Perspectives on National Express

Discussion document
15 April 2011
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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
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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

13

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…
2010 Arriva acquisition gave
DB a foothold in 12
liberalising markets, in
which Arriva had developed
in-depth understanding of
local markets
Both operators have
pursued global growth
strategies in last 15 years
– 50% revenues from
international business
(2009)
SOURCE: Press research
…and will likely continue to do so
“The new company intends to
compete in the European market for
high speed and also in international
routes”
–Statement from Veolia /
Trenitalia
“In the medium to long term we would
consider bidding for any
franchises…Britain is a market which
interests us”
– Teofilo Serrano,
President of RENFE Spain
8
The most significant growth opportunities will come from new
market openings and growth in the already open UK markets
EU public transportation1 market CAGR Incremental growth in accessible markets2
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 FRA ~2
accessible

9 POL ~1
Open 1%
8 14 Bn
access ESP ~1
incremental
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 2.6 2.5
0.5 0.5
4.8 0.6 0.9 0.3
4.0 3.8
1.9 2.5 2.6 2.2
1.8

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 --
available per each player
▪ Over next 5 years,
~14 the top 9 operators
year gets ~300
theoretically capture
MM per year
4 3.5-4% revenue
11 growth p.a from
7
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
▪ 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

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
▪ UK still is largest
Shamrock
Travel
MerseyRail
European public London
transportation market Northern rail
(e.g., UK accessible
public transportation Transpennine
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
bus)
▪ Regulatory protections – ▪ In recent crisis, Spanish
such as exclusivity,
economic equilibrium
clause, and incumbent
protection
▪ Stable cash flows
underpinned by ability to
control pricing / volume
defended through multiple for publicly listed
economic downturns Spanish infrastructure
companies (e.g., Abertis)
bus performed better than ▪ Implied public valuation
most infrastructure for NEX Spanish division
assets, which are more asset at 6-7x
highly rated (e.g.,
volumes in bus down 5- Previous Spanish deals:
9% vs. volume on ALSA (2005 by National
motorways down 20%) Express): 8.5x
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 accessible market revenue NEX in talks to operate
Percent Low capital intensity proposed $2.6Bn
(Shuttle = ~1 Bn)
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-
growth difficult (high intensive model – players operate; cities provide buses
Paratransit
renewal rates)

▪ However school bus
division gives NEX a
starting point –
infrastructure, brand,
and management
▪ Already sizable market (est. ~$2 Bn rev) with upside from
further privatizations
▪ Strong EBIT margins (8-10%) with low capital intensity –
players operate; transit authorities provide infrastructure
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
P2P bus
▪ Outsourced models (a la UK) have yet to be tried

SOURCE: Leading strategic management consulting firm 17

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

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

Strategic sale of
▪ Each piece of the business is worth more to
1 assets to natural natural owner
owners
▪ Market is pricing in “conglomerate discount” on 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” opportunities
3
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
390 +40-45%
▪ 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
synergies
30-35 ▪ 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
synergies
0
quantifiable
▪ Reduce revenue volatility from losing a single concession
▪ 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

2 Elliott 21
analysis
 2 Leveraging NEX’s depot infrastructure could enable a rapid
expansion of SGC’s Megabus business in the U.S.
2
There are 5 major P2P markets where Megabus might be rolled Capturing Estimated N. American
the P2P opportunity P2P manner
in this market size
drives increased
out leveraging National Express’ depot infrastructure1 GBP
value to both MM
companies

City type New U.S. market Estimated North American P2P market size2
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 20 10 10 12
3

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 asset before or after
Mid-cycle 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