Perspectives on National Express

Discussion document 15 April 2011 Disclaimer

This document is for information purposes only and does not constitute, and should not be viewed as, an offer, invitation or solicitation to take any action in respect of any securities or related other financial instruments. Nothing in this document is intended to form the basis for any agreement or understanding relating to controlling National Express Group plc or its Board and is intended only to form the basis for discussions relating to possible strategic options for National Express Group plc. This document is based upon information which Elliott considers reliable, but such information has not been independently verified and no representation is made that it is, or will continue to be, accurate or complete and nor should it be relied upon as such. This document is not guaranteed to be a complete statement or summary of any markets, participants or developments referred to in it. The information in this document is based upon publicly available information but has not been subject to any form of due diligence or verification.

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2 Context

As shareholders of National Express we have been encouraged by the Company’s improved performance over recent quarters. However, despite the successes of the turnaround effort to date, National Express shares continue to trade at a substantial discount to fair value, in our view.

In addition, Elliott believes that National Express is currently facing challenges to its UK businesses, in particular as a result of the emerging liberalization and consolidation in the European mass transit market. The markets in which the Company operates are set to become only more competitive. Therefore, in our view, it is an urgent priority that National Express takes clear action to re-examine its strategic positioning and portfolio, especially in light of its recent failure with regards to the re-tender of the East Anglia rail franchise.

We believe there are exciting opportunities for the Company to create significant value for shareholders in the short term – but it must seize these opportunities now to avoid destroying value over the long term. In the following slides, we describe our view of the outlook for the market and what this means for National Express. We also set out three such examples of specific opportunities for the company, each of which, we believe, would generate substantial additional shareholder value.

3 NEX continues to be undervalued compared to its peer group

EV / EBITA multiple1

2011E 2012E

Sector average2 11.1 10.3

Stagecoach 11.1 10.1

National Express 9.5 8.9

1 Valuation multiples adjusted for rail concessions 2 Sector includes Stagecoach, Go Ahead and First Group as of 11 April 2011

SOURCE: Elliott analysis 4 Executive summary

▪ We believe the EU public transportation market will see moderate growth and increasingly fierce competition over the next five years – Core demand growth is expected to be moderate to flat – Many large national incumbents are facing market share pressure in their home markets and are forced to look abroad – Given the overall flat industry growth, competition for newly opened markets will be fierce

▪ As a result, National Express’ growth prospects and portfolio economics will be under pressure – The UK will become a more hotly contested marketplace as more and more international players enter; winners here will need multi-modal scale and world-class operations – While Spain delivers attractive margins to National Express, it has historically been undervalued by public markets – The US market presents attractive growth opportunities particularly given the competitive intensity in Europe – although National Express’ current position in the US school bus sector will not provide significant growth

▪ There are at least 3 options for National Express to proactively determine its way forward and unlock maximum value for shareholders – 1) A strategic sale of the key assets to ‘natural owners’ – 2) A transformational merger – 3) Redeploying assets to invest in the US

5 Core demand will drive moderate to flattening growth in public transportation in the European Union

EU mobility demand1 vs. GDP Annual % growth 5

Uptick due to 4 EU 27 expansion Only slightly offset by 3 shift to public transport – estimated ~17% of mobility 2 demand to be public transportation in 2015 1 vs. ~16% in 2008 Real GDP 0 Mobility demand -1 1996 98 2000 02 04 06 08

1 “Mobility demand” is consumer demand for any and all modes of transportation within a region – air, car, sea, public transportation – expressed in distance travelled

SOURCE: European commission 2010 6 1 Large players in opening markets face the prospect of declining market share in their home country 2000 - 2016, Share of regional rail passenger train km in %

Germany1

100% = 591 628 629 653 667 Other 6 12 competitors 5 18 DB Regio 7 33 12 52

22 Not 89 tendered 81 70 35 45

2000 04 08 12E 16E

1 For years 2000-08, historic DB renewal rate of 39 %; for forecast 2010-2018 assumed renewal rate of 40%

SOURCE: VdV, DB-Wettbewerbsbericht 2009. Annual reports 7 These players are likely to continue looking for growth opportunities outside their home markets

Large players have been seeking international growth in recent years… …and will likely continue to do so

“The new company intends to 2010 Arriva acquisition gave compete in the European market for DB a foothold in 12 high speed and also in international liberalising markets, in routes” which Arriva had developed –Statement from Veolia / in-depth understanding of Trenitalia local markets

“In the medium to long term we would Both operators have consider bidding for any pursued global growth franchises…Britain is a market which strategies in last 15 years interests us” – 50% revenues from – Teofilo Serrano, international business President of RENFE Spain (2009)

SOURCE: Press research 8 The most significant growth opportunities will come from new market openings and growth in the already open UK markets

1 2 EU public transportation market CAGR Incremental growth in accessible markets Revenue, Bn EUR 2010-2015 Revenue, Bn EUR

Already accessible New openings 3% 148 Total 7 7 ~14

126 GER ~4

84 UK ~3 Not 3% 78 accessible FRA ~2

9 POL ~1 Open 1% 8 14 Bn access incremental ESP ~1 6% 55 Accessible 41 revenue growth SWE ~1

2010 2015 Other ~2

1 Public transportation is bus and rail 2 Market share contracted out, excluding open access

SOURCE: Leading strategic management consulting firm; extensive bottom-up analysis 9 Large European operators have internationalised and consolidated over the last 10 years Passenger services revenues of largest EU operators 2009, Bn EUR (excluding long-distance) 10.9 Home market Europe, ex home market Outside Europe

2.1 Top 9 players comprise: 8.4 ▪ ~40% of current total EU public transport 1.5 7.1 6.6 revenues, and 0.3 ▪ ~80% of current EU 2.9 3.3 1.5 accessible market revenues 8.8 0 3.1 3.0 2.7 0.5 0.5 2.6 2.5 4.8 0.6 0.9 0.3 4.0 3.8 2.5 2.6 1.9 1.8 2.2

NS –

(GER/UK)1 (FR)2 (UK) (FR)3 (UK) (IT)4 (NL) (UK) (UK)

1 DB – Bahn Regional and Urban revenue, excluding long-distance 2 Sum of the 2 companies, before divestments 3 Excludes Voyages long distance rail division Including Arriva Germany as international unit;4 Trenitalia revenue only regional services, excluding long-distance

SOURCE: SCI; Annual reports; press search; Bloomberg 10 Large operators will not be satisfied with growth from new or existing markets – opportunities will be hotly contested

Incremental accessible revenue in EU public transportation from 2010-2015 EUR Bn ~50% of new Over 5 years, Top 9 market average ~2.1 players1 take openings Bn ~80% of retained by contestable accessible incumbent revenues market -- ▪ Over next 5 years, available per each player ~14 the top 9 operators year gets ~300 theoretically capture MM per year 4 3.5-4% revenue 11 7 growth p.a from accessible markets

▪ Growth will obviously be lower for some and higher 7 for others as players 2.1 1.7 compete

▪ Overall growth will Accessible Incumbent Contestable Accessible Share to Contestable actually be even market share of market market p.a. smaller market for more limited given new market players top 9 players that incumbents in the top 9 lose share

1 DB Arriva, Veolia / Transdev, FirstGroup, SNCF / Keolis, National Express, Trenitalia, NS / Abellio, GoAhead, Stagecoach

SOURCE: Leading strategic management consulting firm 11 Executive summary

12 EU players will continue to descend on the UK seeking new growth and ‘reputation building’ opportunities

Tender won Contract withdrawn Acquisition JV

▪ UK has higher margins International competition in the UK market than many EU countries (e.g., UK rail operating Operator 1998 2000 2005 2010 margin ~2% higher than Dunn-line EU average) South Eastern Aston coaches Paul James South Central Shamrock ▪ UK still is largest MerseyRail Travel European public London transportation market Northern rail (e.g., UK accessible Transpennine public transportation London Midland market almost twice as large as Germany) Southern South Eastern London United ▪ UK is showcase country London Sovereign for international Nottingham transport Yellow buses operators: “Operators want to have UK Arriva Lacing rail experience as it enhances their profile with other London over ground regulators in the EU…” – EU Rail Expert Metroline Armchair Thorpes Express coach Scotland

SOURCE: Bloomberg; Mergermarket; Thomson financial; Press articles and company presentations, New 13 Transit magazine, July 2009 NEX will likely need to return to rail prominence to achieve significant multi-modal scale across the UK

Winning in the UK requires multi-modal Scale cannot reached in bus alone – history shows scale and operational excellence that returning to rail will be difficult for NEX ▪ Multi-modal scale critical to… − Defence against foreign acquisition (e.g. Arriva-sized players can be ▪ In 1996 won Southern and South Central Franchises acquired) ▪ Lost both franchises between 2000-03 because of − Drive passenger volumes (e.g., operational issues and financial mismanagement customer loyalty between bus and ▪ Has not returned to UK rail rail) – Maintain relationships and relevance with regulators – Enable lower and competitive cost of capital . Operational excellence will be key to ▪ Ran InterCity East Coast Franchise from 1996 to success given pressure from large- 2005; franchise extended to 2015 – scale, international players ▪ In 2006, parent company Sea Containers files for maintaining low cost base critical to Chapter 11 and DfT withdraws franchise competitive tendering ▪ Failed to win South Western contact in 2006 and “To be successful in the UK you need to now ceases to exist have the necessary scale for the bid process - thus only a few players end up occupying most of the market” – Former UK Rail Executive SOURCE: Leading strategic management consulting firm 14 We believe there is upside potential in the value of NEX’s Spanish division given similarity to infrastructure assets

The Spanish bus and infrastructure assets…

Are structurally similar… …and behave similarly… …but not valued similarly

▪ Long-term concessions ▪ Margins successfully ▪ Typical 9-10x EBITDA (5-25 years in Spanish defended through multiple for publicly listed bus) economic downturns Spanish infrastructure companies (e.g., Abertis) ▪ Regulatory protections – ▪ In recent crisis, Spanish such as exclusivity, bus performed better than ▪ Implied public valuation economic equilibrium most infrastructure for NEX Spanish division clause, and incumbent assets, which are more asset at 6-7x protection highly rated (e.g., volumes in bus down 5- Previous Spanish deals: ▪ Stable cash flows 9% vs. volume on .ALSA (2005 by National underpinned by ability to motorways down 20%) Express): 8.5x control pricing / volume .Continental (Apr 2007): 12.7x .Empresa de Blas y Cia (2008 by Arriva): 15.3x

15 A high-level assessment of the US markets highlights the most attractive potential growth opportunities

Relative attractiveness of US market opportunities

High capital intensity Size of bubble = size of Operating margin NEX in talks to operate Low capital intensity accessible market revenue Percent (Shuttle = ~1 Bn) proposed $2.6Bn Tampa-Orlando line 13 12 P2P Bus 11 Other potential opportunities include: 10 Commuter Rail . 9 US high speed rail: could be large opportunity but many 8 Shuttle Light Rail years out (e.g., potential $17 Bn market for California but not to 7 Paratransit see operation until at least after 6 School bus 2015)

5 . Non-passenger, route-based 4 businesses (e.g. refuse collection, bank vans) 3 Urban Bus 2

3 4 5 6 7 8 9 10 28 Annual market growth Percent

SOURCE: Leading strategic management consulting firm 16 Several US opportunities could be attractive for National Express

School bus offers …From which NEX can explore the highest a platform … potential US growth opportunities

▪ School bus not high Opportunities High level assessment growth – No significant trends ▪ Large market (est. ~$4.5 Bn rev) with strong growth in privatization (10-12% p.a.); further upside given federal regulations – Acquisition targets requiring services limited and organic ▪ Healthy EBIT margins (4-7%) on top of low capital- intensive model – players operate; cities provide buses growth difficult (high Paratransit renewal rates)

▪ However school bus ▪ Already sizable market (est. ~$2 Bn rev) with upside from division gives NEX a further privatizations starting point – ▪ Strong EBIT margins (8-10%) with low capital intensity – infrastructure, brand, players operate; transit authorities provide infrastructure and management Commuter rail

▪ Other EU and international players ▪ Active market in Northeast with extremely rapid growth are making moves (~30% p.a.); potential for expansion (e.g., Veolia and Keolis ▪ Run-rate EBIT margins very attractive (est. 10-15%) in commuter rail) with only investment being buses ▪ Outsourced models (a la UK) have yet to be tried P2P bus

SOURCE: Leading strategic management consulting firm 17 Executive summary

18 There are at least 3 potential options for unlocking greater value from NEX assets today and driving outsized shareholder returns ILLUSTRATIVE Shareholder Strategic rationale impact1 Each piece of the business is worth more to Strategic sale of ▪ natural owner 1 assets to natural Market is pricing in “conglomerate discount” on % owners ▪ 40-55 valuation

Transformational ▪ Creation of defendable and scaled UK champion 2 merger ▪ Financial value creation through economies of scale and scope across footprint 30-55% ▪ Potential re-rating of Spain offers further upside

▪ Radical refocus of business around US growth The “Anglo” 3 opportunities growth strategy ▪ Redeployment of mature non-US assets 25-45%

1 Relative to a NEX price of 239p (11 April 2011) without sector re-rating assumption

SOURCE: Elliott analysis 19 1 We believe the combined expected value of individual assets is likely greater than the value of the combined entity ILLUSTRATIVE . Scenario: Spanish bus and NA school bus divisions sold to financial buyers; UK bus and coach sold to strategic buyers (e.g., SGC) . Valuation: by individual asset

Enterprise value x Transaction 2011 GBP MM EV/EBITDA multiple2

30 90 2,510 590 740 1,770 +40-45% 390 ▪ Upside on share price3: 40-45% 450 1,130 1,235 ▪ Potential value per share: ~330-340p

▪ Further potential upside from higher Spain UK bus UK North UK rail Corp- Total Net Equity Current Spain valuation coach America orate EV debt1 value market and NA growth capitali- opportunities 9.0 9.0 10.0 6.5 1.0 7.0 zation3

1 Includes pensions, other liabilities and deal fees on sales 2 Based on comparable past transactions and, where relevant, LBO analysis 3 National Express share price as of 11 April 2011

SOURCE: Elliott analysis, Bloomberg 20 2 A transformational merger with an operator such as Stagecoach could offer £50-65 MM in EBIT synergy potential EBIT impact of synergies1 GBP MM Expected synergies

▪ Expansion of Stagecoach Megabus US network quickly at Revenue scale to new markets leveraging NEX school bus depot 20-30 synergies ▪ Reduction of bid-team costs through rationalization of combined bid teams and investment in best-performing units ▪ Overhead consolidation through reduction of regional and Cost national HQ and other support functions 30-35 synergies ▪ Best practice sharing, including driver utilization, schedule, and maintenance optimization ▪ Procurement synergies through leveraging increased scale to secure lower fuel and fleet purchasing costs Non-financial Not 0 from losing a single concession synergies quantifiable ▪ Reduce revenue volatility ▪ Reduce dependency on home market by diversifying revenue base across multiple markets ▪ Improve debt rating by improving ability to service debt and reducing discontinuity risk Total 50-65 In Autumn of 2009, the market priced in 40-50 MM GBP of synergies upon announcement of merger2

1 Leading strategic management consulting firm 21 2 Elliott analysis 2 Leveraging NEX’s depot infrastructure could enable a rapid expansion of SGC’s Megabus business in the U.S.

There are 5 major P2P markets where Megabus might be rolled Capturing Estimatedthe P2P opportunity N. American in thisP2P mannermarket sizedrives2 increased out leveraging National Express’ depot infrastructure1 value to bothGBP companies MM

2 City type New U.S. market Estimated North American P2P market size GBP MM Anchor Old market (e.g., Megabus footrprint) 625 Satellite Not assessed (No NEX depot, 80 limited pop density) 265 125 155

Current Additional New U.S. New Total NA NE and upside in markets Canadian P2P market Midwest current markets markets markets Canada Estimated run-rate revenue and EBIT Revenue GBP MM EBIT North- 120 west 80 65 60 20 3 20 10 10 12

NW WC TX SE CAN Southeast A merger creates ~4x more NPV for NEX and ~2x more NPV for SGC shareholders than if each West Coast company pursued P2P on their own Texas

1 Graphic does not include smaller additional stops that were included in analysis (e.g. “college” stops like College Station, TX ) 2 From extensive bottom-up analysis, including survey of 5,000+ respondents in target markets; Canadian market sized by extrapolation from US analysis

SOURCE: Leading strategic management consulting firm 22 2 We believe a transformational merger may create 30-55% in NEX shareholder returns ILLUSTRATIVE

Merger impact on NEX share price Share increase1 Pence ▪ 50-65 GBP MM in annual synergies after % 45-55 355-375 transformational merger

30-35% 310-330 ▪ Average cash stock mix of 40-60%2 10-15 ▪ Deal premium of 20-30% on current NEX price (implies an average 63- 50-75 37% pro forma split between SGC and NEX shareholders) 242 ▪ Substantial additional upside from potential re-rating of Spanish Current Headline Pro-forma Post-merger Mid-cycle asset before or after merger stock price premium re-rating price valuation3 1 Based on share price on 11 April 2011; increases in price are based on two scenarios, the 20% and 30% premium 2 Assumes fixed cash component of 650 GBP MM resulting in 2.5x pro forma rail adjusted Net Debt / EBITDA 3 Pro forma combined company at mid-cycle P/E of 12x

SOURCE: Elliott analysis 23 3 We believe the sale of mature UK assets can provide capital required for US growth and returns to shareholders MM GBP ILLUSTRATIVE 1. Premium paid 2. Released capital 3. Value to shareholders Strategic or financial buyers willing to Capital from sale can be invested in US Significant cash return to shareholders pay more for synergies or for future growth opportunities to create 250-400 upon divestment and accounting for potential of asset MM GBP revenue platform US investment 850 Cash 100-200 returned to 200 650-750 shareholders ~ 45-55% of Estimated Full investment required is 2x above -- current value assuming 50/50 equity/debt market cap release1 . Commuter Rail: 40-50 MM to acquire ~2 lines (e.g., size of Veolia in US) 550-650 . 650 Paratransit: 120-250 MM to take 10% market share . P2P bus: 30-40 MM to reach ~20% market share Net debt re- payment2 100

Sale of UK assets3 US investment Return to shareholders 1 Assumes 12.5x acquisition EV/EBITA vs 9.5x EV/EBITA currently implied in public market valuation 2 Assumes 2.5x pro-forma rail-adjusted Net Debt/EBITDA for the remaining business 3 UK bus and coach

SOURCE: Elliott analysis 24