Throughout the year considerable progress was made on a range of issues including acquisitions, integration of businesses and marketing initiatives, to improve the quality and efficiency of our services. A number of unique events took place, including the Olympics in Australia which presented specific challenges for our operations, especially in Sydney.

In the UK, the progress of the trains division was severely set back by the Hatfield incident. Whilst the impact of emergency speed restrictions (ESRs) was variable across our train companies, passenger revenue across our operations was impacted, with revenues being between 10-15% down over the last quarter of the year. There is still ongoing disruption but passenger numbers for the first ten weeks of the year have been gradually increasing and are now only down 3% year on year. We are focused on attracting patronage back on to our services and have initiated marketing campaigns which are designed to stimulate growth within each of our companies. However, it is notable that passenger revenue growth across the trains division for the nine months prior to Hatfield was running at over 10%, with revenues falling by 14% immediately following this event.

New businesses

We increased our international presence by acquiring seven businesses during the year, of which four were overseas. We also continue to seek opportunities overseas including joint-venture partnerships with third parties where we can bring benefit to local operations.

Our businesses have a common purpose – to deliver the best possible service. We operate a decentralised organisation, run by local people who understand local cultures and how to meet local needs.

New challenges The post Hatfield disruption presented serious challenges to our UK train operations. During the normal course of business, only a small number of ESRs are in force across the network. Following Hatfield up to 550 ESRs were put on the network with over 30 being placed on Midland Mainline (MML) alone. This severely impacted on travelling times. On MML, for example, at the peak of the disruption, average journey times from London to Sheffield were more than doubled from 2 hours 18 minutes to 4 hours 48 minutes and as a result train frequency was more than halved. We are vigorously pursuing recovery of losses arising as a consequence of the Hatfield incident from both Railtrack and our insurers, currently through negotiation but, if necessary, through legal action.

New assets

We have made a significant investment in rolling stock for our train companies, but are frustrated by the lack of progress in bringing new rolling stock into service; Gatwick Express and ScotRail fleets continue to be affected by delays in delivery. In addition, c2c, Central and ScotRail have all experienced poor performance of new rolling stock because of design and manufacturing deficiencies. We are working hard with the manufacturers to ensure that new trains come into service as quickly as possible with as few breakdowns as possible. The slow progress is particularly frustrating when we can see what a difference new rolling stock makes. In the instances where we have been able to introduce rolling stock on schedule, we have been able to add new services – in some cases doubling the frequency – and new destinations.

In January 2001 we placed a £23m order for 180 new low floor Euro III compliant double-deck buses for Travel West Midlands, bringing our total investment in new buses for TWM to more than £100m since its acquisition in 1995.

New franchises

The number of passengers using the UK’s rail network has grown by 30% in the past five years. Against this background, and the Strategic Rail Authority’s (SRA) franchise re p l a c e m e n t programme, there is growing public expectation of more capital investment by the franchise holders. We believe, however, that to justify the significant investment needed to develop our train portfolio, we need longer-term franchises and the potential for significant earnings growth. Only under these conditions can we continue to deliver good returns to our shareholders.

We believe we can make a substantial contribution to helping the SRA achieve its objectives in its franchise replacement programme. We were pleased to be shortlisted for the Wales and Borders franchise and to be one of the parties requested to submit proposals for the new Wessex franchise. The SRA recently announced that it has extended our Valley Lines and Wales & West franchises, together with the Great Northern part of our West Anglia Great Northern franchise. This will ensure that services continue under our stewardship until the new franchises for Wales and Borders, Wessex and Thameslink are awarded. We are disappointed by the SRA’s recent announcement on halting the Central Trains’ refranchising process. We will work with the SRAto try to resolve this matter since we believe our proposals will significantly improve services.

New technology

New technology continues to drive the provision of information and ticketing to our customers. For example, the success of GoByCoach.com shows that passengers like easy methods of booking. We continue to invest to meet further demands in this area and, during the year, we purchased a 20% share holding in Prepayment Cards Limited, whose other shareholders are FirstGroup, Stagecoach, Sema and ERG, to develop smartcards in the UK. On our bus services in Coventry, smartcard technology is to be trialled on 200 buses during 2001. We are gaining operational experience of the benefits of this initiative, enabling the eventual roll-out of the technology in due course.

New people

We announced three senior appointments during the year. Craig Wallace, who has over 15 years’ experience of the Asia Pacific transport market, was appointed Chief Executive of our Australian Division. This position was created to drive development of our existing business whilst looking for new opportunities in the Australasian market and the Far East. In the USA, John Elliott, with over 25 years’ experience of the student transportation market, joined our USA division as Chief Operating Officer of the transportation division. In the UK, Brian Jackson became Managing Director of Travel West Midlands. He joined from Arriva in May.

I would like to thank all staff for their commitment and efforts. This has been a challenging year for them, particularly in our trains division where everyone has had to deal with passenger frustration as a result of the Hatfield incident. The disruption also increased pressure on our coach operation where the ability of staff to cater for the increased demand was pushed to the fore. In Australia, our staff at Blue Ribbon, National Bus Company and Westbus, mobilised more than 170 drivers to manage two of the key Olympic bus routes to major venues.

Working together we can continue to grow this business, providing quality, value-for-money services that passengers want to use.

Phil White Chief Executive