Eurotunnel Interim Results to June 30, 2002; Further Good Progress Towards Cash Break-Even.

Business Editors

LONDON--(BUSINESS WIRE)--July 22, 2002

Eurotunnel, the operator of the high-speed transport system linking the UK to Continental Europe through the Channel Tunnel, today announced its 2002 interim results.

Solid operational performance

- repurchased pound sterling839m of subordinated debt at a weighted average price of 43%, resulting in a net debt reduction of pound sterling443m, and

- refinanced pound sterling343m of its Junior Debt which was due to be repaid between 2007 and 2012 with new debt repayable in 2026 and 2028, and extended the maturity of pound sterling232m equivalent of Senior Debt by seven years to 2009-2012.

Financing proposals successfully completed on July 12(a)

- repurchased pound sterling839m of subordinated debt at a weighted average price of 43%, resulting in a net debt reduction of pound sterling443m, and

- refinanced pound sterling343m of its Junior Debt which was due to be repaid between 2007 and 2012 with new debt repayable in 2026 and 2028, and extended the maturity of pound sterling232m equivalent of Senior Debt by seven years to 2009-2012.

((a) Figures based on an exchange rate of pound sterling1= 1.539. Future

reported figures will depend on exchange rates for the

relevant period.)

Richard Shirrefs, Chief Executive, said:

"Our strategy is clearly working. We have achieved solid revenue growth from our shuttle services, controlled our spending, and pulled off an ambitious financial deal despite difficult financial markets.

"Double-digit revenue growth has been achieved in the truck business with a return to more realistic pricing supported by significant improvements in reliability and punctuality. In our car business, we have delivered revenue growth for the first time since the first half of 2000 by effectively targeting the high yield market segments.

"As a result of revenue growth in the core transport business, tight cost control, and lower capital expenditure, Eurotunnel's first half interest cover increased 8 points to 101% before capital expenditure and by 15 points to 89% after capital expenditure.

On July 12, we successfully completed the financial operations launched in March. These deals have cut our debt and interest charges significantly. This has improved both the quality and term of our financing with no debt now due for repayment prior to 2006."

Charles Mackay, Chairman, said:

"Eurotunnel has made good progress in the first half, all the more satisfactory since it has been achieved despite a generally difficult economic environment, particularly compared with the first half of 2001.

"Our shuttle services are no longer disrupted by asylum seekers, and the problems experienced by the rail freight train operators are not affecting us financially.

Our improved cash flow in the first half, together with the reduction in interest charges achieved by our recently announced financial transactions, mean that there is now a real chance that we shall achieve our target of cash break-even in 2002, or certainly come very close to it."

Results for the six months to June 30, 2002(1)

----------------------------------------------------------------------
                                 2002       2001    % change     2001
pound sterling million                              restated(2) 2002/2001 reported
----------------------------------------------------------------------
Exchange rate pound sterling/               1.582      1.582                1.637
----------------------------------------------------------------------

Shuttle Services                  159        148         +7%      146
Railways                          108        107         +1%      105
                             --------------------            ---------
Transport activities              267        255         +4%      251
Non-transport activities           12         15        -17%       14
                             --------------------            ---------
Operating revenue                 279        270         +3%      265
Other income                        7          9                    9
                             --------------------            ---------
Total turnover                    286        279         +2%      274
Operating costs                 (125)      (123)         +1%    (120)
                             --------------------            ---------
Operating margin                  161        156         +3%      154
Depreciation & provisions        (69)       (67)                 (67)
                                                             ---------
                             --------------------
Operating profit                   92         89         +3%       87
Interest                        (168)                           (166)
                             ---------                       ---------
Underlying loss                  (76)                            (79)
                             ---------                       ---------
Exchange (losses) / gains(3)     (24)                              12
Exceptional profit                  6                               6
                             ---------                       ---------
Net loss                         (94)                            (61)

----------------------------------------------------------------------

(1) The financial operations completed on 12 July 2002 are not
    included in the interim results.

(2) The figures at June 30, 2001 have been restated at pound sterling1=1.582 to
    assist comparison with the 2002 figures.

(3) Exchange gains and losses result principally from the revaluation
    of current accounts between Group companies and have no cash
    effect.

Revenue from Shuttle Services grew by 7% to pound sterling159 million principally due to double-digit revenue growth from the truck shuttle business. Revenue growth was also achieved in the car business for the first time since the first half of 2000. Railways revenue was stable, comprising mainly payments under the Minimum Usage Charge provisions. The core transport business contributed 96% of operating revenues. Most of the remaining 4% of operating revenues came from a variety of non-transport activities, including retail, land development and telecoms.

Operating revenue in the first half of 2002 increased by 3% at constant exchange rates compared with the first half of 2001, and total turnover was up by 2%.

Operating costs increased by 1% in the first half as a result of an increase in insurance and security costs. Operating margin increased by 3% to pound sterling161 million. Operating profit was up 3% at pound sterling92 million compared with last year (at constant exchange rates).

The underlying loss was reduced to pound sterling76 million.

The net result after unrealized exchange losses of pound sterling24 million, (compared with an exchange gain of pound sterling12 million in the first half of 2001), and an exceptional profit of pound sterling6 million, was a loss of pound sterling94 million. Exchange gains and losses result principally from the revaluation of current accounts between Group companies and have no cash effect.

Interest cover was 101% before capital expenditure (up 8 points) and 89% after capital expenditure (up 15 points).

Review of activity in the first half of 2002

Eurotunnel Shuttle Services

                      ------------------------------------------------
                               2002                      2001

                      ------------------------------------------------
----------------------------------------------------------------------
Truck shuttles            611,172 trucks            594,385 trucks

----------------------------------------------------------------------
Passenger shuttles       1,059,825 cars(b)          1,165,144 cars(b)
                          30,189 coaches            35,987 coaches
----------------------------------------------------------------------

                           ----------------------------------
                                % change      Short straits
                               2002/2001         market(a)
                           ----------------------------------
-------------------------------------------------------------
Truck shuttles                   + 3 %            + 5 %

-------------------------------------------------------------
Passenger shuttles               - 9 %            - 2 %
                                 - 16 %           + 2 %
-------------------------------------------------------------

(a) Folkestone-Dover-Ramsgate/Calais-Zeebrugge-Dunkerque-Ostend

(b) including motorcycles, cars, cars with trailers, caravans and
    campervans

Truck Shuttles

Eurotunnel carried 611,172 trucks in the first half of 2002, a 3% increase on the corresponding period in 2001. The price increases implemented in January and higher volumes led to double-digit revenue growth. Short straits market growth in the first half of the year was 5%, up from 3% in the first quarter, demonstrating the underlying strength of this market despite the generally sluggish economy. Eurotunnel's market share fell by one point to 41%.

Due to the extensive security measures implemented by Eurotunnel last year, and an ongoing security effort, asylum seekers are no longer disrupting Eurotunnel truck shuttle services. The costs associated with this additional security at Eurotunnel's Coquelles terminal were around pound sterling2 million in the first half. Asylum seeker activity is now focused on the entirely separate Frethun rail freight yard, owned and operated by SNCF.

Eurotunnel has made significant service improvements in the first half of the year, resulting in greatly improved truck shuttle punctuality.

Passenger Shuttles

For the first time since the first half of 2000, Eurotunnel achieved revenue growth in the car business by effective targeting of the higher yield short break and long stay segments. Eurotunnel carried 1,059,825 cars in the first half of 2002, a 9% decline compared with 2001 mainly due to volume declines in the low yield "express shopper" and day trip segments. Market share for cars was 49% compared with 53% in the corresponding period last year. Passenger shuttle punctuality improved during the period.

Eurotunnel carried 30,189 coaches in the first half, a 16% fall on the corresponding period in 2001. Market share fell by 7 points to 29%. This was partly attributable to volume losses as a result of price increases, which improved average yields.

Railways

The Channel Tunnel is also used by Eurostar for high-speed passenger-only services on London/Paris and London/Brussels, and by EWS and SNCF for international rail freight services.

               -------------------------------------------------------
                           2002                         2001

               -------------------------------------------------------
----------------------------------------------------------------------
Eurostar          3,217,812 passengers(a)      3,402,502 passengers(a)

----------------------------------------------------------------------
----------------------------------------------------------------------
Rail freight          707,572 tonnes              1,374,718 tonnes
----------------------------------------------------------------------

               ------------------
                     % change
                    2002/2001
               ------------------
---------------------------------
Eurostar               - 5%

---------------------------------
---------------------------------
Rail freight          - 49 %
---------------------------------

(a) The passenger number given is for Eurostar passengers who traveled
    through the Channel Tunnel, and excludes passengers between
    Paris/Calais and Brussels/Lille.

The number of passengers carried through the Tunnel by Eurostar in the first half of 2002 fell by 5% compared with the corresponding period in 2001. Rail freight tonnage carried through the Tunnel fell by 49%. Rail freight services were severely disrupted by asylum seekers at the rail freight yard in Frethun, owned and operated by SNCF. The fall in Eurostar passengers and rail freight tonnage through the Channel Tunnel had no impact on Eurotunnel's revenues due to the Minimum Usage Charge arrangements, which continue until 2006.

Financial operations

Debt buyback and refinancing

On July 12, Eurotunnel announced the completion of the debt buyback and refinancing proposals launched in March resulting in a pound sterling446 million net debt reduction, and an exceptional profit of pound sterling442 million to be recorded in the second half of 2002. Interest charges have been reduced, debt repayments have been extended to better match Eurotunnel's remaining 84-year Concession, and exposure to variable interest rates has been reduced.

Equity Note Early Redemption Offer

The Equity Note Early Redemption Offer announced in March has been successfully completed with 60% of the Notes being tendered. As a result, Eurotunnel's interest charges will be reduced by pound sterling16 million in 2002 and pound sterling17 million in 2003. At the end of 2003, the remaining pound sterling252 million of Equity Notes will convert to Eurotunnel units.

Impact on interest charges

As a result of the successful completion of both these transactions, Eurotunnel's interest charges will be reduced by a total of pound sterling35 million in 2002, pound sterling20 million in 2003 and an estimated pound sterling30 million per annum from 2006 onwards.

Note to editors:

1. Financial analysis attached.

2. A conference call for wire service and online journalists will

be held at 7.30 a.m. UK time today. Dial-in tel: [phone]

and quote 'Eurotunnel'.

Eurotunnel manages the infrastructure of the Channel Tunnel and operates accompanied truck shuttle and passenger shuttle (car and coach) services between Folkestone, UK and Coquelles, France. It is market leader for cross-Channel travel. Eurotunnel also earns toll revenue from other train operators (Eurostar for rail passengers, and EWS and SNCF for rail freight) which use the Tunnel. Eurotunnel is quoted on the London, Paris and Brussels Stock Exchanges.

Appendix: Financial Analysis

Shuttle services revenues for the first half of 2002 at pound sterling159 million were 7% above the first half of 2001 at constant exchange rates, and operating profit increased by 3% to pound sterling92 million for the first half of 2002. Interest cover was 101% before capital expenditure and 89% after capital expenditure for the first half of the year.

In order to assist the comparison between 2002 and 2001 in this analysis, the operating results for the first half of 2001 have been restated at the exchange rate used for the preparation of the results to June 30, 2002 (pound sterling1=1.582) as set out in the tables.

For Tablular information please contact Taylor-Rafferty at [phone]

Turnover

Shuttle services revenue increased by 7% over the first half of 2001 to pound sterling159 million reflecting higher volumes in the truck business and higher average yields in both the truck and passenger businesses. Railways revenue increased by 1% to pound sterling108 million and continues to be mainly payments guaranteed by the Minimum Usage Charge under the Railways Usage Contract. The core transport business contributed 96% of operating revenues. Most of the remaining 4% of operating revenues came from a variety of non-transport activities, including retail, land development and telecoms. Total turnover for the first half of the year was pound sterling286 million, an increase of 2% compared to 2001 (pound sterling279 million).

For Tablular information please contact Taylor-Rafferty at [phone]

Operating result

Operating costs for the first half of the year increased by 1% to pound sterling125 million due to higher levels of security costs incurred than in the first half of 2001 to protect the French terminal from intrusions by asylum seekers, and increased insurance premiums.

Operating margin increased by 3% to pound sterling161 million for the period. Depreciation and provisions have increased slightly, resulting in an operating profit of pound sterling92 million, 3% above 2001.

For Tablular information please contact Taylor-Rafferty at [phone]

Net results

The Group's net interest charge of pound sterling168 million for the first six months of 2002 increased by pound sterling2 million compared to the first half of 2001 principally due to an unfavorable exchange rate comparison. This interest charge does not include any reduction from the financial operations completed in July.

The underlying loss of pound sterling76 million represents an improvement of pound sterling3 million compared to the same period in 2001.

The net loss of pound sterling94 million for the first half of the year was higher than the loss of pound sterling61 million in 2001 due to exchange losses in the period of pound sterling24 million compared to pound sterling12 million of exchange gains in 2001. Exchange gains and losses result principally from the revaluation of current accounts between Group companies and have no cash effect.

Cash flow and interest cover

Cash flow from operating activities was pound sterling171 million for the first half of 2002, an increase of pound sterling17 million compared to 2001. Capital expenditure fell from pound sterling33 million in the first half of 2001, to pound sterling20 million for the same period in 2002, as the investment program to increase Eurotunnel's truck shuttle capacity nears completion. Net cash flow from operating activities after capital expenditure increased strongly from pound sterling121 million in the first half of 2001 to pound sterling151 million in the first half of 2002 reflecting the lower capital expenditure.

Interest cover was 101% before capital expenditure (up 8 points compared to the first half of 2001) and 89% after capital expenditure (up 15 points).

Eurotunnel reduces debt by pound sterling446m and cuts annual interest charges

On July 12, 2002 Eurotunnel announced the successful completion of the debt buyback and refinancing proposals and the Equity Note exchange offer launched in March. As a result, Eurotunnel's debt has been reduced by pound sterling446m. An exceptional profit of pound sterling442m will be reported in the second half of 2002, and interest charges will be reduced by pound sterling35m in the current year, by pound sterling20m in 2003, and by an estimated pound sterling30m per year from 2006 onwards.* As these operations were not completed until after June 30, they are not reflected in the Combined Accounts for the six months to June 30, 2002.

Background

The principal objective of these transactions was to buy back existing debt at a significant discount to its face value, financed by the proceeds of a new long term financing. The transactions aimed to:

- repurchased pound sterling839m of subordinated debt at a weighted average price of 43%, resulting in a net debt reduction of pound sterling443m, and

- refinanced pound sterling343m of its Junior Debt which was due to be repaid between 2007 and 2012 with new debt repayable in 2026 and 2028, and extended the maturity of pound sterling232m equivalent of Senior Debt by seven years to 2009-2012.

The Equity Note tender offer aimed to reduce interest charges in 2002 and 2003.

Outcome

Following the successful completion of an issue of pound sterling740m of bonds repayable from 2026-2028 with fixed interest rates of between 5.78% and 8.15%, Eurotunnel has:

- repurchased pound sterling839m of subordinated debt at a weighted average price of 43%, resulting in a net debt reduction of pound sterling443m, and

- refinanced pound sterling343m of its Junior Debt which was due to be repaid between 2007 and 2012 with new debt repayable in 2026 and 2028, and extended the maturity of pound sterling232m equivalent of Senior Debt by seven years to 2009-2012.

The take up of the Equity Note tender offer was 60% of the pound sterling635m of Notes outstanding, resulting in a reduction in Eurotunnel's interest charges of pound sterling16m in 2002 and pound sterling17m in 2003. The acquisition of deferred interest will result in a debt reduction of pound sterling3m.

A reduction of pound sterling35m in Eurotunnel's interest charges in 2002 will arise principally from a pound sterling16m reduction in Equity Note interest (from January 26, 2002) and a net saving of pound sterling19m arising from the difference between the interest payable on (i) the Tier 1A Junior Debt and (ii) the interest payable on the debt repurchased. A portion of the pound sterling19m net saving arising from the forgiveness of interest on the Resettable Advances from January 28, 2002 is non-recurring.

Combined with the reduction in interest charges, the extension of debt repayments significantly reduces Eurotunnel's debt service over the next decade. No debt is now repayable before 2006. The transaction has also resulted in the replacement of pound sterling1,185m variable rate debt with pound sterling740m of debt at fixed rates until 2026-2028, substantially reducing Eurotunnel's exposure to variable interest rates. As a result, over 80% of Eurotunnel's debt is either capped or fixed until 2009.

These transactions are the latest in a series undertaken since 1999, which has resulted in a cumulative debt reduction of more than pound sterling900 million.

As these operations were not completed until after June 30, they are not reflected in the Combined Accounts for the six months to June 30, 2002. However, had these operations been completed before June 30, 2002, the effect on the Balance Sheet would have been as follows:

For Tablular information please contact Taylor-Rafferty at [phone]

For Graphical information please contact Taylor-Rafferty at [phone]