Contents. Another year on our travels. Annual Report & Accounts 2009

Contents Another year on our travels About Arriva Who we are... and what we do 2 Our business models 3 Our business 6 Our three divisions 10 Our markets 14 Review of 2009 Chairman s statement 34 Chief executive s review 36 Financial review 44 Principal risks & uncertainties 50 Corporate responsibility Our approach 56 Safety 59 Community 63 Employees 69 Environment 73 Directors statements Board of directors 82 Directors report 84 Directors remuneration report 88 Corporate governance 97 Annual Report & Accounts 2009 Accounts Independent auditors report on the group financial statements 110 Financial statements 111 Accounting policies 116 Notes to the accounts 121 Five-year financial summary 151 Parent company financial statements 152 Parent company accounting policies 153 Notes to the parent company accounts 155 Independent auditors report on the parent company financial statements 161 Financial calendar, registered office and advisers 162

We hold a photo competition for our employees. Some of their excellent results are used in the annual report. Look out for the captions 2009 key messages Arriva has come through a challenging year with resilient earnings Excellent operational performance in all divisions High levels of customer satisfaction Strong run of contract wins and renewals Mainland Europe order book up 29% in euro Picture from Salvatore Tigano (bus driver), SAF, Italy UK Trains passenger revenue growth continuing to strengthen Robust UK Bus performance Further progress in delivering our strategy Fuel fixed at lower prices Further growth opportunities Picture from Henry Wend (train driver), Vogtlandbahn, Germany Picture from Simon Kent (train driver), CrossCountry, UK. An Arriva bus in Castleford, Yorkshire Group cost control Outlook Tight management control mitigates 60 million fuel hit and impact of recession on passenger revenue. Commercial mileage reduced by 3.4% in UK regional bus operations More than 15 million annualised cost savings achieved in UK Trains Targeted savings and mileage reductions in mainland Europe Pension and tax savings realised in 2009, and locked in for future years David Martin, chief executive...i am confident that the group has excellent prospects for substantial progress. Picture from Mark Scott (train driver), CrossCountry, UK

Adjusted EPS * (p) (Earnings per share) 4% Dividend (p) 5% 2009 25.26 About Arriva 2005 2006 2007 2008 2009 58.8 2008 24.06 2007 22.65 43.6 44.4 46.5 61.5 2006 20.83 2005 19.84 * Before goodwill impairment, intangible asset amortisation and exceptional items Mainland Europe - order book m 1,200 29% 1,000 2024 2023 2022 2021 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 800 600 400 200 0 2009 order book 2008 order book 2025 Estimates of future revenue from contracted business, over a year in duration, rolled forward to reflect contract variations and updated to current prices at year end 1

About Arriva Who we are... and what we do Who we are... and what we do UK Our vision is to be the leading transport services organisation in Europe. We employ 42,300* people who operate our buses, trains, coaches and waterbuses carrying passengers across 12 European countries - the Czech Republic, Denmark, Germany, Hungary, Italy, the Netherlands, Poland, Portugal, Slovakia, Spain, Sweden and the UK. Our strategy In 1999 we recognised the long-term growth opportunities that would be presented by the historic opening of transport markets across Europe, and refocused our strategy to concentrate on public transport. We started a disposal programme of our contract hire, motor retailing and vehicle rental businesses. In their place, we carefully and patiently built up a network of operations in mainland Europe, through targeted acquisitions and contract wins, and today we operate around 8,500 buses and 370 train sets in mainland Europe. With around 6,300 buses and two UK rail franchises we are also one of the largest public transport operators in the UK. TRAINS COACHES BUSES WATER BUSES PUBLIC TRANSPORT OPERATOR MAINLAND EUROPE * Including our share of associate companies 2 Arriva plc Annual Report & Accounts 2009

Our business models About Arriva Our business models See page 4 for a graphical explanation Contracted services The primary customer is some form of public sector body A regional government or transport authority may offer various forms of contract giving an operator the right to operate services, usually exclusively, on a particular route or in a specific area Examples: Most of our mainland European bus and rail markets The UK London bus market The UK rail market There are two main types of contracted arrangements. The tendering authority generally provides a contribution in the form of additional contracted income, where the cost of providing such a service would not be commercially viable if it depended solely on the fare income that it could achieve On especially popular services it may be possible for the tendering authority to receive a premium payment from the operator running these routes rather than providing financial support Examples: UK rail franchises Italian bus contracts Some bus and rail contracts in the Netherlands and Germany Gross cost contracts Tendering authority agrees to pay an operator a specified sum to provide the specified service for a specified period Revenue from fares is passed to the tendering authority, which bears the revenue risk The service provider generally carries the cost risk, though there may be provisions for cost increases, such as elements of wage or fuel costs Generally the tendering authority will take responsibility for working out routes, and may also specify the vehicles to be used As the operator has no direct commercial relationship with passengers it is common for the tendering authority to provide a system of bonuses and penalties to give operators a financial incentive to provide the desired quality of service Examples: The UK London bus market Some rail operations in Sweden and Germany Bus contracts in Denmark, Sweden and Madrid in Spain Net cost contracts Operator takes on both the revenue risk and the cost risk Operator keeps the revenues from fares Deregulated services Commercial relationship is directly between Arriva and passengers Fare payments are the dominant source of income Therefore services have to be profitable in order to be sustainable, to generate the financial returns which underpin investments in replacement vehicles, our depot facilities, and the expansion and development of services The operator accepts the revenue risk: if the travelling public decides to switch to another form of transport, the lost revenue directly affects our finances Examples: Most bus operations in the UK outside London operate on a purely commercial basis Spain (excluding Madrid) and Portugal also operate on a largely commercial basis Often deregulated services are subject to significant oversight, scrutiny and regulation in various ways, and there is usually a layer of sector-specific regulation. 3

About Arriva Our business models (continued) Our business models We operate according to several different business models, which vary by country, by region, and by the mode of transport. But who are our customers and where does our income come from? UK REGIONAL BUS EXAMPLES DEREGULATED SERVICES SPAIN PORTUGAL OTHER MODES OF TRANSPORT, INCLUDING THE CAR COMPETE AGAINST OTHER TRANSPORT OTHER OPERATORS OF SIMILAR TRANSPORT THE PASSENGER = OUR CUSTOMER FARE PAYMENTS = DOMINANT SOURCE OF INCOME WE BEAR THE REVENUE RISK WHICH MEANS OUR SERVICES HAVE TO BE PROFITABLE 4 Arriva plc Annual Report & Accounts 2009

(START HERE) About Arriva MOST OF MAINLAND EUROPE BUS & RAIL MARKETS CONTRACTED SERVICES EXAMPLES UK RAIL PRIMARY CUSTOMER = PUBLIC SECTOR BODY LONDON BUS GROSS COST NET COST TENDERING AUTHORITY... OPERATOR... TENDERING AUTHORITY... OPERATOR... PAYS OPERATOR TO PROVIDE SERVICE ACCEPTS PASSES REVENUE FROM FARES TO TENDERING AUTHORITY ACCEPTS CAN GET COST RISK MAY PROVIDE A CONTRIBUTION IN THE FORM OF ADDITIONAL CONTRACTED INCOME ACCEPTS KEEPS REVENUE RISK WAGES & FUEL INDEXATION PROVISIONS REVENUE RISK COST RISK REVENUE FROM FARES 5

About Arriva Our business Our business Arriva is a large international business, but is also a local business wherever it works. We combine a broad strategic vision with close attention to detail in our operations. Key facts 3 divisions 12 countries 14,800 buses 587 train sets Employees 42,300 employees passenger journeys 1bn+ every year Our broad footprint in mainland Europe gives us practical experience of operating successfully in many different commercial and regulatory regimes. Bringing together experts from many regions and city-scale operations into one group supports innovation and encourages the spread of best practice and economies of scale. We actively seek knowledge and support learning and development amongst our employees. Our wealth of local contacts and our network of operating and maintenance bases help us to develop existing businesses and create new opportunities for the future. By understanding each local market in depth we constantly stay abreast of the bigger picture of how our markets are evolving across Europe. These sources of competitive advantage are not easy for others to replicate. We think long-term, and build our market positions piece by piece. We may start small, but our long-term aim is always to be one of the top three private sector operators wherever we work. Our commercial focus is on winning and retaining contracts thereby generating organic growth. We capitalise on the expertise and experience gained from many years of operating across Europe. Operational excellence We strive for operational excellence. It makes our services attractive for our passengers. It rewards our tendering authorities for their confidence in us. It makes our employees proud of what they do for their communities. It improves our reputation amongst our stakeholders. Punctuality and reliability are fundamental in themselves, and also underpin good financial performance over time. Operating countries 6 Arriva plc Annual Report & Accounts 2009

COMFORTABLE TO OUR PASSENGERS WE AIM TO PROVIDE AN ATTRACTIVE ALTERNATIVE TO OTHER MODES OF TRANSPORT RELIABLE SAFE To our transport authority customers, we bring: Benefits of private sector delivery Value for money for the services their communities rely on Improved services Lower public spending To our employees, we aim to provide: Worthwhile long-term work Recognised value to their own communities Safe, supportive working environment About Arriva We have a broad range of stakeholders and aim to operate in ways which benefit many different sets of stakeholder interests To our investors, we aim to give: Long-term growth in earnings and dividends based on a varied portfolio of business models, a mixture of contract sizes, types and durations, a range of transport modes, and a broad range of operating territories RESPONSIBLE MANAGEMENT OF THE ENVIRONMENTAL IMPACT OF OUR OPERATIONS TO THE WIDER COMMUNITY, IN EVERY CITY, REGION OR COUNTRY WHERE WE OPERATE, WE AIM TO PROVIDE SOCIAL & ECONOMIC BENEFITS OF AFFORDABLE, ACCESSIBLE TRAVEL 7

About Arriva Our business (continued) Arriva has benefited during these turbulent times from being a broadly-based group. Our operations include a mixture of cash generative businesses in mature markets, and growth businesses in opening markets. We depend on no single mode of transport, contract, source of revenue or source of funding. As a result of these different business models, revenue across the group is derived from a combination of passenger revenue and non-passenger revenue, including contracted government payments. The chart below shows the 2009 revenue split for different parts of the group, highlighting the variety of revenue sources. Non-passenger revenue: 60% 1,880.7 million Passenger revenue: 40% 1,267.1 million Mainland Europe bus 26% UK Bus 15% REVENUE SOURCE UK Trains 13% UK Bus 16% UK Trains 9% Mainland Europe trains 9% Mainland Europe bus 6% Mainland Europe trains 6% What makes us different? KPI TRUSTED OPERATOR: RECORD OF DELIVERY IN PUBLIC SECTOR 2ND LARGEST UK BUS OPERATOR PROMINENT MARKET POSITIONS: EARLY MOVER ADVANTAGE ORDER BOOK: 12.2 BILLION VISIBLE REVENUE, RUNNING TO 2024 PAN-EUROPEAN PIONEER The key to Arriva s success is our spread and our balance. Diversification broad-based portfolio Diversity by geography 12 European countries Diversity by revenue source 60% of revenues from authorities or governments LEADING PRIVATE MAINLAND EUROPEAN OPERATOR: LARGEST PUBLIC TRANSPORT PURE-PLAY 200 BILLION MARKET: TREND TOWARDS LIBERALISATION The order book represents the expected future revenue from public transport contracts already won by the group. By providing forward visibility of a large proportion of future revenue, the order book helps to demonstrate the underlying strength of the business 8 Arriva plc Annual Report & Accounts 2009

Inside the group: bus/ rail split Our key areas of operation are bus and rail. The table below looks inside the group at our bus/ rail split, showing the contribution each area of operation makes to the group. About Arriva Group revenue* Group operating profit* Rail 36% Rail 28% Bus 64% Bus 72% Group order book Group employees* Bus 34% Rail 15% Rail 66% Bus 85% Excluding central * Including share of associates 9

About Arriva Our three divisions Our three divisions ARRIVA PLC UK BUS UK TRAINS MAINLAND EUROPE Within our business, we have three divisions - UK Bus, UK Trains and Mainland Europe. The table below, which includes our share of the results of associate companies, compares and contrasts what they contribute to the group and how they operate. Group revenue Group operating profit UK Trains 22% Mainland Europe 49% Mainland Europe 45% UK Bus 49% UK Bus 29% UK Trains 6% Group order book Mainland Europe 51% UK Bus 8% Group employees UK Bus 45% Mainland Europe 46% UK Trains 41% UK Trains 9% Excluding central 10 Arriva plc Annual Report & Accounts 2009

About Arriva UK Bus UK Trains Mainland Europe* Operates buses across England, Scotland and Wales, including the contracted London market. The operator of two UK rail franchises. A leading pan-european public transport operator running services in 11 countries. Buses Buses Buses 6,300 8,500 (including waterbuses) Train sets Train sets Train sets 217 370 Employees Employees Employees 19,100 3,900 19,150 Operating area Operating area Operating area Key areas London Southern Counties, Shires & Essex Midlands North East, North West & Yorkshire Wales Scotland Key areas Wales and the English border counties Aberdeen to Penzance Birmingham to Cardiff Key areas Czech Republic Denmark Germany Hungary Italy Poland 00 00 00 Revenue 00 2008 100 00 2007 100 00 2006 100 2005 50 300 2009 500 50 300 2008 500 50 300 2007 500 2006 900 m 100 700 2005 900 m 100 700 2009 900 m 100 700 2008 2009 up 7% to 83.9 million 2007 Operating profit 2009 down 64% to 12.1 million 2006 Operating profit 2009 down 8% to 91.2 million 2005 Operating profit 2009 2009 2008 2005 2007 2009 up 15% to 1,604.2 million 2009 2005 2008 2008 500 1,000 300 500 100 2007 500 1,000 300 500 100 2006 500 1,000 300 500 100 2009 900 m 1,500 700 2007 900 m 1,500 700 2009 down 16% to 702.6 million reflecting the effect of CP4 900 m 1,500 700 2006 Revenue 2009 up 4% to 961.5 million 2005 Revenue 2006 CP4: see page 42 for explanation Portugal Slovakia Spain Sweden The Netherlands * Including share of associates 11

About Arriva Our three divisions (continued) UK Bus UK Trains Mainland Europe Order book Order book Order book 2009 up 27% to 1.0 billion bn 900 1.0 700 0.75 500 0.5 300 2009 down 13% to 5.0 billion 900 bn 700 7 500 5 300 3 2009 up 29% to 7.0 billion 900 bn 700 7 500 5 300 3 0.25 100 100 1 1001 0 0 0 2006 2007 2008 2009 2006 2007 2008 2009 2006 2007 2008 2009 London High level of contract renewals Previous years order book value re-stated to reflect the impact of CP4 changes CP4: see page 42 for explanation In sterling terms, the order book was up 19% to 6.2 billion, reflecting contract wins and retentions in 2009 Strategy Focus on high quality delivery in core business - Delivering efficiencies - Network management - Services Deepening of local authority and passenger transport executive partnerships Growth strategy Targeted growth in the mature core business Non-core development opportunities including demand response and airport services Strategy Maintain and further improve operating performance Grow patronage Improve yield management Maximise efficiency Further reduce costs without impacting long-term viability Growth strategy Targeted bidding for further rail franchises Strategy Offer and deliver cost effective, high quality transport solutions for client bodies and end users Concentrate on reducing costs and growing revenue, whilst pricing at our hurdle rate of financial return Lobby for accelerated market testing and work in partnership with client bodies to redesign and re-invigorate networks Growth strategy We aim to build market leading positions wherever we operate Organic growth through contract wins Acquisition opportunities may still arise Achievements Excellent operating performance - 99%+ mileage delivered in the regions - Best performer in London league tables Customer satisfaction - Improvements every year since started in 2002 - Record level achieved in 2009 of 93% Local authority partnerships in Kent and Yorkshire Achievements Excellent operating performance - Record breaking service delivery in Arriva Trains Wales (ATW) - PPM over 90% in CrossCountry for first time in franchise history National passenger satisfaction results survey increasing in both franchises Achievements Excellent operating performance and customer experience - Best in class on punctuality in Denmark, Sweden and the Netherlands Driving liberalisation - High quality, cost effective operations - Innovative solutions drawing on pan-european expertise Growth achieved: Arriva is in the top 3 private operators in 10 countries 12 Arriva plc Annual Report & Accounts 2009

UK Bus UK Trains Mainland Europe About Arriva Contracted business Contracted London business - c.30% of divisional revenue - Length typically 5 years - Gross cost Some smaller tendered contracts in regional business - Operating socially necessary routes for local authorities - c.10% of divisional revenue Buses mostly owned Contracted business 2 contracts Length - CrossCountry to 2016 - Arriva Trains Wales to 2018 Net cost Significantly larger contracts than elsewhere in group Trains leased Staff employed by franchise Indexation - Retail Price Index - Average Earnings Index - Network Rail costs indexed Contracted business 150+ contracts Range of business from totally commercial to gross cost contracts Many different contract models, with variations including buses and rolling stock held on and off balance sheet Varying lengths up to 14 years Varying sizes up to 500 buses or 50 trains Indexation: many contracts provide for labour and fuel cost increases to be recovered Other operations Deregulated regional market - c.60% of divisional revenue The Original Tour sightseeing business Private coach hire and airport services Bus & Coach distribution Other operations LNWR - maintenance Other operations Concessions (rights to operate services) Maintenance of buses and trains Waterbuses Private coach hire and airport services Metro Principal competitors Transport groups FirstGroup Stagecoach Go-Ahead National Express Other Local operators Principal competitors Transport groups FirstGroup National Express Stagecoach Virgin (with Stagecoach) Go-Ahead (with Keolis) Ned Railways (with Serco) Deutsche Bahn MTR Other Small direct access operators Principal competitors Pan-European operators (more than 5 countries) SNCF/ Keolis Veolia Transdev Other State and city-owned operators Small local private operators 13

About Arriva Our markets Our markets Our public transport services across 12 countries span a wide range of operating environments, in locations with varying market characteristics. Here we give you an insight into those markets and the role Arriva plays. United Kingdom In the UK, where our plc headquarters are based, we are one of the largest bus operators and an operator of two rail franchises. Our operations in the UK are currently larger than in any other market in which we operate. Revenue 2009 down 5% to 1.7 billion reflecting the impact of CP4 bn 2 CP4: see page 42 for explanation Bus Rail 1 58% 42% 0 2008 2009 Passenger and non-passenger revenue Passenger Non-passenger 53 O /O 47 O /O Order book 2009 down 8% to 6.0 billion as rail contracts run off bn 8 6 4 2 0 2008 2009 m 1,200 1,000 800 600 400 200 0 2010 2011 Bus/ rail split 2012 2013 2014 2015 2016 2017 Bus Rail 2018 14 Arriva plc Annual Report & Accounts 2009

About Arriva Buses 6,300 Train sets 217 Employees 23,150 Entered bus market 1980 Entered rail market 2000 Bus operating area Rail London UK bus market Market description Liberalisation stage: mature The UK bus market has 2 different operating environments - Deregulated market outside London - Regulated market in the capital, which is competitively tendered Market features Regions (outside London) Privatised in the 1980s Operates on a commercial basis - Relationship is directly with the passenger - Revenue principally comes directly from fares and compensation for non fare paying passengers - We bear revenue risk and cost risk We also run contracts for local authorities where there is deemed to be a social need for services (which would not otherwise be commercially viable), and airport transport services London Operate services under contract to Transport for London (TfL), the city s transport authority TfL specifies the required routes, timetables and vehicles Revenue comes from TfL, who pay us for running services on their behalf Sightseeing tour operators Contracts Gross cost London contracts - Typically 5 years in length - TfL bears revenue risk - TfL operate a bonus/ penalty regime linked to service quality Other contracts - Airport contracts - Local tendered service contracts UK rail market Market description Liberalisation stage: mature Competitively tendered Almost fully franchised Market features Rail in the UK is split into 3 types - Long distance - Regional - London/ south east commuter The tendering authority sets service provision and schedules Rolling stock and employees transfer to the franchisee Franchises tend to be much larger than their equivalents in mainland Europe Contracts Net cost Variable length The tendering authority may provide a contribution in the form of additional contracted financial support - In some franchises support payments decline over the life of the contract (as passenger revenue increases) - In others where there isn t as much opportunity for the operator to grow revenue, it remains steady - Some routes in the UK are premium paying (the operator pays the tendering authority) Revenue support/ risk sharing mechanisms are in place in most contracts 15

About Arriva Our markets (continued) United Kingdom (continued) UK bus market (continued) Arriva s role in market Arriva is one of the largest bus operators in the UK Regions (outside London) - Approximately two-thirds of our UK Bus business - Market share: approximately 15% - Third largest bus operator - Run approximately 4,700 buses London - Around 30% of our UK Bus business - Market share: approximately 20% - Joint largest bus operator in London - Run approximately 1,600 buses Market changes in 2009 An Office of Fair Trading (OFT) market study of competition in the regional bus market was referred to the Competition Commission. Arriva cooperated with the OFT in its study, and will continue to work with the Competition Commission throughout its investigations The Local Transport Act which came into force in December 2008 encourages partnership working between operators and local transport authorities In London, we retained 99% of contracted mileage up for renewal and won additional work, growing the UK Bus order book by 27% UK rail market (continued) Arriva s role in market Arriva runs approximately 11% of the UK rail network by passenger train miles 2 franchises CrossCountry 9-year franchise, began in 2007 Geographically the most extensive franchise in the UK, stretching from Aberdeen to Penzance and from Stansted to Cardiff More than 1,500 route miles, calling at more than 100 stations Long distance rail franchise, also provides inter-urban journeys along the route Support payments steadily decline over the life of the franchise Revenue support available from November 2011 Arriva Trains Wales (ATW) Began operating the 15-year franchise in 2003 Wales and the English border counties More than 1,000 route miles Regional rail franchise, operates inter-urban, rural and commuter passenger rail services Support payments decline slightly each year over the life of the franchise CP4: see Market changes in 2009 page 42 for explanation CP4 The East Coast Main Line franchise was surrendered by a competitor. The government is running the franchise under a management contract until it is retendered Future The Competition Commission may report preliminary findings in 2010 The spring general election result may shape transport policies We will focus on maintaining and improving our excellent operational performance in our bus operations and both rail franchises Rail bidding opportunities accelerate in 2010. We will monitor the situation and bid for new franchises as appropriate 16 Arriva plc Annual Report & Accounts 2009

About Arriva Germany Germany is the largest European public transport market but is predominantly in state or local government ownership. After starting operations in the country in 2004, we have built up a significant network of rail and bus operations across the country. Revenue 2009 up 14% to 416.7 million Bus Rail m 500 400 300 200 100 0 2008 2009 17% 83% Passenger and non-passenger revenue Passenger Non-passenger 36% 64% Order book 2009 up 15% to 1.8 billion bn 2 1 0 2008 2009 m 400 350 300 250 200 150 100 50 0 2010 2011 2012 2013 Bus/ rail split 2014 2015 2016 2017 2018 2019 2020 2021 Bus Rail 2022 Cross border service from Denmark Cross border service from the Netherlands Buses 900 Train sets 216 Employees 2,900 Cross border service to the Netherlands Berlin Entered rail market 2004 Cross border services to the Czech Republic Entered bus market 2005 Bus operating area Rail Rail yet to start 17

About Arriva Our markets (continued) Germany (continued) Germany bus market Market description Liberalisation stage: emerging, now stalled Less than 10% of the market has been competitively tendered, approximately half of which was awarded to the private sector Market features Highly subsidised Cities, districts or public transport associations are responsible for bus tenders Conditions differ widely between the regions Contracts Net cost or gross cost contracts Length ranging from 5 to 8 years Arriva s role in market Arriva s market share is around 1% Competition Dominated by public transport companies owned by cities, districts and state subsidiary DB Stadtverkehr, part of Deutsche Bahn (DB), and small local companies International operators Veolia Transdev FirstGroup NS Market changes in 2009 PSR: see page 37 for explanation Bus tendering declined significantly in 2009 prior to the start of the PSR transitional period on 3 December as direct award to state and city-owned companies was a dominant feature M&A activity in Germany has slowed significantly since 2006, with very little activity in 2009 Germany rail market Market description Liberalisation stage: mid-liberalisation Around 35% of the regional market has now been competitively tendered, with approximately 20% of the market currently operated by the private sector Close to 100% of the long distance market is operated by state-owned operator DB, who is also dominant in the regional market Market features Regional authorities are responsible for tendering regional rail routes The 25 client bodies take their own approach to tendering Infrastructure: mostly owned by the subsidised national operator Contracts Range in market: everything from gross cost limited incentive/ penalty regimes to net cost super bonus/ fine regimes New rolling stock is usually required Arriva s role in market 2009 has been the most successful year yet for Arriva in German rail tenders, winning 3 contracts Second largest private rail operator in Germany Market share: approximately 5% Competition International operators DB Veolia Transdev Keolis DSB (Danish State Railways) NS Rail (acquired Abellio) Other Publicly-owned regional groups Small number of regional or local operators Market changes in 2009 Tender volume in rail at an all time high Trend towards bigger contracts being offered (the biggest contract ever awarded to the private sector was won by Arriva) Future Economic pressures are increasingly driving the need for market testing in Germany. With high state capital subsidies due to end, private companies are becoming an increasingly attractive option for the regional authorities 2010: significantly more rail contracts being tendered, already ahead of full year 2009 New rail contracts are due to start in December 2010, 2011 and 2012 Medium to long term: expect to see more bus tendering as public service contracts come to an end during the PSR transition period, and are not eligible for automatic direct award PSR: see page 37 for explanation 18 Arriva plc Annual Report & Accounts 2009

About Arriva Netherlands Revenue 2009 up 12% to 249.0 million Bus Rail m 300 150 78% 22% 0 2008 2009 Passenger and non-passenger revenue Passenger Non-passenger 32% 68% Order book 2009 up 21% to 1.7 billion Bus/ rail split bn m 2 250 200 Bus Rail 1 150 100 50 0 2008 2009 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Buses 570 Trains 54 Other 10 waterbuses Cross border service to Germany Employees 1,600 Amsterdam Entered bus market 1998 Entered rail market 1999 Cross border service from Germany Bus operating area Rail 19

About Arriva Our markets (continued) Netherlands (continued) Netherlands bus market Market description Liberalisation stage: mature Around half of the bus market is competitively tendered, outside major cities Amsterdam, Rotterdam, the Hague and Utrecht are yet to put concessions out to tender Market features The 19 regional authorities in the Netherlands have had responsibility for public transport since January 2001 when the Passenger Transport Act 2000 came into force The regional authorities are obliged to organise public transport into concessions, which are periodically put out to tender by open procedure Contracts Typically net cost contracts Average length: 8 years Arriva s role in market Arriva is one of the 3 largest bus operators Operates approximately 12% of the regional bus market Competition The regional market is dominated by Connexxion, which was part-privatised in 2007, with the Dutch state retaining a 33.33% stake International operators Veolia Syntus (joint venture Keolis/ NS) Netherlands rail market Market description Liberalisation stage: emerging Very little of the rail network has been competitively tendered Approximately 6% of the market is operated by the private sector Market features Responsibility for regional rail is transferred to regional authorities Conditions differ widely between the regions, and by contract Contracts Typically net cost contracts Average length: 15 years Arriva s role in market Arriva is the largest private operator Best performing rail operator in the Netherlands Competition Dominated by state-owned NS Rail (Nederlandse Spoorwegen), with 100% of long distance market under direct award contracts International operators Veolia Syntus (joint venture Keolis/ NS) Other QBuzz: a new company founded by former Connexxion management (supported and 49% owned by NS) Market changes in 2009 Tenders focusing on quality and the environment in addition to price Future 2012: Amsterdam, Rotterdam and the Hague currently operate bus services by direct award. Bus tendering may take place in these areas after 2012 when existing contracts expire The state rail operator s contracts are currently due to expire in 2014. National debate is ongoing with regard to the staged opening of the market PSR transition period PSR: see page 37 for explanation 20 Arriva plc Annual Report & Accounts 2009

About Arriva Italy Revenue * 2009 up 13% to 215.1 million m 300 200 100 Bus only 100% 0 2008 2009 Passenger and non-passenger revenue Passenger Non-passenger 26% 74% Order book 2009 down 43% to 201 million Longevity m 400 200 0 2008 2009 m 140 120 100 80 60 40 20 0 2010 2011 2012 Buses 1,950 Employees 2,500 Rome Entered bus market 2002 Bus operating area * Including share of associates 21

About Arriva Our markets (continued) Italy (continued) Italy bus market Market description Liberalisation stage: emerging Market opening is slow, and competitive tendering is not yet commonplace Market features Highly subsidised, with low fares Capital subsidies available for investment in fleet Public transport funding is provided nationally by the state Provincial or municipal local authorities are responsible for bus provision and setting fares (inside a general framework provided by the region) In some regions, public private partnerships have been set up Italy rail market Market description Liberalisation stage: yet to liberalise Early attempts at competitive tendering failed Market features Yet to emerge Market changes in 2009 Trenitalia (owned by FS) signed 6 year service contracts for regional services in many areas (with 6 year extension options) Some regions are considering market opening, including Piemonte where we operate buses Contracts Where contracts are in place, they are typically net cost Arriva s role in market Largest wholly privately owned operator Market share: approximately 5% Operate urban and inter-urban services in the north Airport connection services to Turin and Milan airports Competition Large number of local operators, mostly owned by regions and municipalities Other private operators SITA (51% owned by FS, state-owned rail operator) Transdev Future Successive changes in government have delayed the liberalisation process in Italy. Regional elections in 2010 may bring change We expect to see rail tendering in selected regions, and will respond to any invitations to tender we see as a good business fit for Arriva Picture from Sergio Spadari (bus driver), SAB, Italy 22 Arriva plc Annual Report & Accounts 2009

About Arriva Scandinavia Revenue 2009 up 13% to 455.8 million Bus Rail m 500 400 300 200 100 0 2008 2009 83% 17% Passenger and non-passenger revenue Passenger Non-passenger 6% 94% Order book 2009 up 2% to 1.7 billion Bus/ rail split bn m 2.0 450 400 1.5 350 300 250 1.0 200 150 0.5 100 50 0 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Bus Rail 2018 Picture from Paul Peschke (operational planner), Arriva Deutschland. Arriva trains in Varde, Denmark 23

About Arriva Our markets (continued) Scandinavia (continued) Denmark Buses 1,500 Trains 47 Copenhagen Employees 4,500 Entered bus market 1997 Entered rail market 2003 Cross border service to Germany Bus operating area Rail Denmark bus market Market description Liberalisation stage: mature Tendering is well established Of the 90% tendered, approximately 95% is operated by the private sector Market features 6 Passenger Transport Authorities have responsibility for public transport services Contracts Typically gross cost Average length: 6 years Quality and service incentives/ penalties apply Arriva s role in market Arriva is the largest private sector public transport operator Acquired Veolia s operation in Denmark in 2007 Bus market share in Copenhagen is approximately 60% Operate approximately 50% of overall market Competition Keolis, Tidebuss, Nobina (formerly Concordia) Denmark rail market Market description Liberalisation stage: mid-liberalisation Opened to public tendering in 2000 Market features Danish parliament is responsible for the regulatory framework for transport provision and also sets fares Contracts Net cost Bonus/ penalty regimes for punctuality and customer satisfaction Arriva s role in market Arriva was the first private company to be awarded a rail franchise, which was re-won in 2009 We operate approximately 15% of the regional network Our operations are focused in the Jutland area Competition Danish State Railways (DSB) operates approximately 75% of train kilometres in Denmark, under direct award from the Ministry for Transport DSB/ FirstGroup joint venture Future Having established scale in the bus market we are now focusing on improving the quality of our contract portfolio. We expect our bus market share to decline as we look for improved prices for the loss-making former Veolia contracts as they come up for tender 24 Arriva plc Annual Report & Accounts 2009

About Arriva Sweden Stockholm Buses 580 Trains 38 Employees 1,800 Entered bus market 1999 Entered rail market 2007 Bus operating area New bus operating area yet to start Rail Sweden bus market Market description Liberalisation stage: mature Deregulation commenced in the 1980s Competitive tendering is well established Market features 22 Passenger Transport Authorities have responsibility for public transport services, including determining ticket prices, timetables and contract duration in the regions Contracts Typically gross cost Average length: 8 years Quality and service incentive/ penalty regimes are in place Arriva s role in market Arriva has established a market share of around 5%, mainly in the south of the country In 2009 we became the first new entrant in Stockholm in 10 years Competition Nobina (formerly Concordia) Busslink (80% Keolis) Veolia Sweden rail market Market description Liberalisation stage: mid-liberalisation There is widespread tendering of regional contracts Market features Rolling stock often provided by contracting authority Contracts Regional rail contracts are typically Gross cost Between 3 and 5 years Quality and service incentives/ penalties apply Inter-regional services tend to be Net cost Between 10 and 15 years Arriva s role in market With contracts in the Skäne region and between Göteborg and Örebro, we now operate approximately 6% of the short distance rail network, by kilometres operated Competition Dominated by state-owned Swedish Railways (SJ) DSB Veolia Future In June 2010, we will start operating an 8-year bus contract, with a 2-year extension option, which we won in June 2009 A new law is preparing a partial deregulation of the rail sector bringing opportunities for potential open access in the rail market 25

About Arriva Our markets (continued) Iberia Revenue * 2009 up 19% to 207.9 million m 300 Bus Rail 200 100 95% 5% * Including share of associates 0 2008 2009 Passenger and non-passenger revenue Passenger Non-passenger 49% 51% Order book 2009 up 285% to 718 million Longevity (Madrid) m m 800 50 40 600 30 400 20 200 0 2008 2009 10 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Picture from Stuart Lowerson (bus driver), Arriva North East, UK. An Autocares Mallorca bus, Spain 26 Arriva plc Annual Report & Accounts 2009

About Arriva Spain Buses 460 Employees 950 Madrid Entered bus market 1999 Bus operating area Spain bus market Market description Liberalisation stage: emerging Market is mostly concession-based The urban bus market is operated by private and city-owned companies, whilst the inter-urban and long distance concessions are typically operated by private companies Market features 19 autonomous regions, with law making capabilities Long concessions have typically been granted, with exclusive rights The regions set maximum fares and monitor the delivery of concession requirements Spain rail market Market description Liberalisation stage: yet to liberalise No competitive tendering has taken place to date Market features State-funding provides for loss-making regional and urban services 19 autonomous regions Competition The state railway companies RENFE and FEVE operate all trains in Spain Contracts Concession based market, with revenue risk and exclusive rights - Concessions ranging from 8 to 25 years Where contracts are in place, in Madrid for example, they are typically gross cost with increasing incentives (and penalties) Arriva s role in market One of the larger private operators although our market share is still less than 1% Operations in Madrid, Galicia and Mallorca We now run approximately 14% of the privately operated Madrid market Concessions extended in Galicia and Mallorca Reshaped and extended contract in Madrid until 2024 Competition The bus market is diverse and fragmented: 4,000+ small operators, often family owned, account for c.70% of the market Larger bus groups are emerging - National Express - Avanza Future Until long concession agreements come to an end there will be little change in concession operators National long distance coach lines could be subject to competition in 2010 and beyond 27

About Arriva Our markets (continued) Portugal * Buses 1,550 Trains 6 Employees 3,100 Entered bus market 2000 Entered rail market 2006 Lisbon Bus operating area Associate Barraqueiro operating area Rail Portugal bus market Portugal rail market Market description Liberalisation stage: mid-liberalisation No competitive tendering, operates as a commercial market under licence Market features Major cities are still municipally owned Municipalities are responsible for allocating routes by awarding licences to independent operators, or by delivering services directly Fare increases set by government Contracts Concession based market with exclusive rights Concessions range from 10 to 30 years Arriva s role in market Third largest bus operator in Portugal Market share: approximately 8% 31.5% stake in Barraqueiro, Portugal s largest public transport operator Competition The bus market is fragmented outside the main cities with many small local operators Large operators - Barraqueiro (31.5% owned by Arriva) - Grupo Joalto Transdev Market description Liberalisation stage: yet to liberalise There has only been one instance of a concession awarded to a private operating company to date Market features Urban and regional services are operated under concessions allocated by the state State funding provides for loss-making regional and urban services Arriva s role in market Barraqueiro (31.5% owned by Arriva) is the first and only private company to hold a rail concession in Portugal, operating the Fertagus services around Lisbon Through Barraqueiro we also have an interest in the Metro Sul do Tejo tram operation to the south of Lisbon Competition Dominated by state-owned Comboios de Portugal (CP) Barraqueiro is the only private operator Market changes in 2009 There are no signs of a further early move towards competitive tendering Market changes in 2009 No fare increases in 2009 Future Metropolitan authorities have now been established in Lisbon and Porto, with a view to introducing competitive tendering for bus contracts We will continue to monitor the rail situation, and when changes do occur we are well placed to benefit through the good reputation of Fertagus rail operations through Barraqueiro In April 2010 we are due to start operating Metro do Porto, the city of Porto s tram network * Including share of associates 28 Arriva plc Annual Report & Accounts 2009

About Arriva Eastern Europe Revenue 2009 up 58% to 59.8 million Bus Rail m 60 50 40 30 20 10 0 2008 2009 89% 11% Passenger and non-passenger revenue Passenger Non-passenger 27% 73% Order book 2009 up 133% to 36 million Bus/ rail split m m 40 18 16 14 30 12 1086 20 Bus Rail 10 4 20 0 2008 2009 2010 2011 2012 2013 Picture from Vojta Vlcek (internal audit), Czech Republic. Passengers boarding one of our buses at Nové Zámky bus terminal in Slovakia 29

About Arriva Our markets (continued) Eastern Europe (continued) Czech Republic Poland Buses 260 Employees 450 Entered bus market 2006 Trains 9 Employees 80 Entered rail market 2007 Cross border service from Germany yet to start Cross border services from Germany Prague Warsaw Bus operating area Rail Czech Republic bus market Poland bus market Market description Liberalisation stage: emerging Competitive tendering limited, direct award common Market features Market very fragmented after privatisation Regional governments control licensing and maximum fares Individual cities are responsible for urban public transport Arriva s role in market We have a position around Prague, operating 260 buses Contracts Cost-plus subsidy contracts, awarded annually Competition Around 250 bus companies, many formed in the 1990s as part of privatisation Czech Republic rail market Market description Liberalisation stage: emerging Market features The state is responsible for rail provision and funding Competition Dominated by state-owned CD with a 99% market share Market changes in 2009 The state has extended the majority of CD s contracts for a further 10 years, limiting medium-term opportunities Future In December 2010 we will start a cross border rail service from Germany into the Czech Republic Market description Liberalisation stage: emerging Market features Regional authorities have the option of awarding contracts by competitive tendering or direct award 167 former state owned companies (known as PKS), operate rural, inter-urban and long distance transport 140 municipal bus operators in towns and cities Contracts Gross cost in city operations, ranging from 2 to 6 years Regional services operate on a commercial basis Market changes in 2009 Some cities are moving towards the creation of tendering authorities Poland rail market Market description Liberalisation stage: emerging Market features Regional rail provision has been devolved to the regions Contracts Short, net cost contracts, 1 to 3 years Arriva s role in market Joint venture (with DB Schenker) Only private company operating passenger rail services Competition State and region-owned operators Market changes in 2009 Growth slower than anticipated. 3 contracts tendered, retained by state operator Future We will monitor privatisation of PKS bus companies We intend to build upon existing experience in rail 30 Arriva plc Annual Report & Accounts 2009

Slovakia Hungary About Arriva Buses 600 Employees 1,050 Entered bus market 2008 Buses 120 Employees 200 Entered bus market 2008 Bratislava Budapest Bus operating area Bus operating area Slovakia bus market Hungary bus market Market description Liberalisation stage: emerging Less than 5% of the market has been competitively tendered Market features Regions responsible for public transport provision and funding Contracts Between 1 and 9 years in length, with exclusive rights Arriva s role in market Arriva is the largest privately owned bus operator 60% interest in 2 SADs (former Slovak Bus Service operators) Competition Dominated by the SADs: 17 regional bus companies either owned completely by the state or partially privatised (60%), with public stakes (40%) 5 municipal/ city-owned companies Slovakia rail market Market description Liberalisation stage: yet to emerge Market features The central government is responsible for rail provision and funding Future Market description Privatisation in the bus market will remain a theme in coming years, with public stakes in SADs expected to be sold Market description Liberalisation stage: emerging Contracts with exclusive rights may only be awarded to an operator selected by a tendering procedure Market features National government is responsible for regional public transport, mainly provided by state-owned Volan companies Municipalities are responsible for local public transport Contracts Generally entered into once a year, longer in some areas Mixture of gross cost or cost-plus Arriva s role in market Largest privately owned bus operator Joint venture with Hungarian company, Videoton Market share: less than 1% Operate tenders and sub-contracts for the Volan companies Competition The Volan companies: 24 state-owned regional operators 6 municipal operators Market changes in 2009 In recent months, outsourcing by the Volan companies has become more common Hungary rail market Market description Liberalisation stage: yet to emerge No competitive tendering as yet Market features Responsibility of national government Funded by state Future As bus contracts expire in the run up to 2012, we expect to see competitive tendering gradually introduced in line with PSR PSR: see page 37 for explanation 31

About Arriva Our markets (continued) Larger mainland Europe contracts won in 2009 Country Area Mode Start date Approximate anticipated lifetime revenue m Denmark Jutland Rail Dec 2010 475 Sweden Halland Bus June 2010 138 Germany North East Rail Dec 2012 500 Netherlands Gelderland Bus/ rail Dec 2010/ Dec 2012 600 Our share of 50/50 joint venture Picture from Sebastian Schneider (train conductor), Metronom, Germany So far in 2010, we have also won the following Country Area Mode Start date Approximate anticipated lifetime revenue m Germany Hamburg Rail Dec 2010 700 Denmark Fyn Bus Summer 2010 300 Portugal Porto Metro April 2010 200 our economic interest in this is 37% we have an effective economic stake of 35% 32 Arriva plc Annual Report & Accounts 2009

Review of 2009 Chairman s statement 34 Chief executive s review 36 Financial review 44 Principal risks & uncertainties 50 Review of 2009 33

Chairman s statement Review of 2009 Meeting the challenges of uncertainty A resilient business We anticipated that 2009 would be a challenging year for Arriva, with the group facing the effect of recession on passenger revenues alongside a 60 million increase in the cost of our fuel. In a highly uncertain economic environment, the focus of management needed to move quickly at times, while maintaining a decisive emphasis on cost control, cash generation and business operations. It is to their credit that management and employees at all levels responded effectively and tirelessly allowing us to report resilient results. In this environment, the group s strategy was also tested and it too proved resilient, with our geographical diversification, broad spread of contracts and limited exposure to passenger revenue underpinning group performance. These qualities, developed through many years pursuit of a consistent strategic vision, served us well. While it is pleasing that our business continued to grow, with revenue rising by three per cent to 3,147.8 million (2008: 3,042.2 million), the business environment inevitably affected operating profit which at 160.3 million, was lower by seven per cent (2008: 171.8 million). Profit before taxation was down 19 per cent to 121.7 million (2008: 150.0 million). During the year, an important management initiative to bring pension costs within long-term sustainable levels came to fruition, and will produce ongoing benefits in terms of future pension obligations. The resolution of a number of outstanding tax issues contributed to the year s results and will also produce future benefits. Earnings per share before goodwill impairment, intangible asset amortisation and exceptional items, our preferred measure, was 58.8 pence (2008: 61.5 pence). The success of our UK Bus division in absorbing much of its 30 million fuel cost increase was reflected in a much smaller 8.1 million reduction in operating profit. The business has positioned itself well to benefit from the lower fuel costs that will flow through in the second half of 2010. The CrossCountry rail franchise suffered materially lower passenger revenue growth than we had hoped, reducing the profitability of our UK Trains division from last year s record level. Yet both our rail franchises increased their passenger revenues over the year as a whole, and through determined cost reductions were able to limit the impact on profitability. The CrossCountry contract includes provision for passenger revenue support, effective from November 2011. Operationally, both UK rail franchises are amongst the highest performers in the UK, having improved consistently over recent years. Both experienced encouraging improvements in passenger revenue growth in late 2009, which have so far followed through into 2010. In mainland Europe too, there has been a strong focus on controlling costs, including the restructuring of parts of the business in response to changing market conditions. Encouragingly, significant growth in our mainland Europe order book has been a prominent feature of the year, reflecting success in winning new contracts and renewing many expiring ones. In April 2009 it was heartening to see Arriva s long-term European growth strategy recognised by a Queen s Award for Enterprise for International Trade, marking the group s achievement in trebling the size of its bus and rail business in mainland Europe over six years. Our long-term strategic vision, of being acknowledged as Europe s leading transport operator, remains unchanged. Although the business environment remains volatile we continue to bid for, and win, new business. As we do so, it is important that we drive returns from our investments which reflect changed economic realities. With efficient and effective transport remaining a priority for governments, we are encouraged by the scale of interest emerging across the continent in the potential benefits we can offer through the contracting out of service provision. Public 34 Arriva plc Annual Report & Accounts 2009

It is to their credit that management and employees at all levels responded effectively and tirelessly allowing us to report resilient results. Review of 2009 Sir Richard Broadbent, chairman Total dividend per share The last 10 years of growth 900 700 500 300 100 0 (p) 30 25 20 15 10 5 0 At least 5% growth per annum 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 sector deficits across Europe provide governments and transport authorities with additional motivation to improve value for money in public service provision, and Arriva has an excellent track record of providing exactly that. Supporting the opportunities presented by economic realities, the regulatory framework is also evolving, enabling markets to develop with clarity. December saw the introduction of a significant piece of EU regulation on Public Service Requirements (PSR) governing the provision of most local bus and light rail operations, which represents another stage in the introduction of transparent contracting regimes across Europe. Our underlying business performance and confidence in the medium-term outlook have enabled the Board to propose a 2009 final dividend of 18.80 pence per share. This is an increase of five per cent, continuing our record of sustained dividend growth over many years. Combined with the interim dividend of 6.46 pence per share the proposed total dividend will be 25.26 pence per share. The final dividend will be paid on 10 May 2010 to all shareholders on the register at close of business on 9 April 2010. Sir Richard Broadbent Chairman 35

Chief executive s review Review of 2009 Action and progress Pursuit of our vision and strategy 2009 was a year of continual external challenge and management response for Arriva, but also one in which we were able to make further progress towards our long-term goals. At the start of the year we were already highly focused on managing cost in the business, in part because of the high fuel prices we knew we had to defray. That sensitivity was heightened further by the need to respond quickly and decisively to changes in market conditions, caused by the recession. The necessary action was effective, as can be seen in the results. In some cases we slowed development activity, in some cases we reduced services whilst maintaining the capability to expand again when the time is right. We also restructured and repositioned our businesses where markets had materially changed. However, we continued some activities, which we could have cut to flatter short-term returns. We invested 288 million in the future of the business, using our buying power to achieve attractive prices in weak markets, and importantly, we continued to win substantial new long-term business, with a series of contract wins in London and mainland Europe. Throughout the year Arriva has continued to deliver on its promises. We have maintained and improved our credibility with our passengers and with transport authorities across Europe, who have appreciated the continuing excellence of our operational performance, resulting in growing levels of satisfaction reported by our passengers. Divisional results (before goodwill impairment, intangible asset amortisation and exceptional item) Revenue Operating profit 2009 2008 2009 2008 m m m m Mainland Europe * 1,604.2 1,394.6 83.9 78.5 UK Bus 961.5 922.4 91.2 99.3 UK Trains 702.6 837.8 12.1 33.7 Central - - (18.8) (18.8) 3,268.3 3,154.8 168.4 192.7 Associated companies - Mainland Europe (120.5) (112.6) (10.1) (8.9) Group revenue and operating profit 3,147.8 3,042.2 158.3 183.8 * Including share of associated companies' revenue and operating profit The commentary that follows refers to the divisional performance disclosed in the table above. 36 Arriva plc Annual Report & Accounts 2009

2009 was a year of continual external challenge and management response for Arriva, but also one in which we were able to make further progress towards our long-term goals. Review of 2009 David Martin, chief executive Mainland Europe Operating profit for the division increased seven per cent to 83.9 million (2008: 78.5 million) on revenue up 15.0 per cent to 1,604.2 million (2008: 1,394.6 million), despite challenging conditions, particularly in Portugal and the Netherlands. Our businesses delivered consistently good operational performance, with particular focus on cost control. The division substantially absorbed the 22 million fuel cost headwind, benefiting from the full year effect of 2008 acquisitions. The exchange rate used to translate euro results into sterling was 0.89 to the euro (2008: 0.81), offsetting the small underlying fall in local currency operating profits. A significant regulatory milestone was passed during the year, signalling a step change in liberalisation. The EU Public Service Requirements (PSR) regulations, implemented in December, set out the procedure under which clear, transparent and time-limited contracts must be in place where public authorities provide support payments for bus and light rail services. Member States must progressively adapt their organisational and contractual arrangements in line with the rules set out in the regulation, and have contracts in place, by December 2019. In 2009, we were pleased with the business we secured. Bid successes during the year included the largest rail tender won by the private sector in Germany, via a 50/50 joint venture with our share of lifetime revenue at approximately 500 million; a Danish rail contract with revenues of around 475 million; a Dutch bus and rail contract with future revenues of approximately 600 million, and an extension in our contracted Madrid business with anticipated lifetime revenue of 650 million. Reflecting these and other contract wins and retentions, our mainland Europe order book was up by 29 per cent in euro terms, with estimated future revenue over the life of contracted business based on prices at the 2009 year end, rising to 7 billion. Our future rail business in mainland Europe is growing more quickly than future bus business, having grown from 46 per cent of future revenue at the end of 2008 order book to 49 per cent by December 2009. 2009 2008 m m Mainland Europe bus 3,527.6 2,898.3 Mainland Europe rail 3,428.9 2,490.0 Total order book 6,956.5 5,388.3 In addition, in Spain we were able to extend our concessions in Galicia and Mallorca, for between eight and 16 years. PSR explained Mainland Europe order book was up by 29% in euro terms 37

Chief executive s review (continued) Review of 2009 Scandinavia Revenue in Scandinavia was 455.8 million (2008: 404.0 million). In local currency, revenue was up five per cent as a result of new contracts started in Sweden. In Denmark, we re-won the Jutland rail contract, which was due to expire at the end of 2010. The new contract, which adds 12 new trains, is expected to generate revenue of around 475 million up to 2018, and has a possible extension to 2020. Our rail operating performance in Denmark continues to be excellent, with market-leading punctuality contributing to a record level of customer satisfaction throughout 2009. Many loss-making contracts which came to us via our acquisition of Veolia s Danish operations in 2007 expired during the year. We re-bid for all at realistic returns and were pleased to retain around half the contracts by value. We also restructured our Danish business to reduce overheads. In March 2009, we started operating a fleet of around 170 buses in the Swedish capital, Stockhölm, with two five-year contracts with combined revenues of around 164 million, with optional extensions for a further five years. We finished 2009 as the best performing operator in the capital, topping the client body performance league table which measures punctuality and customer satisfaction. In June 2009, we won an eight-year 138 million contract, with a two-year extension option, to operate more than 80 buses in the Halland region of southern Sweden, starting in June 2010. More opportunities are emerging in Swedish rail. In June 2009 our second Swedish rail contract got off to a successful start. The small seven-year contract, which has a two-year extension option, runs services between Göteborg and Örebro. Germany Revenue at our German operations was 416.7 million (2008: 365.0 million). In local currency, revenue was up three per cent. Our credibility and growing market share in Germany is demonstrated by the new contracts won in 2009, which will start over the next three years. Our rail interests in Germany are growing significantly. In July 2009, we were delighted to be awarded the largest rail tender won by the private sector in Germany to date, with a new contract in the north east of Germany, via the ODEG 50/50 joint venture. Local services around Berlin start in December 2011, and regional express services start in December 2012, with both running until December 2022. Total revenues are more than 1 billion over the life of the contract, of which our share is half. In the same package we also re-won a smaller rail contract around Berlin, extending our existing operations until 2014. In December 2009 we started operating a 12-year rail contract, won in 2006, as part of a consortium with Austrian operator Salzburg AG, in Bavaria, southern Germany. In January we re-won, subject to appeal, a substantial part of the Metronom rail network in the densely-populated Hamburg and Hannover regions. The eight-year contract, which starts in December 2010, has revenue of approximately 640 million, of which our economic interest is around 37 per cent. Also in December 2010, we will start operating a small 10-year rail contract linking the Czech Republic and Germany. The 56 kilometre line also passes through Poland, where an additional stop is due to be added at a later date. We have been working closely with municipal authorities in Germany. In August 2009 our Neißeverkehr business started operating a small new eight-year bus contract, which was jointly awarded with the incumbent city-owned operator, and in December 2009 we extended our existing 300 bus operation in the north for eight years. Record level of customer satisfaction in Denmark Awarded the largest rail tender won by the private sector in Germany to date Best performing bus operator in Stockhölm 38 Arriva plc Annual Report & Accounts 2009

In the annual independent customer satisfaction survey carried out for the Dutch government, Arriva s bus and rail operations ranked above the national average Picture from Hendrik Keizer (traffic assistant), Arriva Nederland Review of 2009 The Netherlands Revenue was 249.0 million (2008: 221.9 million). In local currency, revenue was up 1.4 per cent in a difficult year for the business. While our rail operations are going well, trading conditions in the bus market continue to be difficult for the major operators with losses being sustained in this sector. Disappointingly, the settlement agreed with the Dutch authorities on indexation relating to fuel costs, following a national dispute in 2008, has not been received, despite local authorities being funded by central government. We are also very disappointed that a new working agreement, the subject of an outline agreement between operators and unions in June 2008, has been revoked before implementation. The failure of the Dutch authorities to deliver on their promises is disturbing and we will pursue the matter further. Operationally, our services in the Netherlands are still performing well - in the annual independent customer satisfaction survey carried out for the government, Arriva s bus and rail operations ranked above the national average. Our train operations in the north of the country had the biggest improvement in satisfaction following the successful introduction of new trains on the MerwedeLingelijn line, with seven further diesel trains due for delivery in 2010. Services in Dordrecht and Waterland were also highly ranked. We have ordered three new electric trains to be added to our DAV fleet in 2011 to fulfil a new expanded timetable. Our Netherlands order book grew by 31 per cent in local currency, even though we were disappointed not to re-win the 350 bus Groningen-Drenthe contract, which ended in December 2009. In December it was announced that Arriva had won the eight-year Achterhoek bus and rail tender in Gelderland, which has anticipated lifetime revenue of approximately 600 million, with a possible 400 million fiveyear extension. The bus element of the contract is due to start in December 2010 with 130 buses, and 24 trains will enter service in December 2012. Italy Revenue was 215.1 million (2008: 190.5 million). In local currency, revenue was up three per cent. We have continued to trade well in Italy. The contracted nature of our bus business and prompt cost control action by the local management offset some reduction in patronage. In partnership with local authorities we have developed and introduced new technology, helping us to improve operating efficiency and customer satisfaction. New satellite bus tracking was introduced in Piemonte and Friuli-Venezia Giulia, which enabled us to redesign networks in response to customer demand. We also launched online booking systems for our major airport connection services and now offer web-based journey mapping in some regions. We have submitted a tender proposal to renew our 150 bus operation in the Piemonte area for a further six years, and hope for a positive outcome in the near future. In 2010 we are well placed to explore substantial emerging rail opportunities, as some regions consider market testing, and continue to explore additional opportunities in the bus market. We have continued to trade well in Italy 39

Chief executive s review (continued) Iberia Operations in Portugal and Spain, including share of associate companies, reported revenue up 19 per cent to 207.9 million (2008: 175.3 million) reflecting a strong contribution from our July 2008 Empresa de Blas y Cia S.L. (De Blas) acquisition. In local currency, revenue was up by eight per cent. Review of 2009 In Spain the majority of our operations in the contracted Madrid transport market are protected from revenue risk, and are performing well. In December our contract was extended until 2024. The integration of De Blas went exceptionally well and won an award from a city-based trade association reflecting excellent relations with our workforce. Also in December, our concession-based businesses in Mallorca and Galicia benefited from extended expiry dates, ranging between 2017 and 2026. Portugal has been particularly adversely affected by the economic downturn, with a reduction in public transport patronage overall. Management teams have focused on stringent cost control, including reducing kilometres operated, fleet and staffing levels, to minimise the impact on our businesses. The bus market continues to be challenging, with no fare rises approved by the government. In light of these factors, and the likely continued abstraction of revenue by the recently extended light rail system south of Lisbon, we have scaled back our Portuguese bus operation to a level commensurate with the changed environment. In January 2010, we were pleased to be awarded a five-year contract with anticipated lifetime revenue of 200 million, which is due to start in April, to operate and maintain the Metro do Porto, the city of Porto s tram network, as part of a consortium in which we have an effective economic stake of 35 per cent. Picture from Alastair Speight (bus driver), Arriva North East, UK. An Autocares Mallorca bus at C an Picafort Eastern Europe Revenue rose 58 per cent to 59.8 million (2008: 37.9 million), reflecting the first full year of operations in Hungary and Slovakia. In local currency, revenue was up 43 per cent. The integration and consolidation of our Eastern European businesses is continuing as planned. With operations in the Czech Republic, Hungary, Poland and Slovakia, Arriva is well placed to benefit from future liberalisation of the public transport markets in Eastern Europe. In November 2009, we acquired the remaining 20 per cent stake in Eurobus Invest, for HUF 125 million, securing full control and preparing the business for future growth as opportunities arise. In Hungary, our credentials as a good value for money, high performing operator saw us grow our market share in sub-contracting work for the municipal operator in Budapest. In Slovakia we are reviewing and removing underperforming commercial routes, and have extended concessions in the Nové Zámky region in the west of the country. The integration of De Blas went exceptionally well and won an award reflecting excellent relations with our workforce With operations in the Czech Republic, Hungary, Poland and Slovakia, Arriva is well placed to benefit from future liberalisation of the public transport markets in Eastern Europe 40 Arriva plc Annual Report & Accounts 2009

UK Bus Our UK Bus division has continued to grow, and delivered a good performance. Management attention to cost control and swift reaction to changes in demand substantially offset the division s 30 million fuel cost increase for the year, around half of which will be recovered in the second half of 2010. The business made good use of the lead time provided by forward fuel purchasing, controlling costs tightly across its operations to absorb much of the fuel price increase. Operating profit was 91.2 million (2008: 99.3 million), on revenue up four per cent to 961.5 million (2008: 922.4 million). Increased passenger revenues and higher London contracted mileage contributed to revenue growth. Efficiency savings included more effective employee scheduling, reduced fuel consumption, overhead reductions and improved engineering efficiency. The commercial UK regional business implemented targeted network revisions, reducing commercially operated mileage by 3.4 per cent year-on-year to control costs whilst maintaining the viability of the network for future growth in the medium and longer term. This mileage reduction is reflected in reduced revenue growth but yield per mile improved. Investment in new vehicles reduced the average age of the fleet to 7.6 years, helping to maintain the quality and attractiveness of our services. Investment in technology and training also continued. Around 3,000 buses have now been fitted with the EcoManager system, which delivers overall improvements in fuel consumption. Further roll-out is planned for 2010. Overall customer satisfaction in the UK regional business has risen every year since the start of annual surveys in 2002, and in December 2009 reached a record level of 93 per cent. This is a result our management and employees can be proud of. We will continue to strive for further improvements. Around a third of the UK Bus division s revenue is derived from contracted operations in London where Arriva maintained its position as one of the largest operators with a market share of around 20 per cent. Mileage operated for Transport for London (TfL) increased by two per cent to around 66 million miles. The high quality of our operational performance and management continues to be recognised. For the second year in a row, an Arriva depot has been named London Bus Garage of the Year by TfL. The business also performed best in the TfL excess waiting time league table, with the highest number of services running on time. We retained 99 per cent of contracted mileage due for renewal in 2009, and won new work, growing the London bus order book by 27 per cent to 984 million. To date in 2010, we have retained 100 per cent of re-tendered contracts, with contract mileage expected to increase by at least a further two per cent in 2010 on the basis of work already won. Tellings Golden Miller (TGM), which we acquired in 2008, had a challenging year as its airport business suffered in the recession. We cut back on a number of services and restructured the business, and were pleased to secure new contracted work at Heathrow and Gatwick airports. The Original Tour sightseeing business continues to perform well, with a good summer season in 2009, and our Bus & Coach distribution business maintained profitability. A change to the benefit structure of the Arriva Passenger Services Pension Plan, the largest defined benefit scheme in Arriva, was implemented with effect from 1 December 2009. This change significantly moderates the risk from retirement benefit obligations in the business, and mitigates against future pension cost increases that would otherwise have arisen. Review of 2009 We reduced commercially operated mileage by 3.4 per cent year-on-year to control costs whilst maintaining the viability of the network for future growth in the medium and longer term Picture from David Sharp (planning manager), Arriva North East, UK 41

Chief executive s review (continued) Review of 2009 UK Trains As anticipated, our UK Trains division, which operates the Arriva Trains Wales and CrossCountry franchises, was significantly affected by the UK recession, mainly through weaker passenger growth in CrossCountry than envisaged in our bid. The division made an operating profit of 12.1 million, compared to a 2008 operating profit of 33.7 million. Passenger revenue grew by 3.5 per cent CP4 explained to 416 million but overall revenue fell by 16.1 per cent to 702.6 million (2008: 837.8 million), due to the effect of the Office of Rail Regulation s Control Period 4 (CP4) review which reduced both revenue and costs by approximately 150 million in the year, with a broadly neutral economic impact. During the year the franchise benefited from the successful roll-out of e-ticketing, enabling customers to purchase and print tickets at home, by 6.00 pm the day before departure. In September we introduced Train Search, an iphone application available as a free download, which helps CrossCountry customers find train times and stopping details for any UK rail journey. In January 2010 the DfT announced proposals for timetable changes which envisage certain East Coast services being replaced by CrossCountry services. We are in consultation with the DfT about the opportunities created by the proposed changes, which are anticipated to come into effect in May 2011. KPI Determined management action delivered substantial cost savings in both franchises, amounting to some 15 million in annualised savings for the division with approximately 10 million actually realised during 2009. CrossCountry We started 2009 in the expectation that CrossCountry would need around 10 per cent passenger revenue growth for the year in order to maintain the profitability of the UK Trains division against the planned reduction in CrossCountry franchise support payments. The final figure for the year was an increase of 2.6 per cent, with a weak spring and flat summer lifted by the later months of the year. Actual passenger revenue for the franchise was 328 million, compared with revenue of 371 million anticipated in our 2007 franchise bid (as adjusted for inflation). During the first seven weeks of 2010 passenger revenue growth has been 8.8 per cent, continuing the recovery of late 2009. From November 2011, 80 per cent of any shortfall in passenger revenue below 94 per cent, and 50 per cent of the shortfall between 98 and 94 per cent, against the annual franchise target, is recovered through the risk sharing mechanism with the Department for Transport (DfT). This arrangement continues to the end of the franchise in March 2016. Had revenue support been in place in 2009, we estimate the impact of additional revenue and operating profit would have been approximately 23 million. The franchise has further improved its operational performance over the year. The Public Performance Measure (PPM) for the year ended 31 December 2009, based on the percentage of franchised passenger trains arriving at their destination within 10 minutes of schedule, increased to 90.5 per cent, from 89.6 per cent in 2008 and 86.3 per cent in 2007. This is a very satisfying improvement given the complexities of running such a geographically extensive operation, which crosses the boundaries of every rail region in the UK. Arriva Trains Wales Arriva Trains Wales (ATW) continues to perform well, delivering strong passenger revenue growth, up 7.2 per cent for the year ended 31 December 2009, and has begun 2010 well with growth of 8.7 per cent for the first seven weeks. Its excellent operational record also continued, with 94.7 per cent of services arriving at their destination within five minutes of schedule, up from 92.5 per cent in 2008 confirming the franchise as KPI one of the top performing train operators in the UK. Building on the success of a new timetable started at the end of 2008, ATW introduced significant new services, particularly in mid and north Wales with the extension of services to Birmingham International Airport, and from May 2009, the addition of a new half hourly service between Merthyr Tydfil and Cardiff. During 2010 ATW will continue to work with the Welsh Assembly Government to explore additional opportunities for further developing rail services in Wales and the border regions. Determined management action delivered substantial cost savings in both franchises, amounting to some 15 million in annualised savings for the division 42 Arriva plc Annual Report & Accounts 2009

Picture from Ivan Martin (bus driver), SAF, Italy Review of 2009 Picture from Mark Scott (train driver), CrossCountry, UK. An ATW Manchester Piccadilly - Carmarthen service calls at Crewe Picture from Simon Kent (train driver), CrossCountry, UK. An Arriva bus in Derby Arriva continues to be highly cash generative, diversified and focused on its long-term goal of being Europe s leading transport operator. We have a continuing opportunity for future profitable growth and the skills, experience and management resources to exploit that opportunity Outlook Consistent pursuit of our vision and our strategy has created a positive outlook for the business. The volume of our contracted business in mainland Europe has increased substantially, further establishing our ever stronger presence in the liberalising markets of the EU. Cost saving measures have been implemented across the group and, where desirable and possible, operating mileage revised to match demand. We anticipate a reduction of around 30 million in our fuel costs in 2010 as a result of our forward fixing policy. Action has been taken to reduce the cost of pension benefit accrual in our UK Bus division, while recent tax settlements will have significant medium to long-term benefit. In addition, healthier passenger revenue growth has returned in our UK Trains division. Whilst this revenue is still short of the levels anticipated when we bid for the CrossCountry franchise, improved growth will mitigate against the recessionary impact on the business until revenue support for the franchise comes in next year. We recognise that we must drive returns from our existing and future business. We are working on numerous contract and tendering opportunities and see no sign of the recession PSR: see page 37 for limiting interest from tendering authorities across mainland explanation Europe, further boosted by the new EU PSR regulations. In 2010 so far, we have won more than 1 billion of additional long-term contract work. Arriva continues to be highly cash generative, diversified and focused on its long-term goal of being Europe s leading transport operator. We have a continuing opportunity for future profitable growth and the skills, experience and management resources to exploit that opportunity. David Martin Chief executive 43

Financial review Review of 2009...the group s financial performance and capital structure have been resilient, absorbing increased fuel costs and the recessionary impact on passenger revenue growth, whilst allowing the group to continue to win business and invest in the future. Steve Lonsdale, group finance director Financial review Building a stronger base Following the group s record financial results and substantial growth in 2008, the trading environment entering 2009 was one of general economic uncertainty, financial volatility and distress in the banking markets. Against that backdrop, the group s financial performance and capital structure have been resilient, absorbing increased fuel costs and the recessionary impact on passenger revenue growth, whilst allowing the group to continue to win business and invest in the future. Revenue ( m) 3% 2009* 3,147.8 The group has remained attractive to lenders throughout the recession. We agreed a 100 million euro facility expiring in August 2012 with a new lender, to supplement the 615 million revolving credit facility expiring on the same date, and raised 218 million in asset-backed finance in the year. To diversify its funding sources, the group re-entered the US private placement market in February 2010, raising 100 million repayable in 2017. This is an important transaction for Arriva, establishing the principle that the group can continue to access asset-backed finance markets whilst diversifying some financing risk away from the banking sector. 2008 3,042.2 * The Office of Rail Regulation s review of charges Control Period 4 (CP4) reduced both revenue and costs by approximately 150 million in the year, with a broadly neutral impact 44 Arriva plc Annual Report & Accounts 2009

Group income statement Revenue increased to 3,147.8 million (2008: 3,042.2 million), reflecting growth in both the UK Bus and Mainland Europe divisions, the latter also including the impact of the strengthening of the euro against sterling. The UK Rail Regulator s review of charges reduced headline revenue and costs in UK Trains by approximately 150 million, with the overall economic impact of the review broadly neutral. In December 2009, agreement was reached to cap future benefit accrual in the Arriva Passenger Services Pension Plan, the largest of the group s defined benefit schemes. The change in benefits is required to be treated as a curtailment, resulting in the recognition of a 46.8 million exceptional credit in the income statement in 2009. The ongoing saving to the group s pension charge will be around 5 million per annum. The group has made an impairment charge of 32.9 million (2008: 2.5 million) against the carrying value of goodwill. The increase primarily relates to a 24 million charge in respect of our operations in Portugal, which, in light of the conditions affecting the Portuguese bus market and the likely continued abstraction of revenue by the recently extended light rail systems south of Lisbon, have been de-scaled to a level commensurate with the changed environment. Operating profit before goodwill impairment, intangible asset amortisation and exceptional items, our preferred internal measure, was 158.3 million (2008: 183.8 million), the reduction primarily reflecting increased fuel costs of approximately 60 million compared to 2008, and the impact of the challenging economic conditions on the CrossCountry franchise. Operating profit in mainland Europe benefited from a stronger average euro to sterling exchange rate of 0.89 to the euro compared to 0.81 to the euro last year. Net finance costs increased to 43.8 million from 26.2 million, due to the full year impact of increased debt levels since July 2008, and higher margins paid on new debt, partially mitigated by the benefit of lower interbank borrowing rates. After taking into account the profit from associates of 5.2 million (2008: 4.4 million), profit before tax decreased to 121.7 million (2008: 150.0 million). EPS Basic (p) 4% 2008 52.6 Revenue 2009 54.5 3,147.8m Operating * profit 158.3 m Review of 2009 The group has recently resolved a number of historical matters with tax authorities. These included one settlement giving rise to a benefit of approximately 68 million, of which 22 million has been included in this year s results, 15 million relating to previous years. The remaining 46 million relating to this settlement is expected to be recognised over the next few years. The total taxation charge also includes the 13.1 million impact on deferred tax of the exceptional credit arising on changes to pension benefits noted above. The resulting tax charge is 2.5 million, a decrease of 36.3 million compared with 2008. After taking account of minority interests, principally in our Italian and German subsidiaries, earnings per share, excluding goodwill impairment, intangible asset amortisation and exceptional items, reduced by four per cent to 58.8 pence (2008: 61.5 pence). The net impact of the year-on-year change in the average euro/ sterling exchange rate was a benefit of 0.8 pence per share. Basic earnings per share increased by four per cent to 54.5 pence (2008: 52.6 pence). KPI PBT 121.7m * Before goodwill impairment, intangible asset amortisation and exceptional items 45

Financial review (continued) Cash flow The movement in net debt is summarised in the following table: 2009 2008 m m EBITDA (before exceptional item) 324.1 330.4 Difference between pension contributions paid and amounts recognised in the income statement (18.5) (18.3) Working capital 3.8 49.5 Review of 2009 Cash generated from operations 309.4 361.6 Net capital expenditure (263.4) (244.8) Cash flow before servicing costs 46.0 116.8 Proceeds from issuing ordinary share capital 0.1 0.2 Interest and finance charges paid (42.3) (27.7) Dividends and tax (61.6) (33.5) Acquisitions of businesses 0.3 (218.7) Settlement of cross currency swaps (22.5) (27.6) Increase in net debt before currency translation (80.0) (190.5) Currency translation 51.3 (184.4) Increase in net debt (28.7) (374.9) Opening net debt (823.4) (448.5) Closing net debt (852.1) (823.4) EBITDA (Earnings before interest, tax, depreciation and amortisation) was broadly maintained at 324.1 million (2008: 330.4 million) despite fuel cost increases and recessionary impacts as the business delivered on past investment. There were outflows during the year of 18.5 million (2008: 18.3 million) in relation to retirement benefit obligations (pension scheme contributions exceeding costs), and a small working capital inflow of 3.8 million (2008: 49.5 million) leading to net cash generated from operations of 309.4 million (2008: 361.6 million). Net capital expenditure was 263.4 million (2008: 244.8 million) principally reflecting investment in new buses in the UK and mobilisation of rail and bus contracts in mainland Europe. The group made no significant acquisitions in the year (2008: 218.7 million). Interest and dividend payments absorbed 98.4 million (2008: 78.1 million). Tax paid during the year was 5.5 million (2008: receipts 16.9 million). It is anticipated that tax payable will continue to remain at lower levels than the tax charge in the income statement due to accelerated tax depreciation on new investment. New shares issued on exercise of share options generated 0.1 million (2008: 0.2 million). Settlement of cross currency swaps absorbed 22.5 million (2008: 27.6 million). After a reduction of 51.3 million (2008: 184.4 million increase) arising from translating overseas debt into sterling at 0.89 to the euro (2008: 0.97), net debt increased to 852.1 million (2008: 823.4 million). Treasury and financial risk management The group s financial risks are managed by the group treasury function in accordance with a formal Board-approved treasury policy. The policy sets a range of formal targets for managing the group s exposure to fuel prices, interest rate changes and foreign currency movements. These targets are achieved through the use of forward fuel price fixes, interest rate and exchange rate swaps, and fixed rate finance. Commodity risk The group s general policy is to maintain fuel price fixes at least 12 months ahead on a rolling basis. The requirement to fix fuel is determined after taking into account the extent to which businesses are protected from fuel price volatility through contract price indexation. Following the award of the CrossCountry contract in 2007, a fuel fix was put in place covering 75 per cent of the anticipated 100 million litres annual fuel usage of the contract up to its expiry. The group s forward fixing of fuel, excluding associates, for 2010 and 2011, at 1 March 2010, compared with 2009, was: 2009 2010 2011 % % % Protected by indexation arrangements 15.3 17.0 18.8 Forward purchased* 84.1 79.3 45.6 Subject to spot or future forward purchase 0.6 3.7 35.6 100.0 100.0 100.0 *Average price per litre of forward purchased fuel, excluding fuel taxation 43.1 35.9 32.4 and delivery pence pence pence 46 Arriva plc Annual Report & Accounts 2009

Forward fuel prices were lower and less volatile during 2009 compared to 2008, and the group was able to forward hedge 2010 positions at an average price of 35.9 pence per litre, providing an anticipated fuel cost reduction of approximately 30 million compared to 2009. The total fuel consumption in 2009 was approximately 520 million litres. Interest rate risk Fluctuations in interest rates are managed by interest rate swaps and the use of fixed rate debt. Actual hedged debt at 31 December 2009 was 79 per cent. The target level of hedged debt is 80 per cent of group net debt, achieved within a banding of 65 per cent to 95 per cent of net debt, which allows for the impact of short-term variations arising from the fair value of interest rate hedging instruments. Hedged debt for this purpose represents fixed rate finance and swaps with over one year s duration. Foreign currency risk The group policy on foreign exchange exposure is that the risk to equity of translating non-uk assets and liabilities into sterling should be progressively increased to around 50 per cent from the previous target of no balance sheet exposure. At 31 December 2009, the exposure was around 30 per cent of non-sterling net assets. The risk is managed through the use of funding in local currencies and by entering into foreign currency swaps of durations up to three years. The majority of such swaps also encompass fixed interest rates, thus also providing interest rate protection between EURIBOR, LIBOR and CIBOR. The group also enters into foreign exchange forward contracts to hedge specific cash flows arising with overseas suppliers. The fair value of the group s cross currency swaps and foreign exchange forward contracts at 31 December 2009 is a liability of 41.3 million (2008: 90.6 million). Credit risk Credit risk arising from operational suppliers and customers is managed at a local level and is subject to periodic reviews by central management and the group s internal audit function. Credit limits are in place for customers, many of which are local authorities or local transport authorities. Due to the nature of certain contractual arrangements, particularly where the agreement and settlement of allocations of passenger revenues between multiple service providers can take more than one year to complete, certain customer debts can often exceed one year before settlement. This is common, and the incidence of impairment of such debt is both rare and immaterial. The group also manages its exposure to debit risk in respect of financial institutions that provide credit to the group, and operational suppliers and customers. The group nominates and approves banks and lease providers with whom it will deal. All group companies are required to bank with nominated banks. Liquidity risk In addition to daily local monitoring, the liquidity of the group is monitored fortnightly, via group net debt reports showing the level of drawdown compared to available facilities for all components of net debt, and monthly against forecasts and budget. Future liquidity is monitored through detailed 15-month cash forecasts prepared monthly, and through forecasts for each financial year, updated approximately quarterly throughout the year. At a strategic level, long-term liquidity is assessed as part of the five-year strategic planning process, which is updated annually. These reviews support compliance with group policy, which is to maintain an average weighted maturity of hedged debt of at least 18 months at any point in time, and to maintain a 12 months in advance, foreseeable level of unutilised available facilities of over 100 million. At 31 December 2009, hedged debt maturity was 19 months (2008: 22 months). Headroom on committed facilities was approximately 343 million (2008: 258 million) as set out in the table included in the borrowing facilities section. Capital risk The group considers its capital to be the market value of equity shares, cash and borrowings, which it monitors on a continuous basis to ensure that, having regard to the anticipated and possible future requirements, sufficient capital exists to fund operations and provide returns to shareholders, and that the Weighted Average Cost of Capital (WACC) of the group is optimised. Our current assessment is that the group WACC is around eight per cent. Recent volatility in the capital markets has made calculation of the WACC more subjective but these calculations will continue to be updated as the long-term impact of the credit crunch becomes more evident. Capital structure Total shareholders equity was 752.2 million (2008: 682.5 million) at the end of the year. Retained profits contributed 60.0 million to group distributable reserves. Actuarial losses on employment benefits reduced equity by 32.3 million whilst the fair value of derivatives caused an increase of 54.9 million. Gearing for the group at 31 December 2009 was 108 per cent (2008: 115 per cent). The 2009 interest cover (the ratio of EBITDA to net finance costs) was seven times (2008: 13 times). The ratio of year end net debt to EBITDA was 2.6 times (2008: 2.5 times). The group remains comfortably within the financial covenants set by its lenders, the principal covenants being that the ratio of EBITDA to net finance costs is not less than 3:1 and the ratio of net debt to EBITDA is not more than 3.5:1. Review of 2009 The benefit of fixing fuel prices in advance will be a reduction in fuel costs of approximately 30 million in 2010 compared to 2009 47

Financial review (continued) Review of 2009 Borrowing facilities The group s principal borrowing facility is the 615 million, five-year, revolving credit facility agreement, signed in August 2007 with a group of leading European banks. This was supplemented in August 2009 by an additional 100 million facility, on similar terms, expiring on the same date, and 100 million of new loan notes in February 2010. Much of the group's bus fleet is financed on medium-term hire purchase or finance lease arrangements, typically three to five years in length. As part of the UK rail franchising arrangements, the group has provided guarantees of 48 million. The rolling stock of the UK, Netherlands, Danish and German rail businesses that is provided through operating leases have annual commitments of approximately 122 million. All material commitments will cease on expiry of the franchises. Bonds amounting to 31 million have been provided in respect of the Netherlands, Danish and German rail businesses. Letters of credit amounting to 11 million are provided as part of the group s UK insurance arrangements. The group has diversified its funding sources by re-entering the US private placement market The group's working capital and ancillary requirements are mainly provided by our principal bankers and reviewed annually. The group s facilities at 31 December 2009 and their maturity and drawdown are set out in the table below: Maturity Limit Drawn Headroom Facilities m m m Syndicated revolving credit facility 2012 615 414 201 Additional 100 million term facility 2012 89-89 Amortising facilities to 2024 631 618 13 Other term facilities to 2018 59 19 40 Committed facilities 1,394 1,051 343 Uncommitted facilities 84 39 45 As at 31 December 2009 1,478 1,090 388 Group net debt of 852 million comprises the drawdown of 1,090 million in the table above, net of cash balances of 238 million. Historically, the principal sources of credit to the group have been the banking markets of the UK and mainland Europe. Whilst this remains an important source, the group has diversified its funding sources by re-entering the US private placement market with 100 million of loan notes repayable in 2017. The borrowings, agreed in February 2010, carry a fixed interest rate of 5.25 per cent and, significantly, enable the group to continue to access the flexible and competitively priced asset-backed finance market. The terms of the borrowing are similar to the financial covenants in the revolving credit facility, with the addition of a priority debt covenant which sets a maximum limit on the level of priority debt compared to total assets of 30 per cent. Priority debt encompasses asset-backed debt and unsecured net borrowings of subsidiaries that are not obligors under the revolving credit facility. Headroom on committed facilities 343m 48 Arriva plc Annual Report & Accounts 2009

Retirement benefit obligations At 31 December 2009, retirement benefit obligations reduced to 99.8 million (2008: 120.1 million) after taking into account the 47 million reduction in liabilities arising from changes to the benefit structure in one of the group s schemes. The retirement benefit obligations in respect of the Arriva Trains Wales and CrossCountry sections of the Railways Pension Scheme are 6.5 million (2008: 11.7 million) and 5.6 million (2008: 19.3 million) respectively, net of a franchise adjustment that reflects the portion of liability arising after the rail franchises expire. The related deferred tax asset recognised in the balance sheet was 37.7 million (2008: 27.0 million). Return on Capital Employed KPI The financial return obtained from the capital employed by the group is a key measure of financial performance, and is monitored monthly. The definition of Return on Capital Employed (ROCE) used by the group is the last 12 months operating profit, before goodwill impairment, intangible asset amortisation and exceptional items (excluding the impact of pension finance charges or credits), expressed as a percentage of the weighted monthly average total tangible assets less liabilities (excluding borrowings, deferred tax liabilities and retirement benefit obligations) ignoring derivatives. The ROCE on this basis for 2009, reported in the group s December 2009 management accounts, was 13.0 per cent (2008: 17.9 per cent). Financial summary Despite considerable levels of uncertainty in the financial markets, and continued challenging macro-economic conditions, the group s financial performance has been resilient, and its cash flow generation continues to be strong. The loan notes provide new, competitively priced and relatively flexible finance, by which the group can diversify its sources of funding, reducing its dependency on shorter term bank finance. The benefit of fixing fuel prices in advance will be a reduction in fuel costs of approximately 30 million in 2010 compared to 2009, whilst the amendment to future benefit accrual in the group s largest pension scheme and tax settlements will add significant ongoing value to the group in future years. This provides a stronger base for our businesses, ahead of revenue support in our CrossCountry franchise from November next year. Steve Lonsdale Group finance director Review of 2009 The group s financial performance has been resilient, and its cash flow generation continues to be strong 30m REDUCTION IN FUEL COSTS BENEFIT ACCRUAL IN PENSION SCHEME REDUCED ONGOING BENEFIT OF TAX SETTLEMENTS 2010: STRONGER BASE 2011 CROSSCOUNTRY REVENUE SUPPORT 49

Principal risks & uncertainties Review of 2009 Arriva must manage a range of risks in the course of its activities Principal risks & uncertainties Every business activity brings with it a degree of risk and the Board recognises that Arriva must therefore manage a range of risks in the course of its activities. We conduct an annual impact assessment to review the scale and probability of the principal risks to the business. As part of our ongoing programme of risk assessment and management, we have identified the following actual and potential risks as those which the directors believe could have a material impact on the long-term value generation of the group. The factors described below are not intended to form a definitive list of all risks and uncertainties. In particular the list excludes generic risks common to many companies such as terrorism, pandemics and succession planning. Area of risk 1. Market risks 1a. Changes in national public transport budgets Description and management strategy A considerable proportion of the group s income is derived directly or indirectly from national public transport budgets. Changes in these budgets can have positive or negative impacts on the group s prospects. Investments are made assuming a long-term presence in specific markets. Significant reductions in transport budgets to address public sector deficits may reduce the potential for growth or the current volume of operations. Conversely, some governments have responded, or plan to respond, to the recession with significant investments in public transport and infrastructure as part of fiscal stimulus packages. In addition, liberalisation of markets may accelerate to deliver the improved value for money which the private sector offers. The level of uncertainty on this issue has increased over the year. Management strategy The group continues to monitor national public transport budgetary policies in the countries where it operates, and ensures it is strategically aware in order to understand possible changes, be in a position to influence them, and react in a timely fashion. We are factoring an increased level of risk into investment decisions, and continue to lobby for market opening and for value-for-money testing by public transport authorities. 50 Arriva plc Annual Report & Accounts 2009

Area of risk Description and management strategy 1b. Changes in public transport legislation or regulation In the UK the Local Transport Act 2008 is now in force and further major changes to public transport legislation in the UK are not anticipated in the medium term. The UK Department for Transport has announced changes to the Bus Service Operators Grant (BSOG) from April 2010 and a more fundamental reform of BSOG, moving away entirely from fuel tax treatment towards a per passenger payment, to be fully implemented by 2020. Adverse impacts from passenger rights legislation are, however, now a much reduced risk. The UK Competition Commission has recently begun an investigation into regional bus services in England, Scotland and Wales, a new risk which could have significant implications for that segment of the business. European Union (EU) Public Service Requirements (PSR) regulations, implemented in December 2009, set out the procedure under which clear, transparent and time-limited contracts must be in place where public authorities provide support payments for bus and rail services, with a transitional period expiring in December 2019. Review of 2009 This represents a minor new downside risk by imposing an end date by which a small amount of Arriva s mainland European business will become exposed to competitive tender, but also represents a much greater upside risk through an increase in the size of the addressable market, as the work of incumbent operators becomes available for competitive tender. Management strategy Our UK and mainland European management actively engage with local authorities, national governments and EU institutions regarding the formulation and implementation of transport-related legislation, and we continue to work with industry partners to represent the best long-term interests of the industry and its customers. Arriva will work with the UK Competition Commission throughout the investigation period and ensure that the group s position is clearly and strongly represented. 2. Operational risks The Board recognises the importance to the business, as a public transport operator, of maintaining high standards and the consequences of failing to do so. Related legislation, best practice and working circumstances are continually changing. The group needs to ensure its related policies are complied with and appropriately reduces its exposure to related penalties and bad publicity. Management strategy The safety committee of the Board oversees the group s health and safety policy and the arrangements for its implementation and reporting. Monitoring of environmental performance is carried out by a corporate responsibility committee which includes senior representatives of all group businesses and reports to the group executive committee. The Arriva environmental management system holds a senior manager in each business accountable for compliance with group policy and local legislation. For more information see corporate responsibility, page 56, and corporate governance, page 97. 51

Principal risks & uncertainties (continued) Area of risk Description and management strategy 3. Commercial risks 3a. Uncertainty over the ongoing impact of economic volatility The impact of ongoing economic uncertainty to the group is likely to be in the areas of the group s ability to raise finance and a deterioration in patronage/ financial performance, especially in the CrossCountry rail franchise. Financing risks receded over the year as the group has successfully accessed the capital markets, which have remained open. In the CrossCountry franchise, stronger passenger revenue growth has resumed in recent months. Review of 2009 Management strategy - operations Arriva s balanced portfolio of operations, between bus and rail, and between different countries, minimises its exposure to any downturn in individual market sectors. The revenue risk associated with any potential loss of consumer demand from the travelling public is mitigated by the substantial proportion of the group s revenues which flows from nonpassenger sources (see page 8). The group s robust capital structure and high level of liquidity have been effective in mitigating the impact of the economic downturn. In addition to the group s established budgeting and forecasting processes, all business units have carried out close monitoring of patronage and profitability and, where appropriate, carried out remedial action such as adjustments to routes, vehicles in operation and staffing levels. Most tendered net cost contracts (described on page 3) require the operator to deliver specified services whilst retaining the income from passengers. In contracts where passenger income represents a significant proportion of total revenue, the group is exposed to the risk of passenger revenue being higher or lower than anticipated. Historically, passenger revenue growth is highly correlated with growth in local economies. Our UK CrossCountry rail contract is a particularly large contract with these characteristics, and to deliver the anticipated returns required at inception, over eight per cent annual revenue growth in real terms is needed, much of which is dependent on overall economic growth. This financial risk is partially mitigated by a contracted revenue risk sharing mechanism which takes effect from November 2011. The principal financial arrangements are: Percentage shortfall on target revenue support Revenue support 0-2% Nil 2-6% 50% 6% and higher 80% Management strategy - finance The group has continued to have access to credit markets on satisfactory terms throughout the recent global financial crisis. Available facilities at 31 December 2009 are set out in the borrowing facilities section of the financial review (page 48), and are adequate for the foreseeable future. Group treasury policy is to operate with headroom of a minimum of 100 million for a rolling period of 12 months. Headroom on committed facilities at 31 December 2009 was 343 million. 52 Arriva plc Annual Report & Accounts 2009

Area of risk Description and management strategy 3b. Franchise/ tender bid costing and revenue forecasting Errors or inaccurate assumptions in tenders or acquisitions represent a risk to the business. A number of procedures are in place to mitigate this risk. Production of business models and other relevant data is critical to pricing decisions for all new franchises and tenders across the group s operations. The likelihood of inaccurate assumptions has increased given the greater uncertainty in the economic environment, although this is offset through the group having more bidding experience and raising the hurdle rate of return for investment in the current environment. Management strategy The Board approves all business acquisitions and disposals in excess of 25 million, and all tenders with a requirement for invested capital exceeding 50 million. Standard tender models are in use across the business. Significant bus and train tender contracts are compared with current experience to identify weaknesses and potential improvements in the tender process. Post-investment appraisals are carried out through quarterly business review meetings. Review of 2009 3c. Acquisitions Acquisitions of businesses have been a historically important part of Arriva s growth strategy. It could be damaging financially to Arriva if material new acquisitions were made at excessive costs or with material hidden liabilities, although no significant acquisition has been made since July 2008. Management strategy Arriva has clearly defined guidelines for due diligence work and internal reporting on potential acquisitions, which require the monitoring of such items by the executive directors subject to delegated authority limits. Sale and purchase agreements include price adjustment mechanisms and warranties, as appropriate. 4. Financial risks As noted in the financial review, the group s financial risks, including those arising from interest rates, commodity prices, currency fluctuations and retirement benefit obligations, are managed by the group treasury function in accordance with a formal Board approved treasury policy. Management strategy Fluctuations in interest rates are managed through the use of interest rate derivatives and the level of hedged fixed rate debt. The group s fuel hedging policy reduces the potential disruptive effect of short-term fluctuations in the cost of fuel and provides time to manage the business effectively in the light of longer-term price trends. Where practicable we match fuel hedges to significant specific contracts to reduce risk further. The group policy on foreign exchange is that the risk of translating non-uk assets and liabilities into sterling should be around 50 per cent of the balance sheet exposure, to reduce the risk to equity upon translation of euro-based net assets and also the impact upon the group s overall level of sterling debt. For more details on the above three items, see the financial review on pages 46 and 47. Increased retirement benefit obligations may require additional contributions to be made by companies to state or other schemes. Such contributions could have a material impact on the group. We perform regular pension strategy reviews with the group s pension advisors, and monitor developments in group pension schemes and state schemes where we operate. The risk has been reduced recently by the curtailment of benefits in the group s largest sponsored scheme (see page 45). 53

Notes 54 Arriva plc Annual Report & Accounts 2009

Corporate responsibility Our approach 56 Safety 59 Community 63 Employees 69 Environment 73 Corporate responsibility 55

Corporate responsibility Corporate responsibility Corporate responsibility Our approach At Arriva we recognise that our employees, shareholders, customers and other stakeholders are increasingly interested in understanding the social and environmental impact of our operations. A mural by local school children brightens up the station at Barry in Wales Getting away safely with CrossCountry in the UK 56 Arriva plc Annual Report & Accounts 2009

Our social impact falls under four main themes Safety Community Every day our transport services are essential for millions of people across Europe. Naturally our shareholders, customers and other stakeholders, alongside our own employees, are increasingly interested in understanding the social and environmental effects of our operations. We manage and report on these effects under four main themes: Safety Putting the safety of our employees and customers first is at the core of the group s values Community Being an active local partner Employees Engaging our people Environment Mitigating the impact of our operations Under the chairmanship of Bob Holland, a member of the group executive committee and managing director of our UK Trains division, Arriva s corporate responsibility committee oversees the group s corporate responsibility policies and performance. The committee includes senior managers from all three divisions as well as the group centre. Employees Environment Highlights: Record levels of customer satisfaction in Danish rail Well on track to meet 2012 greenhouse gas reduction target Employee satisfaction up across the business Highest ever performance results at UK Trains Corporate responsibility Corporate responsibility online at www.arriva.co.uk 57

Corporate responsibility (continued) Corporate responsibility Our strategic objectives for corporate responsibility management are: To ensure that appropriate governance arrangements are in place across the group To ensure that corporate responsibilities are integrated into our business processes To strengthen our environmental stewardship Arriva is committed to raising awareness of corporate responsibility across the group, sharing experiences and facilitating the exchange of best practice. The following policies, which govern Arriva s impact on society, are published on our website www.arriva.co.uk Human rights policy Code of business conduct Health and safety policy Environmental policy Human resources policy Diversity policy Corporate governance policy Arriva and accessibility Community relations policy Whistleblower policy Our code of business conduct sets out the standards expected of agents, subcontractors and suppliers as well as Arriva employees. The managing director of each business or relevant head of department is responsible for ensuring employees are made aware of the code and their responsibility therein. Arriva does not make political contributions or donations, or any payment or donation which could reasonably be construed as such, and this policy applies to all businesses and companies in the group. Our governance and performance in relation to corporate responsibility issues has gained increased recognition by internationally respected groups including the following: FTSE4Good Arriva plc is a member of the FTSE4Good corporate responsibility index. Our status was reconfirmed in the 2009 reviews of the index, which acts as a guide for investment in companies meeting internationally recognised corporate responsibility standards. FTSE4Good gives a benchmark for global investors keen to manage the environmental and social risks in their portfolios. Under FTSE4Good s independent review, we demonstrated that we have the policies and procedures in place to responsibly manage the environmental performance and social impacts of our transport operations Ethibel Arriva has qualified to be listed on the Ethibel Excellence Investment Register. Our listing was confirmed in September 2009 by Brussels-based Ethibel following research by European corporate social responsibility agency Vigeo. The listing assures investors looking for investments with an ethical dimension that Arriva meets recognised standards Dobra Firma Arriva PCC, our joint venture in Poland, received a Dobra Firma social responsibility award in 2009 for its commitment to eco-friendly transportation, good citizenship and taking care of its employees Brand Emissions Leader Following analysis by Edinburgh University Business School and ENDS Carbon, a specialist carbon ratings agency, Arriva was named a Brand Emissions Leader for its performance in cutting its greenhouse gas emissions intensity and putting ambitious targets in place for further reductions. Brand Emissions Leaders were assessed as having targets in line with the UK government s Copenhagen goal of 34 per cent carbon emissions reduction by 2020 on 1990 levels 58 Arriva plc Annual Report & Accounts 2009

Safety Picture from David Brereton (train manager), CrossCountry, UK. A rail safety inspection We are committed to ensuring our customers can travel in safety and providing a safe environment for employees to work. Safety underpins all our operational procedures with accountability for safety at every level of the organisation. The Board safety committee regularly reviews and monitors safety performance and reports to the Board. The committee has been chaired by senior non-executive director Steve Williams since April 2009 when the previous chair, Veronica Palmer, retired. We ensure appropriate resources and support are provided to maintain high standards of safety, with monitoring and review systems and clear communication to reinforce its importance across the group. Corporate responsibility 59

Corporate responsibility (continued) The managing director of each business is responsible for ensuring its health and safety plan complies with local legislation and is regularly reviewed and updated. Each business operates a safety management system and ensures risks to health and safety are identified, assessed and appropriately managed. A European health and safety forum is being set up in 2010 to formalise sharing best practice in safety management and reporting across the group. Fault incidents per 100,000 kilometres 2.0 1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0 1.7 1.65 1.66 0 0 0 Bus Rail Group 1.6 KPI 1.40 1.41 2007 2008 2009 Corporate responsibility Each business operates a safety management system and ensures risks to health and safety are identified, assessed and appropriately managed Regular engineering maintenance and stringent safety checks underpin the reliability and mechanical safety of our vehicles. In the UK, the first time pass rate for Arriva buses in Vehicle and Operator Services Agency (VOSA) testing for 2009 was 95.6 per cent, building on improvements made the previous year. A fault incident is where our driver or the condition of our vehicle contributes to a loss, damage or injury. We measure fault reports per 100,000 kilometres operated. The fault incident rate for 2009 was broadly consistent with 2008. Employee injuries per 100 employed 2.0 1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0 0.4 0.4 0.4 0.5 0.7 Bus Rail Group KPI 0.5 0.4 0.4 0.4 2007 2008 2009 VOSA first time pass rate (%) 2007 93.2 2008 94.5 2009 95.6 An employee injury is where any person employed by the company (at the time of the incident) suffered physical harm or mental trauma as a result of an incident arising from Arriva work activity, not including physical assaults. We recognise employee injuries as any reported injury. The number of employee injuries per 100 people employed is reported as a monthly average for the year. In 2009, group employee injuries per month remained at 0.4 per 100 employed. 60 Arriva plc Annual Report & Accounts 2009

CCTV control room at Arriva Scotland West. Cameras are helping to reduce anti-social behaviour Maintaining a safe working environment with a depot safety forum at Enfield, London Training and motivation for safety At Arriva we reinforce our commitment to the safe operation of public transport with training and awareness campaigns for our employees and contractors which reflect changing technology and operating circumstances. Standards of safety awareness are maintained through comprehensive training and inspection regimes. Training includes safety theory, vehicle safety maintenance, analysis of accident causes and driving regulations. Training courses include practical sessions so drivers can experience different road conditions and practice skid control, precise manoeuvring and emergency braking. In the Netherlands each year we provide the five per cent of bus drivers who have the highest accident rates with remedial training The engineering excellence initiative at our bus business in Yorkshire, in the UK, raises further awareness of the safety benefits of well managed workshops and ensures the highest standards of maintenance are upheld In 2009 we mounted a safety awareness campaign across our Spanish bus businesses, with improved communication to employees. Particular safety tips or potential hazards are highlighted each month through high impact visual displays. Safety committees established with the trade unions and depot level safety forums help deliver a three step approach of identifying risk, communicating it and mitigating it by training or change of process In our UK Bus division we launched a poster awareness campaign highlighting a new policy which sees 10 per cent of employees randomly selected for drugs testing each year, alongside alcohol testing Corporate responsibility 61

Corporate responsibility (continued) Safety training is an essential part of the Certificate of Professional Competence courses we run for bus drivers in the UK. Safety awareness posters designed by drivers have been used for driving and workplace safety campaigns. Depot-based road safety groups take a proactive approach to safety issues, carrying out route risk assessments, and where appropriate, producing DVDs highlighting road safety hazards. In the UK 88% of our bus fleet now carries CCTV Corporate responsibility Working with Mersey Tunnel Police, we have produced a safety DVD advising bus drivers on speed and lane restrictions in the Mersey Tunnel and what to do in the event of a breakdown. Protecting our passengers and employees The fear of crime or anti-social behaviour is a real concern for some people, including those using public transport. Across the group, Arriva works to create a reassuring and safe environment for our passengers and employees. We work with local and transport police forces, local authorities and other stakeholders on initiatives that both reduce crime and provide reassurance to customers. Arriva London has continued working with police and Transport for London as part of the Safer Transport Team to ensure a safer environment for transport staff and passengers The increasingly widespread deployment of CCTV is helping to reassure passengers about safety. Cameras fitted inside and outside our buses are aimed at reducing vandalism, anti-social behaviour, assaults and fraudulent insurance claims Train drivers from CrossCountry took part in school visits in Scotland and England to support Network Rail s national No messin campaign, explaining the dangers of trespassing and vandalism on the railway Working with the police, in Germany in 2009 we launched a campaign to reduce the number of accidents caused by people crossing rail lines Other safety initiatives in 2009 included: Arriva has joined the Federatie Mobiliteit initiative in the Netherlands with government and police to reduce anti-social behaviour and improve passenger and driver safety In the UK we are working with West Yorkshire Police to tackle anti-social behaviour in, for example, Wakefield bus station At Udine, Italy, we supported the Easy Foot public and road safety initiative with video cameras installed on SAF buses providing updated safety, road condition and traffic information to local authorities In the UK more than 88 per cent of our bus fleet now carries CCTV, up from 81 per cent in 2008 In the Netherlands, Arriva was the first bus operator to have CCTV installed on all of its vehicles Technical innovation is being used to combat antisocial behaviour and improve safety on Arriva s trains and at stations in Wales. The Welsh Assembly Government has funded lightweight hands-free cameras being worn by Arriva Trains Wales (ATW) security officers and British Transport Police in Swansea, Pontypridd and Newport Satellite technology enables personal safety alarms worn by ATW conductors and station staff to identify the location of an incident when activated Hands-free cameras are making travel safer in Wales 62 Arriva plc Annual Report & Accounts 2009

Healthy Schools Bus brings sport and nutrition advice in Liverpool, UK Community Arriva Skandinavien employees cycled from Copenhagen to Paris raising 200,000 for children s cancer charities Our services provide daily travel for millions of people. Whether for work, leisure or other essential journeys they depend on us to be reliable. A key measure of our performance is the proportion of our planned mileage we operate. In 2009 the proportion of scheduled mileage operated was 98.9 per cent. KPI Corporate responsibility Improving accessibility for people with restricted mobility continues to progress as a result of significant investment over the past two years. The proportion of accessible low floor vehicles in our UK bus fleet is now 82 per cent, up from 74 per cent in 2008. Pupils in Braga, Portugal, learn road sense in a safe environment Proportion of scheduled mileage operated (2009) 98.9 % Low floor buses are improving access for people with pushchairs or wheelchairs 82% of our bus fleet is now accessible with low floor vehicles, up from 72% in 2008 63

Corporate responsibility (continued) Listening and adapting We listen to the communities we serve, and help them to have a voice in shaping our services to suit local needs. Arriva holds open days at depots and workshops to give our customers and neighbours a closer look at what we do and to strengthen ties with the communities in which we work. In other locations we put on exhibitions or road shows. For example: Corporate responsibility Raising the platform at Aberdyfi, Wales, to improve accessibility ATW has identified a solution for accessibility issues at stations with a high step between platform level and train. At Aberdyfi in Gwynedd a hump has been installed to raise part of the low platform, without the need for major engineering works. Another is set for installation at Valley station on Anglesey in spring 2010 In 2009 in Galicia, Spain, we organised passenger road shows in villages to give local people a chance to share their views with Arriva directors and local mayors In St Helens, UK, we mounted a display of new buses ready to begin service in the borough and supported a Be Local, Buy Local campaign to help the community s local retailers through the recession Our supervisors and managers travel on our buses to experience services from a customer perspective, listening to passengers and exploring ways to improve our services In the Czech Republic in 2009 our Bosak bus company developed a special service for people with disabilities in conjunction with the Central Bohemia regional government. The service includes transport to hospitals and public offices In 2009 our UK bus business raised the profile of our back to the floor initiative with senior managers getting face-to-face feedback on local services in Glasgow, Whitby, Leeds and Wakefield. The division s commercial director and employees from depots in Liverpool and Luton spent time staffing the customer service line, dealing personally with information requests and receiving comments on services. 64 Arriva plc Annual Report & Accounts 2009

Customer satisfaction Satisfied passengers should be at the heart of any transport business. By monitoring and measuring customer opinion we ensure we can target improvements to meet people s requirements for safe, reliable and good value transport services. In mainland Europe in 2009, a series of independent surveys showed improvements on the previous year Our rail services in Denmark achieved a record level of customer satisfaction in 2009, at 80.6 per cent At 71 per cent, passenger satisfaction on our Swedish trains continued to improve, rising four percentage points on 2008 In the Netherlands an independent customer survey of rail passengers by watchdog Consumer Guide scored Arriva at 65 per cent in the overall quality score, higher than its private and public sector rivals. Passengers also rated Arriva as the best performing operator in terms of staff and seat availability, punctuality and reliability In Greater Copenhagen, Denmark, we maintained satisfaction levels on our buses. The 81 per cent score for 2009 was up slightly from 80.6 per cent in 2008 On our buses in Stockholm, Sweden, we had a satisfaction rating of 74 per cent, and were the highest scoring operator at the end of 2009 and in early 2010 In Portugal, our TST business recorded the highest level of customer satisfaction since the survey began five years ago In 2009 a large-scale survey of our UK bus passengers returned the best ever overall satisfaction levels Almost 20,000 customers scored Arriva on 24 different aspects of their journey with overall satisfaction rising to 93 per cent after two years at 91 per cent In Copenhagen, Denmark, customer satisfaction on our buses was 81 per cent building on improvements over the previous two years Satisfaction with Arriva bus drivers was 91 per cent and improved satisfaction with onboard cleanliness was at 83 per cent, reflecting the impact of initiatives to improve reliability and bus cleanliness To gather ongoing feedback between the surveys, in 2009 we asked customers to volunteer as bus ambassadors to feed back ideas and report on service quality. More than 100 people signed up, representing a cross section of passengers from school pupils to pensioners In UK Trains the picture was also positive at both our franchises Passengers on our CrossCountry services recorded improvements in satisfaction with facilities and services, punctuality and capacity in the autumn 2009 National Passenger Survey, compiled by consumer watchdog Passenger Focus. The satisfaction level was 85 per cent, two per cent above the national average At ATW, 86 per cent of passengers were satisfied with ATW services, three per cent above the national average Corporate responsibility 65

Corporate responsibility (continued) Alongside customer satisfaction surveys, the feedback we receive as part of our community engagement is invaluable in adapting and improving our services. This flexibility and focus on passenger demand has paid dividends for local communities. For example in 2009 in Galicia, Spain, we began trials of demand-response services and hail and ride services in some rural areas where bus stops are further apart than is convenient for less mobile members of the community. Reaching out Our community activities vary between businesses and countries. Some of the most significant activities in 2009 were: Customer feedback was a key factor in the 2009 reorganisation of the customer services function at our UK bus business, with designated teams responsible for specific local areas. We extended opening times and redeveloped our customer website, www.arrivabus.co.uk Corporate responsibility Listening to our customers at Arriva North West, UK Liverpool pupils get fit with the Healthy Schools Bus In 2009, Arriva s Healthy Schools Bus initiative, developed in partnership with Liverpool City Council s Healthy Schools project and the Everton Foundation, took exercise and healthy eating messages to more than 6,000 pupils. Inspired by a visit to the Healthy Schools Bus, the South African Football Association has bought eight buses to use in a health awareness campaign in the run-up to the 2010 World Cup In September 2009, Arriva in conjunction with Sunderland City Council, Sunderland AFC Foundation and Sport England, launched the Active Bus. The former service bus, equipped with health monitoring equipment, exercise bikes and other fitness facilities, tours schools, community venues and public events, providing free health and fitness checks and advice 66 Arriva plc Annual Report & Accounts 2009

Schools School visits play an important part in our work with local communities across Europe. Arriva employees help with road and rail safety advice and explain the environmental benefits of public transport. Mural painted by sea cadets at Port Talbot Parkway station, Wales In Wales our award-winning community engagement programme included a project with the sea cadets and youth offending service to improve the environment at Port Talbot Parkway station. The sea cadets designed and painted murals and young offenders helped repaint the footbridge and other parts of the station platform as part of their community reparation In northern Portugal we work in partnership with local authorities in the district of Braga to transport pupils to road safety training sessions where they also learn how to behave when using public transport. The sessions for 13-year-olds include the use of pedal cars to learn traffic signals and improve road safety awareness In Denmark and Sweden we bring school groups to our depots to introduce them to the practicalities of using public transport, including tips on how to travel safely Across the UK, our schools pack continues to be a valuable resource for teachers of seven to 11-year-olds, supporting the curriculum in maths, science and social and environmental awareness In 2009 we were recognised for our exceptional contribution to the community at the Milton Keynes Investors in Education awards In Darlington, Arriva has been a partner in a walking bus scheme to help reduce the number of private cars used on the school run and promote exercise-related health benefits. Our support has included donating high-visibility vests to help ensure the safety of children and supervisors Corporate responsibility Community theatre helps pupils learn in Madrid, Spain ATW supported Barry Island Primary School as part of the Eco Schools programme Our Esfera private hire business in Madrid works with community theatre groups to provide an extra educational dimension to visits made by school parties. Trained actors are engaged to provide live history role-plays to increase understanding and interest in locations being visited by bus 67

Corporate responsibility (continued) Corporate responsibility CrossCountry donated 6,000 Books for Schools vouchers to the James Brindley School in Birmingham, collected from newspapers destined for recycling. The school exchanged the vouchers for 100 new books. The mobility and space provided by former service buses provides community facilities in many locations across Arriva s operating areas. In 2009 former Arriva service buses were used as: A mobile youth and community centre for young people s charity Enthusiasm in Derby, UK A mobile youth centre in Renfrewshire, Scotland Local Arriva businesses support grassroots sport with community sponsorships helping the areas where our customers and employees live and work. In 2009, such local support included backing a local cricket league in Lancashire, an under 12 soccer team in Derbyshire, and a community basketball club with sponsorship and transport in the Mostoles area of Madrid Empowering our employees Our employees take pride in being part of the local communities where we provide services, living in the areas where we work. We provide encouragement to follow their own community or charity interests. Charity and community-minded efforts by employees which we supported in 2009 included: In Italy our SAF bus company continued its support providing vehicles to a summer camp initiative which enables local disabled people to get involved in sporting activities In the UK, a group of drivers and support staff at Arriva London s Croydon garage won a gold community action award for their fundraising support for a local hospice over more than 20 years In Galicia, Arriva employees continued to support Sin Fronteras, a Spanish charity dedicated to famine and poverty relief work in Africa In the UK, CrossCountry employees again supported their adopted charity, Country Holidays for Inner City Kids (Chicks), which helps disadvantaged youngsters have a holiday. The company continued to provide free train tickets for children and their carers attending the Chicks activity centre in Devon A team of 12 employees from Arriva Skandinavien completed a 1,500 kilometre charity cycle ride from Copenhagen to Paris in eight days, raising 200,000 for children s cancer charities Typical of our approach are the community action awards we run in the UK, whereby employees are supported in their voluntary work in local communities. Those recognised gain cash awards from Arriva for the local causes they have stepped forward to support. In 2009 we rewarded more than 30 employees and their chosen charities. Platinum level awards went to two employees for their outstanding contribution: Rick Halsall from Arriva North West raised more than 20,000 for the Multiple Sclerosis Trust through events including sponsored treks across the Sahara Desert and along the Great Wall of China CrossCountry train driver Simon Holdsworth from Newcastle for raising more than 40,000 for a cancer charity which he co-founded in memory of a close friend 68 Arriva plc Annual Report & Accounts 2009

Employees 2009 intake for Arriva graduate programme Across 12 countries Arriva s 42,300 employees represent a diverse range of backgrounds and cultures, and make us a significant employer in many areas. We aim to maintain a supportive, respectful working environment in which everyone receives the training and development to enable them to fulfil their true potential. Corporate responsibility Through 2009 and into 2010 we have continued recruitment to our graduate and apprenticeship programmes through a period when many organisations were cutting back on recruitment. Companies across the group have development programmes and mentoring to nurture the talent of potential business leaders. A bus driver in Sweden. Employee satisfaction in Arriva Skandinavien improved in 2009 69

Corporate responsibility (continued) Every two years Arriva runs a group-wide survey to benchmark employee satisfaction across a range of measures. Employees are asked to indicate their level of agreement to a range of statements on a seven point scale from strongly agree to strongly disagree. The 2009 survey saw an overall response rate of 62 per cent, up eight percentage points from 2007. This level is regarded as good for UK response rates and excellent for mainland Europe by international market research provider GfK NOP. Overall employee satisfaction improved to 73 per cent based on those who agreed with the statement, taking everything into account, I am satisfied in my current job. A total of 69 per cent of survey responses agreed with the statement, I am proud to work for my company. We work hard to develop partnerships with our employees, trades unions and works councils. Employee surveys and regular communications such as company newsletters, open forums, road shows and websites help us to listen to our employees. The majority of our workforce is covered by collective arrangements on working conditions and we make provision for employee representatives to receive appropriate training and fulfil official union business. Arriva s European works council provides a formal group-wide update on operations and business performance for employee representatives. It is also a valuable opportunity for sharing best practice. Corporate responsibility Response rate Employee survey key metrics: 62% 8% 73% Overall satisfaction * 11% Pride * 69% 7% * Those who strongly agreed, agreed or slightly agreed Celebrating ISO9001 quality management standard at Arriva in Denmark Our approach to training and development includes providing a wide range of learning resources covering technical skills, health and safety, customer service, people management and foreign languages. Our leaders, managers and supervisors are critical in ensuring our employees welfare and we invest heavily in their training and development. Succession planning and individually tailored development plans help us build and retain the skills which will help move the business forward. Investment in new buses in Merseyside, UK, has helped improve the level of pride in working for Arriva recorded in the 2009 employee survey 70 Arriva plc Annual Report & Accounts 2009

Employee turnover 25 % KPI 20 15 10 5 12.5 13.5 7.9 6.8 6.3 4.0 11.8 12.4 7.3 0 Bus Rail Group 2007 2008 2009 Arriva employs 42,300 people across 12 countries. Our annualised employee turnover measure excludes employees leaving as a consequence of tender loss or sale of operations. Employee non-attendance 10 9 8 7 6 5 4 3 2 1 0 % 4.7 4.8 4.6 4.8 4.4 4.5 Bus Rail Group In 2009 employee turnover across Arriva reduced to 7.3 per cent, down from 12.4 per cent in 2008. 4.7 4.8 4.6 KPI Corporate responsibility 2007 2008 2009 We measure the non-attendance of our employees for scheduled working hours. Non-attendance can include sickness or any other reason for which an employee may not report for work, such as industrial action. In 2009 non-attendance improved on its 2007 level following a slight increase in 2008 partly related to industrial action affecting Dutch bus operators. 71

Corporate responsibility (continued) Diversity With 42,300 people working across 12 countries, Arriva s widely diverse workforce reflects the communities we serve. Valuing and respecting diversity in colleagues and customers is underpinned by the group s diversity policy. By the end of 2009 more than 7,000 employees across the group had experienced diversity training through our valuing and welcoming difference programme. The programme which commenced with our top 200 managers continues to be rolled out across the group. Corporate responsibility The UK government Department for Transport s guidelines on mobility and inclusion recognise Arriva s good practice for addressing diversity, citing the valuing and welcoming difference programme. They also cite Arriva s good practice in running open days with opportunities to try driving a bus, which have proved successful in encouraging women to consider bus driving as a career. To support the development of female leadership potential within the group Arriva holds a networking event for female managers. Race for Opportunity, which works to improve employment opportunities for ethnic minorities across the UK, rated Arriva within the top five private sector organisations in the UK, in its 2009 annual benchmarking report. 72 Arriva plc Annual Report & Accounts 2009

Environment Harnessing solar power at Udine, Italy All forms of modern transport have environmental impacts. Well run public transport has much to offer in limiting and reducing those impacts. Arriva promotes the benefits of efficient public transport solutions to governments and transport authorities across Europe. Corporate responsibility We generate power from wind turbines at TST s Moita depot in Portugal and the Arriva Trains Wales depot at Machynlleth 73

Corporate responsibility (continued) As an operator of large fleets of vehicles, we cannot be complacent about the comparative environmental advantages of surface public transport over alternatives such as private car use and airline travel. We have a responsibility to mitigate the environmental impact of our own operations. Our environmental management system sets out framework policies for all the companies in the group. These include self-audit and self-certification policies that require a senior manager within each business to take personal accountability for consistent management of environmental standards and performance. Corporate responsibility Given the scale of our transport operations it is inevitable that the highest profile aspects of our environmental impact relate to greenhouse gas production and air quality from tailpipe emissions of our vehicle fleet. Fuel efficiency measures, alternative fuels and the composition of our fleets are some of the largest factors. Our other environmental impacts have a lower profile, but we do not neglect them. We are working actively to make small improvements, for example through energy saving measures at our depot and office sites, water conservation, waste recycling, and reducing business travel through better use of communications technology. Many factors affecting our environmental impact are outside our immediate control. We work to influence authorities who determine the operating environment for our services, including bus lanes and traffic signal prioritisation. These enable us to deliver more attractive passenger offers and reduced pollution. The virtuous circle of public transport is driven by modal shift whereby optimal loading delivers better emissions productivity. In the case of car to bus substitution, it also frees up congestion and further improves fuel economy and environmental performance of public transport. We have recently noted an increase in the significance being placed on environmental considerations in competitive tendering processes. For example, in the major Dutch integrated bus and rail contract we won in December 2009, environmental factors and a CO 2 reduction plan accounted for 15 per cent of the tender assessment. Our plan to introduce new buses meeting Euro V and Enhanced Environmental Vehicle (EEV) emissions standards helped us to win the contract. Electric buses recharging in Sweden. To help reduce dependence on fossil fuels, the Arriva Skandinavien fleet includes biogas, ethanol and electric-powered buses Installing an EcoManager fuel economy system at Arriva Scotland West 74 Arriva plc Annual Report & Accounts 2009

Greenhouse gas reduction In 2008 we set a target to reduce our like-for-like greenhouse gas (GHG) footprint by 15 per cent measured from 2006 to 2012, and are well on track to achieve that through a combination of improved operating techniques, the use of alternative fuels and alternative vehicle technologies. Arriva s performance against its GHG reduction target has been reported annually since 2006 through returns to the Carbon Disclosure Project (CDP) which enables benchmarking against peer group companies. Arriva s returns can be viewed at www.cdproject.net The GHG emissions attributable to Arriva s business operations during 2009 were 1,535,867 tonnes CO 2 E, an increase in absolute terms of 46,809 tonnes CO 2 E. This reflects the increased services run by Arriva, including a full year of De Blas operations in Madrid, and Eurobus operations in Hungary and Slovakia. One of the challenges of reporting greenhouse gas emissions is finding a consistently workable means of normalising the absolute figure for emissions, enabling stakeholders to compare changes in the absolute CO 2 E figure against changes in the overall scale of the business. The chart to the right shows Arriva s GHG footprint normalised against group revenue for the past four years. In order to strip out the effects of inflation, which tend to flatter the rate of progress, the right-hand bar for each reported year depicts a real terms comparison, with greenhouse gas emissions divided by group revenue adjusted by changes in the sterling retail price index. Our continued investment in modernisation of our fleet has seen a reduction in the proportion of buses which meet the older Euro I and Euro II environmental standards and resultant decrease in the mileage operated by such engine types. The younger fleet profile reflects an increased proportion of vehicles meeting the more stringent Euro IV, Euro V and EEV engine standards, and mileage operated by them. Total GHG Emissions millions of tonnes of CO 2E 2009 1.54 2008 1.49 2007 1.05 Normalised GHG Emissions Tonnes per m turnover 650 600 550 500 450 400 350 300 250 200 150 100 50 0 2006 Emissions by source % Train fleet (33.9) Bus fleet (61.2) Other * (4.9) Nominal terms 2006 1.05 2007 2008 2009 Real terms The Office of Rail Regulation s Control Period 4 review reduced both revenue and costs for our CrossCountry and Arriva Trains Wales franchises by approximately 150 million in 2009, with a broadly neutral economic impact. To enable like-for-like comparisons, revenue for the years 2006 to 2008 in the table above has been adjusted to strip out the equivalent revenues from CrossCountry and ATW in the relevant years. Corporate responsibility * Includes non-fleet vehicles (0.3) and site energy consumption (3.3) 75

Corporate responsibility (continued) Vehicle by engine type (%) Bus Rail Group Engine type 2009 2008 2009 2008 2009 2008 Euro I 8.1 11.4 0.3 0.3 7.6 10.6 Euro II 31.9 34.6 56.1 55.3 33.6 36.1 Euro III 29.8 29.6 4.2 6.1 28.0 27.9 Euro IV 10.6 8.8 5.1 4.5 10.2 8.5 Euro V 5.6 1.8 0.3 0.0 5.2 1.7 EEV 3.6 2.5 0.6 0.9 3.4 2.4 Non-Euro class 8.1 8.4 25.4 25.5 9.3 9.6 Other 2.3 2.9 8.0 7.4 2.7 3.2 Kilometres split by engine type (%) Engine type 2009 2008 2009 2008 2009 2008 Corporate responsibility Euro I 8.3 11.6 0.1 0.1 6.6 9.2 Euro II 28.6 33.3 72.3 72.2 37.9 41.7 Euro III 34.7 35.7 3.6 4.2 28.0 28.9 Euro IV 12.5 7.0 2.7 0.1 10.4 5.5 Euro V 4.9 1.4 0.0 2.9 3.8 1.7 EEV 3.0 2.1 0.3 0.1 2.4 1.7 Non-Euro class 5.8 6.1 17.1 18.0 8.2 8.6 Other 2.2 2.8 3.9 2.4 2.7 2.7 Eco-driving and fuel consumption Training in eco-driving techniques is being extended across our businesses. Drivers are encouraged to adopt a more progressive driving style, adopting more gentle acceleration and braking and anticipating changes in traffic conditions to optimise fuel consumption. We have played an active role in developing and adopting driver aid technology to support this change in driving style. During 2009 we accelerated the roll-out of the EcoManager driver aid system. More than 3,000 buses, 49 per cent of our UK fleet, have now been equipped and drivers trained accordingly. The system is due to be deployed in all our UK bus operations during 2010. Fuel savings of between five and 10 per cent have been achieved consistently A similar system, Sirius, was adopted in Arriva s bus fleet in Sweden and Denmark during 2009 with the target of reducing consumption by five per cent in 2010 In Spain, we expect to install similar systems in more than 200 buses during 2010, concentrating on the vehicles with the highest annual mileage Equivalent technology is in use on Arriva trains in Bavaria, in many of our buses in Portugal, and trials are under way in our Italian bus business 76 Arriva plc Annual Report & Accounts 2009

Energy and water management Environmental considerations were at the core of the design brief for our new headquarters and depot in Guimarães, Portugal. The site has solar powered water heating, a wind turbine and water recycling facilities We also generate power from wind turbines at TST s Moita depot in Portugal and the Arriva Trains Wales depot at Machynlleth In Madrid, Spain, our Esfera depot has 220 solar panels on its roof and sells electricity back into the power grid In Udine, Italy, our SAF business is cutting energy consumption at offices and workshops with photovoltaic cells to produce electricity, solar panels for hot water, and lighting controls that adjust for the presence of people and the level of natural light Corporate responsibility Recycled water is used in bus washes at Arriva Portugal 77

Corporate responsibility (continued) Alternative fuels Arriva has gained a wide range of experience in the application of biofuels in differing operating environments with varied climatic and network conditions. A significant increase in the deployment of biofuels would be dependent on consistently supportive public policy regimes. Where the supporting infrastructure and commercial frameworks are in place we continue to appraise the suitability of alternative fuels or traction technologies, often in partnership with contracting authorities for deployment on specific services. Working with our suppliers and manufacturers Working with suppliers, we aim to influence future vehicle designs by investing in innovation and helping with trials of new technology. One of our long standing aims has been to reverse the trend for successive generations of buses to be heavier, and less economical. Increased weight has often come about for good reasons including higher safety and comfort specifications, and improved accessibility, but makes it harder to save fuel. Alongside other operators we have encouraged vehicle manufacturers to examine alternative engineering solutions. Corporate responsibility In March 2009 Arriva introduced 43 new buses fuelled by E95 bio-ethanol, derived from sugar cane, other crops and waste wood cellulose, to our fleet in Stockholm In northern Portugal a quarter of the fuel used by our fleet of 230 buses was B30, a blend of 30 per cent biodiesel To help reduce our dependence on fossil fuels, Arriva operates biogas, ethanol, and electric powered vehicles within Scandinavia During 2009 biodiesel was widely used across our German business. Government policy in relation to biofuels has changed, with cost implications for Arriva, and we expect to use a greater proportion of mineral-based diesel fuel during 2010 as a result These efforts have been partially rewarded with new lighter buses from a number of manufacturers entering Arriva s UK fleet in 2009 and 2010, but there is more that needs to be done Hybrid diesel-electric vehicles continue to interest us, and we operate them in Denmark and the UK Since the introduction of the first hybrid buses into London, Arriva has played an active role in their assessment and deployment, and introduced 11 new hybrid buses, from two suppliers, into the city during 2009. We believe that as the technology matures, capital costs will reduce and reliability will improve to make hybrids increasingly attractive We are involved in an innovative electric bus project in the Netherlands. For three years from 2010 we will operate three electric buses in the historic city centre of Hertogenbosch 78 Arriva plc Annual Report & Accounts 2009

Waste disposal Across Arriva we are working to decrease the amount of waste created by our operations and increase the proportion of waste which is recycled. Recycling schemes are widespread in our offices. Specialist waste contractors are used for the disposal of waste from engineering workshops and depots. A large proportion of the waste we have to dispose of is that left by passengers on our buses and trains. Cleaning contractors are employed to remove such waste and encouraged to recycle as much as is practicable. Recycling in Arriva Nederland In the Netherlands we have a national contract with one waste management supplier which: Collects and sorts office rubbish Recycles and processes waste and is responsible for recycling all usable material Incinerates domestic and corporate waste with energy recovery Advises on waste reduction Greener Journeys Arriva and other UK bus operators have come together to launch a marketing and lobbying campaign to encourage people to get out of their cars and onto buses and coaches. The Greener Journeys campaign promotes bus travel as a quick and cost-effective way to reduce carbon emissions and its aim is to take one billion car journeys off UK roads in three years. Greener Journeys is calling on the government to: Set targets for local authorities to encourage modal shift Drive investment in low carbon buses Promote bus priority, park and ride and other measures to cut car commuting Encourage bus travel to reduce school run traffic Priority measures to promote coach travel This combined approach to promoting modal change complements Arriva s existing marketing campaigns which have encouraged car users to switch to public transport with messages including Go Greener - Go Cheaper and Bus travel that won t cost the earth. For further information visit: www.greener-journeys.com Corporate responsibility 79

Notes 80 Arriva plc Annual Report & Accounts 2009

Directors statements Board of directors 82 Directors report 84 Directors remuneration report 88 Corporate governance 97 Directors statements 81

Board of directors Board of directors Sir Richard Broadbent David Martin Steve Lonsdale Steve Williams Nick Buckles Simon Batey Directors statements Angie Risley 82 Arriva plc Annual Report & Accounts 2009

Sir Richard Broadbent KCB Chairman Sir Richard was appointed to the Board in July 2004 and became chairman in November 2004. Sir Richard chairs the nomination committee of the Board and is also a member of the remuneration committee. Sir Richard is the deputy chairman of Barclays plc and was executive chairman, HM Customs and Excise, from 2000 to 2003. He was formerly a member of the Group Executive Committee of Schroders plc and non-executive director of the Securities Institute. David Martin BA, FCMA, MiMgt Chief executive David qualified as an accountant in 1977 after graduating in business studies. He held a variety of general management positions before joining the bus industry in 1986. After leading a management buy-out of an East Midlands-based bus company, he was involved in the acquisition of National Express and the subsequent management buy-outs leading to the creation of British Bus Group Limited. David joined the group in 1996 on the acquisition of British Bus, becoming a member of the Board in February 1998 with specific responsibility for the group s international operations and development. From March 2005 he was group managing director operations and deputy chief executive, and since April 2006 chief executive. Steve Lonsdale BA, FCA Group finance director Steve graduated from the University of Newcastle upon Tyne with a degree in economics and accounting before joining Coopers & Lybrand in 1978. He qualified as a chartered accountant in 1981 and spent eight years working in the profession in the UK and overseas. Steve joined the group in 1987. He worked as group accountant until 1991 when he was appointed to the Board as group finance director. Steve has responsibility for all finance, legal and company secretarial matters. Steve Williams, LLB Non-executive director Steve was appointed to the Board as a non-executive director on 1 September 2005 and on 18 October 2005 was appointed senior independent director. Steve sits on the nomination and audit committees and chairs the safety committee. Nick Buckles Non-executive director Nick was appointed to the Board as a non-executive director on 19 July 2005 and since September 2007 has been chairman of the remuneration committee. Nick also sits on the nomination and safety committees. Having joined Securicor plc in 1985, Nick was appointed to its Board in 2000. Following the merger between Securicor plc and the security businesses of Group 4 Falck, he was appointed deputy chief executive and chief operating officer of the merged Group 4 Securicor (now G4S plc) in July 2004, becoming chief executive of G4S plc in July 2005. Simon Batey BA, MA, FCA Non-executive director Simon joined the Board as a non-executive director on 1 October 2003 and since 1 January 2004 has been chairman of the audit committee. Simon also sits on the remuneration, nomination and safety committees. Simon has over 20 years experience in a number of senior finance roles in industry. Between 2000 and 2006, Simon was group finance director of United Utilities plc and then from 2006 until August 2007 was chief financial officer of Thames Water Utilities Limited. From 1987 to 2000, he worked for AMEC plc, initially as deputy group finance director and then, from 1992, as group finance director. Simon has been a non-executive director of Telecity Group plc since October 2007 and has also served as a non-executive director of THUS Group plc. He was also appointed as a director of Enterprise Group Holdings Ltd on 1 April 2009. Angie Risley Non-executive director Angie was appointed to the Board in March 2009 as a nonexecutive director. She is group human resources director of Lloyds Banking Group plc, and was an executive director of Whitbread PLC until May 2007, having joined the Whitbread group in 1989. She has also been a member of the Low Pay Commission, and a non-executive director of Biffa plc. Angie sits on the remuneration, nomination and audit committees. Steve is chief legal officer and group general counsel of Unilever plc and Unilever NV. Prior to joining Unilever, Steve spent 11 years at Imperial Chemical Industries plc in the legal and company secretarial departments. Steve is a non-executive director of Whitbread PLC where he is also senior independent director and is chairman of the De La Warr Pavilion Trust and acting chairman of Arts & Business. He served for nine years as a non-executive director of Bunzl plc until 2004. Retired directors Directors statements The following directors retired on 22 April 2009: Steve Clayton BA, FCIT, MiMgt Group managing director corporate affairs Formerly managing director of Leaside Bus Company Limited, which was acquired by the group in 1994, Steve was appointed to the Board in February 1998 with responsibility for the group s bus operations in the UK. From March 2005 until his retirement in April 2009 he was group managing director corporate affairs, with responsibility for human resources, health, safety and the environment, technical services, corporate communications and all government relations activities across the group. Veronica Palmer OBE Non-executive director Veronica was appointed to the Board as a non-executive director in September 2001. She is chairman of the Northern Ireland Transport Holding Company Board, and has an MBE for military services and an OBE for services to the transport industry. Veronica held the position of director general of the Confederation of Passenger Transport UK from 1989 until June 2001. 83

Directors report Directors report Directors statements KPI The directors submit their report and the audited accounts of Arriva plc for the year ended 31 December 2009. Principal activities The principal activities of the company and the group at 31 December 2009 comprised the operation of bus and train services in the UK and 11 countries in mainland Europe. Business review A review of the group s principal activities and performance for the year is contained in the chairman s statement (on pages 34 and 35), the chief executive s review (on pages 36 to 43), the financial review (on pages 44 to 49) and the corporate responsibility report (on pages 56 to 79), which collectively comprise the business review and these are included in this report by reference. A review of the principal risks and uncertainties facing the company is set out on pages 50 to 53 and is also included in this report by reference. This Annual Report & Accounts contains certain forward-looking statements. These statements and forecasts involve risk and uncertainty because they relate to events and depend upon circumstances that occur in the future. There may be a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forwardlooking statements and forecasts. Key performance indicators The group uses the following key performance indicators (KPIs) to assist in the understanding of the development, performance and position of the business: (i) Earnings per share, before goodwill impairment, intangible asset amortisation and exceptional items (see financial review page 45) (ii) Order book (see our business page 8) (iii) Employee turnover and non-attendance (see corporate responsibility report page 71) (iv) Return on capital employed (see financial review page 49) (v) Percentage of scheduled mileage operated (see corporate responsibility report page 63) (vi) Public Performance Measure for UK Trains (see chief executive s review page 42) (vii) Fault incidents per 100,000 kilometres (see corporate responsibility report page 60) (viii) Employee injuries per 100 employed (see corporate responsibility report page 60) Results and dividends The profit for the year amounted to 119.2 million (2008: 111.2 million). The directors recommend the payment of a final dividend on the ordinary shares of the company of 18.80 pence per share (2008: 17.91 pence), which together with the interim dividend of 6.46 pence (2008: 6.15 pence) represents a total of 25.26 pence per ordinary share (2008: 24.06 pence). The proposed final dividend, if approved, will be payable on 10 May 2010 to shareholders on the Register of Members at the close of business on 9 April 2010. The total amount paid and proposed to be paid is 50.3 million in respect of 2009 (2008: 47.8 million). Share capital The share capital of the company is made up of 400,000,000 ordinary shares of 5 pence each, each share having one vote. As at 2 March 2010, there were 199,159,195 shares in issue. The total number of voting rights was therefore 199,159,195. The movement in the share capital during the year is detailed in note 22 to the accounts. At the 2009 Annual General Meeting (AGM) shareholders gave authority for the purchase of up to 10 per cent of the company s issued ordinary shares but this authority has not been utilised. Shareholders will be requested to renew this authority at the 2010 AGM. Directors The names and biographies of the directors appear on pages 82 and 83. Steve Clayton and Veronica Palmer both retired as directors on 22 April 2009. David Martin, Nick Buckles and Steve Williams will retire by rotation and, being eligible, offer themselves for re-election at the AGM on 6 May 2010. 84 Arriva plc Annual Report & Accounts 2009

No director was directly interested in any contract or arrangement which was significant in relation to the group s business. Sir Richard Broadbent is a director of Barclays Bank plc, which was a lead arranger in a 615 million syndicated revolving credit refinancing facility that the company entered into in August 2007. Sir Richard played no active role in the negotiation of this facility. Angie Risley is group human resources director of Lloyds Banking Group plc, which provides asset-backed finance and on-going annual bilateral working capital facilities to the group. Angie took no active part in the discussions concerning the arrangement of these facilities. Nick Buckles is chief executive of G4S plc, which supplies services to a number of Arriva group companies; Nick was not involved in the establishment of these arrangements. Indemnification of directors In accordance with its articles of association and as approved by shareholders at the 2006 AGM, the company has the power (at its discretion) to grant an indemnity to the directors in respect of liabilities incurred as a result of their office. Deeds of indemnity were issued to all directors in post in May 2006 or on subsequent appointment. Updated deeds, compliant with the Companies Act 2006, were issued to all directors in June 2009. The company has maintained a directors and officers liability insurance policy throughout the period. Neither the company s indemnity nor insurance provides cover in the event that the director is proved to have acted fraudulently or dishonestly. No claims have been made either under the indemnity or the insurance policy. Statement of directors responsibilities The directors are responsible for preparing the Annual Report, the directors remuneration report and the group and parent company financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the group financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU), and the parent company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). In preparing the group financial statements, the directors have also elected to comply with IFRS, issued by the International Accounting Standards Board (IASB). Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the group and the company and of the profit or loss of the company and group for that period. In preparing these financial statements, the directors are required to: Select suitable accounting policies and then apply them consistently Make judgements and accounting estimates that are reasonable and prudent State whether IFRS, as adopted by the European Union and IFRS issued by IASB and applicable UK Accounting Standards, have been followed, subject to any material departures disclosed and explained in the group and parent company financial statements respectively Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company s transactions and disclose with reasonable accuracy at any time the financial position of the company and the group, and enable them to ensure that the financial statements and the directors remuneration report comply with the Companies Act 2006 and, as regards the group financial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the company and the group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The directors are responsible for the maintenance and integrity of the company s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Directors statements Each of the directors, whose names and functions are listed on pages 82 and 83 of this report confirm that, to the best of their knowledge: The group financial statements, which have been prepared in accordance with IFRS as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the group; and The business review (which can be found on pages 34 to 79 of this report) includes a fair review of the development and performance of the business and the position of the group, together with a description of the principal risks and uncertainties that it faces. The directors confirm that, as at the date this report was approved, so far as each director is aware, there is no relevant audit information of which the auditors are unaware and they have taken all the steps that they ought to have taken as directors in order to make themselves aware of any relevant audit information and to establish that the company s auditors are aware of that information. 85

Directors report (continued) Directors interests The interests of the directors (including their relevant family interests) in the share capital of the company at the end of the year, and details of directors interests under the Long Term Incentive Plan, appear in the directors remuneration report on pages 88 to 96. Purchase of own shares No shares have been purchased pursuant to the authority granted to the directors at the AGM held on 22 April 2009. Renewal of this authority will be sought at the AGM to be held on 6 May 2010. Charitable and political donations During the year the group made charitable donations, for a variety of charitable purposes, amounting to 66,292 (2008: 97,107) of which 14,100 comprised donations in excess of 2,000 to charities for medical purposes. There were no political donations (2008: nil). Further information on charitable donations can be found in the corporate responsibility report on page 68. Annual General Meeting The AGM will be held on 6 May 2010. Details of business to be considered at the meeting can be found in the Notice of AGM which has been sent to all shareholders with this report, and which appears on the website at www.arriva.co.uk. Employees The Board of Arriva plc recognises that its employees are key to its success and is committed to creating a working environment where everyone has the opportunity to learn, develop and contribute to the success of the group, working within a common set of values. The group intends to be an employer of choice and to employ a diverse workforce with the skills, abilities and attitudes to meet business goals and objectives. The group s aim is to create an environment in which all people are valued and can be successful at work. The group continues to give full and fair consideration to applications for employment by disabled persons, having regard to their respective aptitudes and abilities and its policy includes the continued employment, training, career development and promotion, where appropriate, of those who may become disabled during their employment. The group has, subject to the restraints of commercial confidentiality, continued its policy of supporting employee involvement and awareness of business activities, by making information available on a regular basis on matters of concern to them as employees and by seeking employee views and feedback using appropriate communication channels, including Information and Consultation Committees in the UK. Employee briefings are circulated throughout the group on business performance and publication of results. UK employees also have the opportunity to join the company s Share Incentive Plan, which is open to all UK employees with three months service and gives the opportunity to buy shares in the company in a tax-efficient manner. Directors statements Further information on employee representation can be found in the corporate responsibility report on page 70. 86 Arriva plc Annual Report & Accounts 2009

Policy regarding payment of suppliers The company s policy regarding the payment of suppliers is either to agree terms of payment at the start of business with each supplier or to ensure that the supplier is made aware of the payment terms, and in either case to pay in accordance with its contractual or other legal obligations. At 31 December 2009 the company s trade creditors outstanding represented approximately 34 days purchases (2008: 33 days). Substantial shareholdings As far as the directors are aware, the only notifiable holdings equal to or in excess of three per cent of the issued ordinary share capital as at 2 March 2010 were: % Aberdeen Asset Management PLC s Fund 7.90 Artemis Investment Management Limited 6.14 AXA S.A. 9.93 Legal & General Group Plc 5.07 Marathon Asset Management LLP 7.62 Corporate governance A review of the company s application of the principles and provisions of The Combined Code on Corporate Governance 2008 appears on pages 97 to 108. Health, safety and environment Details of the company s approach to health, safety and environmental issues appears within the corporate responsibility report on pages 56 to 79. Auditors A resolution to re-appoint PricewaterhouseCoopers LLP as auditor to the company and to authorise the directors to fix the auditor s remuneration will be proposed at the AGM. By order of the Board David Turner Company Secretary 2 March 2010 Directors statements 87

Directors remuneration report Directors remuneration report This report has been prepared in accordance with the provisions of Schedule 8 of The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008, The Companies Act 2006 and the Listing Rules of the UK Listing Authority. The report addresses the following key elements: Membership of the remuneration committee The remit of the committee and its work in 2009 The company s remuneration policy on executive pay Disclosure of the directors remuneration arrangements and remuneration received during the year Details of the operation of annual bonus and long-term incentive schemes 1. Membership of the remuneration committee Membership of the committee comprises exclusively non-executive directors of the company all of whom (with the exception of Sir Richard Broadbent only by reason of his chairmanship of the Board) are considered to be independent. The committee is chaired by Nick Buckles and the other members are Angie Risley, Simon Batey and Sir Richard Broadbent. With the exception of Angie Risley, whose membership of the committee commenced on 22 April 2009, all members served on the committee for the year under review. The committee met six times during the year; details of each member s attendance record are disclosed in the Board and Board committee attendance table which appears on page 99 in the corporate governance report. Committee meetings are also attended by the chief executive (except for those items relating to any aspect of his remuneration) and on occasions by Alison O Connor, director - human resources. The company secretary acts as secretary to the committee. 2. Remit of the committee The remuneration committee is responsible for all aspects of remuneration as they affect the executive directors and the most senior level of management below the Board. Detailed terms of reference, which appear on the company s website, www.arriva.co.uk, are well established and are periodically reviewed and amended as necessary. During the year the company received independent advice and support from Towers Watson. The key responsibilities of the committee are: Directors statements (a) Determining and agreeing with the Board and keeping under review a remuneration policy for both directors and senior management. (b) On the basis of proposals put forward by the chief executive, having consulted the chairman, determine the remuneration packages of the executive directors, and all others where the total remuneration package (including pension and bonus) exceeds a value to be determined by the Board from to time; consider any proposals for the introduction of new pension arrangements, including the termination of any existing material arrangement, and make recommendations to the Board. (c) Agreeing targets and benefits in respect of any executive performance related pay scheme having due regard to the interests and expectations of the shareholders and ensuring that targets set are sufficiently challenging and that the rewards represent a fair and highly motivating incentive and are commensurate with industry/ peer pay comparator group practice. (d) Agreeing and keeping under review the pension benefits for each executive director and all others where the total remuneration package (including pension and bonus) exceeds a value to be determined by the Board from time to time. (e) Regularly reviewing and assessing the executive remuneration policies and structure of the pay peer comparator group and making appropriate recommendations to the Board having due regard to the practices adopted by the peer pay comparator group. (f) Reviewing annually the composition of the peer pay comparator group to ensure it remains appropriate. (g) On a regular basis critically evaluate the merits and effectiveness of the company s performance related pay schemes, including the introduction of new share incentive schemes, and make appropriate recommendations to the Board. 88 Arriva plc Annual Report & Accounts 2009

(h) At its discretion and having consulted with the chief executive, appoint and agree the terms of reference and the remuneration of any external consultants who may from time to time advise the committee. (i) Approving the directors remuneration report for subsequent approval by the Board. 3. Remuneration policy It is the responsibility of the remuneration committee to set the remuneration of the executive directors and senior executives in accordance with the broad policy established by the Board. The main thrust of the Board s remuneration policy is to establish and operate a compensation framework which is conducive to the recruitment and retention of high calibre directors and senior managers for the benefit of the company s shareholders. Considerable emphasis is placed on performance-driven compensation where targets are aligned with the company s strategic objectives and targeted shareholder returns. In setting the framework for remuneration the committee has regard to the pay levels and structures operating within FTSE 250 companies from the transport and other sectors which comprise the peer pay comparator group established by the committee. Reference is also made by the committee to pay arrangements operating within its UK-based direct competitors. 4. Remuneration review As reported last year the committee had concluded, following an extensive review based upon independent advice from Towers Watson, that basic salary levels for its executive directors were materially out of line with the base salary levels at peer group companies whether broadly or narrowly defined. It concluded at that time that The committee is clear that it is not in the interests of the company to continue indefinitely paying salaries to its senior executives that are well below the median of its competitors and its peer group. It intends therefore as a matter of policy to seek to close the gap that has developed as quickly as possible. The committee determined, after consultation with shareholders and mindful of the need to strike a balance between internal priorities and the general economic climate, to approve only modest increases in base salaries. In considering the pay review for 2010 the committee remains mindful of the continuing difficult economic conditions and the general level of interest and concern over executive salaries. Taking this, as well as the continuing mismatch of salaries into account, the committee concluded that it would again be appropriate to implement modest increases in the base salaries of the executive directors with effect from 1 January 2010 as follows: Base salary Increase Base salary 1 Jan 2009 1 Jan 2010 David Martin 494,000 4% 514,000 Steve Lonsdale 328,000 4% 341,100 Steve Clayton (retired 22 April 2009) 288,000 N/A N/A It does however continue to be the committee s objective to ensure that executive salaries are aligned as quickly as possible with the median position within the company s peer pay comparator group, as indicated in last year s remuneration report. Directors statements 89

Directors remuneration report (continued) 5. Remuneration structure (a) Base salary Each of the executive directors is paid a basic annual salary which is reviewed on 1 January each year. The salaries of the executive directors were increased effective from 1 January 2010 as detailed in section 4 above. (b) Performance-related bonus Each of the executive directors has the opportunity to earn additional remuneration under a performance-related bonus scheme; this opportunity is capped at a maximum bonus of 100 per cent of base annual salary. Of the bonus potential, 70 per cent is driven by group financial performance and 30 per cent by personal performance against a number of qualitative objectives agreed with each director at the beginning of each year. With regard to the financial performance element, the structure for 2009 was as follows: (i) Earnings before interest and tax (EBIT) (maximum of 50% of base salary) Bonus as % of base salary at 1 January 2009 160m 0 180m 20 210m 50 (ii) Earnings per share (EPS) (maximum of 20% of base salary) Bonus as % of base salary at 1 January 2009 48p 0 53p 8 61.5p 20 EPS excludes goodwill impairment, intangible asset amortisation and exceptional items. EBIT includes the contributions from associate companies but excludes unbudgeted acquisitions and exchange rate movements. The qualitative element continues to focus on specific aspects of strategy including financing, rapid response to adverse market conditions, pensions, property and the continued development of a high calibre management team supported by a robust succession plan. On the basis of the definitions above, adjusted EBIT for the year ended 31 December 2009 was 163.1 million and adjusted EPS for the year was 57.6 pence. This, together with the performance of the directors against their personal performance targets gave rise to bonus payments as follows: Directors statements 2009 2008 David Martin 222,794 375,360 Steve Lonsdale 140,000 239,300 Steve Clayton retired on 22 April 2009 and was paid a bonus of 48,960 in respect of 2009 (2008: 209,200). The non-executive directors do not participate in the performance-related bonus scheme. 90 Arriva plc Annual Report & Accounts 2009

(c) Long Term Incentive Plan (LTIP) The LTIP is a share-based plan and comprises a conditional award of shares of a value equivalent of 200 per cent of the executive director s basic salary as at 1 January preceding the date of an award; awards are normally made each March following the announcement of the group s preliminary results for the preceding financial year. Awards comprise a blend of two elements with each element providing the opportunity for each executive director to earn up to one half of the conditional share award. Each element operates as follows: (i) Total Shareholder Return element (TSR) This element provides the opportunity to earn up to one half of the initial total conditional award and is based on the group s TSR performance when ranked against the TSR performance of those companies comprising a peer comparator group. For this purpose the peer comparator group consists of companies (excluding the company and investment companies) whose shares comprise the FTSE 250 at the beginning of each three-year measurement period. Performance is measured over three consecutive financial years (1 January 31 December), the first year of the measurement period being the year in which the conditional share award is made. In order for shares to vest under this element, the TSR performance of the group must achieve, as a minimum, the median TSR performance of the peer comparator group; achievement of the median position will generate the vesting of 25 per cent of this element of the award, and this will increaseon a linear basis to 100 per cent of this element on the achievement of upper quartile performance. The TSR performance is independently calculated and verified by Alithos Limited. (ii) The EPS element This element also provides the opportunity to earn up to one half of the initial conditional award; vesting of the shares is on a linear scale with 10 per cent vesting if EPS increases to a level which is four per cent per annum in excess of the increase in the Retail Price Index (RPI) over the three-year measurement period; vesting will increase on a linear scale to a maximum of 100 per cent of this element on EPS performance achieving or exceeding 13 per cent per annum in excess of the growth in RPI. The vesting of the shares conditionally awarded in 2007 had as the performance measurement period the three years ended 31 December 2009. The TSR over the period did not achieve the threshold for vesting and therefore this element of the award lapsed with no benefit arising. With regard to the EPS element of the conditional award, EPS for the year ended 31 December 2009 was 58.8 pence compared with EPS for the year ended 31 December 2006 of 44.4 pence, an annualised increase of 9.82 per cent. The annualised growth in RPI over the same three year period was 2.46 per cent, resulting in a vesting of this element of the conditional award of 43.6 per cent. LTIP vesting history awards made 2003 to 2007 % 100 90 80 70 60 50 40 30 20 10 0 Directors statements 2003 2004 2005 2006 2007 % of total award vesting 91

Directors remuneration report (continued) Notes: 1. Year of award Performance measurement period Vested 2003 3 years ended 31 December 2005 March 2006 2004 3 years ended 31 December 2006 March 2007 2005 3 years ended 31 December 2007 No vesting 2006 3 years ended 31 December 2008 March 2009 2007 3 years ended 31 December 2009 March 2010 2. For awards made before 2006 vesting was dependent on the performance of the group s EPS when compared with the growth in RPI and also the TSR of the group when compared to that of a peer comparator group (comprising the constituent companies of the FTSE 250 excluding the company and investment companies). The degree of vesting was on a sliding scale of 25 per cent to 100 per cent with no shares vesting unless the company s TSR was at least equal to the median TSR of the peer comparator group. However, irrespective of TSR performance, vesting of the awards in any event was subject to the growth in the company s EPS exceeding the growth in RPI by at least six per cent over the measurement period. 3. For awards made in 2006 and subsequently, the performance targets have been separated into two distinct elements, TSR and EPS, with both elements capable of delivering vesting of up to 50 per cent of the total award without being subject to mutual dependency. The company operates share retention guidelines which require each executive director to retain 50 per cent of any vested shares until such time as a holding equivalent in value to basic annual salary has been achieved. The non-executive directors do not participate (and have not participated) in the LTIP. Changes in the interests of the executive directors in conditional share awards made under the LTIP in the year ended 31 December 2009 were as follows: Movement in conditionally awarded shares (audited information) Balance Not at Awards subsisting at vested 31 Dec 1 January 2009 Awarded during year Vested during year in year 2009 Directors statements Share Share price at price at Value of date of date of shares at No. of Date calculation No. of calculation No. of Date of date of shares awarded of award (p) shares Date of award (p) shares vesting vesting ( ) David 159,785 17/5/06 544.0 119,040 04/3/09 516,336 40,745 nil Martin 124,832 16/3/07 745.0 124,832 138,929 13/3/08 691.0 138,929 251,880 12/3/09 392.25 251,880 Total 423,546 251,880 119,040 40,745 515,641 Steve 103,663 17/5/06 544.0 77,229 04/3/09 334,981 26,434 nil Lonsdale 81,074 16/3/07 745.0 81,074 90,304 13/3/08 691.0 90,304 167,240 12/3/09 392.25 167,240 Total 275,041 167,240 77,229 26,434 338,618 Following his retirement on 22 April 2009 the remuneration committee resolved that Steve Clayton retain his entitlement to exercise pro rata, subject to the rules of the LTIP, the conditional award of shares made in 2007 (72,752 shares) and 2008 (81,042 shares). (d) Share option schemes None of the executive directors has any residual interest in the company s share option schemes. The non-executive directors do not participate (and have not participated) in any of the company s share option schemes. 92 Arriva plc Annual Report & Accounts 2009

(e) Directors remuneration details for the year ended 31 December 2009 (audited information) Emoluments Performance Benefits related in kind/ Prior Fees Salary bonus allowance Total year Sir Richard Broadbent 150,000 - - - 150,000 150,000 David Martin - 494,000 222,794 26,841 743,635 883,187 Steve Lonsdale - 328,000 140,000 22,132 490,132 572,988 Steve Clayton (retired 22 April 2009) - 96,000 48,960 7,419 152,379 514,023 Simon Batey 50,000 - - - 50,000 50,000 Nick Buckles 45,000 - - - 45,000 45,000 Veronica Palmer (retired 22 April 2009) 15,000 - - - 15,000 45,000 Angie Risley (appointed 9 March 2009) 32,615 - - - 32,615 N/A Steve Williams 45,000 - - - 45,000 45,000 Total 337,615 918,000 411,754 56,392 1,723,761 2,305,198 Notes: 1. Benefits in kind for each director comprise a company car and/ or car allowance, fuel, medical insurance and telephone costs. 2. A pension of 5,000 (2008: 5,000) was paid to a former director. The fees payable to the non-executive directors comprise a basic fee and an additional fee to recognise specific further responsibilities, such as Board committee chairmanship. Basic Additonal annual fee annual fee Total Additonal responsibilities Sir Richard Broadbent 150,000-150,000 Chairman of nomination committee Simon Batey 40,000 10,000 50,000 Chairman of audit committee Nick Buckles 40,000 5,000 45,000 Chairman of remuneration committee Angie Risley 40,000-40,000 - Steve Williams 40,000 5,000 45,000 Senior independent director and chairman of safety committee from April 2009 Directors statements Total 310,000 20,000 330,000 The non-executive directors take no part in the process for establishing their individual fee level. Under the terms of the articles of association the fees payable to the non-executive directors are limited to 400,000 per annum in the aggregate; this level was established following approval by the shareholders at the AGM held on 23 April 2004, and the articles permit the directors to increase this cap annually in line with the increase in the index of UK wage inflation. 93

Directors remuneration report (continued) As at December 2009, in accordance with the indexation provisions, the cap on the aggregate level of non-executive directors fees was 477,560. Subject to shareholders approval of the revised articles of association at the AGM to be held on 6 May 2010, it is proposed that this cap be increased to 500,000, again subject to annual inflation indexation. Each non-executive director has been appointed for a fixed-term not exceeding three years and, following the implementation of the Companies Act 2006, those appointments are normally renewable, with the agreement of both parties, for a term of appointment of three years, subject to six months notice from either the company or the director. (f) Directors share interests (audited information) Number of ordinary shares 1 January 2009 31 December 2009 7 March 2010 Sir Richard Broadbent 27,246 27,246 27,246 David Martin 488,848 607,888 607,888 Steve Lonsdale 314,831 392,060 392,060 Simon Batey 7,268 7,268 7,268 Nick Buckles 5,000 5,000 5,000 Angie Risley N/A 2,097 2,097 Steve Williams 1,060 1,060 1,060 (g) Pensions (audited information) David Martin Steve Lonsdale Steve Clayton Scheme* 1 2 3 Normal retirement age 65 65 65 Director s contribution Nil Nil Nil Increase in accrued pension during the year (allowing for indexation) ( pa) 30,960 13,089 2,466 Directors statements Gross increase in accrued pension ( pa) 31,620 25,133 8,146 Accrued pension at 31/12/2009 ( pa) (or date of leaving) 366,548 266,008 121,731 Accrued pension at 31/12/2008 ( pa) 334,928 240,875 113,585 Value of net increase in accrual over period ( ) 379,442 133,414 31,912 Transfer value of accrued pension at 31/12/2008 ( ) 3,600,772 2,698,358 1,427,413 Transfer value of accrued pension at 31/12/2009 ( ) or date of leaving 4,690,839 3,064,248 1,635,888 Total change in value during period ( ) 1,090,067 365,890 208,475 *1 Arriva Passenger Services Pension Plan *2 Arriva Pension Scheme *3 Arriva London North & South Pension Scheme David Martin and Steve Lonsdale accrue pension at 1/30 th of base pay per annum. 94 Arriva plc Annual Report & Accounts 2009

With effect from 1 December 2009 a change to the future pension accrual terms under the Arriva Passenger Services Pension Plan (the Plan), of which David Martin is an active member, was implemented. The change introduced a freezing of pensionable salary for all active members for a period of four years to be followed by the capping of future pensionable salary increases to a maximum of one per cent per annum. The capping of pensionable salary will continue until the technical provisions deficit under the Plan is certified by the actuary to have been eliminated. David Martin has the opportunity to elect to take an annual cash sum, paid monthly in arrears (on a basis that is cost neutral to the company), in lieu of any future pension accrual. No future executive director external appointees to the Board will be eligible for a final salary-based pension arrangement, but instead will receive a cash contribution equal to 25 per cent of basic salary. (h) Service contracts Each of the executive directors has a service contract dated 19 April 2006; the contracts are subject to 12 months notice from the company and six months notice from the director. Each contract contains covenants restricting the ability of the director, within a period of six months from termination, from competing with the company. The contracts make specific provision with regard to termination payments which are quantified as the sum of: (i) The directors basic pay at the date of termination; (ii) The amount of bonus estimated to be payable in respect of the year in which notice is served, but in any event capped at a maximum of 40 per cent of basic pay; and (iii) The value of the benefits in kind. Additionally, in the case of termination by the company, the company will seek to procure that the director is credited with an additional 12 months service in his respective pension scheme. Should the director terminate the contract within six months of a change of control of the company he will receive a termination payment equal to 50 per cent of the termination payment described above. (i) External Board appointments The Board generally supports executive directors accepting one appointment outside the company. Before accepting such appointments the director(s) involved must receive the prior approval of the Board. In considering such cases the Board will always satisfy itself that such appointments will not detract from the executive directors expected contribution to the company, nor that such appointment will create any conflict of interest; any fees earned by an executive director in such a capacity will be assigned to the company. Neither of the executive directors currently holds an external directorship appointment. Directors statements 95

Directors remuneration report (continued) 6. TSR graph Below is a graph charting the performance of the company s TSR (share value growth plus re-invested dividends over the past five years) compared with the most relevant comparator indices as follows: (i) Total return indices Arriva and FTSE 250 175 150 125 100 31/12/2004 31/12/2005 31/12/2006 31/12/2007 31/12/2008 31/12/2009 Arriva return index FTSE 250 return index (ii) Total return indices Arriva and FTSE 350 travel and leisure return index 175 150 125 100 75 31/12/2004 31/12/2005 31/12/2006 31/12/2007 31/12/2008 31/12/2009 Arriva return index FTSE 350 travel and leisure return index Directors statements 7. Remuneration report approval An ordinary resolution to consider and, if thought fit, approve this remuneration report will be proposed at the AGM on 6 May 2010. For and on behalf of the Board Nick Buckles Chairman, remuneration committee 2 March 2010 96 Arriva plc Annual Report & Accounts 2009

Corporate governance Corporate governance The Board of Arriva plc seeks to exemplify high standards of corporate governance recognising that it is an important element in achieving the company s goals and optimising shareholder value; and it is for the Board to take leadership in this area. Compliance statement Sir Richard Broadbent, chairman of Arriva plc The fundamental principles of good corporate governance are detailed in The Combined Code on Corporate Governance, the latest edition having been published in June 2008. Throughout the period under review the company has in all material respects complied with the provisions of the Code. The purpose of this report is to describe how the company has applied the principles of the Combined Code during the period under review. 1. The Board At the beginning of the year the Board comprised a non-executive chairman, three executive directors and four independent nonexecutive directors. Following the retirement of Steve Clayton (group managing director - corporate affairs) and Veronica Palmer (non-executive director) in April 2009, and the appointment of Angie Risley as an independent non-executive director in March 2009, the Board now comprises a non-executive chairman, two executive directors and four independent non-executive directors. Sir Richard Broadbent, Simon Batey, Nick Buckles and Steve Williams each chair one of the Board s principal committees (described in more detail later in this report) and additionally Steve Williams fulfils the role of senior independent director to provide an additional channel of communication for shareholders should they have concerns which contact through the chairman, chief executive or group finance director have failed to resolve or where such contact is not deemed to be appropriate. In his capacity as senior independent director Steve Williams may attend and participate at any Board committee meeting of which he is not a member. The Board maintains a rolling programme of topics for discussion and review which is regularly reviewed and updated as necessary. The Board agendas provide for regular and comprehensive financial and operational reports together with matters relating to social responsibility, safety, employees, the environment and industry-wide areas of interest. Board and committee meetings are supported by the timely provision to each director of a comprehensive set of papers addressing in detail the agenda matters to be attended to. The three managing directors, responsible respectively for the UK Bus division, the UK Trains division and the Mainland Europe division attend and contribute to some meetings of the Board at which they give presentations regarding the activities, developments and opportunities within each of their areas of responsibility and provide an opportunity for directors to question them directly about the company s divisional activities. Directors statements 1.1 Matters reserved for the Board The Board of directors is responsible to the shareholders for approving and keeping under review the company s strategy and for the creation and delivery of shareholder value. In particular the Board has responsibility for all matters of group significance where strategic, financial or reputational implications are involved. Specifically the Board is responsible for: Determining strategic priorities and policies Providing overall strategic direction within an appropriate framework of incentives and controls Managing the balance and relationship between short, medium and long-term objectives Overseeing management succession and ensuring adequate management succession and development plans are in place Risk management 97

Corporate governance (continued) In order to support and deliver its responsibilities the Board has specifically reserved a schedule of matters for its attention. The schedule is reviewed regularly and currently comprises activities within the following broad themes: Strategy and management Organisational and capital structure Financial reporting and controls Communications Board membership and succession planning for Board and senior management levels; company secretary appointment and removal Remuneration policy Corporate governance Group policies Depending on the nature of the work certain of those responsibilities are delegated to Board committees. 1.2 Principal committees: overview In fulfilling its obligations the Board has in place a committee structure which delegates certain responsibilities to Board committees within the parameters of clearly established terms of reference; a review of the responsibilities, membership and work of those committees is detailed further in this report. Board Chairman: Sir Richard Broadbent Audit committee Chairman: Simon Batey Nomination committee Chairman: Sir Richard Broadbent Remuneration committee Chairman: Nick Buckles Safety committee Chairman: Steve Williams Directors statements 1.3 Chairman and chief executive There is a clear division of responsibility between the chairman and the chief executive and this is detailed in writing. The chairman is responsible for the effective operation of the Board, relationships with and between directors, Board succession, corporate governance, regulatory observance, compliance and for ensuring constructive relations with shareholders. The job of the chief executive is to run the business and to implement decisions taken by the Board. Against this background the chief executive is required to: Develop group objectives and strategy for approval by the Board Ensure the continued availability of appropriate operational resources Identify business development opportunities Account to the Board for the performance of the group Manage the group s risk profile Ensure proper internal controls and risk management are in place Promote the company to the investment community Ensure effective communication between the Board and the company s principal stakeholders Ensure that appropriate safety processes and arrangements are in place In fulfilling his objectives and responsibilities the chief executive leads an executive committee in which he is supported by the group finance director and the managing directors of the three business divisions UK Bus (Mike Cooper); UK Trains (Bob Holland) and Mainland Europe (David Evans). 98 Arriva plc Annual Report & Accounts 2009

Executive committee David Martin, Chief executive Mike Cooper MD, UK Bus Bob Holland MD, UK Trains David Evans MD, Mainland Europe Steve Lonsdale, Group finance director 1.4 Board and committee meetings: frequency and director attendance records During the year under review the Board met on nine occasions with one of the meetings being reserved for the review and testing of the group s strategy. The number of committee meetings held during the year were as follows: Audit committee 3 Nomination committee 3 Remuneration committee 6 Safety committee 4 Directors attendance at the Board and Board committee meetings during the year are detailed in the table below: Board Audit Nomination Remuneration Safety committee committee committee committee Sir Richard Broadbent 9/9 N/A 3/3 6/6 N/A David Martin 9/9 N/A N/A N/A N/A Steve Clayton (retired 22 April 2009) 3/3 N/A N/A N/A 1/1 Steve Lonsdale 9/9 N/A N/A N/A N/A Simon Batey 9/9 3/3 3/3 6/6 3/3 Directors statements Nick Buckles 9/9 N/A 3/3 6/6 3/3 Veronica Palmer (retired 22 April 2009) 3/3 1/1 1/1 N/A 1/1 Angie Risley (appointed 9 March 2009) 7/7 2/2 3/3 3/3 N/A Steve Williams 9/9 3/3 3/3 N/A 4/4 1.5 Company secretary; external professional advice All directors have access to the advice and services of the company secretary who administers the Board and Board committee meetings and ensures that relevant procedures and regulations are adhered to. The appointment and removal of the company secretary is a matter for the Board as a whole. A well established procedure is in place for any of the directors, in the execution of their duties, to obtain independent professional advice at the company s expense. 99

Corporate governance (continued) 1.6 Director re-election One-third of the directors are required to submit themselves for re-election at each Annual General Meeting (AGM) such that every three years each director will have been subject to the re-election process. Directors who are newly appointed to the Board are required to submit themselves for election at the first AGM following appointment. The Board is mindful of the current debate around director re-election and the draft amendments to the Combined Code issued under a consultation process which ends on 5 March 2010. The Board will review its policy on re-election of directors in the light of the revised Combined Code when issued. Director election/ re-election history AGM year: 2005 2006 2007 2008 2009 Sir Richard Broadbent David Martin Steve Lonsdale Simon Batey Nick Buckles Angie Risley Steve Williams The directors standing for re-election at the AGM on 6 May 2010 are David Martin, Nick Buckles and Steve Williams. 1.7 Conflicts of Interest Under the provisions of section 175 of the Companies Act 2006 directors are required to avoid conflicts of interest. Under the terms of the articles of association and, as permitted by law, the directors are empowered to authorise conflicts of interest and in this regard the Board has in place a process for authorising and managing conflicts or potential conflicts. Under this process directors are required to disclose all interests which may give rise to a conflict and to regularly review their disclosures and report amendments where necessary. In January 2010 each director was invited to review their disclosures (which had been approved by the Board in March 2009) and to report any relevant amendments. The amendments made were authorised by the Board in March 2010 (each director refraining from participating in any discussions regarding his/ her personal disclosures). 1.8 Induction All new appointees to the Board have an induction programme made available to them. The programme will cover a comprehensive briefing on the company s business activities, supported by site visits and meetings with operational management. Additionally, a full review of the Board s operating procedures, Board committee structure and terms of reference and the general approach to corporate governance and other related corporate issues will be included within the programme. Directors statements Directors are encouraged to attend external and/ or internal ad hoc training courses relevant to their needs and responsibilities. As an example of this, directors recently attended a training module prepared and presented by external lawyers DWF on developments in health and safety law and practice. 1.9 Evaluation Each year the Board undertakes a wide-ranging evaluation of its own processes and performances. The exercise, led by Steve Williams, the senior independent director, is based on a comprehensive questionnaire comprising six areas of focus, and also incorporates feedback by all directors through the senior independent director on the chairman s personal performance. The six areas of focus are: Individual director personal performance The performance of the Board as a whole The Board s procedures and composition The Board s committees Training and induction The performance of the chairman The results of the evaluation are reported back comprehensively to the Board and a plan of action is established to address any areas where it is felt improvements could be made. This year s exercise concluded that the Board s performance was generally satisfactory, or better, but did indicate several areas for improvement, particularly in deepening the interaction of the non-executives with the company s senior management and in training opportunities for non-executive directors. 100 Arriva plc Annual Report & Accounts 2009

2. The Board committees Section 1.2 of this report identified the committee framework which the Board has established in order to assist it in fulfilling its responsibilities. This section now addresses in more detail the activities and membership of each of those committees. The Board has established and operates four principal committees to assist it in discharging its responsibilities. Each committee operates under clear and comprehensive Terms of Reference. The company secretary, David Turner, acts as secretary to each of the committees. 2.1 Audit committee 2.1 Audit Committee The key function of the committee is to provide assurance to the Board as to the integrity of the company s financial statements and the broad processes that underpin the company s financial and risk control systems. Simon Batey, chairman of the audit committee The committee meets at least three times a year (normally February and August to review and approve the annual and half yearly financial statements and internal audit plan, and in November to agree the forthcoming external audit plan). As explained more fully in 2.1.2 below, the committee is also responsible for reviewing and making recommendations in respect of the company s internal control and risk management systems. The committee comprises independent non-executive directors; during the year under review the members of the committee were: Simon Batey, chairman Veronica Palmer (retired 22 April 2009) Angie Risley (appointed 22 April 2009) Steve Williams Additionally, the chairman of the Board, the chief executive, the group finance director, the head of group internal audit and the external auditors attend the meetings of the committee as invitees. The members of the committee have extensive management experience with large organisations and the chairman, Simon Batey, is a qualified chartered accountant with previous finance director experience in a number of corporates, most notably with AMEC plc (1992 2000), United Utilities plc (2000 2006) and Thames Water Utilities Limited (2006 2007). The four principal areas of focus for the audit committee are: Directors statements 2.1.1 Financial reporting The integrity of the financial reporting process is by definition of crucial importance to the Board, the company, its shareholders and other stakeholders. The audit committee has been tasked by the Board to provide assurance on the integrity of all of the company s financial statements which will include any other announcements relating to the company s financial performance and/ or financial standing. 101

Corporate governance (continued) As part of this exercise a key element requires the audit committee to review and challenge where necessary or appropriate: (a) The consistency of and changes to the company s accounting policies on a year by year basis and across the group. (b) The methods used to account for significant or unusual transactions in circumstances where different approaches are possible. (c) The application of relevant accounting standards and other Generally Accepted Accounting Principles, taking into account the views of the external auditor. (d) The clarity of disclosures of the company s financial reports. In addition to the company reporting regime, the audit committee will also review the financial statements of the various group pension schemes and the periodic actuarial valuation reports of those schemes. 2.1.2 Internal control and risk management systems The committee is further charged with the responsibility for: (a) Reviewing and providing assurance to the Board on the company s systems of internal control and risk management. (b) Reviewing and approving the statement within the Annual Report & Accounts concerning internal control and risk management and the summary of the principal risks and uncertainties that face the group. In discharging this responsibility the audit committee works closely with and engages the resources of the group internal audit function. On an annual basis, managing directors of operating companies throughout the group are required to report to the chief executive in writing that all reasonable steps have been taken to assure that compliance with all group policies has been effected and that satisfactory financial and operational controls have been established and operated effectively throughout the whole of the financial year under review. Any exceptions are to be fully detailed and explained. 2.1.3 Internal audit The head of group internal audit reports directly to the chairman of the audit committee and provides, through his team, comprehensive support and assistance to the audit committee. The group internal audit function operates under the terms of Arriva s group internal audit charter which outlines the purpose, authority, responsibility, scope of work and independence of the function. This charter is reviewed each year by the audit committee and updated as necessary. Group internal audit derives its authority from the Board to whose audit committee it has open access. The head of group internal audit has access to the chairman, chief executive and the chairman of the audit committee whenever it is required and reports to the group finance director on the quality of the financial and operational control environment of the group. Group internal audit prepares annually for approval by the audit committee an audit plan covering both financial and operational audits. With regard to the internal audit function, the audit committee is responsible for: Directors statements (a) Monitoring and providing assurance to the Board on whether appropriate action is being taken to address relevant internal audit findings as communicated in the head of group internal audit s reports to the committee. (b) Monitoring, reviewing and providing assurance to the Board on the effectiveness of the company s internal audit function. (c) Assessing the ongoing adequacy of the resources of the internal audit function and making appropriate recommendations to the Board. (d) Ensuring the internal audit function has appropriate standing and is free from management or other material restrictions. (e) Reviewing, assessing and approving the annual internal audit plan. (f) Approving the appointment and removal of the head of group internal audit. (g) Meeting with the head of group internal audit at least annually, without management being present. (h) Ensuring that the head of group internal audit has direct access to the chairman of the Board and the chairman of the committee. 102 Arriva plc Annual Report & Accounts 2009

2.1.4 External audit The role of the external audit process is fundamental to the company s financial reporting programme and to the assurance to be given to the shareholders that the financial statements reflect in all material respects a true and fair view of the stewardship entrusted to the directors. In this context the audit committee is charged by the Board with the responsibility for ensuring the continued independence of the external auditor and also that the external auditor has sufficient resources (from both a technical and a capacity viewpoint) to satisfactorily discharge its obligations. On an annual basis the audit committee undertakes its own review of the expertise, resources, effectiveness and independence of the external auditor. Additionally the external auditor is required to report annually to the audit committee confirming its continued independence and objectivity. The committee closely monitors all non-audit work performed by the external auditor. All propositions that are likely to take the fee for non-audit work beyond a specified threshold require specific prior approval by the audit committee. For the year to 31 December 2009 the total fees paid to the external auditor amounted to 1.8 million of which 518,000 was in respect of non-audit work. The committee is satisfied that the level of non-audit work performed by PricewaterhouseCoopers has not compromised the independence of the external audit function. 2.2 Nomination committee The nomination committee s responsibility is to keep under review the structure and composition of the Board to ensure it continues to maintain the appropriate mix of skills and experience to direct the company in its strategic objectives and to ensure that adequate succession planning is in place at Board and senior management level. Sir Richard Broadbent, chairman of the nomination committee The committee is made up exclusively of non-executive directors and is chaired by Sir Richard Broadbent. The directors who served on the committee during the year under review were: Sir Richard Broadbent, chairman Simon Batey Directors statements Nick Buckles Steve Williams Veronica Palmer (retired 22 April 2009) Angie Risley (from 22 April 2009) 103

Corporate governance (continued) The key responsibilities of the committee are: (a) Keeping under regular review the structure, size and composition of the Board and determining if the level of resourcing remains appropriate having given due consideration to the challenges and opportunities facing the company and make appropriate recommendations to the Board. (b) Considering and making recommendations to the Board for all Board appointments, and specifically: (i) The selection of: Chairman of the Board Chief executive Chairman of principal Board committees (ii) The appointment of the senior independent director. (iii) Membership of the principal Board committees. (c) Considering and making recommendations to the Board for the appointment or removal of the company secretary. (d) Keeping under regular review succession plans and resourcing for the Board and senior management, monitoring the succession planning process and making recommendations to the Board. (e) When vacancies arise, identifying, in consultation with the chief executive, the particular skill set and personal attributes and characteristics that are perceived as necessary to fulfil the role; and agreeing a suitable job description for that role. (f) At its own discretion, and having consulted with the chief executive, appointing (and agreeing the remuneration to be paid) any recruitment consultancy that may be engaged for the purpose of identifying suitable candidates for Board appointment. (g) Establishing and implementing a process, using external consultants if necessary, to enable the Board to periodically, objectively and critically evaluate its own performance and that of its committees and members. 2.3 Remuneration committee Directors statements The remuneration committee s role is to ensure that pay and incentive structures support the delivery of business performance in line with the company s agreed strategy whilst supporting the interests of all other key stakeholders and enabling the organisation to attract and retain a high quality, highly motivated management team. Nick Buckles, chairman of the remuneration committee Only non-executive directors may serve on the committee. During the year under review the members of the committee were: Nick Buckles, chairman Simon Batey Sir Richard Broadbent Angie Risley (from 22 April 2009) A full review of the work and responsibilities of the committee appears in the directors remuneration report on pages 88 to 96. 104 Arriva plc Annual Report & Accounts 2009

2.4 Safety committee Safety is a critical risk parameter of the business and the safety committee is responsible to the Board for providing assurance on the compliance with, and application of, the group s safety policy across all the businesses. Steve Williams, chairman of the safety committee The nature of the company s business dictates that safety is of paramount importance and occupies a pivotal position in the company s values and activities. During the year under review the members of the committee were: Steve Williams (chairman from 22 April 2009) Simon Batey (from 22 April 2009) Nick Buckles (from 22 April 2009) Steve Clayton (retired 22 April 2009) Veronica Palmer (chairman to her retirement on 22 April 2009) Sir Richard Broadbent, David Martin (the nominated director for safety), the director human resources, Alison O Connor, and the group health and safety manager also attend the meetings of the committee. The committee s key responsibilities are: (a) Monitoring and providing assurance to the Board on the company s safety policy and the arrangements for its implementation and reporting. (b) Regularly reviewing and monitoring safety performance. (c) Reviewing and approving the self-certification report. (d) Receiving reports of material technological, scientific, legislative and regulatory developments relevant to safety that might affect the company. A copy of the company s safety policy can be viewed on the website at www.arriva.co.uk. Directors statements 105

Corporate governance (continued) 3. Relations with shareholders The company has an established programme of communication with shareholders and the corporate communications department organises a regular series of presentations to analysts and investors. It remains the Board s intention that these arrangements should continue as they represent an important feature of the process of facilitating helpful and constructive dialogue between the company and its major investors, subject of course, to continuing to meet all regulatory and statutory requirements. A procedure exists for the Board as a whole to receive direct feedback from the company s brokers of the investment community s perception of the company s performance and strategy. 4. Annual General Meeting The AGM is an opportunity for the Board to communicate with shareholders, particularly private shareholders. A presentation on the progress and performance of the business is made by the chief executive following the formal business of the meeting, and the chairmen of the audit, nomination, remuneration and safety committees are available to answer questions relating to their particular areas of responsibility. The meeting is informed of the number of proxy votes submitted in respect of each resolution; this information is also published on the company s website following the meeting. 5. Group policies The Board has approved and circulated across the group s businesses a set of policies which are designed to strengthen and support the group s corporate governance and internal controls and to address key risks identified through the risk assessment and control process. As part of the internal control process, businesses are required to certify their continued compliance with these policies. The policies are kept under review to ensure compliance with best practice and any changes to the regulatory and statutory regimes. All companies within the group are required to follow group policies, although it is recognised that in the case of newly acquired businesses there may be a period of time before full implementation can be achieved. Businesses are required to report to the chief executive on an annual basis on any departures from, or non-compliance with, group policies. 6. Whistleblowing The group operates a whistleblowing policy and procedure whereby employees can, in confidence, report on matters where they feel a malpractice is taking place. Areas that are addressed by this procedure cover financial malpractice, criminal activities, dangers to health and safety or the environment, or improper or unethical behaviour. The procedures allow for employees to raise their concerns with line management or, if this is inappropriate, to raise them on a confidential basis. A confidential telephone mailbox and confidential e-mail facility are provided to protect the identity of employees in these circumstances. The complaint will be investigated in a confidential manner and, after a decision is made as to what further steps should be taken, feedback will be given to the person making the complaint. An official written record will be kept of each stage of the procedure. Directors statements The whistleblowing policy and its operation is subject to periodic review by the audit committee; the last review was in February 2010 and the audit committee concluded that no amendments needed to be made to the policy. The management and operation of the whistleblowing policy is the responsibility of the head of group internal audit. 106 Arriva plc Annual Report & Accounts 2009

7. Internal Control Companies are required to report to shareholders that they have conducted an annual review of the effectiveness of the system of internal control. The review extends beyond financial controls to encompass operational and compliance control and risk management. The directors are responsible for the group s system of internal control. Whilst no system can provide absolute guarantees and protection against material loss, the systems are designed to give the directors reasonable assurance that problems can be identified promptly and remedial action taken as appropriate. The Board has reviewed the effectiveness on an ongoing basis of the system of internal control for the accounting period under review. The key features of the internal control system are: (a) Organisation structure The structure of the organisation is designed to minimise, as far as possible, the complexity of the reporting arrangements commensurate with the commercial demands made on the group. The structure focuses on the core businesses of the group and stringent reporting procedures are applied to ensure that performance is closely monitored so that effective and prompt action can be taken, if the need arises. Certain of the group s functions, including company secretarial, legal, taxation, internal audit, treasury and insurance, are undertaken centrally. ORGANISATION STRUCTURE FINANCIAL REPORTING AND KPI GROUP INTERNAL AUDIT INTERNAL CONTROL SYSTEM RISK ASSESSMENT AND RISK CONTROL (b) Financial reporting The group operates a comprehensive financial control system with each operating division s performance being closely monitored against budget, forecast and prior year performance. Monthly management accounts are prepared for consideration by the Board as a whole, and are issued in a timely manner to ensure proper consideration can be given to the information. Directors statements (c) Group internal audit The internal control systems are comprehensively supported by the group internal audit department. Group internal audit is responsible for advising all levels of management, and the Board of directors through the audit committee, on the quality of the financial and operational systems of control for all parts of the group. This review and appraisal function does not relieve line management of its responsibility for effective control. Group internal audit functions by conducting independent appraisals leading to reports detailing findings and agreed actions. Group internal audit undertakes annual financial reviews of the balance sheets of all of the group s material trading subsidiaries and engages in a cycle of operational and risk reviews both on a scheduled and random ad hoc basis. The head of group internal audit reports directly to the chairman of the audit committee. Group internal audit is staffed by appropriately qualified and experienced auditors. 107

Corporate governance (continued) (d) Risk assessment and risk control An ongoing process for identifying, evaluating and managing the significant risks facing the group has been in place throughout the year under review and continues to remain in place. An essential element of good internal control is the continual process of risk assessment and implementation of appropriate controls designed to eliminate or mitigate the effects of the crystallisation of identified major risks. The approach adopted by the Board involves a process which requires divisional operational staff to critically examine their responsibilities and identify those risks which are of such a nature that their crystallisation would have a material impact on their business. In order for this process to succeed, it is essential that ownership of risk awareness, risk identification and risk control is fully embraced by line management as an essential ingredient of its normal responsibilities. In implementing its risk assessment programme the Board has devolved to the audit committee the task of ensuring that appropriate risk assessment and management processes are in place. The Board is responsible for reviewing and monitoring the key business risks and is supported in this task by the group internal audit function. In the development of this programme there are a number of fundamental issues identified as being absolutely critical to the success and effectiveness of the risk management and control programme. In formulating its approach the committee has structured the programme around the key areas of: Clear leadership from the Board The need for risk management to be seen as part of everyday activity and to be embedded in the line management culture Clear communication of the principles involved Active support and involvement of the group internal audit function Regular review of the process and continual assessment of the changing nature of the risks presenting themselves to the business Updating of the group policy manual following the identification of new significant risks The Board recognises that, as in any business, the company must manage a range of risks in the course of its activities, and that failure to adequately manage these risks could adversely impact the business. As part of the ongoing risk assessment and management programme the principal risks and uncertainties facing the business have been identified and are reported on separately on pages 50 to 53. Directors statements 8. Going concern In accordance with the guidance issued in October 2009 by the Financial Reporting Council, Going Concern and Liquidity Risk: Guidance for Directors of UK Companies 2009, a comprehensive going concern review was undertaken by the group. The review included an analysis of net debt and financing facility headroom at 31 January 2010, together with projections to March 2011, tested by appropriate sensitivity analysis. Following that review the directors confirm that, after having made appropriate enquiries, they have reasonable expectation that the group and the company have adequate resources to continue in operational existence for the foreseeable future. Accordingly the directors continue to adopt the going concern basis in the preparation of the Accounts. This approach was endorsed by the audit committee at its meeting held on 24 February 2010. 108 Arriva plc Annual Report & Accounts 2009

Accounts Independent auditors report on the group financial statements 110 Financial statements 111 Group income statement Group statement of comprehensive income Group balance sheet Group cash flow statement Group statement of changes in equity Accounting policies 116 Notes to the accounts 121 1. Segmental reporting 2. Net finance costs 3. Profit on ordinary activities before taxation 4. Employee information 5. Taxation 6. Dividends 7. Earnings per share 8. Goodwill 9. Other intangible assets 10. Property, plant and equipment 11. Investments accounted for using the equity method 12. Inventories 13. Trade and other receivables 14. Cash, cash equivalents and overdrafts 15. Trade and other payables 16. Financial liabilities - borrowings 17. Other non-current liabilities 18. Financial risk management objectives and policies 19. Derivative financial instruments 20. Retirement benefit obligations 21. Deferred tax 22. Called up equity share capital 23. Share-based payments 24. Other reserves 25. Notes to the group cash flow statement 26. Acquisitions 27. Group undertakings 28. Commitments Five-year financial summary 151 Parent company financial statements 152 Parent company accounting policies 153 Notes to the parent company accounts 155 1. Arriva plc profit and loss account 2. Tangible assets 3. Fixed asset investments 4. Debtors 5. Deferred tax 6. Creditors 7. Called up share capital 8. Share-based payments 9. Reserves 10. Reconciliation of movements in shareholders funds 11. Pensions Independent auditors report on the parent company financial statements 161 Financial calendar, registered office and advisers 162 Accounts 109

Independent Auditors Report to the Members of Arriva plc Independent Auditors Report to the Members of Arriva plc We have audited the group financial statements of Arriva plc for the year ended 31 December 2009 which comprise the Group income statement, the Group statement of comprehensive income, the Group balance sheet, the Group cash flow statement, the Group statement of changes in equity, the accounting policies and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. Respective responsibilities of directors and auditors As explained more fully in the directors responsibilities statement, the directors are responsible for the preparation of the group financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the group financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board s Ethical Standards for Auditors. This report, including the opinions, has been prepared for and only for the company s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the group s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. Opinion on financial statements In our opinion the group financial statements: give a true and fair view of the state of the group s affairs as at 31 December 2009 and of its profit and cash flows for the year then ended; have been properly prepared in accordance with IFRSs as adopted by the European Union; and have been prepared in accordance with the requirements of the Companies Act 2006 and Article 4 of the las Regulation. Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Directors report for the financial year for which the group financial statements are prepared is consistent with the group financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following: Under the Companies Act 2006 we are required to report to you if, in our opinion: certain disclosures of directors remuneration specified by law are not made; or we have not received all the information and explanations we require for our audit; or a corporate governance statement has not been prepared by the parent company. Under the Listing Rules we are required to review: the directors statement, in relation to going concern; and the part of the Corporate governance statement relating to the company s compliance with the nine provisions of the June 2008 Combined Code specified for our review. Accounts Other matter We have reported separately on the parent company financial statements of Arriva plc for the year ended 31 December 2009 and on the information in the Directors remuneration report that is described as having been audited. W A MacLeod (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors Newcastle upon Tyne 22 March 2010 110 Arriva plc Annual Report & Accounts 2009

Financial statements Financial statements Group income statement for the year ended 31 December 2009 2009 2008 notes m m Revenue 1 3,147.8 3,042.2 Net operating expenses (before goodwill impairment, intangible asset amortisation and exceptional items) 3(a) (2,989.5) (2,858.4) Group operating profit (before goodwill impairment, intangible asset amortisation and exceptional items) 158.3 183.8 Goodwill impairment and intangible asset amortisation 1 (44.8) (12.0) Exceptional item 1 46.8 - Group operating profit 1 160.3 171.8 Share of post tax profits from associates 5.2 4.4 Finance income 2 2.0 9.5 Finance costs 2 (45.8) (35.7) Profit on ordinary activities before taxation 121.7 150.0 Tax on profit on ordinary activities 5 (2.5) (38.8) Profit for the year 119.2 111.2 Attributable to: Equity holders of the parent company 108.5 104.5 Minority interests 10.7 6.7 119.2 111.2 Dividends per ordinary share 6 25.26p 24.06p Earnings per share 7(a) Basic earnings per share 54.5p 52.6p Diluted earnings per share 54.4p 52.3p Basic earnings per share before goodwill impairment, intangible asset amortisation and exceptional items 7(b) 58.8p 61.5p Accounts 111

Financial statements (continued) Group statement of comprehensive income for the year ended 31 December 2009 2009 2008 m m Profit for the year 119.2 111.2 Other comprehensive income Net foreign exchange adjustments offset in reserves, net of tax (16.2) 37.2 Cash flow hedges, net of tax 54.9 (66.5) Actuarial losses on employment benefits, net of tax (32.3) (51.2) Total comprehensive income for the year 125.6 30.7 Total comprehensive income attributable to: Owners of the parent company 116.3 16.1 Minority interests 9.3 14.6 125.6 30.7 Accounts 112 Arriva plc Annual Report & Accounts 2009

Group balance sheet at 31 December 2009 2009 2008 notes m m Non-current assets Goodwill 8 447.8 509.9 Other intangible assets 9 59.1 75.7 Property, plant and equipment 10 1,580.3 1,559.9 Investments 11 134.9 141.9 Derivative financial instruments 19 55.7 51.8 2,277.8 2,339.2 Current assets Inventories 12 54.0 52.3 Trade and other receivables 13 397.6 430.4 Cash and cash equivalents 14 238.4 147.7 Derivative financial instruments 19 17.2 10.0 707.2 640.4 Total assets 2,985.0 2,979.6 Current liabilities Trade and other payables 15 694.4 707.8 Tax liabilities 41.2 51.2 Borrowings 16 232.5 174.1 Derivative financial instruments 19 52.1 98.8 1,020.2 1,031.9 Non-current liabilities Borrowings 16 858.0 797.0 Retirement benefit obligations 20 99.8 120.1 Deferred tax liabilities 21 94.3 95.4 Other non-current liabilities 17 107.5 133.0 Derivative financial instruments 19 16.9 84.0 1,176.5 1,229.5 Total liabilities 2,196.7 2,261.4 Net assets 788.3 718.2 Equity Share capital 22 9.9 9.9 Share premium account 24.5 24.4 Other reserves 24 93.4 38.5 Retained earnings 624.4 609.7 Equity attributable to owners of the parent company 752.2 682.5 Minority interest in equity 36.1 35.7 Total equity 788.3 718.2 David Martin Directors Steve Lonsdale Accounts These financial statements on pages 111 to 150 were approved by the Board on 2 March 2010. 113

Financial statements (continued) Group cash flow statement for the year ended 31 December 2009 2009 2008 notes m m Cash flows from operating activities Cash generated from operations 25(b) 309.4 361.6 Net interest and finance charges paid (42.3) (27.7) Tax (paid)/received (5.5) 16.9 Net cash generated from operating activities 261.6 350.8 Cash flows from investing activities Acquisitions of businesses 0.3 (132.6) Net cash assumed on acquisitions - 1.2 Investment in associates - (39.4) Purchase of property, plant and equipment (287.9) (263.8) Disposal of property, plant and equipment 24.5 19.0 Net cash used in investing activities (263.1) (415.6) Cash flows from financing activities Proceeds from issuing ordinary share capital 0.1 0.2 Increase/(decrease) in loans due within one year 59.5 (4.3) Increase in loans due after one year 64.2 215.3 Increase/(decrease) in finance lease obligations 43.0 (24.0) Settlement of cross currency swaps (22.5) (27.6) Dividends paid to the company s shareholders (48.5) (46.1) Dividends paid to minority interests (7.6) (4.3) Net cash generated from financing activities 88.2 109.2 Net increase in cash, cash equivalents and overdrafts 25(c) 86.7 44.4 Cash, cash equivalents and overdrafts at the beginning of the year 25(c) 113.3 62.4 Exchange (losses)/gains on cash, cash equivalents and overdrafts 25(c) (2.3) 6.5 Cash, cash equivalents and overdrafts at the end of the year 25 (c) 197.7 113.3 Accounts 114 Arriva plc Annual Report & Accounts 2009

Group statement of changes in equity for the year ended 31 December 2009 Attributable to owners of the parent company Share Share Other Retained Minority Total capital premium reserves earnings Total interests equity m m m m m m m At 1 January 2009 9.9 24.4 38.5 609.7 682.5 35.7 718.2 Profit for the year - - - 108.5 108.5 10.7 119.2 Other comprehensive income: Net foreign exchange adjustments offset in reserves, net of tax - - - (14.8) (14.8) (1.4) (16.2) Cash flow hedges, net of tax - - 54.9-54.9-54.9 Actuarial losses on employment benefits, net of tax - - - (32.3) (32.3) - (32.3) Total comprehensive income for the year ended 31 December 2009 - - 54.9 61.4 116.3 9.3 125.6 Transactions with owners: Arising on issue of shares - 0.1 - - 0.1-0.1 Share-based payments - - - 1.8 1.8-1.8 Dividends - - - (48.5) (48.5) (7.6) (56.1) Minority interest acquired by the group - - - - - (1.3) (1.3) At 31 December 2009 9.9 24.5 93.4 624.4 752.2 36.1 788.3 At 1 January 2008 9.9 24.2 105.0 571.1 710.2 23.8 734.0 Profit for the year - - - 104.5 104.5 6.7 111.2 Other comprehensive income: Net foreign exchange adjustments offset in reserves, net of tax - - - 29.3 29.3 7.9 37.2 Cash flow hedges, net of tax - - (66.5) - (66.5) - (66.5) Actuarial losses on employment benefits, net of tax - - - (51.2) (51.2) - (51.2) Total comprehensive income for the year ended 31 December 2008 - - (66.5) 82.6 16.1 14.6 30.7 Transactions with owners: Arising on issue of shares - 0.2 - - 0.2-0.2 Share-based payments - - - 2.1 2.1-2.1 Dividends - - - (46.1) (46.1) (4.3) (50.4) Minority share of acquisition - - - - - 1.6 1.6 At 31 December 2008 9.9 24.4 38.5 609.7 682.5 35.7 718.2 Accounts 115

Accounting policies Accounting policies Basis of preparation As a company incorporated and domiciled in the UK and listed on the London Stock Exchange, Arriva plc is required to prepare its group accounts in accordance with EU endorsed International Financial Reporting Standards (IFRS), International Financial Reporting Interpretations Committee (IFRIC) interpretations and the Companies Act 2006 applicable to companies reporting under IFRS. These financial statements have been prepared in accordance with EU endorsed IFRS, IFRIC interpretations and the Companies Act 2006 applicable to companies reporting under IFRS for periods ended 31 December 2009. The financial statements are prepared on the historical cost basis of accounting, except for share-based payment charges, pensions and derivative financial instruments which are measured at fair value. The functional and presentational currency of the group is pounds sterling. The principal accounting policies of the group are set out below: Basis of consolidation The consolidated financial statements incorporate the financial statements of Arriva plc and its subsidiaries made up to 31 December each year. Subsidiaries are entities over which the group has the power to govern the financial and operating policies, generally accompanying a shareholding of more than one half of the voting rights. Subsidiaries are fully consolidated from the date on which control is transferred to the group and de-consolidated from the date control ceases. The group s interests in jointly controlled entities are accounted for by proportional consolidation, combining its share of the joint ventures profits, assets, liabilities and cash flows on a line-by-line basis with those of the group. Associates are those entities over which the group can exercise significant influence, but not control or joint control. Associates are accounted for using the equity method. On acquisition, accounting policies of subsidiaries, jointly controlled entities and associates are adjusted to ensure consistency with the policies adopted by the group. All business combinations are accounted for by applying the purchase method. On acquisition, the assets, liabilities and contingent liabilities are measured at their fair values at the date of acquisition. The excess of the cost of acquisition over the fair value of the group s share of net assets acquired is recorded as an intangible asset or goodwill. If the cost of acquisition is less than the fair value of the group s share of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement. Intra-group transactions, balances, income and expenses are eliminated on consolidation. Revenue recognition Revenue represents the fair value of consideration received or receivable in respect of the provision of public transport services and related activities in the UK and mainland Europe. Generally, revenue is recognised by reference to the stage of completion method, principally with respect to the percentage of services rendered to fare-paying customers, or the percentage of services provided under contractual arrangements. For contractual arrangements where significant timing differences may arise between the timing of cash revenues and cash costs, revenue is recognised with respect to the proportion of the total costs incurred to date. Revenue includes amounts attributed to UK train operating companies based principally on agreed models of route usage in respect of passenger receipts. In addition, franchise agreement receipts from the Welsh Assembly Government and the Department for Transport are treated as revenue. Proceeds from the disposal of non-current assets are excluded from revenue. Use of estimates and accounting assumptions The preparation of financial statements requires management to make estimates and assumptions that affect the group s reported results. Although these estimates are based on management s best knowledge at the time, actual results could differ from those estimates. The key areas of judgment or estimation which could impact the results in the next financial year were they to change include the economic useful lives of property, plant and equipment (disclosed below), the use of actuarial assumptions for measurement of retirement benefit obligations (see note 20), the measurement of insurance provisions, tax assets and liabilities, and the use of forecasts in respect of the annual testing for impairment of goodwill (see note 8). Where appropriate, sensitivity analyses have been performed and are disclosed in the relevant note. Accounts Exceptional items Exceptional items are those items which, because of their nature and materiality, merit separate presentation to allow a better understanding of the group s financial performance. Segment reporting The group s primary risks and rates of return are determined by both the business and geographical areas in which it operates. Disclosure of results by business segment is used as the basis for primary segment disclosures, in line with the internal management reporting to the chief operating decision maker. 116 Arriva plc Annual Report & Accounts 2009

The group s operating segments comprise UK Bus, Mainland Europe and UK Trains. These segments are described in more detail in the chief executive s review. Government grants Government grants relating to capital expenditure are included as deferred income and are credited to the income statement over the expected useful economic life of the assets concerned. Grants provided in connection with the award of rail contracts are included in deferred income, and released over the period corresponding to the performance conditions specified in the grant. Revenue related grants are credited to the income statement when the related expenditure is expensed. Foreign currency translation The trading results of overseas subsidiary undertakings are translated into sterling using average rates of exchange. Foreign currency assets and liabilities are translated into sterling at the rates of exchange ruling at the balance sheet date. Differences on exchange arising from the retranslation of the opening investment in subsidiary undertakings and the associated borrowings or hedging instruments, where hedge accounting is permitted, are taken to the statement of comprehensive income. Cumulative currency gains and losses in reserves are recycled to the income statement on disposal of operations. Property, plant and equipment Property, plant and equipment is stated at cost less accumulated depreciation. Cost includes the original purchase price of the asset and the costs attributable to bringing the asset to its working condition for its intended use. Land and buildings held for use in the delivery of passenger transport services and for administration purposes are stated in the balance sheet at cost or deemed cost. Freehold land is not depreciated. Depreciation on other assets is calculated using the straight-line method to allocate the cost or valuation of each asset less its residual value over its estimated useful life as follows: Buildings Plant, company vehicles, fixtures & fittings Buses and coaches Railway rolling stock 50 years 3-10 years up to 15 years up to 35 years Asset useful lives and residual values are reviewed annually. Major refurbishment work on rail rolling stock is capitalised and depreciated over the interval to the subsequent related major refurbishment. Interest costs incurred in financing the construction of certain assets are capitalised where they are considered significant in relation to the asset being constructed and the asset necessarily takes a substantial period of time to be prepared for its intended use. Rail rolling stock undergoing post construction acceptance testing is not depreciated until the commencement of full operational service. Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the group s share of the net identifiable assets, liabilities and contingent liabilities at the date of acquisition. Goodwill on acquisition of subsidiaries and joint ventures is disclosed separately in non-current assets. Goodwill on acquisition of associates is included in investments. Goodwill is not amortised but is tested annually for impairment and carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. For the purpose of impairment testing, goodwill is allocated to cash generating units. The allocation is made to those cash generating units or groups of cash generating units that are expected to benefit from the business combination in which the goodwill arose. Goodwill previously eliminated against reserves has not been reinstated. Intangible assets Intangible assets are recognised when acquired as part of business combinations where customer related contractual cash flows exist, and their fair value can therefore be measured reliably. Intangible assets purchased separately are measured at cost. Intangible assets that have a finite life are amortised on a straight-line basis over their expected useful lives. Impairment At each balance sheet date the group reviews the carrying amount of its property, plant and equipment and intangible assets to determine whether there are any indicators of impairment. If indicators of impairment exist then the recoverable amount of an asset or cash generating unit is estimated based on pre-tax discounted future cash flows. Accounts Where individual assets do not generate cash flows independent from other assets, the group reviews the carrying value and recoverable amount of a cash generating unit. This is the smallest group of assets where independent cash flows are produced. 117

Accounting policies (continued) If the recoverable amount of an asset or cash generating unit is less than its carrying amount, the difference is recognised in the income statement as an impairment loss. Except for goodwill, a review is made of any previous impairment losses for possible reversal at each reporting date. Inventories Inventories are stated at the lower of cost and net realisable value after making allowances for slow moving or obsolete items. Borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the initial carrying value and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method. Borrowings are classified as current liabilities unless the group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date. Taxation Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to taxation authorities using the tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date. Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax is not recognised if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred tax is determined using the tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and which are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled. Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised. Deferred tax liabilities are recognised on taxable temporary differences associated with investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the group and it is probable that the temporary difference will not reverse in the foreseeable future. Pensions The group operates both defined benefit and defined contribution retirement benefit schemes. The group also participates in a number of multi-employer retirement benefit schemes and a number of state-managed retirement benefit schemes. The liability recognised in the balance sheet in respect of the group s defined benefit pension plans is the present value of the defined benefit obligation at the balance sheet date less the fair value of the plan assets, together with adjustments for unrecognised past service costs. The defined benefit obligation is calculated using the projected unit credit method. Formal actuarial valuations are carried out on a triennial basis, with updated calculations being prepared at each balance sheet date. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension liability. In respect of assets and liabilities held in the relevant sections of the Railways Pension Scheme, only the net deficit or net surplus of each section that the employer expects to fund or recover over the life of the franchise is recognised. The cost of providing future benefits (service cost) is charged to the income statement in net operating expenses. The return on scheme assets and interest obligation on scheme liabilities comprise a pension finance adjustment which is included in net operating expenses. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity and shown in the statement of comprehensive income in the period in which they arise. Accounts Certain overseas defined benefit schemes, where the employer s underlying assets and liabilities are not separately identifiable within the scheme, are accounted for as defined contribution schemes under IAS19. Contributions to these schemes, and the group s defined contribution schemes, are charged to the income statement as they arise. 118 Arriva plc Annual Report & Accounts 2009

Share-based payments The group issues equity settled share-based payments to certain employees, which are measured at fair value at the date of grant. The fair value is expensed on a straight-line basis over the vesting period, based on the group s estimate of shares that will eventually vest and is adjusted for the effects of non-market based vesting conditions. The impact of revising original estimates, if any, is included in the income statement, with a corresponding adjustment to equity. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised. Provisions Provisions are recognised when the group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated. Leases Leases of property, plant and equipment where the group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease s inception at the lower of the fair value of the leased asset and the present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, are included in other payables. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate of interest costs charged to the income statement on the outstanding balance. The property, plant and equipment acquired under finance leases are depreciated over the shorter of the asset s useful life and the lease term. Leases where the lessor retains a significant portion of the risks and rewards of ownership are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease. Cash and cash equivalents Cash comprises cash in hand and demand deposits. Cash equivalents are short-term highly liquid investments with a maturity of less than 90 days that are readily convertible to known amounts of cash and subject to insignificant risk of changes in value. Derivative financial instruments The group uses derivative financial instruments to reduce exposures to foreign currency exchange risk, interest rate risk and changes in fuel prices to acceptable levels. All derivatives are initially recognised at fair value, and are subsequently remeasured to fair value at each reporting date. Derivatives designated as hedging instruments are accounted for in line with the nature of the hedging arrangement. Derivatives are intended to be highly effective in mitigating the above risks, and hedge accounting is adopted where the required hedge documentation is in place and the relevant test criteria are met. Changes in the fair value of any derivative instruments that do not qualify for hedge accounting are recognised immediately in the income statement. Foreign currency exchange risk Derivatives are entered into in order to hedge exposure to foreign currency exchange risk. The group also uses foreign currency debt to hedge foreign currency exposures. Both the derivatives and debt are designated as hedges of net investments in overseas subsidiaries. Interest rate and fuel price risk Derivative instruments are used to manage the group s exposure to changes in cash flows arising from movements in interest rates and fuel prices. The derivatives are designated as cash flow hedges, and hedge accounting is used where it has been shown that the hedge relationship is highly effective. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement. Dividend distribution Dividend distributions to the company s shareholders are recognised in the group s financial statements in the period in which the dividends are paid. New standards and interpretations The following standards and interpretations have been issued by the International Accounting Standards Board (IASB) and IFRIC with an effective date that impacts on these financial statements. Accounts 119

Accounting policies (continued) International Accounting Standards and Interpretations Effective date IFRS various Annual improvements 2008 1 January 2009 IFRS2 Share-based Payment Amendment relating to vesting conditions and cancellations 1 January 2009 IFRS7 Financial Instruments: Disclosures Amendments enhancing disclosures about fair value and liquidity risk 1 January 2009 IFRS8 Operating segments 1 January 2009 IAS1 IAS1 Presentation of Financial Statements Comprehensive revision including requiring a statement of comprehensive income 1 January 2009 Presentation of Financial Statements Amendments relating to disclosure of puttable instruments and obligations arising on liquidation 1 January 2009 IAS23 Borrowing costs Comprehensive revision to prohibit immediate expensing 1 January 2009 IAS27 IAS32 Consolidated and Separate Financial Statements Amendment relating to cost of an investment on first time adoption 1 January 2009 Financial Instruments: Presentation Amendments relating to puttable instruments and obligations arising on liquidation 1 January 2009 IFRIC13 Customer Loyalty Programmes 1 July 2008 IFRIC15 Agreements for the Construction of Real Estate 1 January 2009 IFRIC16 Hedges of a Net Investment in a Foreign Operation 1 October 2008 Following the adoption of IAS1 (Revised) the group has followed the two statement approach and presented separately the group income statement and the group statement of comprehensive income. The impact was one of disclosure only. None of the other standards above have had a material impact on the group s financial statements. The following standards and interpretations have been issued by the IASB and IFRIC with an effective date that does not impact on these financial statements. International Accounting Standards and Interpretations Effective date IFRS various Annual improvements 2009 1 July 2009 and 1 January 2010 IFRS2 Share-based Payment Amendment relating to group cash-settled share-based payment transactions 1 July 2009 IFRS3 Business Combinations Comprehensive revision on applying the acquisition method 1 July 2009 IFRS9 Financial Instruments 1 January 2013 IAS27 Consolidated and Separate Financial Statements Consequential amendments arising from amendments to IFRS3 1 July 2009 IAS28 Investments in Associates Consequential amendments arising from amendments to IFRS3 1 July 2009 IAS31 Interests in Joint Ventures Consequential amendments arising from amendments to IFRS3 1 July 2009 IAS32 Financial Instruments: Presentation Amendments relating to classification of rights issues 1 February 2010 IAS39 Financial Instruments: Recognition and Measurement Amendments for eligible hedged items 1 July 2009 IFRIC17 Distribution of Non-cash Assets to Owners 1 July 2009 IFRIC18 Transfer of Assets from Customers 1 July 2009 IFRIC19 Extinguishing Financial Liabilities with Equity Instruments 1 July 2010 Accounts The directors are currently reviewing the requirements of the above standards and interpretations to determine whether there will be a material impact on the group s financial statements. 120 Arriva plc Annual Report & Accounts 2009

Notes to the accounts Notes to the accounts 1. Segmental reporting Management has determined the operating segments based on the information provided to the Board of directors which is considered to be the chief operating decision maker. The group is managed, and reports internally, on a basis consistent with its three operating divisions - UK Bus, Mainland Europe and UK Trains. The principal activities of these divisions are set out in the chief executive s review, which shows segmental revenue and operating profit grossed up to include the revenue and operating profit of associates, together with a reconciliation to the information below. Business segments year ended 31 December 2009 Mainland Total UK Bus Europe UK Trains Central operations m m m m m Revenue 961.5 1,483.7 702.6-3,147.8 EBITDA 155.1 170.6 16.8 (18.4) 324.1 Depreciation (63.9) (96.8) (4.7) (0.4) (165.8) Operating profit (before goodwill impairment, intangible asset amortisation and exceptional items) 91.2 73.8 12.1 (18.8) 158.3 Goodwill impairment and intangible asset amortisation - (42.6) (2.2) - (44.8) Exceptional item 46.8 - - - 46.8 Group operating profit 138.0 31.2 9.9 (18.8) 160.3 Share of post tax profits from associates - 5.2 - - 5.2 Net finance costs (43.8) Profit on ordinary activities before taxation 121.7 Tax on profit on ordinary activities (2.5) Profit for the year 119.2 Profit attributable to minority interests (10.7) Net profit attributable to equity shareholders 108.5 Goodwill impairment and intangible asset amortisation of 44.8 million includes an impairment charge of 29.6 million primarily in relation to Portugal (see note 8 for further details). Exceptional item: From 1 December 2009, the benefit structure of the Arriva Passenger Services Pension Plan, the largest of the group s defined benefit schemes, was changed. One of the principal changes is the capping of pensionable salary increases until the scheme returns to surplus on an uncapped basis. In accordance with IAS19, this capping of future benefits has been recognised immediately in the group s income statement, giving rise to a curtailment gain of 46.8 million. Tax on profit on ordinary activities includes a deferred tax charge of 13.1 million on the exceptional item. Accounts 121

Notes to the accounts (continued) 1. Segmental reporting (continued) Business segments year ended 31 December 2008 Mainland Total UK Bus Europe UK Trains Central operations m m m m m Revenue 922.4 1,282.0 837.8-3,042.2 EBITDA 159.8 151.4 37.6 (18.4) 330.4 Depreciation (60.5) (81.8) (3.9) (0.4) (146.6) Operating profit (before goodwill impairment and intangible asset amortisation) 99.3 69.6 33.7 (18.8) 183.8 Goodwill impairment and intangible asset amortisation - (9.8) (2.2) - (12.0) Group operating profit 99.3 59.8 31.5 (18.8) 171.8 Share of post tax profits from associates - 4.4 - - 4.4 Net finance costs (26.2) Profit on ordinary activities before taxation 150.0 Tax on profit on ordinary activities (38.8) Profit for the year 111.2 Profit attributable to minority interests (6.7) Net profit attributable to equity shareholders 104.5 Included above is 41.8 million of revenue and 3.9 million of operating profit, before goodwill impairment and intangible asset amortisation, relating to the acquisitions made by the Mainland Europe division during the year. There is 49.0 million of revenue and 2.1 million of operating profit relating to acquisitions made by the UK Bus division and 0.8 million of revenue and nil operating profit relating to acquisitions made by the UK Trains division. Tax on profit on ordinary activities includes an exceptional deferred tax charge of 7.7 million relating to the abolition of Industrial Buildings Allowances in the UK. Accounts 122 Arriva plc Annual Report & Accounts 2009

Business segments year ended 31 December 2009 Mainland UK Bus Europe UK Trains Central Group m m m m m Segment assets 734.5 1,664.2 126.4 13.7 2,538.8 Investment in equity accounted associates 2.0 132.9 - - 134.9 Unallocated assets: - Cash and cash equivalents 238.4 - Derivative financial instruments 72.9 Total assets 736.5 1,797.1 126.4 13.7 2,985.0 Segment liabilities (254.1) (530.1) (169.2) (71.6) (1,025.0) Unallocated liabilities: - Corporate borrowings (1,090.5) - Derivative financial instruments (69.0) - Deferred tax on derivative financial instruments (12.2) Total liabilities (254.1) (530.1) (169.2) (71.6) (2,196.7) Net assets 788.3 Other segment items Capital expenditure: - Property, plant and equipment existing businesses 96.3 184.2 7.3 0.1 287.9 year ended 31 December 2008 Mainland UK Bus Europe UK Trains Central Group m m m m m Segment assets 715.4 1,771.1 126.3 15.4 2,628.2 Investment in equity accounted associates 2.0 139.9 - - 141.9 Unallocated assets: - Cash and cash equivalents 147.7 - Derivative financial instruments 61.8 Total assets 717.4 1,911.0 126.3 15.4 2,979.6 Segment liabilities (265.3) (605.0) (173.4) (71.8) (1,115.5) Unallocated liabilities: - Corporate borrowings (971.1) - Derivative financial instruments (182.8) - Deferred tax on derivative financial instruments 8.0 Total liabilities (265.3) (605.0) (173.4) (71.8) (2,261.4) Net assets 718.2 Other segment items Capital expenditure: - Property, plant and equipment existing businesses 87.1 164.6 11.6 0.5 263.8 - Property, plant and equipment acquisitions 22.3 47.6 0.2-70.1 Accounts 123

Notes to the accounts (continued) 1. Segmental reporting (continued) Geographical segments The group s operations are located in the UK and mainland Europe. The UK is the home country of the parent company. Revenue Segment assets Capital expenditure 2009 2008 2009 2008 2009 2008 m m m m m m UK 1,664.1 1,760.2 874.6 857.1 103.7 99.2 Mainland Europe 1,483.7 1,282.0 1,664.2 1,771.1 184.2 164.6 3,147.8 3,042.2 2,538.8 2,628.2 287.9 263.8 Investments in equity accounted associates 134.9 141.9 - - Unallocated assets: - Cash and cash equivalents 238.4 147.7 - - - Derivative financial instruments 72.9 61.8 - - 2,985.0 2,979.6 287.9 263.8 2. Net finance costs 2009 2008 m m Finance costs: - Interest payable on bank and other borrowings repayable within five years 31.6 24.9 - Interest payable on bank and other borrowings repayable after five years 1.8 1.9 Finance lease charges 7.5 7.6 Hire purchase charges 4.9 1.3 Interest payable and similar charges 45.8 35.7 Finance income: - Interest receivable on other financing items (2.0) (9.5) Net finance costs 43.8 26.2 Accounts 124 Arriva plc Annual Report & Accounts 2009

3. Profit on ordinary activities before taxation (a) Net operating expenses (before goodwill impairment, intangible asset amortisation 2009 2008 and exceptional items) (analysis by function): m m Operating costs 2,651.7 2,537.6 Administrative expenses 337.8 320.8 2,989.5 2,858.4 2009 2008 (b) The following items have been included in arriving at group operating profit (analysis by nature): m m Staff costs (note 4) 1,308.0 1,256.1 Depreciation of property, plant and equipment (note 10) 165.8 146.6 Amortisation of intangible assets (note 9) 11.9 9.5 Impairment of goodwill (note 8) 32.9 2.5 Profit on disposal of properties (2.1) (3.7) Operating lease rentals payable: - Plant and equipment 438.9 547.4 - Property 19.8 20.3 Repairs and maintenance expenditure on property, plant and equipment 17.6 15.0 UK Trains franchise agreement receipts (246.7) (402.9) During the year the group (including its overseas subsidiaries) obtained the following services from the group s auditors and network firms at costs as detailed below: 2009 2008 m m Remuneration payable to the company s auditors for the auditing of the annual accounts 0.4 0.4 The auditing of accounts of subsidiaries of the company pursuant to legislation (countries and territories outside of Great Britain) 0.9 0.9 Services relating to taxation 0.4 0.3 All other services 0.1 0.2 1.8 1.8 Included in the group s audit fees and expenses paid to the auditors is 0.1 million (2008: 0.1 million) in respect of the parent company. An amount of 16,000 was paid to the group s auditors in respect of the audit of group pension schemes. Accounts 125

Notes to the accounts (continued) 4. Employee information 2009 2008 (a) Average number of employees by business: Number Number UK Bus 18,873 19,243 UK Trains 3,889 3,797 Mainland Europe 17,755 17,312 40,517 40,352 Central 132 135 Total operations 40,649 40,487 2009 2008 (b) Staff costs (including executive directors): m m Wages and salaries 1,157.1 1,086.0 Social security costs 139.2 122.5 Pension costs (note 20)* 11.7 47.6 1,308.0 1,256.1 * Including impact of curtailment gain (see note 1) Key management personnel are considered to be the directors and their remuneration is disclosed within the directors remuneration report which forms part of these financial statements. The charge to the group in respect of share-based payments relating to senior employees is included in note 23c. 5. Taxation 2009 2008 Analysis of charge in the year m m Current tax - current year 13.6 28.7 Current tax - adjustments in respect of prior years (11.8) (16.5) Current tax 1.8 12.2 Deferred tax - current year 2.1 14.8 Deferred tax - adjustments in respect of prior years (14.5) 4.1 Deferred tax (12.4) 18.9 Deferred tax charge on exceptional item 13.1 - Exceptional deferred tax charge - 7.7 Total taxation 2.5 38.8 The Deferred tax charge on exceptional item in 2009 relates to the deferred tax impact of the exceptional pension credit of 46.8 million arising in the UK (see note 1). Accounts The exceptional deferred tax charge in 2008 was due to the impact of the abolition of Industrial Buildings Allowances in the UK. As in previous years, adjustments in respect of prior years of 26.3 million (2008: 12.4 million) reflect the resolution of a number of historical tax matters with the tax authorities, including 15 million relating to a settlement which is expected to give rise to total savings of approximately 68 million. The Deferred tax - current year figure noted above is stated after recognising a further tax credit of 7 million in respect of this particular settlement, and the balance of 46 million is expected to be available for release to the income statement in future years. 126 Arriva plc Annual Report & Accounts 2009

2009 2008 Tax on items credited to equity m m Current tax credit on exchange movements offset in reserves (3.7) (16.2) Deferred tax credit on cross currency swaps (1.2) (3.2) Deferred tax charge/(credit) on cash flow hedges 21.4 (22.9) Deferred tax credit on actuarial losses on defined benefit schemes (17.1) (14.6) Deferred tax charge/(credit) on other items 0.2 (0.5) Total tax on items credited to equity (0.4) (57.4) The tax charge for the year is lower (2008: lower) than the standard rate of corporation tax in the UK of 28.0 per cent (2008: 28.5 per cent). The differences are explained below: 2009 2008 m m Profit on ordinary activities before tax 121.7 150.0 Profit on ordinary activities multiplied by the standard rate of corporation tax in the UK of 28.0 per cent (2008: 28.5 per cent) 34.1 42.8 Effects of: - Adjustments to tax in respect of prior years - tax efficient leasing (15.0) - - Adjustments to tax in respect of prior years - other items (11.3) (12.4) - Income not subject to tax (0.8) (0.8) - Expenses not deductible for tax purposes 4.5 3.8 - Goodwill impairment 8.3 - - Recognition of previously unrecognised tax losses (10.9) (7.4) - Current year losses arising where no deferred tax benefit has been recognised 0.6 2.0 - Different tax rates of subsidiaries operating in other jurisdictions 5.4 4.3 - Results from associated undertakings (1.4) (1.2) - Tax efficient leasing and restructuring (11.0) - - Abolition of Industrial Buildings Allowances in the UK - 7.7 Total taxation 2.5 38.8 6. Dividends 2009 2008 m m Final dividend paid for the year ended 31 December 2008 of 17.91 pence (2008: final dividend paid for the year ended 31 December 2007 of 17.06 pence) per share 35.6 33.9 Interim dividend paid for the year ended 31 December 2009 of 6.46 pence (2008: interim dividend paid for the year ended 31 December 2008 of 6.15 pence) per share 12.9 12.2 Amounts recognised as distributions to equity holders in the year 48.5 46.1 The directors are proposing a final dividend in respect of the financial year ended 31 December 2009 of 18.80 pence per share which will absorb an estimated 37.4 million of shareholders funds taking the total dividend for the year to 25.26 pence. It will be paid on 10 May 2010 to shareholders who are on the Register of Members on 9 April 2010. Accounts 127

Notes to the accounts (continued) 7. Earnings per share 2009 2008 Per share Earnings Shares Per share Earnings Shares (a) Basic and diluted earnings per share p m m p m m Profit attributable to equity holders of the parent company 108.5 104.5 Weighted average number of shares 199.0 198.6 Basic earnings per share 54.5 108.5 199.0 52.6 104.5 198.6 Performance based share option schemes: - Additional shares for earnings contingency 0.6 1.8 - Number of shares that would have been issued at fair value (0.1) (0.7) Diluted earnings per share 54.4 108.5 199.5 52.3 104.5 199.7 (b) Basic earnings per share before goodwill impairment, 2009 2008 intangible asset amortisation and exceptional items p p Basic earnings per share 54.5 52.6 Earnings per share relating to: - Goodwill impairment and intangible asset amortisation 21.2 5.0 - Exceptional item, net of tax (see note 1) (16.9) - - Exceptional deferred tax - 3.9 Basic earnings per share before goodwill impairment, intangible asset amortisation and exceptional items 58.8 61.5 8. Goodwill 2009 2008 m m Cost At 1 January 572.6 381.3 Additions - 100.0 Hindsight adjustment in respect of prior year acquisitions (note 26) 0.5 0.8 Currency translation adjustments (32.2) 90.5 At 31 December 540.9 572.6 Impairment At 1 January 62.7 53.1 Impairment in the year 32.9 2.5 Currency translation adjustments (2.5) 7.1 At 31 December 93.1 62.7 Accounts Net book amount at 31 December 447.8 509.9 There have been no significant acquisitions during the year. The hindsight fair value adjustments in the year relate to the final determination of provisional fair value adjustments made in respect of prior year acquisitions. Comparative amounts have not been restated following the final determination of fair value adjustments as the amounts included are not material. 128 Arriva plc Annual Report & Accounts 2009

During the year, goodwill was reviewed for impairment in accordance with IAS36 Impairment of Assets. The recoverable amount of goodwill has been determined based on a value in use calculation for each cash generating unit, using cashflow projections based on the 2010 budget and business plans for 2011 to 2013, with cash flows for subsequent years extrapolated based on estimated growth rates of 2.0 per cent (2008: 2.0 per cent). A pre-tax discount rate of 11.0 per cent (2008: 11.0 per cent) has then been applied to the cashflows. The calculation of value in use is most sensitive to the principal assumptions of discount rate, growth rates and profit margin. The directors consider the assumptions to be reasonable based on the historic performance of each cash generating unit and to be realistic in light of economic and industry measures and forecasts. The review has resulted in an impairment charge of 29.6 million primarily in relation to goodwill in Portugal. In light of the factors affecting the Portuguese bus market and the likely continued migration of revenue to the recently extended light-rail system south of Lisbon, the Portuguese operation has been de-scaled to a level commensurate with the changed environment. Goodwill is allocated across multiple cash generating units and the amount allocated to each unit is not significant in comparison with the total carrying amount of goodwill. Sensitivity analysis has been performed on the calculations and has confirmed that, apart from the impairment noted above, it is believed that any reasonably possible movement on assumptions will not lead to a material impairment and we have therefore not presented any sensitivity analysis. 9. Other intangible assets 2009 2008 m m Cost At 1 January 111.6 63.0 Additions - 29.5 Currency translation adjustments (7.1) 19.1 At 31 December 104.5 111.6 Accumulated amortisation At 1 January 35.9 19.8 Amortisation for the year 11.9 9.5 Currency translation adjustments (2.4) 6.6 At 31 December 45.4 35.9 Net book amount at 31 December 59.1 75.7 Intangible assets relate to identifiable assets purchased as part of the group s business combinations, and the right to operate the Arriva Trains Wales and CrossCountry rail franchises. Intangible assets are amortised on a straight-line basis over their expected useful economic lives. Accounts 129

Notes to the accounts (continued) 10. Property, plant and equipment Plant, company vehicles, Railway Land & fixtures & Buses & rolling buildings fittings coaches stock Total 2009 m m m m m Cost At 1 January 2009 415.0 322.1 1,697.3 253.6 2,688.0 Reclassifications 3.2 1.3 4.0-8.5 Additions 9.8 34.7 163.7 79.7 287.9 Disposals (2.4) (14.3) (96.4) (5.2) (118.3) Currency translation adjustments (21.2) (17.9) (72.1) (20.4) (131.6) At 31 December 2009 404.4 325.9 1,696.5 307.7 2,734.5 Accumulated depreciation At 1 January 2009 87.9 200.9 780.7 58.6 1,128.1 Reclassifications 1.6 1.1 5.8-8.5 Charge for the year 8.3 22.8 123.8 10.9 165.8 Disposals (0.4) (6.4) (85.7) (1.3) (93.8) Currency translation adjustments (6.0) (11.5) (30.7) (6.2) (54.4) At 31 December 2009 91.4 206.9 793.9 62.0 1,154.2 Net book amounts At 31 December 2009 313.0 119.0 902.6 245.7 1,580.3 The net book amount of assets held under hire purchase and finance lease contracts included in plant, company vehicles, buses and coaches is 432.0 million (2008: 358.7 million). The depreciation provided in the year in respect of these assets was 55.0 million (2008: 42.7 million). The gross cost of assets held for the purpose of letting under operating leases amounts to 18.8 million (2008: 15.3 million). The accumulated depreciation on these assets was 5.8 million (2008: 6.3 million). Plant, company vehicles, Railway Land & fixtures & Buses & rolling buildings fittings coaches stock Total 2008 m m m m m Cost At 1 January 2008 341.0 228.1 1,281.2 156.5 2,006.8 Acquisitions 5.7 19.0 105.3 0.5 130.5 Additions 9.2 38.3 176.7 39.6 263.8 Disposals (2.9) (14.0) (74.7) (0.1) (91.7) Currency translation adjustments 62.0 50.7 208.8 57.1 378.6 At 31 December 2008 415.0 322.1 1,697.3 253.6 2,688.0 Accounts 130 Arriva plc Annual Report & Accounts 2009

Plant, company vehicles, Railway Land & fixtures & Buses & rolling buildings fittings coaches stock Total 2008 m m m m m Accumulated depreciation At 1 January 2008 64.0 138.7 602.6 37.1 842.4 Acquisitions - 12.5 47.5 0.4 60.4 Charge for the year 7.5 22.2 108.9 8.0 146.6 Disposals (1.1) (5.0) (66.5) (0.1) (72.7) Currency translation adjustments 17.5 32.5 88.2 13.2 151.4 At 31 December 2008 87.9 200.9 780.7 58.6 1,128.1 Net book amounts At 31 December 2008 327.1 121.2 916.6 195.0 1,559.9 2009 2008 m m Net book amount of land and buildings comprises: - Freehold 306.4 323.5 - Long leasehold 4.9 2.1 - Short leasehold 1.7 1.5 313.0 327.1 11. Investments accounted for using the equity method 2009 2008 Investments (all unquoted) m m Cost At 1 January 141.9 63.6 Additions - 42.7 Share of recognised profit after tax of associates for the year 5.2 4.4 Currency translation adjustments (12.2) 31.2 At 31 December 134.9 141.9 2009 2008 The group s share of the net assets of its associates is analysed below: m m Non-current assets 191.3 206.2 Current assets 53.3 54.2 Non-current liabilities (60.0) (63.0) Current liabilities (50.8) (56.8) Share of net assets 133.8 140.6 2009 2008 The group s share of its associates revenue and profit after tax is analysed below: m m Revenue 120.5 112.6 Profit 5.2 4.4 Accounts There were no significant transactions with associates during the year. 131

Notes to the accounts (continued) 12. Inventories 2009 2008 m m Raw materials, consumables and work in progress 43.4 42.9 Finished goods and goods for resale 10.6 9.4 54.0 52.3 The group consumed 420.1 million (2008: 354.6 million) of inventories during the year. There was no material write down of inventories during the current or prior year. 13. Trade and other receivables 2009 2008 m m Trade receivables 184.3 206.4 Provision for impairment of receivables (4.5) (6.2) Trade receivables - net 179.8 200.2 Prepayments and accrued income 100.6 77.9 Other receivables 117.2 152.3 397.6 430.4 Credit risk arising from customers is managed at a local level and is subject to periodic reviews by central management and the group s internal audit function. Credit limits are in place for customers, many of which are local authorities or local transport authorities. Due to the nature of certain contractual arrangements, particularly where the agreement and settlement of allocations of passenger revenues between multiple service providers can take more than one year to complete, certain customer debts can often exceed one year before settlement. This is common, and the incidence of impairment of such debt is both rare and immaterial. Due to the immaterial level of the provision for impairment of receivables as detailed above, no further disclosure is made. The group considers there to be no material difference between the fair value of trade and other receivables and their carrying amount in the balance sheet. The carrying amounts of the group s trade and other receivables 2009 2008 are denominated in the following currencies: m m Sterling 139.1 133.6 Euro 171.9 178.8 Other European currencies 86.6 118.0 397.6 430.4 14. Cash, cash equivalents and overdrafts 2009 2008 Cash, cash equivalents and overdrafts in the cash flow statement comprise: m m Accounts Cash and cash equivalents 238.4 147.7 Bank overdrafts (note 16) (40.7) (34.4) 197.7 113.3 132 Arriva plc Annual Report & Accounts 2009

15. Trade and other payables 2009 2008 m m Trade payables 217.2 258.1 Payments received on account 0.5 0.4 Other taxation and social security payable 49.5 46.9 Other payables 156.8 136.3 Accruals and deferred income 270.4 266.1 694.4 707.8 16. Financial liabilities - borrowings 2009 2008 m m Current liabilities: - Short-term loans 168.4 110.6 - Bank overdrafts 40.7 34.4 209.1 145.0 - Finance leases 23.4 29.1 232.5 174.1 Non-current liabilities: - Syndicated loans 413.6 434.7 - Other loans 302.3 258.2 - Finance leases 142.1 104.1 858.0 797.0 2009 2008 m m Loan capital and other borrowings repayment statement: - Within one year or on demand 232.5 174.1 - Between one and two years 124.2 128.3 - Between two and five years 633.8 600.5 - Over five years 100.0 68.2 1,090.5 971.1 The total of the borrowings, any part of which fall due for repayment after five years, is 169.2 million (2008: 101.8 million). 74.2 million (2008: 63.5 million) represents bank loans in the Mainland Europe division, with varying repayment dates and interest rates. 95.0 million (2008: 38.3 million) represents fixed interest finance lease funding of the Mainland Europe bus fleet, with varying repayment dates and interest rates ranging between 3.9 per cent and 8.7 per cent. Security and guarantees Borrowings amounting to 518 million, principally relating to the bus fleet, are secured by charges over the related assets. As part of the UK rail franchising arrangements the group has provided guarantees of 48 million (2008: 47 million). The group has provided 31 million (2008: 31 million) of bonds in respect of its rail operations in Denmark, the Netherlands and Germany. At 31 December 2009, letters of credit amounting to the value of 11 million (2008: 11 million) are provided by the group s bankers, guaranteed by Arriva plc, in favour of the group s insurers. Accounts Syndicated loans are secured by guarantees given by Arriva plc and certain UK subsidiaries. 133

Notes to the accounts (continued) 16. Financial liabilities - borrowings (continued) 2009 2008 The effective interest rates at the balance sheet date were as follows: % % Cash and cash equivalents 1.2 2.6 Bank overdraft 3.6 3.0 Bank borrowings 3.3 4.3 Finance lease 4.6 4.4 Other financial liabilities - 5.3 2009 2008 The carrying amount of the group s borrowings are denominated in the following currencies: m m Sterling 291.6 273.2 Euro 597.4 519.1 Other European currencies 201.5 178.8 1,090.5 971.1 Fair value of financial assets and financial liabilities Due to the short-term nature of financial assets and financial liabilities, or the floating rate nature of non-current financial liabilities, the group considers there to be no material difference between the fair value of financial assets and financial liabilities and their carrying amount in the balance sheet. Maturity of financial liabilities The maturity profile of the carrying amount of the group s non-current liabilities at 31 December was as follows: Finance 2009 Finance 2008 Debt leases Total Debt leases Total m m m m m m In more than one year but not more than two years 107.4 16.8 124.2 109.3 19.0 128.3 In more than two years but not more than five years 574.5 59.3 633.8 543.9 56.6 600.5 In more than five years 34.0 66.0 100.0 39.7 28.5 68.2 715.9 142.1 858.0 692.9 104.1 797.0 Borrowing facilities The group has the following undrawn committed borrowing facilities available at 31 December in respect of which all conditions precedent had been met at that date: 2009 2008 m m Expiring within one year 53.0 78.0 Expiring in more than two years 290.2 180.3 343.2 258.3 Accounts Finance leases The group typically enters into finance leases of no more than five years duration on an amortising basis. Given the short-term nature of this funding, the group considers there to be no material difference between the fair value of finance leases and their carrying amount in the balance sheet. Finance lease obligations included in current liabilities amount to 23.4 million (2008: 29.1 million) and in non-current liabilities amount to 142.1 million (2008: 104.1 million). 134 Arriva plc Annual Report & Accounts 2009

17. Other non-current liabilities 2009 2008 m m Accruals and deferred income 107.1 110.1 Other payables 0.4 22.9 107.5 133.0 18. Financial risk management objectives and policies The group is exposed to financial risks including liquidity risk, credit risk and certain market based risks principally relating to exchange rates, interest rates and fuel prices. These financial risks are managed by the group treasury function in accordance with a formal Board-approved treasury policy. The policy sets a range of formal targets for managing the group s exposure to financial risks. For further details of the group s financial risk management objectives and policies please refer to the financial review. In addition, further information relating to credit risk and liquidity risk is detailed in notes 13 and 16 respectively. Capital disclosures and compliance with financial covenants are detailed on page 47 of the financial review. After taking into account the group s hedging policies referred to above, the sensitivity to changes in market based risks was as follows: (a) Foreign currency risk A 10 per cent strengthening of sterling against the euro would decrease profit for the year in 2009 by 2.5 million and decrease equity by 10 million at 31 December 2009. (b) Interest rate risk A 100 basis point increase in interest rates would reduce profit for the year in 2009 by 1.4 million and increase equity by 3 million at 31 December 2009. (c) Commodity risk A 10 per cent increase in fuel prices would reduce profit for the year in 2009 by 0.1 million and increase equity by 20 million at 31 December 2009. In the sensitivity analyses above it is assumed that each change takes place at the beginning of the financial year and is held constant throughout the reporting period, all other variables remaining constant. 19. Derivative financial instruments Financial instrument disclosures are set out below. Additional disclosures are set out in the accounting policies and financial review. 2009 2008 m m Non-current assets: Fuel derivatives - cash flow hedge 55.3 51.8 Cross currency swaps - net investment hedge 0.4-55.7 51.8 2009 2008 m m Current assets: Fuel derivatives - cash flow hedge 17.2 10.0 17.2 10.0 Accounts 135

Notes to the accounts (continued) 19. Derivative financial instruments (continued) 2009 2008 m m Current liabilities: Interest rate swaps - cash flow hedge 2.9 0.9 Forward foreign currency contracts - cash flow hedge - 0.7 Fuel derivatives - cash flow hedge 13.3 65.9 Cross currency swaps - net investment hedge 35.9 31.3 52.1 98.8 2009 2008 m m Non-current liabilities: Interest rate swaps - cash flow hedge 10.7 8.2 Fuel derivatives - cash flow hedge 0.4 17.2 Cross currency swaps - net investment hedge 5.8 58.6 16.9 84.0 In accordance with IAS39 Financial instruments: Recognition and Measurement, Arriva plc has reviewed all contracts for embedded derivatives that are required to be separately accounted for if they do not meet certain requirements set out in the standard. All embedded derivatives were found to be closely related to their host contracts, and therefore no fair value exercise was required to be undertaken. Maturity of derivative financial instruments The maturity profile of the carrying amount of the group s derivative financial instruments was as follows: Between Between Less than one and two and Over one year two years five years five years At 31 December 2009 m m m m Interest rate swaps - cash flow hedge (2.9) (5.5) (0.6) (4.6) Fuel derivatives - cash flow hedge 3.9 14.0 29.1 11.8 Cross currency swaps - net investment hedge (35.9) (5.4) - - Between Between Less than one and two and Over one year two years five years five years At 31 December 2008 m m m m Interest rate swaps - cash flow hedge (0.9) (3.5) (4.7) - Forward foreign currency contracts - cash flow hedge (0.7) - - - Fuel derivatives - cash flow hedge (55.9) (7.1) 23.9 17.8 Cross currency swaps - net investment hedge (31.3) (48.4) (10.2) - Accounts 136 Arriva plc Annual Report & Accounts 2009

Net fair values of derivative financial instruments The fair values of derivative financial instruments designated in cash flow hedges were: 2009 2008 m m Contracts with positive fair values: - Fuel derivatives 72.5 61.8 Contracts with negative fair values: - Interest rate swaps (13.6) (9.1) - Forward foreign currency contracts - (0.7) - Fuel derivatives (13.7) (83.1) The fair value of derivatives have been supplied externally by the respective counterparties to the derivative and by banks using market rates prevailing at the balance sheet date. 20. Retirement benefit obligations At 31 December 2009 the group operated a number of retirement benefit schemes, both defined benefit and defined contribution, which are financed through separate Trustee administered funds managed by independent professional fund managers on behalf of the Trustees. Contributions to the defined benefit funds are based upon actuarial advice following the most recent of a regular series of valuations of the funds by their representative independent actuaries. Certain employees of Arriva Merseyside Limited participate in the Local Government Pension Scheme. This is a defined benefit scheme funded by payments to the Merseyside Pension Fund. The latest formal actuarial valuation of the Merseyside Pension Fund was carried out as at 31 March 2007. Certain employees of Arriva Trains Wales Limited and XC Trains Limited, participate in funded defined benefit sections which form part of the overall Railways Pension Scheme ( RPS ). The latest formal actuarial valuation of the RPS was carried out on 31 December 2007. Total pension cost The total pension cost for the group was 11.7 million (2008: 47.6 million), net of the curtailment gain of 46.8 million detailed below. The pension costs in respect of the group s defined contribution schemes was 42.4 million (2008: 32.4 million). Defined benefit plans The directors believe that separate consideration should be given to the RPS under IAS19 as the group has no rights or obligations in respect of sections of this scheme following the expiry of the franchises. This is accounted for by way of a franchise adjustment, which increased from nil at 31 December 2008 to 65.1 million at 31 December 2009. The amounts relating to the rail schemes are shown separately and relate to sections in respect of Arriva Trains Wales Limited and XC Trains Limited only. The calculations used to assess the IAS19 liabilities of the retirement benefit schemes are based on the most recent actuarial valuations, updated to 31 December 2009 by qualified independent actuaries KPMG LLP. The schemes assets are stated at their market value at 31 December 2009. From 1 December 2009, the benefit structure of the Arriva Passenger Services Pension Plan, the largest of the group s defined benefit schemes, was changed. One of the principal changes is the capping of pensionable salary increases until the scheme returns to surplus on an uncapped basis. In accordance with IAS19, this capping of future benefits has been recognised immediately in the group s income statement, giving rise to a curtailment gain of 46.8 million. Accounts 137

Notes to the accounts (continued) 20. Retirement benefit obligations (continued) The principal actuarial assumptions at the balance sheet date are: 2009 2008 % % Discount rate 5.7 6.6 Inflation rate 3.5 2.8 Increases to deferred benefits during deferment 3.5 2.8 Increases to pensions in payment 3.1 2.7 Increases to salaries 4.5 3.8 Weighted average expected long-term rate of return on the scheme assets at 31 December, after deduction for scheme expenses 7.7 7.1 Weighted average life expectancy for mortality tables to determine benefit obligations: 2009 2008 years years Member age 65 (current life expectancy) Male 17 17 Female 19 19 Member age 45 (life expectancy at age 65) Male 18 18 Female 20 20 The major categories of plan assets and the expected rate of return at the balance sheet date for each category, is as follows: 2009 2008 % % Category of assets at the year end Equities 8.25 7.75 Bonds 5.9 5.5 Other 6.5 6.4 Weighted average expected long-term rate of return at 31 December, after deduction for scheme expenses 7.7 7.1 The overall expected rate of return is a weighted average of the expected returns of the various categories of plan assets held. The directors assessment of the expected returns is based on historical return trends, the forward looking views of financial markets (suggested by the yields available) and the views of investment organisations. The actual gain on plan assets was 139.6 million (2008: 230.5 million loss). The amounts recognised in the balance sheet are determined as follows: Group Schemes RPS Total Total Total Total Total 2009 2009 2009 2008 2007 2006 2005 m m m m m m m Present value of funded obligations (715.5) (421.3) (1,136.8) (908.7) (1,062.1) (927.9) (856.3) Fair value of plan assets 627.8 292.6 920.4 768.8 981.5 747.7 640.2 Accounts Deficit (87.7) (128.7) (216.4) (139.9) (80.6) (180.2) (216.1) Deficit relating to scheme members - 51.5 51.5 20.6 8.1 6.4 8.7 Rail franchise adjustment - 65.1 65.1 - - - - Unrecognised asset - - - (0.8) (1.2) - - Net deficit recognised in the balance sheet (87.7) (12.1) (99.8) (120.1) (73.7) (173.8) (207.4) 138 Arriva plc Annual Report & Accounts 2009

The amounts recognised in the income statement are as follows: 2009 2008 m m Current service costs 14.4 24.3 Interest cost 51.7 54.7 Expected return on assets (50.4) (63.8) Exceptional item - curtailment gain* (46.8) - Past service cost 0.4 - (30.7) 15.2 * Net of expenses Actuarial gains and losses have been reported in the statement of comprehensive income. 2009 2008 Movements in the present value of defined benefit obligations were as follows: m m At 1 January 908.7 1,062.1 Member contributions paid 18.7 20.6 Current service cost 14.4 24.3 Past service cost 0.4 - Interest cost* 59.6 63.0 Benefits paid (46.1) (36.1) Actuarial losses/(gains)* 228.1 (225.2) Curtailment (47.0) - At 31 December 1,136.8 908.7 * Before RPS shared cost adjustment 2009 2008 Movements in the fair value of plan assets were as follows: m m At 1 January 768.8 981.5 Expected return on plan assets* 57.9 73.9 Total contributions 58.1 53.9 Benefits paid (46.1) (36.1) Actuarial gains/(losses)* 81.7 (304.4) At 31 December 920.4 768.8 * Before RPS shared cost adjustment The movements in the present value of defined benefit obligations and in the fair value of the plan assets do not take into account the shared cost nature of the RPS. The income statement includes 60 per cent of the relevant RPS amounts. Accounts 139

Notes to the accounts (continued) 20. Retirement benefit obligations (continued) 2009 2008 Plan assets % % The weighted average asset allocations at the year end were as follows: Equities 76 72 Bonds 15 21 Other 9 7 2009 2008 Cumulative actuarial gains and losses recognised in equity m m At 1 January 58.9 123.6 Actuarial losses recognised in the year (50.0) (64.7) At 31 December 8.9 58.9 2009 2008 2007 2006 2005 History of experience gains and losses m m m m m Experience adjustments on scheme liabilities: - Amount (228.1) 225.2 111.6 (22.6) (74.9) - Percentage of scheme liabilities 20.1% 24.8% 10.5% 2.4% 8.7% Experience adjustments on scheme assets: - Amount 81.7 (304.4) (5.1) 38.0 65.5 - Percentage of scheme assets 8.9% 39.6% 0.5% 5.1% 10.2% The group expects to make contributions of approximately 35 million to the defined benefit plans during the next financial year. 21. Deferred tax The movement in deferred tax is shown below: 2009 2008 m m At 1 January 95.4 87.6 Exchange differences (4.9) 11.7 Acquisition of subsidiaries (0.2) 10.7 Income statement charge 0.7 26.6 Tax charged/(credited) to equity 3.3 (41.2) At 31 December 94.3 95.4 Deferred tax assets have not been recognised in respect of tax losses and other temporary differences giving rise to deferred tax assets where there is uncertainty regarding the recoverability of the resulting deferred tax assets. No benefit has been recognised in respect of 133 million of unused tax losses and deductible temporary differences due to uncertainties and restrictions regarding their utilisation. Those unused tax losses and deductible temporary differences have the potential to produce tax credits of the order of 36 million in future years. Accounts Deferred tax is not provided on the unremitted earnings of overseas subsidiaries where the group has control over the timing of remittance and it is probable that remittance will not take place in the foreseeable future. In addition, it is likely that the majority of the overseas earnings would qualify for the UK dividend exemption and therefore no tax liability is expected to arise. Material deferred tax assets and liabilities are only offset where there is a legally enforceable right of offset and there is an intention to settle the balances net. 140 Arriva plc Annual Report & Accounts 2009

The movements in deferred tax assets and liabilities during the year are shown below: Accelerated tax depreciation Revaluation Intangibles Derivatives Other Total Deferred tax liabilities m m m m m m At 1 January 2008 75.4 15.9 6.6 18.1 4.0 120.0 Exchange differences 10.5-3.8-1.5 15.8 Acquisition of subsidiaries 1.9-8.8 - - 10.7 Income statement charge/(credit) 25.6 (0.2) (1.7) - 1.4 25.1 Tax credited directly to equity - - - (26.1) - (26.1) Transferred to deferred tax assets - - - 8.0 2.5 10.5 At 31 December 2008 113.4 15.7 17.5-9.4 156.0 Exchange differences (5.1) - (1.4) - (0.1) (6.6) Acquisition of subsidiaries (0.2) - - - - (0.2) Income statement credit (9.6) (2.9) (3.0) - (5.5) (21.0) Tax charged directly to equity - - - - 0.2 0.2 Transferred to deferred tax assets - - - 12.2-12.2 At 31 December 2009 98.5 12.8 13.1 12.2 4.0 140.6 The deferred tax liability due after more than one year is 137.4 million (2008: 152.4 million). Retirement benefit obligations Provisions Derivatives Losses Other Total Deferred tax assets m m m m m m At 1 January 2008 (17.3) (14.0) - - (1.1) (32.4) Exchange differences - (2.6) - (2.0) 0.5 (4.1) Income statement charge/(credit) 4.9 2.7 - (9.7) 3.6 1.5 Tax credited directly to equity (14.6) - - - (0.5) (15.1) Transferred from deferred tax liabilities - - (8.0) - (2.5) (10.5) At 31 December 2008 (27.0) (13.9) (8.0) (11.7) - (60.6) Exchange differences - 0.8-0.9-1.7 Income statement charge/(credit) 19.5 2.3 - (0.1) - 21.7 Tax (credited)/charged directly to equity (17.1) - 20.2 - - 3.1 Transferred from deferred tax liabilities - - (12.2) - - (12.2) At 31 December 2009 (24.6) (10.8) - (10.9) - (46.3) The deferred tax asset due after more than one year is 23.9 million (2008: 37.7 million). Accounts 141

Notes to the accounts (continued) 22. Called up equity share capital Authorised Issued - fully paid 2009 2008 2009 2008 Ordinary shares of 5p each 20,000,000 14,500,000 9,957,960 9,932,854 Number of shares 400,000,000 290,000,000 199,159,195 198,657,072 Reconciliation of movement in issued share capital: Shares in issue 1 January 198,657,072 198,613,572 Share allotments on exercise of options 502,123 43,500 Shares in issue 31 December 199,159,195 198,657,072 Consideration of 0.1 million was received in respect of share allotments in the year ended 31 December 2009 (2008: 0.2 million). At 31 December 2009 there were outstanding options to receive allotments of 4,726,210 ordinary shares under the Executive Share Option Scheme, the Share Incentive Scheme and the Long Term Incentive Plan. The price for the vested share for the Long Term Incentive Plan is nil. The option exercise prices for the other schemes range from 283.0 pence to 745.0 pence. The options are exercisable up to March 2019. At 31 December 2009 the middle market quotation of the ordinary share, as derived from the Stock Exchange Official List, was 497.1 pence. The highest price attained by the ordinary share in 2009 was 641.0 pence and the lowest level during 2009 was 361.0 pence. 23. Share-based payments The group operates an Executive Share Option Scheme (ESOS), Share Incentive Scheme (SIS) and Long Term Incentive Plan (LTIP). The ESOS is a H.M. Revenue and Customs approved discretionary employee share option scheme, with options granted to certain senior employees (excluding directors) and exercisable between three and 10 years from date of grant, subject to performance criteria having been satisfied. The SIS is an unapproved discretionary employee share option scheme, with options granted to certain senior employees (excluding directors) and exercisable between three and seven years from date of grant, subject to performance criteria having been satisfied. The ESOS and SIS March 2007, March 2008 and March 2009 awards have been granted under the Arriva plc Company Share Option Plan 2006. The LTIP is a discretionary share scheme providing incentives in the form of conditional awards of shares to selected senior employees, including executive directors. There is a performance period of not less than three years before any of the shares may vest, with vesting of any of the shares subject to performance criteria having been satisfied. Further details of the LTIP and performance criteria are given in the directors remuneration r eport. In accordance with the transitional provisions of IFRS, the following disclosures relate only to awards made after 7 November 2002 that have not vested before 1 January 2005. Accounts 142 Arriva plc Annual Report & Accounts 2009

The fair value per option granted and the assumptions used in the calculation of fair value are as follows: Executive Share Option Scheme March 2003 March 2004 March 2007 March 2008 March 2009 Share price at grant date 2.83 3.73 7.45 6.87 3.92 Exercise price 2.83 3.73 7.45 6.87 3.92 Number of employees 12 46 44 31 9 Shares under option 73,000 206,162 121,324 96,902 42,363 Vesting period (years) 3 3 3 3 3 Expected volatility 32% 24% 20% 25% 35% Option life (years) 10 10 10 10 10 Expected life (years) 3 3 3 3 3 Risk free rate 4.0% 4.5% 5.1% 3.9% 1.7% Expected dividends expressed as a dividend yield 5.8% 5.1% 3.0% 3.0% 4.0% Expectations of meeting performance criteria 100% 100% 100% 100% 100% Fair value per option 0.470 0.504 1.130 1.144 0.739 Share Incentive Scheme March 2003 March 2004 March 2005 March 2006 March 2007 March 2008 March 2009 Share price at grant date 2.83 3.73 5.48 6.13 7.45 6.87 3.92 Exercise price 2.83 3.73 5.48 6.13 7.45 6.87 3.92 Number of employees 44 54 95 78 73 84 77 Shares under option 254,500 197,338 442,500 336,000 221,676 327,098 382,637 Vesting period (years) 3 3 3 3 3 3 3 Expected volatility 32% 24% 24% 24% 20% 25% 35% Option life (years) 7 7 7 7 7 7 7 Expected life (years) 3 3 3 3 3 3 3 Risk free rate 4.0% 4.5% 4.0% 4.6% 5.1% 3.9% 1.7% Expected dividends expressed as a dividend yield 5.8% 5.1% 3.6% 3.7% 3.0% 3.0% 4.0% Expectations of meeting performance criteria 100% 100% 100% 100% 100% 100% 100% Fair value per option 0.470 0.504 0.835 0.959 1.130 1.144 0.739 Accounts 143

Notes to the accounts (continued) 23. Share-based payments (continued) Long Term Incentive Plan March 2007 1 March 2007 2 March 2007 2 March 2008 1 March 2008 2 Share price at grant date 7.45 7.45 7.45 6.87 6.87 Exercise price 0.00 0.00 0.00 0.00 0.00 Number of employees 17 3 14 18 3 Shares under option 402,596 139,329 107,532 487,845 155,138 Vesting period (years) 3 3 3 3 3 Expected volatility 20% 20% 20% 25% 25% Option life (years) 3 3 3 3 3 Expected life (years) 3 3 3 3 3 Risk free rate 5.1% 5.1% 5.1% 3.9% 3.9% Expected dividends expressed as a dividend yield 3.0% 3.0% 3.0% 3.0% 3.0% Expectations of meeting performance criteria 22% 100% 100% 32% 100% Fair value per option 6.900 3.270 3.710 6.320 2.610 Long Term Incentive Plan March 2008 2 March 2009 1 March 2009 2 March 2009 2 Share price at grant date 6.87 3.82 3.82 3.82 Exercise price 0.00 0.00 0.00 0.00 Number of employees 15 19 2 17 Shares under option 135,895 975,526 209,560 312,860 Vesting period (years) 3 3 3 3 Expected volatility 25% 35% 35% 35% Option life (years) 3 3 3 3 Expected life (years) 3 3 3 3 Risk free rate 3.9% 1.7% 1.7% 1.7% Expected dividends expressed as a dividend yield 3.0% 4.0% 4.0% 4.0% Expectations of meeting performance criteria 100% 0% 100% 100% Fair value per option 2.880 3.410 0.920 1.010 The expected volatility is based on historical volatility over the last three years. The expected life is the average expected period to exercise. The risk free rate of return is the yield on zero-coupon UK Government bonds of a term consistent with the assumed option life. 1 Relates to the EPS element of the award 2 Relates to the TSR element of the award Accounts 144 Arriva plc Annual Report & Accounts 2009

A reconciliation of option movements for each of the above schemes over the year to 31 December is shown below: a) Executive Share Option Scheme 2009 2008 Weighted Weighted average average Number exercise Number exercise ('000) price ( ) ('000) price ( ) Outstanding at 1 January 258 6.45 194 6.01 Granted 42 3.92 97 6.87 Forfeited (11) 7.30 (14) 7.34 Exercised - - (19) 3.50 Outstanding at 31 December 289 6.06 258 6.45 Exercisable at 31 December 53 3.70 53 3.70 2009 2008 Weighted Weighted Range of average Weighted average average Weighted average exercise exercise Number of remaining life: exercise Number of remaining life: prices price shares Expected Contractual price shares Expected Contractual ( ) ( ) ('000) (years) (years) ( ) ('000) (years) (years) 2.83-7.45 6.06 289 1.0 7.0 6.45 258 1.0 8.0 No options in the ESOS were exercised over the year. In 2008, the weighted average share price during the period for options in the ESOS exercised over the year was 720.1 pence. The total charge for the year relating to the scheme was 0.1 million (2008: 0.1 million). b) Share Incentive Scheme 2009 2008 Weighted Weighted average average Number exercise Number exercise ('000) price ( ) ('000) price ( ) Outstanding at 1 January 1,252 6.17 1,013 5.90 Granted 383 3.92 327 6.87 Forfeited (168) 5.84 (74) 5.73 Exercised (10) 2.83 (14) 5.19 Outstanding at 31 December 1,457 5.64 1,252 6.17 Exercisable at 31 December 599 5.53 429 5.04 2009 2008 Weighted Weighted Range of average Weighted average average Weighted average exercise exercise Number of remaining life: exercise Number of remaining life: prices price shares Expected Contractual price shares Expected Contractual ( ) ( ) ('000) (years) (years) ( ) ('000) (years) (years) 2.83-7.45 5.64 1,457 0.7 4.0 6.17 1,252 0.7 4.3 The weighted average share price during the year for options exercised in the SIS over the year was 473.3 pence (2008: 723.8 pence). The total charge for the year relating to the scheme was 0.2 million (2008: 0.3 million), all of which related to equity-settled share-based payment transactions. After deferred tax, the total charge was 0.1 million (2008: 0.2 million). Accounts 145

Notes to the accounts (continued) 23. Share-based payments (continued) A reconciliation of option movements for each of the above schemes over the year to 31 December is shown below: c) Long Term Incentive Plan 2009 2008 Weighted Weighted average average Number exercise Number exercise ('000) price ( ) ('000) price ( ) Outstanding at 1 January 2,163-1,644 - Granted 1,498-779 - Forfeited (220) - (224) - Exercised (469) - (36) - Outstanding at 31 December 2,972-2,163 - Exercisable at 31 December 46-23 - 2009 2008 Weighted Weighted Range of average Weighted average average Weighted average exercise exercise Number of remaining life: exercise Number of remaining life: prices price shares Expected Contractual price shares Expected Contractual ( ) ( ) ('000) (years) (years) ( ) ('000) (years) (years) 0.00 0.00 2,972 1.3 1.3 0.00 2,163 1.0 1.0 The weighted average share price for the LTIP awards exercised in the year was 412.1 pence (2008: 795.0 pence). The total charge for the year relating to the scheme was 1.5 million (2008: 1.7 million), all of which related to equity-settled share-based payment transactions. After deferred tax, the total charge was 1.1 million (2008: 1.2 million). 24. Other reserves Capital redemption Special Hedge Other reserve fund reserve reserve reserves m m m m At 1 January 2008 1.8 59.1 44.1 105.0 Cash flow hedges (net of tax): - Fair value losses in the year - - (123.0) (123.0) - Transfers to net profit - - 56.5 56.5 At 31 December 2008 1.8 59.1 (22.4) 38.5 Cash flow hedges (net of tax): - Fair value gains in the year - - 115.6 115.6 - Transfers to net profit - - (60.7) (60.7) At 31 December 2009 1.8 59.1 32.5 93.4 Accounts The capital redemption reserve represents the cumulative par value of all shares bought back and cancelled by the group and is not distributable. The special reserve was created in 1997 when an application to transfer the share premium account into a special reserve was granted by the High Court, and is not distributable. The hedge reserve records movements on derivative financial instruments designated as cash flow hedges. 146 Arriva plc Annual Report & Accounts 2009

25. Notes to the group cash flow statement 2009 2008 a) Reconciliation of net debt m m At 1 January 823.4 448.5 Increase in cash, cash equivalents and overdrafts (86.7) (44.4) Increase/(decrease) in loans due within one year 59.5 (4.3) Increase in loans due after one year 64.2 215.3 Increase/(decrease) in finance lease obligations 43.0 (24.0) Loans acquired - 23.7 Finance leases acquired - 24.2 Currency translation adjustments (51.3) 184.4 At 31 December 852.1 823.4 2009 2008 b) Reconciliation of operating profit to cash generated from operations m m Operating profit (before exceptional item) 113.5 171.8 Depreciation 165.8 146.6 Goodwill impairment and intangible asset amortisation 44.8 12.0 EBITDA (before exceptional item) 324.1 330.4 Increase in inventories, excluding acquisitions (4.7) (1.3) Decrease in trade and other receivables, excluding acquisitions 8.9 23.5 (Decrease)/increase in creditors, excluding acquisitions (0.4) 27.3 Difference between pension contributions paid and amounts recognised in the income statement (18.5) (18.3) Cash generated from operations 309.4 361.6 The 2008 comparatives have been restated to reflect the reclassification of the settlement of cross currency swaps ( 27.6 million) to financing activities. 1 January Exchange 31 December 2009 Cash flow differences 2009 c) Analysis of net debt m m m m Cash, cash equivalents and overdrafts (113.3) (86.7) 2.3 (197.7) Loans due within one year 110.6 59.5 (1.7) 168.4 Loans due after one year 692.9 64.2 (41.2) 715.9 Finance leases 133.2 43.0 (10.7) 165.5 823.4 80.0 (51.3) 852.1 Accounts 147

Notes to the accounts (continued) 26. Acquisitions In November 2009 the group acquired the remaining 20 per cent of the share capital of Eurobus Invest for 0.4 million. Prior year acquisitions: Adjustments in respect of prior year acquisitions are detailed in the table below: m Hindsight period adjustments: Trade and other receivables 0.1 Trade and other payables 1.4 Corporation tax (0.1) Deferred tax (0.2) Decrease in fair values 1.2 Consideration received (0.7) 0.5 Goodwill based on provisional fair values 50.1 Goodwill based on final fair values 50.6 Comparative amounts have not been restated following the final determination of fair value adjustments as the amounts involved are not material. Accounts 148 Arriva plc Annual Report & Accounts 2009

27. Group undertakings Detailed below is a list of those subsidiaries which in the opinion of the directors principally affect the amount of the profit or the amount of the assets of the group. The group percentage of equity capital is 100 per cent and the country of registration is England and Wales in each case, except where indicated. All subsidiaries operate within England and Wales, except where indicated: Passenger Transport Arriva Cymru Limited Arriva Derby Limited Arriva Durham County Limited Arriva East Herts & Essex Limited Arriva International Trains (Leasing) Limited Arriva Kent & Sussex Limited Arriva Kent Thameside Limited Arriva London North Limited Arriva London South Limited Arriva Medway Towns Limited Arriva Merseyside Limited Arriva Midlands Limited Arriva Midlands North Limited Arriva Noroeste SL 2 Arriva Northumbria Limited Arriva North West Limited APS (Leasing) Limited Arriva Personenvervoer Nederland B.V. 3 Arriva Portugal Transportes LDA 6 Arriva Scotland West Limited 4 Arriva Skandinavien A/S 1 Arriva Sverige AB 5 Arriva Tees & District Limited Arriva Teesside Limited Arriva The Shires Limited Arriva Trains Wales/Trenau Arriva Cymru Limited Arriva UK Trains Limited Arriva Yorkshire Limited Arriva Yorkshire West Limited Autobus Sippel Gmbh 8 Empresa de Blas y Cia S.L 2 Eurobus-Invest Regionalis Kozlekedesfejlesztesi 13 London Pride Sightseeing Limited MK Metro Limited Osthannoversche Eisenbahnen AG 9 Prignitzer Eisenbahn Gmbh 8 Regentalbahn AG 8 SAB Autoservizi S.r.L. 7 SAB Autoservizi F.V.G. S.p.A. 10 Sadem S.p.A. 11 Stevensons of Uttoxeter Limited Tellings Golden Miller Group Limited* The Original London Sightseeing Tour Limited Transportes Sul do Tejo S.A. 6 Veolia Transport Danmark AS 1 Verkehrsbetriebe Bils Gmbh 8 XC Trains Limited Rental and Distribution of Buses and Coaches Arriva Bus and Coach Rental (4) Limited Arriva Bus and Coach Limited Investment Arriva Findiv Limited Arriva International Limited* Arriva Motor Holdings Limited* Arriva Passenger Services Limited* MTL Services Limited* Arriva Insurance Company (Gibraltar) Limited* 12 Arriva International (Northern Europe) Limited Arriva International (Southern Europe) Limited Arriva Malta Holdings Limited Arriva (2007) Limited Property British Bus (Properties) Limited Except where marked by * shares are held by a subsidiary company 1 Registered and operates in Denmark 2 Registered and operates in Spain 3 Registered and operates in the Netherlands 4 Registered and operates in Scotland 5 Registered and operates in Sweden 6 Registered and operates in Portugal 7 Registered and operates in Italy 8 Registered and operates in Germany 9 Registered and operates in Germany (85% owned) 10 Registered and operates in Italy (60% owned) 11 Registered and operates in Italy (80% owned) 12 Registered and operates in Gibraltar 13 Registered in Hungary and operates in Hungary and Slovakia Accounts 149

Notes to the accounts (continued) 28. Commitments Capital amounts contracted for but not provided amount to 25.4 million (2008: 86.7 million) for the group. At 31 December 2009 the group had total commitments under non-cancellable operating leases, including access charges to the rail infrastructure and leases for rail rolling stock, expiring as follows: 2009 2008 Land & Land & buildings Other Total buildings Other Total m m m m m m Within one year 0.5 10.4 10.9 0.7 17.1 17.8 Later than one year and less than five years 3.6 189.8 193.4 4.1 322.0 326.1 After five years 158.6 2,018.7 2,177.3 209.1 3,411.8 3,620.9 162.7 2,218.9 2,381.6 213.9 3,750.9 3,964.8 Accounts 150 Arriva plc Annual Report & Accounts 2009

Five-year financial summary Five-year financial summary 2005 2006 2007 2008 2009 Assets employed m m m m m Goodwill 277.5 286.4 328.2 509.9 447.8 Other intangible assets 40.8 34.9 43.2 75.7 59.1 Property, plant and equipment 1,092.8 982.5 1,164.4 1,559.9 1,580.3 Other (341.0) (285.1) (233.6) (502.7) (249.0) Unquoted investments 7.9 51.4 63.6 141.9 134.9 1,078.0 1,070.1 1,365.8 1,784.7 1,973.1 Financed by Share capital 9.8 9.9 9.9 9.9 9.9 Reserves 477.6 532.6 700.3 672.6 742.3 Minority interests 16.3 16.3 23.8 35.7 36.1 Bank overdrafts 22.5 16.5 33.3 34.4 40.7 Syndicated loans 203.8 108.7 203.2 434.7 413.6 Other loans 93.3 147.4 123.3 258.2 302.3 Short-term loans 122.9 115.0 84.6 110.6 168.4 Obligations under finance leases 87.5 78.4 99.8 133.2 165.5 Deferred tax liabilities 44.3 45.3 87.6 95.4 94.3 1,078.0 1,070.1 1,365.8 1,784.7 1,973.1 Trading Revenue 1,571.2 1,729.0 2,000.7 3,042.2 3,147.8 Profit before taxation from continuing operations 103.1 109.8 115.8 150.0 121.7 Taxation 19.8 25.2 25.8 38.8 2.5 Profit after tax from continuing operations 83.3 84.6 90.0 111.2 119.2 Profit after tax from discontinued operations 3.0 20.1 - - - Profit for the year 86.3 104.7 90.0 111.2 119.2 Statistics Funds attributable to shareholders 487.4 542.5 710.2 682.5 752.2 Equity shareholders funds per ordinary share 247.5p 273.9p 357.6p 343.6p 377.7p Basic earnings per share 43.7p 51.8p 43.5p 52.6p 54.5p Dividends per ordinary share 19.84p 20.83p 22.65p 24.06p 25.26p The discontinued operations relate to the vehicle rental operations. Accounts 151

Parent company financial statements Parent company financial statements Company Balance Sheet at 31 December 2009 Prepared using UK generally accepted accounting practice (UK GAAP) 2009 2008 notes m m Fixed assets Tangible assets 2 7.6 7.8 Investments 3 622.0 622.0 629.6 629.8 Current assets Debtors 4 244.9 82.0 Cash at bank and in hand 197.1 560.3 442.0 642.3 Creditors Amounts falling due within one year 6 (16.3) (23.9) Net current assets 425.7 618.4 Total assets less current liabilities 1,055.3 1,248.2 Creditors Amounts falling due after more than one year 6 (372.8) (570.2) Pension liability 11 (1.8) (3.4) 680.7 674.6 Capital and reserves Called up share capital 7 9.9 9.9 Share premium account 9 24.5 24.4 Capital redemption reserve 9 1.8 1.8 Special reserve 9 59.1 59.1 Profit and loss account 9 585.4 579.4 Total shareholders funds 10 680.7 674.6 David Martin Steve Lonsdale Directors These financial statements on pages 152 to 160 were approved by the Board on 2 March 2010. Accounts 152 Arriva plc Annual Report & Accounts 2009

Parent company accounting policies Parent company accounting policies Basis of preparation The separate financial statements of the company are presented as required by the Companies Act 2006. They have been prepared in accordance with applicable United Kingdom generally accepted accounting practice. The company prepares its financial statements on the going concern basis, under the historical cost convention of accounting other than the revaluation of certain tangible fixed assets, pensions and share-based payments which are measured at fair value. No profit and loss account is presented by the company as permitted by Section 408 of the Companies Act 2006. Cash flow statement The company is the holding company of a group which prepares consolidated accounts, including the results of the company, which are publicly available. Consequently the company has taken advantage of the exemption from preparing a cash flow statement under the terms of FRS1 (revised 1996). Tangible fixed assets Tangible fixed assets are stated at cost or valuation, net of depreciation and any provision for impairment. Cost includes the original purchase price of the asset and the costs attributable to bringing the asset to its working condition for its intended use. Freehold land is not depreciated. Depreciation on other assets is calculated using the straight-line method to allocate the cost or valuation of each asset less its residual value over its estimated useful life as follows: Freehold properties Plant, company vehicles, fixtures & fittings 50 years 3-10 years Investments Fixed asset investments in subsidiaries are shown at cost less provision for impairment. Impairment At each balance sheet date the company reviews the carrying amount of its tangible fixed assets to determine whether there are any indicators of impairment. If indicators of impairment exist then the recoverable amount of an asset is estimated and if this is less than its carrying amount, the difference is recognised in the profit and loss account as an impairment loss. Pensions The company operates retirement benefit schemes; both defined benefit and defined contribution schemes. The liability recognised in the balance sheet in respect of the company s defined benefit pension plans is the present value of the defined benefit obligation at the balance sheet date less the fair value of the plan assets, together with adjustments for unrecognised past service costs. The defined benefit obligation is calculated using the projected unit credit method. Formal actuarial valuations are carried out by an independent actuary on a triennial basis, with updated calculations being prepared at each balance sheet date by qualified independent actuaries. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension liability. The cost of providing future benefits (service cost) is charged to the profit and loss account as required. The return on scheme assets and interest obligation on scheme liabilities comprise a pension finance adjustment which is included in interest costs. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to the statement of total recognised gains and losses in the period they arise. Contributions payable under defined contribution schemes are charged to the profit and loss account as they arise. Share-based payments The company issues equity settled share-based payments to certain employees, which are measured at fair value at the date of grant. The fair value is expensed on a straight-line basis over the vesting period, based on the company s estimate of shares that will eventually vest and is adjusted for the effects of non-market based vesting conditions. The impact of revising original estimates, if any, is included in the profit and loss account, with a corresponding adjustment to reserves. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised. Accounts 153

Parent company accounting policies (continued) Dividend distribution Dividend distributions to the company s shareholders are recognised in the company s financial statements in the period in which the dividends are paid. Deferred taxation The company accounting policy is to provide for deferred tax on all timing differences except those arising on the revaluation of fixed assets for which there is no binding agreement to sell or on the undistributed profits of overseas subsidiaries. Deferred tax is calculated at the rates at which it is estimated the tax will arise. The tax rates are those expected to arise based on tax rates and laws that have been enacted or substantively enacted by the balance sheet date. The deferred tax provision is not discounted to net present value. Related party transactions As permitted under FRS8, Related party disclosures, the company has taken advantage of the exemption not to disclose transactions between group companies. There were no significant transactions with associates during the year. Accounts 154 Arriva plc Annual Report & Accounts 2009

Notes to the parent company accounts Notes to the parent company accounts 1. Arriva plc profit and loss account Arriva plc has not presented its own profit and loss account as permitted by Section 408 of the Companies Act 2006. The profit for the financial year dealt with in the accounts of Arriva plc is 51.2 million (2008: profit of 11.6 million). Company employee information is disclosed within the central component in note 4 to the group financial statements. Details of directors remuneration are disclosed in the directors remuneration report. Details of remuneration paid to the company s auditors is disclosed in note 3 to the group financial statements. 2. Tangible assets Plant, company Freehold vehicles, land & fixtures & buildings fittings Total m m m Cost or valuation At 1 January 2009 9.3 1.8 11.1 Additions - 0.1 0.1 At 31 December 2009 9.3 1.9 11.2 Comprising: Cost 8.5 1.9 10.4 Valuation 1997 0.8-0.8 9.3 1.9 11.2 Accumulated depreciation At 1 January 2009 1.9 1.4 3.3 Charge for the year 0.2 0.1 0.3 At 31 December 2009 2.1 1.5 3.6 Net book amounts At 31 December 2009 7.2 0.4 7.6 At 31 December 2008 7.4 0.4 7.8 3. Fixed asset investments Shares in Shares in subsidiaries subsidiaries net book at cost Impairment amount Fixed asset investments: m m m At 1 January and 31 December 2009 636.7 (14.7) 622.0 The directors believe that the carrying value of the investments is supported by their underlying net assets. Particulars of fixed asset investments are detailed in note 27 to the group financial statements. Accounts 155

Notes to the parent company accounts (continued) 4. Debtors 2009 2008 m m Amounts falling due within one year: Trade debtors 0.4 0.2 Corporation tax 3.3 - Deferred tax (note 5) 0.7 0.3 Other debtors 0.9 1.9 Prepayments and accrued income 0.3 0.8 5.6 3.2 Amounts falling due after more than one year: Amounts owed by group undertakings 239.3 78.8 244.9 82.0 5. Deferred tax 2009 2008 m m Accelerated capital allowances 1.6 1.5 Other timing differences (2.3) (1.8) Deferred tax excluding that relating to pension liability (0.7) (0.3) Deferred tax on pension liability (0.7) (1.3) Deferred tax (1.4) (1.6) Factors that may affect future tax charges No deferred tax liability is provided in respect of the unremitted earnings of overseas subsidiaries unless a binding agreement exists at the balance sheet date to remit such earnings in the future. In addition, it is likely that the majority of the overseas earnings would qualify for the UK dividend exemption and therefore no tax liability is expected to arise. Accounts 156 Arriva plc Annual Report & Accounts 2009

6. Creditors 2009 2008 m m Amounts falling due within one year: Short-term loans - 7.2 Trade creditors 0.8 0.9 Taxation and social security - 0.2 Other creditors 3.1 5.5 Accruals and deferred income 12.4 10.1 16.3 23.9 Amounts falling due after more than one year: Syndicated loans 65.0 135.0 Amounts owed to group companies 283.4 407.9 Accruals and deferred income 24.4 27.3 372.8 570.2 2009 2008 m m Loan capital and other borrowings repayment statement: - Within one year or on demand - 7.2 - Between two and five years 65.0 135.0 65.0 142.2 The company provides cross guarantees in respect of the bank borrowings of a number of the group s subsidiaries. Fair value of creditors: amounts falling due after more than one year The company considers there to be no material difference between the fair value of creditors: amounts falling due after more than one year and their carrying amount in the balance sheet. Borrowing facilities The company has the following undrawn committed floating rate borrowing facilities available at 31 December in respect of which all conditions precedent had been met at that date: 2009 2008 m m Expiring within one year 40.0 60.9 Expiring in more than two years 290.2 180.3 330.2 241.2 Accounts 157

Notes to the parent company accounts (continued) 7. Called up share capital Authorised Allotted - fully paid 2009 2008 2009 2008 m m m m Ordinary shares of 5p each 20,000,000 14,500,000 9,957,960 9,932,854 Number of shares 400,000,000 290,000,000 199,159,195 198,657,072 Reconciliation of movement in issued share capital: Shares in issue 1 January 198,657,072 198,613,572 Share allotments on exercise of options 502,123 43,500 Shares in issue 31 December 199,159,195 198,657,072 Consideration of 0.1 million was received in respect of share allotments in the year ended 31 December 2009 (2008: 0.2 million). At 31 December 2009 there were outstanding options to receive allotments of 4,726,210 ordinary shares under the Executive Share Option Scheme, the Share Incentive Scheme and the Long Term Incentive Plan. The price for the vested share for the Long Term Incentive Plan is nil. The option exercise prices for the other schemes range from 283.0 pence to 745.0 pence. The options are exercisable up to March 2019. At 31 December 2009 the middle market quotation of the ordinary share, as derived from the Stock Exchange Official List, was 497.1 pence. The highest price attained by the ordinary share in 2009 was 641.0 pence and the lowest level during 2009 was 361.0 pence. 8. Share-based payments The grants and related accounting treatment adopted by Arriva plc under FRS20, Share-based payments, are identical to that adopted by the group under IFRS2, Share-based payments. For details please refer to note 23 in the group financial statements. 9. Reserves Capital Share Profit redemption premium Special and loss reserve account reserve account Total m m m m m At 1 January 2009 1.8 24.4 59.1 579.4 664.7 Arising on issue of shares - 0.1 - - 0.1 Profit for the year - - - 51.2 51.2 Dividends - - - (48.5) (48.5) Actuarial gain on pension deficit - - - 2.1 2.1 Movement on deferred tax relating to pension - - - (0.6) (0.6) Share-based payments - - - 1.8 1.8 At 31 December 2009 1.8 24.5 59.1 585.4 670.8 The capital redemption reserve represents the cumulative par value of all shares bought back and cancelled by the group and is not distributable. The special reserve was created in 1997 when an application to transfer the share premium account into a special reserve was granted by the High Court, and is not distributable. For details of dividends paid in the year please refer to note 6 in the group financial statements. Accounts 158 Arriva plc Annual Report & Accounts 2009

10. Reconciliation of movements in shareholders funds 2009 2008 m m Profit for the year 51.2 11.6 Dividends (48.5) (46.1) 2.7 (34.5) New share capital subscribed 0.1 0.2 Actuarial gain/(loss) on pension deficit 2.1 (3.5) Movement on deferred tax relating to pension (0.6) 1.0 Share-based payments 1.8 2.1 Net addition to/(reduction in) shareholders funds 6.1 (34.7) Opening shareholders funds 674.6 709.3 Closing shareholders funds 680.7 674.6 11. Pensions The accounting treatment under FRS17 Retirement Benefits is in line with that adopted by the group under IAS19 Employee Benefits. For details, please refer to note 20 in the group financial statements. At 31 December 2009 the company operated both defined benefit and defined contribution schemes, which are financed through separate Trustee administered funds managed by independent professional fund managers on behalf of the Trustees. Contributions to the defined benefit funds are based upon actuarial advice following the most recent of a regular series of valuations of the funds by their representative independent actuaries. Total pension cost The total pension cost for the company was 0.6 million (2008: 0.2 million). The pension costs in respect of the company s defined contribution scheme was 0.3 million (2008: 0.4 million). FRS17 Retirement Benefits The calculations used to assess the FRS17 liabilities of the retirement benefit scheme are based on the most recent actuarial valuations, updated to 31 December 2009 by qualified independent actuaries, KPMG LLP. The scheme s assets are stated at their market value at 31 December 2009. The assumptions used are identical to those used for determining the group charge under IAS19. 2009 2008 2007 2006 2005 The amounts recognised in the balance sheet are determined as follows: m m m m m Equities 33.2 25.5 37.5 38.3 35.4 Bonds 12.9 14.9 15.9 12.7 12.6 Other - - 0.1 0.3 0.1 Total market value of assets 46.1 40.4 53.5 51.3 48.1 Present value of liabilities (48.6) (45.1) (55.4) (60.0) (58.3) Deficit (2.5) (4.7) (1.9) (8.7) (10.2) Related deferred tax asset 0.7 1.3 0.5 2.6 3.1 Net pension liability (1.8) (3.4) (1.4) (6.1) (7.1) Accounts 159

Notes to the parent company accounts (continued) 11. Pensions (continued) 2009 2008 The costs of the scheme for the year ended 31 December were as follows: m m Analysis of the charge to operating profit: - Current service costs 0.2 0.3 Total operating charge 0.2 0.3 Analysis of the (credit)/charge to finance income: - Expected return on assets (2.8) (3.7) - Interest on liabilities 2.9 3.2 Total finance charge/(credit) 0.1 (0.5) Total charge/(credit) before tax 0.3 (0.2) 2009 2008 Analysis of movement in deficit in the scheme for the year ended 31 December: m m Gross deficit in the schemes at 1 January (4.7) (1.9) Contributions paid 0.4 0.5 Current service cost (0.2) (0.3) Total finance (charge)/credit (0.1) 0.5 Actuarial gain/(loss) 2.1 (3.5) Gross deficit in the scheme at 31 December (2.5) (4.7) 2009 2008 Analysis of amounts recognised in reserves: m m Difference between expected and actual return on assets 5.2 (14.5) Experience gains and losses arising on the scheme liabilities (3.1) 11.0 Actuarial gain/(loss) recognised in reserves 2.1 (3.5) Actuarial gain/(loss) as a percentage of scheme assets 2009 2008 2007 2006 2005 and liabilities at 31 December: % % % % % Difference between expected and actual return on assets as a percentage of scheme assets 11.3 (35.9) (1.9) 3.5 8.3 Experience gains and losses arising on the scheme liabilities as a percentage of the present value of scheme liabilities 6.4 24.4 1.4 (3.5) 9.9 Total actuarial gain/(loss) recognised in the reserves as a percentage of the present value of scheme liabilities 4.3 (7.8) 9.0 2.7 7.5 Accounts 160 Arriva plc Annual Report & Accounts 2009

Independent Auditors Report to the Members of Arriva plc Independent Auditors Report to the Members of Arriva plc We have audited the parent company financial statements of Arriva plc for the year ended 31 December 2009 which comprise the parent company balance sheet, the accounting policies and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). Respective responsibilities of directors and auditors As explained more fully in the directors responsibilities statement, the directors are responsible for the preparation of the parent company financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the parent company financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board s Ethical Standards for Auditors. This report, including the opinions, has been prepared for and only for the company s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the parent company s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. Opinion on financial statements In our opinion the parent company financial statements: give a true and fair view of the state of the company s affairs as at 31 December 2009; have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and have been prepared in accordance with the requirements of the Companies Act 2006. Opinion on other matters prescribed by the Companies Act 2006 In our opinion: the part of the Directors remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006; and the information given in the Directors report for the financial year for which the parent company financial statements are prepared is consistent with the parent company financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or the parent company financial statements and the part of the Directors remuneration report to be audited are not in agreement with the accounting records and returns; or certain disclosures of directors remuneration specified by law are not made; or we have not received all the information and explanations we require for our audit. Other matter We have reported separately on the group financial statements of Arriva plc for the year ended 31 December 2009. W A MacLeod (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors Newcastle upon Tyne 22 March 2010 Accounts 161

Financial calendar Annual General Meeting Meeting date 6 May 2010 Final ordinary dividend Record date 9 April 2010 Payment date 10 May 2010 Results for the six months to 30 June 2010 Announcement date 25 August 2010 Interim ordinary dividend Record date 10 September 2010 Payment date 1 October 2010 Results for the year ending 31 December 2010 Announcement date March 2011 - date to be confirmed Contact information and registrar details Secretary & registered office Registrar and shareholder information David Turner BA, FCIS Computershare Investor Services PLC Arriva plc PO Box 82 Admiral Way The Pavilions Doxford International Business Park Bridgwater Road Sunderland Bristol SR3 3XP BS99 7NH Tel: 0191 520 4000 Tel: 0870 889 3197 www.arriva.co.uk www.computershare.co.uk Company no: 347103 Registered in England and Wales Advisers Auditors Solicitors Stockbrokers Merchant bankers PricewaterhouseCoopers LLP Dickinson Dees RBS Hoare Govett Limited N M Rothschild & Sons Limited 89 Sandyford Road St Ann s Wharf 250 Bishopsgate New Court Newcastle upon Tyne 112 Quayside London St Swithin s Lane NE1 8HW Newcastle upon Tyne EC2M 4AA London NE99 1SB EC4P 4DU Accounts Field Fisher Waterhouse Deutsche Bank Financial public relations 35 Vine Street 1 Great Winchester Street Tulchan Communications London London 85 Fleet Street EC3N 2AA EC2N 2DB London EC4Y 1AE Herbert Smith Exchange House Primrose Street London EC2A 2HS 162 Arriva plc Annual Report & Accounts 2009

Notes Accounts 163

Notes Accounts 164 Arriva plc Annual Report & Accounts 2009

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