return of value 2007 update on current trading and prospects and proposed return of value to...

Return of Value 2007

Update on current Update on current trading and prospects trading and prospects

and proposed Return of and proposed Return of Value to Shareholders Value to Shareholders

14 March 200714 March 2007

2 Return of Value 2007

Current trading and prospects

Overall trading remains strong EPS* for FY07 anticipated to be at upper end of our expectations Prospects for FY08 trading have further improved reflecting:

continuing strong revenue growth sustained reduction in fuel prices

Earnings enhancement from: return on additional contributions to pension schemes proposed Return of Value

Group’s consolidated net funds expected to be between £130m - £150m at 30 April 2007

* before intangible asset expenses and exceptional items


Drivers of capital structure review

Continually seeking to maximise Shareholder value Periodic evaluation of the optimal capital structure Predictable, cash generative nature of Group’s operations has

potential to support greater levels of debt Increased level of debt has potential to reduce the Group’s cost

of capital and increase Shareholder returns Maintain flexibility to invest in operations and bolt-on acquisitions


Why is recommendation increasedfrom £400m?

Further detailed analysis undertaken by the Board and advice taken Improved visibility of future cash flows:

West Coast renegotiated with strong prospectsLower fuel prices (further hedging in place)Continued strong revenue growth in UK Bus and Rail

Appetite from banking market to provide facilities at acceptable pricing Increasing market acceptance of higher debt levels


Return of Value structureMechanism Return equivalent to 63 pence per Existing Ordinary Share Issue of redeemable “B” and/or irredeemable “C” Shares Share Capital Consolidation – ratio to be determined

Why this structure? Allows all Shareholders to be treated equally Allows Shareholders choice as to when and in what form they receive

their cash Clarity as to the quantum and financial effect of the Return of Value

Impact of share price Value to Shareholders is not affected by share price or consolidation

ratio


Expected timetable

14 March 2007

Trading statement

Announcement of Return of Value proposals

Late March/early April 2007 – Circular posted to Shareholders

Late April /early May 2007 – EGM

By 30 June 2007– Return of Value payments to Shareholders


Pensions

Reached agreement with Trustees for additional funding of £50m to Stagecoach Group Pension Scheme (“SGPS”)

£20m of £50m expected to be paid to SGPS by 30 April 2007

Balance to be paid by 30 June 2007

Remainder of deficit in SGPS expected to be eliminated in 4 years

Ongoing employer contributions expected to exceed the net pensions charge to the Group’s income statement


Funding

Return of Value to be funded from Group’s available cash balances and bank facilities

Bank facilities of approximately £825m arranged, majority of which mature in 2012

Appetite from existing and new banks to lend at acceptable rates


Dividend policy Maintain progressive dividend per share policy

Total dividend reduced due to less shares

Board has option to change dividend policy in future

Illustrative example*

2006/7 market consensus full-year dividend of 4.1 pence

2.6% yield on 160 pence share price

On existing dividend policy and £700m return

2007/8 market consensus full-year dividend of 4.4 pence

2.8% yield on 160 pence share price

* NOTE: The dividend and yield figures are for illustration only and have been sourced from the Company’s records of analysts’ forecasts. These figures are neither the Company’s forecast nor a statement of the Company’s intended dividend policy.


Impact on analyst forecasts Interest charges on approximately £700m Return of Value

2007/08 (approx 11 months)

2008/09 (full year)

Interest charges on additional pension contributions

Tax shield on interest

Some one-off implementation costs c.£4m

Reduction in weighted average ordinary shares

Subject to consolidation ratio

Ordinary shares currently in issue 1,100.3m

Pro-forma Ordinary Shares in issue (illustrative based on 13 March 2007 closing share price) 669.1m

Pro-forma 2007/08 weighted average (illustrative based on 13 March 2007 closing share price and mid-May 2007 consolidation date ) 687.0m

Adjust for subsequent share issues


Financial ratios considered

Net Debt/EBITDA

Net Debt/(EBITDA plus dividends from joint ventures)

Impact of working capital cash in rail franchises

EBITDA/Interest


Conclusion

Overall strong trading performance Return of Value is intended to establish a more appropriate and

efficient capital structure Maintain financial flexibility to continue investing in operations

and bolt-on acquisitions Number of factors led Board to conclude that £700m should be

returned to Shareholders before 30 June 2007 Return of Value is conditional upon Shareholder approval Further details on Return of Value to be announced within next

two weeks

return of value 2007 update on current trading and prospects and proposed return of value to...

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