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InterCity East Coast franchise award

Analyst and investor presentation plc 27 November 2014

Changing travel for good 2 Cautionary statement

This document is solely for use in connection with a briefing on the award of the InterCity East Coast franchise to Inter City Railways Limited, a company within the group headed by Stagecoach Group plc (“the Group”). This document contains forward-looking statements that are subject to risk factors associated with, amongst other things, the economic, regulatory and business circumstances occurring from time to time in the countries, sectors and markets in which the InterCity East Coast business and the wider Group operates. It is believed that the expectations reflected in these statements are reasonable but they may be affected by a wide range of variables which could cause actual results to differ materially from those currently anticipated. No assurances can be given that the forward-looking statements in this presentation will be realised. The forward-looking statements reflect the knowledge and information available at the date of preparation. This document is not a full record of the presentation because it does not include comments made verbally by Stagecoach Group management or by others.

Changing travel for good 3

MARTIN GRIFFITHS CHIEF EXECUTIVE

Changing travel for good 4 Introduction

. Bid assessed by Government based on quality and financial measures . Eight year franchise from 1 March 2015 & possible one-year extension . Blends the experience, culture and service-focus of both Stagecoach and Virgin, including experience of running major UK inter-city rail franchises . Virgin branded services . New, quicker and more frequent journeys . State-of-the-art fleet of new trains (Inter City Express Project - IEP) . Range of initiatives to improve end to end journey experience . Increasing payments to Government . Premium of £2.3 billion* over eight-year core franchise period . Total initial risk capital of c.£232m . Significant potential shareholder value * Projected premia payments over core franchise period to 31 March 2023, expressed in 2014/15 prices and discounted at “real” discount rate of 3.5% per annum Changing travel for good 5

ROSS PATERSON FINANCE DIRECTOR

Changing travel for good 6 The InterCity East Coast Franchise

Current route map Key facts and timelines

. Currently under government ownership (Directly Operated Railways) . Some 3,000 staff operating 155 trains per day . Calls at 52 Stations . Franchise start: 1 March 2015 . Franchise end: 31 March 2023 (one year extension callable at DfT’s discretion) . Planned delivery of new IEP trains – Sep 2018 to Feb 2020 . Planned introduction of ERTMS (European Rail Traffic Management System) - Dec 2018 . Planned completion of route capacity and power supply upgrades - March 2019 . Full new timetable planned for May 2020

Changing travel for good 7 Benefits for customers

. New trains - 65 new express trains (IEP) from 2018 . Better connections - Extra and new direct services to from key UK locations, including at weekends . Shorter journey times - Regular two-hour London-Leeds and four-hour London-Edinburgh services . Better value fares – 10% cut in Standard Anytime fares on long-distance journeys to and from London and Stevenage . Station enhancements – Planned investment of over £25m in modern customer zones, improved accessibility, more car park spaces, extra cycle facilities and improved security . New technology – new website, smartphone apps, interactive touch screens at stations, portable technology for staff, free Wi-Fi . Improved customer support – Annual improvement fund of £1m, new industry-leading passengers’ charter with automated refunds, satisfaction benchmarks, measures and independent surveys Changing travel for good 8 Benefits for staff and the community

. More training for all staff throughout the franchise . Access for staff to Stagecoach Buy as You Earn share scheme . Innovation Council with guaranteed financial support (approx. £23m) . Graduate programme and apprenticeships . Ex-offenders’ programme . Ring-fenced communities fund of £500k per year managed by dedicated stakeholder managers . Support for small businesses and regeneration in disadvantaged areas

Changing travel for good 9 A robust bid process

. Significant time, effort and money invested in producing a deliverable bid . Dedicated bid team of appropriately experienced professionals . Drawing on the expertise of Stagecoach, Virgin and external experts . Working with the industry supply chain . Bid steering group . Representatives of Stagecoach, Virgin and as well as an external expert . Provided oversight, expertise, analysis and challenge . Extensive scenario analysis undertaken to assess risk-reward trade-off . Bid deliverability subject to considerable risk assessment / risk adjustment by DfT . Ultimate approvals from Stagecoach Board and Board

Changing travel for good 10 Corporate structure

. Stagecoach subsidiary – Inter City Railways Limited (“ICR”)

. Stagecoach holds 90% of ICR’s share capital, Virgin 10%

. Minority interest in Stagecoach consolidated financial statements

. Unusually, ICR will acquire existing

. Arm’s length amounts payable to Virgin for brand, marketing expertise etc.

Changing travel for good 11 Franchise commitments

. Premium of £2.3 billion over eight-year core franchise period . Projected premium payments discounted using Government “real” discount rate of 3.5% . Extensive contractual commitments . To ensure we deliver on our bid promises . Taxpayer protection – financial covenants and risk capital . GDP sharing arrangements . 2% “deadband” . Government responsible for 90% of variances outside the “deadband” . Franchise takes other revenue risks . Profit share arrangements . Share of profit in excess of defined amounts payable to Government

Changing travel for good 12 Franchise financial returns

. 2013/14 passenger revenue c.£662m . Forecast financial return commensurate with franchise duration and risks . Financial returns may be lower in early years of franchise as we invest and progress our initiatives . Arm’s length brand management agreement with Virgin . Stagecoach earns 90% of profit after tax . Not anticipated to significantly change Stagecoach net debt in 2014/15 . Forecast capital expenditure - £100m over eight years plus additional investment by rolling stock companies

Changing travel for good 13 Equity and risk capital

Initial capital requirement £m Estimated Bank/ Comments risk Insurer capital backed Parent company support (intra-group loan facility) 165 83 Not forecast to be used. Performance bond 20 20 To increase broadly with RPI

Season ticket bond 5 5 To increase broadly in line with season ticket sales Rolling stock lease guarantee 7 - Agreed Funding Commitment (short-term intra- group loan to fund capital expenditure etc.) 35 - Total 232 108

. Risk capital fully underwritten by Stagecoach . 10% of any amounts called / drawn to be funded by Virgin . Plus c.£11m to purchase existing train operating company . Financial covenants specified in franchise agreement

Changing travel for good 14 Next steps

. “Standstill period” of at least ten days . Contract expected to be signed by DfT at end of “standstill period” . Mobilisation work has begun . Further stakeholder engagement planned . Mandatory “phase 1” review by Competition & Markets Authority . New franchise begins March 2015

Changing travel for good 15 Summary

. Franchise to deliver significant benefits to customers, employees, communities and tax payers

. Potential to generate significant shareholder value

. Appropriate risk-reward trade-off

. Appropriately backed by risk capital

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InterCity East Coast franchise award

Analyst and investor presentation Stagecoach Group plc 27 November 2014

Changing travel for good