14/03/2007

Proposed return of value of approximately £700 million to Shareholders

Update on current trading and prospects

Highlights

• Current trading at upper end of our expectations
• Prospects for financial year to 30 April 2008 ahead of our previous expectations
• Proposed one-off Return of Value of approximately £700 million to Shareholders (equivalent to approximately 40% of current market capitalisation)
• Return equivalent to 63 pence per Existing Ordinary Share
• Return to be effected by B Share/C Share structure
• Existing Ordinary Shares to be consolidated into New Ordinary Shares
• Return of Value is conditional upon Shareholder approval
• Return of Value is intended to establish a more appropriate and efficient capital structure

1. Introduction

Stagecoach Group plc (“Stagecoach” or “the Group”) is pleased to provide an update on its current trading and prospects, and also its proposals for a return of value to Shareholders.

2. Current trading and prospects

The overall trading of the Group remains strong and earnings per share (before intangible asset expenses and exceptional items) for the year ending 30 April 2007 are now anticipated to be at the upper end of our expectations.

The prospects for the Group for the year ending 30 April 2008 have further improved. This improvement reflects continuing strong revenue growth, a sustained reduction in fuel prices, the benefit of significant additional contributions to pension schemes and the proposed Return of Value announced today. The improved prospects are most significant in our UK Bus division and at our joint venture, Virgin Rail Group.

The Group's consolidated net funds (i.e. the excess of cash over gross borrowings determined in accordance with UK GAAP) are expected to be between £130 million and £150 million as at 30 April 2007 , of which approximately £90 million to £100 million of net funds are expected to be held within rail franchises.

A summary of trading and prospects at the Group's main divisions is as follows:

(a) UK Bus

In the year to 30 April 2007, we have seen excellent revenue growth in the UK Bus division where the trends seen in the first half of the year have continued. This includes one-off growth from the new concessionary fare schemes introduced in Scotland and England from April 2006. Accordingly, the rate of revenue growth in the year ending 30 April 2008 is expected to reduce somewhat but we anticipate that the underlying positive trend will continue.

The continued revenue growth, integration of acquired businesses, reduced fuel prices and returns on additional pension contributions should result in further strong progress by UK Bus for the year ending 30 April 2008.

(b) North America Bus

The Group's bus and coach operations in North America are also benefiting from good revenue growth and an easing of fuel prices. The claims environment in the US remains challenging but subject to effectively controlling claims costs, further growth is anticipated in the years ending 30 April 2007 and 30 April 2008.

(c) Rail

South West Trains, along with the majority of the UK passenger rail industry is experiencing better than anticipated revenue growth. While this has been partly offset by cost increases, we are confident of meeting our profit expectations for the new ten-year South West Trains' franchise that commenced on 4 February 2007.

(d) Virgin Rail Group

Virgin Rail Group, in which the Group holds a 49% interest, continues to experience good financial results. The re-negotiated West Coast rail franchise is benefiting from strong revenue growth and increasing market share at the expense of the domestic airline market in particular, which has resulted in an improved outlook for the year ending 30 April 2008.

3. Proposed Return of Value

On 6 December 2006 , the Group announced its intention, subject to Shareholder approval, to return value of no less than £400 million to Shareholders. Since the date of this announcement the Directors have further considered the Company's capital structure and have decided that subject to regulatory approval, for the reasons set out in the “Background to the Return of Value” section below, to return approximately £700 million to Shareholders.

Under the Return of Value proposals, Shareholders will receive 63 pence in cash in respect of each Existing Ordinary Share in issue at the relevant record time by a B Share/ C Share structure and a proportional consolidation of the Company's Existing Ordinary Shares. This method of returning value to Shareholders is similar to that used by the Group to return value to Shareholders in 2004 and has been chosen because it allows all Shareholders to be treated equally pro-rata to the size of their existing shareholdings in Stagecoach, and gives all Shareholders (with the exception of Overseas Shareholders) choices as to when, and in what form, they receive their proceeds from the Return of Value. In addition, it gives clarity as to the quantum and the financial effects of the Return of Value when compared to certain alternative methods of returning value.

The Directors of Stagecoach expect a circular (“the Circular”) to be sent to Shareholders within the next two weeks, which will set out details of the Return of Value and explain why the Directors of Stagecoach consider the Return of Value to be in the best interests of Stagecoach and Shareholders as a whole.

The Return of Value (together with certain other matters, including proposed amendments to the Articles of Association) requires the approval of Shareholders. These approvals will be sought at an Extraordinary General Meeting of Stagecoach.

Shareholders should read the whole of the Circular and not just rely on the summarised information set out in this announcement.

As previously indicated, the Group expects to complete the Return of Value by 30 June 2007.

4. Background to the Return of Value

Stagecoach is a leading international transportation group with a strong portfolio of cash generative businesses. The Group's strategy is now firmly directed towards delivering value from organic growth in revenues and profits from bus and rail businesses in the UK and North America, complementary acquisitions and evaluating new rail franchise opportunities.

Following the Group's disposals of its New Zealand and London bus operations in November 2005 and August 2006 respectively, and the Group's continued strong cash generation, net debt has been eliminated with net funds at 31 October 2006 of £140.9 million compared to net debt of £135.9 million at 30 April 2006. This led the Board, in December 2006, to announce that it would be reviewing its capital structure and that it intended to return not less than £400 million to Shareholders. Since then, there has been a thorough review of the Group's position and prospects during which time the West Coast mainline rail franchise (in which the Group has a 49 per cent. interest via Virgin Rail Group) has been renegotiated, further fuel hedging has been put in place and continued strong revenue growth has been experienced in the Group's UK Bus and Rail divisions. These factors, coupled with the ability of the Group to borrow at acceptable rates, have led the Board to conclude that Stagecoach should return approximately £700 million to Shareholders. This equates to 63 pence per Existing Ordinary Share in issue. The aim of the Return of Value is to establish a more appropriate and efficient capital structure for the Group and thereby reduce its overall cost of capital and generate further Shareholder value. In reaching its decision that this was an appropriate amount to return to Shareholders, the Board has taken full account of the Group's development plans and access to funding.

The Group expects to fund the Return of Value from its available surplus cash and bank facilities.

5. Pension scheme funding

The Group has also reached agreement with the trustees of the Stagecoach Group Pension Scheme that if the Return of Value is approved by Shareholders, the Group will make special cash contributions of £50 million to the scheme no later than 30 June 2007, of which £20 million is expected to be made prior to 30 April 2007. In addition, the Group's ongoing employer contributions to pension schemes are expected to exceed the net pensions charge to the Group's income statement in the short to medium term.

6. Share Capital Consolidation

As part of the Return of Value, Existing Ordinary Shares will be replaced by New Ordinary Shares in order to reduce the number of Existing Ordinary Shares in issue to reflect the Return of Value.

The Share Capital Consolidation is intended to:

• Make the share price directly comparable before and after the Return of Value;
• Maintain the comparability of future earnings and dividend per share amounts with previously reported earnings per share amounts;
• Maintain the intrinsic value of awards that have been under Stagecoach Share Schemes, such as the grant of share options to employees.

The New Ordinary Shares will have in all material respects the same rights as the Existing Ordinary Shares.

7. Dividend policy

It is not envisaged that the Return of Value will affect the future level of dividends per Ordinary Share although the reduction in the number of Ordinary Shares in issue as a result of the Share Capital Consolidation will reduce the number of Ordinary Shares ranking for dividend. The Board intends to continue to pursue a progressive dividend policy.

8. Further details

The Group expects to announce further details of the mechanics of the Return of Value, the expected timetable and the choices available to Shareholders within the next two weeks. The Group also expects to post the Circular to Shareholders within the next two weeks.

A short slide presentation will be available today on the Group's website, www.stagecoachgroup.com.

The Group will be having discussions and meetings with analysts prior to the commencement on 30 April 2007 of its year-end close period.

Enquiries to:
Martin Griffiths, Stagecoach Group - 01738 442111

John Kiely, Smithfield - 020 7360 4900
Nick Bowers, Credit Suisse– 020 7888 8888
Chris Byrne, Credit Suisse– 020 7888 8888