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2005-03-22 SEC-001
Sea Containers

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GNER signs new 10 year franchise


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Sea Containers

GNER signs new 10 year franchise
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date
22 March 2005
source Sea Containers
type Press release



HAMILTON, Bermuda, March 22 /PRNewswire/ -- Sea Containers Ltd. (NYSE: SCRA and SCRB, www.seacontainers.com), ferry and rail operators, marine container lessors and leisure industry investors, today announced that its wholly-owned subsidiary, GNER Ltd., has signed a new 10 year franchise with the U.K. government's Strategic Rail Authority. The new franchise will be in direct continuation of GNER's existing franchise which terminates on April 30, 2005. GNER has held the present franchise for 9 years. The new franchise has a break clause after 7 years if GNER fails to meet certain performance criteria.

Mr. James B. Sherwood, Chairman of Sea Containers and GNER Holdings, said he was delighted GNER had come through the bidding process against three strong competitors, with flying colours. He said his reading of the government's requirements had been that they were looking for the bid which delivered the maximum cash to the Treasury, while at the same time protecting the standards of service. He said that he was pleased that GNER's successful bid protected GNER's much acclaimed restaurant car services, the daily exterior washing of all trains and retention of GNER's headquarters in York.

GNER's bid calls for an increase in rolling stock by three diesel train sets in the 10 year period and assumes only that the historic average annual growth of volume will continue. Its existing 10 set diesel train fleet will be completely overhauled and refurbished much as is taking place with the electric train sets called "Mallards". The Mallard program is half complete and the final train set will be placed in service in October, 2005.

Although GNER's initial management fee as a percentage of revenue will be about 1/3 less than the fee in the current franchise, a number of special adjustments reduced profits in the last year of the franchise. Revenue is expected to rise rapidly so the new fees should quickly surpass the levels in the old franchise. The government has agreed to protect GNER's revenue after the first four years. If it falls to less than 94% of target, the deficit is shared 20% to GNER and 80% to the government. Between 94% and 98% it is shared 50/50. If revenue exceeds target GNER keeps 100% of the excess up to 102%, 60% from 102% to 106% and 40% over 106%. GNER is currently exceeding its revenue targets.

Sea Containers has agreed through GNER Holdings to inject GBP5 million (US$9 million) of capital into GNER Ltd., and to provide a GBP30 million (US$55 million) standby credit facility.
Mr Sherwood said that the new franchise gives the operator less freedom to develop the business than the existing one, which he regretted, however, there was still considerable scope to enhance revenue through improved sales and marketing and yield management.

GNER has proposed creating an "electric horseshoe" by electrifying 15 miles of track between Leeds and Hambleton Junction and the upgrade of stations between Leeds and Doncaster. The London/Leeds journey time will be the same whether trains proceed via the existing route or the new route so the plan would be to have the half hourly trains alternating between clockwise and counter clockwise rotations. Additional capacity will be achieved by operating Leeds as a through station saving 30 minutes turn-around time.

Christopher W.M. Garnett, Chief Executive and architect, together with Richard McClean, Development Director, of the new franchise stressed the following important features of the new franchise:

- Agreement of the owners of GNER's leased diesel train fleet to spend GBP75 million on upgrade, plus the supply of 3 additional diesel train sets to the same specification.
- 13 extra London-Leeds services by December, 2007 (subject to approval of the Rail Regulator).
- Installation of wi-fi on all trains by May, 2007.
- Creation of a new Integrated Control Center in York with Network Rail by September, 2006.
- Investment of GBP25 million in station improvements, funded out of cash flow, to cover 900 extra car parking spaces, 400 cycle spaces and elevators at Newark and Grantham.
- Installation of automatic ticket barriers at Peterborough, Durham and Newcastle.
- Installation of 50 additional fastticket machines.

Mr Garnett said that the punctuality target by 2010 was 90% compared with achieved punctuality of 80.4% currently. GNER routes are long and the track is shared with other operators who may have delays which in turn can delay GNER trains. GNER hopes to convince Network Rail to rewire major sections of overhead cable which is substandard and frequently causes delays.
Mr Garnett concluded by saying "we want to thank the travelling public, their political representatives and our staff who supported our case for the new franchise. The franchise renewal process went quickly and smoothly because this time there were far fewer uncertainties. We expect to deliver to the government a surplus of more than GBP1 billion during the 10 years of the new franchise based on an average annual revenue growth of 7.8%. Revenue growth in the last two years has been 8.2% per annum. The employees of GNER are proud to be given this vote of confidence. They have worked diligently these past 9 years to deliver Britain's finest railway and intend to retain this ranking in the next 10 years".

GNER is currently bidding together with MTR of Hong Kong for the Integrated Kent commuter franchise which is currently being operated by the U.K. government. MTR delivers 99.9% punctuality in Hong Kong where it moves 2 million people daily. Together with Laing PLC, operator of Chiltern Railways, GNER intends to bid for the Greater Western franchise in 2006. Chiltern is considered Britain's finest operator over middle distance routes.

This news release contains, in addition to historical information, forward-looking statements that involve risks and uncertainties. These include statements regarding earnings growth, investment plans and similar matters that are not historical facts. These statements are based on management's current expectations and are subject to a number of uncertainties and risks that could cause actual results to differ materially from those described in the forward-looking statements. Factors that may cause a difference include, but are not limited to, those mentioned in the news release, unknown effects on the transport markets in which the company operates of terrorist activity and any police or military response, varying customer demand and competitive considerations, inability to sustain price increases or to reduce costs, fluctuations in interest rates, currency values and public securities prices, variable fuel prices, inadequate sources of capital and unacceptability of finance terms and inability to reduce debt, global, regional and industry economic conditions, shifting patterns of regional passenger travel, seasonality and adverse weather conditions, inability of Network Rail to maintain properly the U.K. rail infrastructure, and legislative, regulatory and political developments or obtaining other U.K. rail franchises. Further information regarding these and other factors is included in the filings by the company with the U.S. Securities and Exchange Commission.


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