31/08/2001

Extract of speech by Brian Souter, Chairman, at the company's annual general meeting held at The Lesser City Hall, Perth:

Current trading
The current trading of the Group is in line with expectations.

We continue to make good progress at Coach USA with operating costs in the early part of this financial year in line with expectations. We are still seeing some revenue growth despite a softening in the tour and charter markets in line with current economic trends in the USA, and our largest region in the North East is now delivering consistent monthly year on year improvements in operating profits. Our taxi division also continues to produce excellent results with revenue and operating profits showing consistent year on year improvements.

At South West Trains we are continuing to see underlying growth in passenger revenues although this has slowed consistent with industry trends over the last quarter. To date additional compensation payments for poor infrastructure performance by Railtrack have offset any revenue shortfall.

At Virgin Rail Group, passenger volumes in June and July were ahead of the prior year as a result of promotional offers, although passenger revenues are still behind the prior year because of reduced yield. Revenue shortfall has however been compensated for by compensation payments from Railtrack for poor infrastructure performance. While this is resulting in profitability improvements in the short-term the ongoing success of the Virgin Rail Group franchises is dependent on sustained passenger volume growth arising from major new investment in trains and infrastructure. We are encouraged that the first steps to meeting this challenge have already been achieved on time.

Our UK Bus division is benefiting from a strong performance in London on the back of new and renewed tenders at rates reflecting the significant investment we have made in these operations. In other parts of the country we continue to see revenue growth with passenger numbers consistent with the prior year period. Although labour pressures continue, overall operating profits for the year to date are as expected.

Our businesses in Hong Kong and New Zealand are still achieving organic volume growth, although severe weather in Hong Kong during the early part of this financial year had a short-term impact on passenger volumes. We continue to believe that there are opportunities for further growth in these markets.

Future Strategy
Our strategy remains focused on core bus and rail opportunities in selected geographic markets.

Overall we have a good mixture of businesses in our portfolio which have complementary attributes - strong cash flow generated from our stable bus businesses with the more sensitive rail, coach and taxi businesses bringing strong organic growth characteristics.

At Coach USA, we remain firmly of the view that the opportunities for growth in North America are significant in the longer term.

The award of a new South West Trains franchise, which represents approximately 10% of the UK Rail industry, will secure our long-term presence in that market. We are working with the Strategic Rail Authority and others to ensure we progress this quickly to enable us to deliver the tangible benefits to passengers that we have outlined in our bid in early course. With our record new train order for South West Trains, and through our partnership with Virgin, Stagecoach Group has now arranged finance for more new rolling stock than any other train operator. As the Virgin and South West Trains fleets begin to be replaced, we are sure that our passengers and shareholders will benefit from our clear commitment to the long-term future of Britain's railways.

Our Group's businesses are currently operating in an uncertain economic environment but I believe that our strengthened management team is well placed to address the opportunities and challenges that this brings and we can approach the rest of the year with cautious optimism.

A motion was carried to change the name of the company to Stagecoach Group plc.