Eurotunnel: results for the first half of 2007 for TNU (formerly ESA / EPLC)*

Activity increasing, strong improvement in pro forma operating margin (EBITDA)

• Revenues (€373 million) increased by 7% pro forma, not taking into account the ending of the Minimum Usage Charge (MUC) paid by the Railways, declining by 8% taking into account loss of MUC, compared to the same period in 2006:
  • Shuttle revenues increased by 8%
  • Railway revenues (reduced by €55 million from the MUC) increased by 6% on a comparable basis
• Operating margin (EBITDA) of €208 million improved by 15% excluding the impact of the MUC:
  • Operating costs reduced by 2%
  • Margin increased, excluding MUC, by 15% (-12% taking into account the impact of the MUC) with a ratio margin / revenue of 56%
• Pro forma operating profit (EBIT) of €128 million increased by €44 million, although in accounting terms it decreased by €11 million by comparison to 2006
• Net result: loss of €32 million, compared to a loss of €105 million in 2006 (pro forma €160 million) in a transitional year
• TNU still has negative equity of €2.3 billion, and must be recapitalised

Jacques Gounon, Chairman and Chief Executive of Groupe Eurotunnel SA declared: “We have made very tangible progress in our operations and the company is ahead of its business plan. To fully appreciate our performance, it is important to take into account the loss of the MUC, which represented, for the first half of 2006, 14% of total revenue and which has been almost half compensated for in this first six months. All other things being equal, our revenue has increased by 7% pro forma.

Whilst traffic is increasing, operating costs continue nevertheless to decrease. As a result of this, the pro forma EBITDA shows substantial improvement (+15%) and the operating margin has reached 56% (+4 points pro forma).

The results of the first half of 2007 show a loss for TNU, much reduced compared to 2006.”

*The accounts presented here are those for TNU (formerly Eurotunnel SA / Eurotunnel P.L.C.) which was the object of a takeover by Groupe Eurotunnel SA, following the Exchange Tender Offer finalised in June 2007. The accounts for Groupe Eurotunnel SA will be prepared for the year ended 31 December 2007.

Financial results for the first half of 2007

In a buoyant cross-Channel market, TNU has increased its market share for its Passenger Shuttle business as well that of its Truck activity, recording a substantial increase of 8% in its Shuttle revenues compared to the first half of 2006 at constant exchange rates, to €240 million.

Excluding the Minimum Usage Charge (MUC), under which TNU recorded revenues of €55 million in the first half of 2006, total revenues grew by 7% to €373 million, which combined with a further reduction of 2% in operating expenses has resulted in a significant improvement in operating margin of 15% to €208 million giving an operating margin/revenue ratio of 56%.

The reduction in net financial charges results from the one-off effects of the terms of the Safeguard Plan, and is not representative of the new credit agreements which are effective from 28 June 2007.

The net result for the first half of 2007 for TNU PLC and SA was a loss of only €32 million, compared to a loss of €105 million for the same period in 2006.

The total equity of TNU PLC and TNU SA remains negative, at €2.3 billion.

Following the Exchange Tender Offer completed in June 2007, Groupe Eurotunnel SA took control of TNU. The structure of TNU, in particular that of the Concessionnaires, is unchanged.

The 2007 interim combined accounts of TNU PLC and TNU SA (formerly Eurotunnel P.L.C. and Eurotunnel SA) have been prepared in accordance with IFRS as described in the annual combined accounts for the year ended 31 December 2006. The 2006 interim combined accounts having not been approved in view of the ongoing Safeguard Plan, had the financial elements relating to this period approved by the Board on 29 August 2007. The comparative figures in this section for the period to 30 June 2006 have been recalculated at the exchange rate used for the preparation of the 2007 interim combined accounts (£1=€1.478) to assist with the comparison between the two periods. Since the end of November 2006, revenues from the Railways have no longer benefited from the Minimum Usage Charge (MUC) which amounted to €55 million in the first half of 2006. In order to compare line by line the performance of the Group, the “pro forma” result below (“Excl. MUC”) excludes the impact of this. The comparisons in the commentary below are stated including the MUC unless otherwise stated.

Revenue

In a buoyant cross-Channel market, the increase in volumes of cars and trucks carried by TNU (+8% and 9% respectively), generated a significant increase in Shuttle revenues of 8% compared to the same period in 2006 at constant exchange rates, to reach €240 million for the first half of 2007.

Railways revenues were protected until the end of November 2006 by the MUC, from which TNU recorded revenue of €55 million in the first half of 2006. As a result, Eurotunnel’s revenues from the Railways fell by 27% to €127 million for the first half of 2007. Excluding the MUC, the pro forma Railways revenues increased by €7 million (6%) due to the increase in Eurostar traffic (+5%) and despite the fall in rail freight traffic (-14%).

Revenue from non-transport activities amounted to €6 million.

The ending of the MUC (approximately 14% of total revenue for the first half of 2006) resulted in a corresponding fall in total revenue. Excluding the MUC, pro forma revenues increased by 7% to €373 million. Total revenue fell 8% for the first half of 2007.

Operating margin (EBITDA)
Operating expenses decreased by 2% during the first half of 2007 compared to the same period in 2006 at constant exchange rates, the increase in staff costs (stable staffing levels) being more than compensated for by reductions in external costs. This further decrease should be appreciated in the context of the increased activity levels.

Due to the adverse effect of the loss of the MUC, EBITDA declined by 12% compared with the first half of 2006. All other things being equal, excluding the impact of the MUC, EBITDA improved 15% to €208 million, and at 56%, the ratio of operating margin to revenue was 4 points higher than for the same period of 2006 pro forma.

Trading profit

The depreciation charge for the first half of 2007 was €80 million, an increase of €2 million compared to the first half of 2006.

The trading profit for the first six months of 2007 was €128 million, compared to €158 million for the first half of 2006. Excluding the MUC, the pro forma trading profit improved by 24%.

Operating profit (EBIT)

The costs relating to the Safeguard Procedure and the financial restructuring were provided for during the second half of 2006. The provision at 30 June 2007 is judged sufficient to cover the remaining costs.

Operating profit for the first half of 2007 was €128 million compared to €139 million for the same period in 2006. Excluding the MUC, the pro forma operating profit for the first half of 2007 was €44 million higher than that for 2006 (+52%).

Net result

Cash balances benefited during the period of the Safeguard Procedure from the suspension of repayments of principal and of interest payments due under the old financial instruments. Consequently, the cash balance was markedly better in the first half of 2007 compared to the same period in 2006, and thus interest received on investments of cash and cash equivalents were €9 million in the first half of 2007, €7 million higher than in the first half of 2006.

The gross cost of servicing debt for the first half of 2007 was €190 million, which is broken down as follows:

• interest payable on the old financial instruments of €187 million in accordance with the terms of the Safeguard Plan;
• interest payable on the Term Loan starting from 28 June 2007 of €2 million;
• interest payable on the amended loan notes starting from 28 June 2007 of €1 million.

The gross cost of servicing debt for the first half of 2006 was €243 million. Other financial income of €21 million was recorded for the period, including an €18 million release of provisions for depreciation and risks associated with certain financial contracts and €1 million reversal of the accrual for default interest that was accounted for at the end of 2006.

The net result for the first half of 2007 was a loss of €32 million, an improvement of €73 million compared to the loss of €105 million for the first half of 2006. Excluding the MUC the pro forma net result improved by €128 million compared to the pro forma loss of €160 million.

Cash flow

Net cash flow from trading was €189 million euros for the first half of 2007, compared to €237 million in 2006 (€240 million at the closing rate of the first half of 2007 of £1=€1.484). The significant increase in operating cash flows notably coming from receipts from Shuttle activities (€33 million) has partially compensated for the loss of the MUC (€51 million). Moreover, supplier invoices totalling €30 million from the period prior to the opening of the Safeguard Plan for which payment had been suspended, were settled in full at the end of the first half of 2007.

The increase in cash flows from investing activities (€8 million) arises mainly from the purchase of locomotives (class 92) to be used in the development of the rail freight activity, the Euroscan, and the modifications to the power supply system, which when complete, will enable greater use of the cheaper electricity generated in France.

In the first half of 2006, cash flows from financing activities corresponded to payments on the old financial instruments. In the first half of 2007, net cash flows from financing activities corresponded to the implementation of the restructuring, and are broken down as follows:

• €3,743 million for the repayment of principal on the old financial instruments;
• €305 million for the payment of accrued interest on the old financial instruments;
• €4,191 million from the drawdown of the Term Loan;
• €419 million for the loan to EGP and for payments relating to the implementation of the Term Loan.

Overall, the net decrease in cash for the period was €131 million, compared to a decrease of €21 million for the same period in 2006.

Notes can be viewed at www.eurotunnel.com

Eurotunnel manages the infrastructure of the Channel Tunnel and operates accompanied truck shuttle and passenger shuttle (car and coach) services between Folkestone, UK and Calais, France. Eurotunnel also earns toll revenue from train operators (Eurostar for rail passengers, and EWS and SNCF for rail freight) which use the Tunnel. Eurotunnel is quoted in London, Paris and Brussels.