ.
Telephone 0870 601 5366. Registrar forms can be obtained on-line at http://www.stagecoachgroup.com/scg/ir/shareholder/registrar/ 

Stagecoach individual savings accounts
The Company has appointed Halifax Share Dealing Limited as an ISA provider and shareholders who would like further information should contact
their help desk on 08457 22 55 25.

The Company has also made arrangements with Stocktrade for Maxi and Mini ISAs. Full details and an application form are available from Stocktrade
(a division of Brewin Dolphin), 81 George Street, Edinburgh EH2 3ES. Telephone 0131 240 0448.

Low cost share dealing facility
The Company has set up a low cost execution only share dealing facility with a division of Brewin Dolphin, Stocktrade, exclusive to Stagecoach
shareholders. The commission is 0.5% up to £10,000 with 0.2% being charged on the excess thereafter, subject to a £15 minimum.

Shareholders who would like further information should write to Stocktrade, 81 George Street, Edinburgh EH2 3ES. Telephone 0845 601 0995,
quoting dealing reference Low Co020. Postal dealing packs are available on request.

Payment of dividends by BACS
Many shareholders have already arranged for dividends to be paid by mandate directly to their bank or building society account. The mandates enable
the Company to pay dividends through the BACS (Bankers’ Automated Clearing Services) system. The benefit to shareholders of the BACS system is
that the registrar posts the tax vouchers directly to them, whilst the dividend is credited on the payment date to the shareholder bank or building
society account. Shareholders who wish to benefit from this service should request the Company’s registrar (address above) to send them a
dividend/interest mandate form or alternatively complete the mandate form attached to the next dividend tax voucher they receive.

Dividend Re-Investment Plan
The Company operates a Dividend Re-Investment Plan which allows a shareholder’s cash dividend to be used to buy Stagecoach shares at favourable
commission rates. Shareholders who would like further information should telephone Lloyds TSB Registrars Scotland on 0870 241 3018.

Stagecoach Group plc | page 103

Five year financial summary

Results
Revenue
Operating profit/(loss)
Finance charges (net)
Profit/(loss) before taxation
Tax (charge)/credit
Profit/(loss) attributable to equity shareholders of the parent

Net assets
Non-current assets
Current assets
Current liabilities (excluding provisions)
Non-current liabilities (excluding provisions)
Provisions
Total equity

Cash and debt
Cash at bank and in hand
Gross debt
Net debt (UK GAAP)

Cash flow
Free cash flow

Ratios
Earnings per ordinary share*
Dividends per ordinary share

Free cash flow per ordinary share

IFRS
2006

IFRS
2005

UK GAAP
2004

UK GAAP
2003

UK GAAP
2002

£m

£m

£m

£m

£m

1,568.5
136.1
(16.0)
115.0
(26.4)
115.4

893.4
395.3
(439.4)
(527.8)
(109.9)
211.6

198.5
(334.4)
(135.9)

1,420.5
132.9
(21.9)
104.9
(25.3)
86.9

866.7
321.7
(517.4)
(462.6)
(93.0)
115.4

140.0
(354.6)
(214.6)

1,792.3
129.7
(27.3)
95.8
8.8
104.6

831.7
717.1
(674.6)
(292.2)
(192.0)
390.0

476.5
(544.1)
(67.6)

2,076.6
(466.2)
(33.5)
(500.2)
(25.0)
(525.2)

1,259.8
455.0
(504.2)
(640.7)
(252.8)
317.1

2,114.4
96.5
(59.8)
42.0
(15.0)
27.0

1,981.0
483.6
(524.0)
(808.1)
(223.4)
909.1

164.7
(724.7)
(560.0)

150.0
(924.6)
(774.6)

175.5

173.6

209.5

217.8

184.3

10.6p
3.7p

16.3p

9.5p
3.3p

6.7p
2.9p

6.4p
2.6p

6.3p
2.6p

15.0p

15.9p

16.6p

14.1p

Ordinary shares in issue at year end

1,093.6m

1,069.5m

1,335.4m

1,320.9m

1,320.9m

*before intangible asset amortisation and exceptional items

The effect of the adoption of IFRS on the information for the year ended 30 April 2005 is given in note 36 of the Group financial statements on pages
87 to 94.

page 104 | Stagecoach Group plc

Registered office, advisers and financial calendar

Company Secretary
Ross Paterson

Registered Office
10 Dunkeld Road

Perth PH1 5TW

Telephone +44 (0) 1738 442 111

Facsimile +44 (0) 1738 643 648

Email

info@stagecoachgroup.com

Company Number
SC 100764

Registrars
Lloyds TSB Registrars Scotland

PO Box 28506

Finance House

Orchard Brae

Edinburgh EH4 1WQ

Telephone+44 (0) 870 601 5366

Merchant Bankers
Noble Grossart Limited

48 Queen Street

Edinburgh EH2 3NH

Independent Auditors
PricewaterhouseCoopers LLP

Kintyre House

209 West George Street

Glasgow G2 2LW

Stockbrokers
Credit Suisse

1 Cabot Square

London E14 4QJ

Principal Bankers
Bank of Scotland

New Uberior House

11 Earl Grey Street 

Edinburgh EH3 9BN

Solicitors
Shepherd & Wedderburn

Saltire Court

20 Castle Terrace

Edinburgh EH1 2ET

Herbert Smith

Exchange House

Primrose Street

London EC2A 2HS

Financial Calendar

Annual General Meeting

25 August 2006

Payment Date – Ordinary Shares

Final Dividend

4 October 2006

Interim Report

December 2006

Interim Dividend

March 2007

Stagecoach Group plc | IBC

Group Headquarters  10 Dunkeld Road  Perth  PH1 5TW Scotland
T +44 (0) 1738 442 111   F +44 (0) 1738 643 648 www.stagecoachgroup.com