1 Capital Markets Day 13 January 2012 2 Agenda Time 0900 Registration & coffee 0930 20 mins Martin Griffiths Introduction Strategy Management structure and team 0950 20 mins Dale Moser Growing the market for budget coach travel in North America 1010 20 mins Ross Paterson Megabus North America Financials and Valuation 1030 15 mins Mark Threapleton Stagecoach London: Delivering on the turnaround opportunity 1045 20 mins Break 1105 20 mins Robert Montgomery Driving organic bus growth 1125 15 mins Tim Shoveller A low-cost partnership model for UK rail 1140 20 mins Graeme Hampshire Positioning Stagecoach for growth in UK rail 1200 30 mins All Panel Q&A Conclusion 1230 1 hr Buffet lunch 3 Cautionary statement This document is solely for use in connection with a briefing on the group of companies 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 and business circumstances occurring from time to time in the countries, sectors and markets in which the 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 contains illustrative valuation measures. These are only to illustrate possible valuations using certain assumptions. No reliance should be placed on those valuations nor on the reasonableness of the assumptions that underpin them. 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. 4 Growing the market for budget coach travel in North America Dale Moser, President and Chief Operating Officer megabus.com North America 5 Overview Growing megabus.com network Transport trends in North America Understanding the market Innovative marketing → Competitive advantage 6 megabus.com North America network 72 Cities Served in the USA & Canada 6 Major Hubs 7 Growing demand for budget travel 600000 Pitts May 11 500000 DC Dec 10 400000 Philly July 10 Passenger 300000 journeys per quarter 200000 NY June 100000 08 MW Apr 06 0 Note: megabus.com North America passenger journeys per quarter, 2006-2011, showing hub launches 8 Transport trends in North America - 1 Source: 2011 Intercity Bus Study – Chaddick Institute for Metropolitan Development, DePaul University 9 Transport trends in North America - 2 Source: 2011 Intercity Bus Study - Chaddick Institute for Metropolitan Development, DePaul University 10 Understanding the market Customer Profile Previous Modes 45% 45% 40% 40% 39% 39% 35% 35% 30% 32% 30% 31% 25% 25% 20% 23% 21% 20% 20% 20% 15% 15% 16% 17% 17% 14% 14% 14% 14% 10% 10% 11% 9% 9% 9% 10% 5% 7% 5% 8% 2% 2% 0% 0% CAR AIR TRAIN G/HOUND BOLT OTHER BUS 18-30 30-39 40-49 50-59 60-69 70+ 2009 2011 2009 2011 Key Market Key Market Student/Young Professional Car Travel Source: Online tracking survey by Stagecoach Group plc, December 2010 – March 2011 versus June 2009 – September 2009, new megabus.com users only 11 Marketing strategy Social media and targeted web marketing New customer development incentives Hub marketing Selective advertising/promotions Leveraging greener bus travel PR campaigns Exterior bus graphics 12 Digital marketing Social media Search engine advertising Email blasts Web banner advertising Using affiliates 13 megabus.com competitive advantage First mover Flexible business and operational model Detailed understanding of market Strong margins in mature hubs Infrastructure and fleet (high capacity double-deckers) → Competitive advantage 14 Flexible operating models Direct operation − Entire operation provided by megabus.com, which takes revenue risk − Approach used in majority of current markets − Limited by current footprint Contract − Drivers and operations provided by outside company megabus.com takes revenue risk − Allows easy expansion into new locations outside core footprint − Already deployed in Atlanta hub and elsewhere Franchise − Entire operation and marketing provided by outside company − megabus.com provides sales engine & pricing management − Outside company pays a fee to megabus.com and takes revenue risk − Options being assessed 15 Megabus North America Financials and Valuation Ross Paterson Director of Finance and Company Secretary Stagecoach Group 16 Overview Summary of the current hubs Capital invested to date Revenue development Case study of the Chicago hub − Key statistics − Financial and vehicle data − Illustrative valuation Typical income statement 17 Summary by hub Hub Launch date Peak vehicle Total vehicles requirement Dec-11 (“PVR”)*, Dec-11 Chicago April 2006 34 42 New York May 2008 56 69 Philadelphia July 2010 17 21 Washington DC December 2010 15 19 Pittsburgh May 2011 11 14 Atlanta** November 2011 14 18 Total 147 183 * Peak Vehicle Requirement (“PVR”) is the number of vehicles required to operate the scheduled services at maximum frequency but excludes any “spare” vehicles that are necessary to allow for maintenance cycles etc. ** Atlanta services are operated by a sub-contractor using vehicles provided by Stagecoach 18 Capital invested Current megabus.com North America fleet − 33 single decker vehicles & 150 double decker vehicles To date, we have “acquired” c.US$122m worth of vehicles − Includes c.US$7m from elsewhere in Group − Includes c.US$40m of which were financed by operating lease − Availability of cost effective asset financing c.US$1m incremental investment in property and plant − Use of existing Stagecoach infrastructure − Use of partners’ infrastructure beyond Stagecoach footprint Total investment to date c.US$83m and c.US$40m on op lease 19 Revenue development Revenue and average PVR by hub for Stagecoach financial years pro rated to derive estimates of revenue for each year from the launch date of each of the hubs. Includes forecast revenue through to 30 April 2012. 20 Case study – Chicago Current profile 2010/11 Revenue US$23.8m 2010/11 EBITDAR* US$8.0m, 33.6% margin 2010/11 Operating profit* US$5.4m, 22.7% margin 2010/11 Average peak vehicle requirement 25 Current peak vehicle requirement 34 Current total fleet 42 Number of current routes 14 * Operating profit is profit before interest and tax. EBITDAR is profit before interest, tax, depreciation, amortisation and operating lease costs. 21 Case study – Chicago Financial and vehicle data 2005/6 2006/7 2007/8 2008/9 2009/10 2010/11 2011/12 Actual Actual Actual Actual Actual Actual Forecast Revenue US$000 93 4,672 9,541 18,083 17,598 23,840 31,404 EBITDAR US$000 (1,295) (1,589) (92) 3,656 3,193 8,054 8,832 PVR at end of year Number 16 16 29 25 25 25 34 Vehicles at end of year, including 25% spare Number 20 20 37 32 32 32 43 New vehicles in year Number 20 - 17 (5) - - 11 Change in invested capital at $650k per vehicle US$000 (13,000) - (11,050) 3,250 - - (7,150) Revenue, EBITDAR and PVR data is actual (or for 2011/12, forecast) Central overheads not applied as no incremental expenditure Property and plant capital excluded as incremental expenditure was minimal 25% spare vehicle ratio and US$650k cost per vehicle are estimates allowing for the transfer of vehicles within the Stagecoach Group 22 Case study – Chicago Illustrative valuation 2005/6 2006/7 2007/8 2008/9 2009/10 2010/11 2011/12 Perpetuity Actual Actual Actual Actual Actual Actual Forecast Forecast Illustrative cash flows EBITDAR US$000 (1,295) (1,589) (92) 3,656 3,193 8,054 8,832 8,832 Tax on EBITDAR @ 35% US$000 453 556 32 (1,280) (1,118) (2,819) (3,091) (3,091) Capital invested US$000 (13,000) - (11,050) 3,250 - - (7,150) (3,993) Tax credit on capital invested @ 35% US$000 910 910 1,684 1,456 1,456 546 1,047 1,398 Net cash flow US$000 (12,932) (123) (9,426) 7,082 3,531 5,781 (363) 3,145 Undiscounted cash flow and perpetuity US$000 (12,932) (123) (9,426) 7,082 3,531 5,781 (363) 52,424 Discount period 0.06 0.56 1.56 2.56 3.56 4.56 5.56 5.56 Discount dates Date 10-Apr-06 2-May-06 31-Oct-06 31-Oct-07 31-Oct-08 31-Oct-09 31-Oct-10 31-Oct-11 31-Oct-11 Discount rate % 8.00% Long-term growth rate % 2.00% Discounted cash flow US$000 (12,872) (118) (8,360) 5,816 2,685 4,070 (236) 34,173 Net present value at hub launch US$000 25,158 IRR at hub launch % 29.6% Assumes all vehicles are cash funded (no operating leases) Perpetuity assumes vehicles replaced every seven years 23 Valuation thoughts… IRR of 30% / NPV US$25m at launch − Higher post-launch due to start-up losses being sunk Assumption on tax (35%) conservative due to available losses 2% growth from 2012/13 onwards conservative − 32% revenue growth forecast in 2011/12 − Commercial revenue from mature UK Bus operations up 6%+ Perpetuity value (post start up phase) is US$1,542k per PVR Potential to add capital and value 24 Typical income statement Chicago – year ended 30 April 2011 US$m Revenue 23.8 Staff costs (5.2) Fuel costs (2.6) Insurance and claims costs (1.0) Maintenance (1.8) Drivers accommodation and expenses (1.3) Credit card fees and call centre costs (1.3) Other costs (2.6) EBITDAR 8.0 25 Conclusion More established megabus.com operations show strong growth and returns Existing hubs have further growth opportunities Scope for new hubs