BUILDING A BETTER AA 21 st February 2018 AGENDA New Strategy - PowerPoint PPT Presentation

BUILDING A BETTER AA 21 st February 2018

AGENDA New Strategy Financial Overview Q&A 2

VISION FOR THE AA ROADSIDE INSURANCE Innovate Invest to & grow accelerate growth OPERATIONAL & SERVICE EXCELLENCE HIGH PERFORMING CULTURE Putting service, innovation and data at the heart of the AA 3

FIRST 150 DAYS Business Review – bottom-up Leadership – fresh talent at exec level Employee Engagement – first review Strategic Product Innovation – new team Review Tech and Data – full audit Customers – extensive understanding Insurance – deep dive 4

THE AA IS UNIQUELY PLACED TO SUCCEED Key Strengths: Roadside market share Consumer Roadside B2B Roadside Market leader Trusted brand 35% 40% 3.3m 9.9m Loyal customer base 60% 65% Strong service ethos Committed employees Insurance brand consideration Prognostics & member data #1 for motor insurance Patrol & dispatch technology #6 for home insurance Nascent Insurance growth Sources: Old Street Data Sciences “Brand tracker” for consumer, Q4 2017, direct purchase of breakdown cover; FY17 5 B2B manufacturer share figures; GfK Financial Research Survey 6 months to September 2017

CLEAR SUCCESSES, BUT CHALLENGES REMAIN Progress since IPO Remaining challenges New business growth in Road membership Competitive landscape & increasing regulatory scrutiny Improved pricing capability Emerging automotive trends App roll-out and engagement Need for continuous product innovation Breakdown telematics launched Restricted operational flexibility Core dispatching system installed Remaining legacy systems and data Core membership system being rolled out infrastructure Improved patrol service levels Failure to optimise on potential Growth in motor Insurance 6

LONG-TERM GROWTH OVER SHORT-TERM PROFIT LIMITED RUNWAY IN SHORT-TERM PROFIT Maintaining current profitability will require reduced investment in: • Sales and marketing • Product development • Customer service • Insurance growth The net of these activities would be: • Declining Roadside membership • Flat Insurance portfolio WE HAVE THEREFORE CHOSEN LONG-TERM GROWTH 7

ROADSIDE ROADSIDE INSURANCE Innovate Invest to & grow accelerate growth OPERATIONAL & SERVICE EXCELLENCE HIGH PERFORMING CULTURE Putting service, innovation and data at the heart of the AA 8

ROADSIDE SIGNIFICANT PROGRESS MADE Paid new members up 23% since FY15 Customer loyalty at a high • Retention at 82% • 1.3m customers with us for 10 + yrs. • Strong ‘call & save’ capabilities (Stay AA) • 100% retention of major B2B accounts over past 3 yrs. combined with Lex Autolease win Increasing digital engagement • Online sales up by more than a 1/3rd • 1/3rd of members registered for the App and 30% use at breakdown • Connected Car JV with European Clubs and Car Genie launch Ongoing implementation of core member systems 9

ROADSIDE MEMBERSHIP FLAT AT BEST CHANGES TO MEMBERSHIP HOLDINGS, FY15-18 3.39m 3.33m 3.34m 3.29m Outflows greater Inflows greater Outflows greater than inflows than outflows than inflows FY15 FY16 FY17 FY18 Yr. End Yr. End Yr. End Yr. End Free to paid members Paid new members Member outflows The business worked hard to stabilise membership in However, despite continued growth in paid new FY17 after many years of decline: business in FY18, overall membership did not grow: • • Winding down of ‘free to paid’ membership Closing gap on new / renewal prices • • Pricing sophistication in Stay AA Increased renewal price transparency • • Investment in brand Price rises to cover IPT increases and inflation • • CRM improvements Activity to reduce double cover • Increasing competitive activity and market channel shifts 10

ROADSIDE ACTIONS MOVING FORWARD 1 Transform our breakdown service to be fully connected 2 Market to grow our base with younger segments 3 Ongoing innovation to resolve breakdowns 4 Drive digital adoption and broader member engagement 5 Membership systems investment to drive retention 11

1. OPPORTUNITIES IN THE CHANGING ROADSIDE LANDSCAPE Trend Our View Opportunities for the AA • In 10 yrs. embedded connectivity could reach more than • B2B/C breakdown Now Connected Car 60% 1 ; remainder open to device market prediction and resolution Electric / • Penetration currently <3% and forecast to rise to c10% by • New electric / hybrid Hybrid 2021 2 . Impact on car reliability unclear; key ‘self induced’ services for fleet and Vehicle faults (e.g. tyres, locked out) unchanged consumers Growth • Vehicle ownership still increasing 3 ; shift to deeper financing in • New B2C finance 2 nd hand car market; significant reductions to ownership would offerings – building on Changing Ownership only materialise over the long term (10 + yrs.) centered on existing financial services urban areas business • B2B and mobility • Full automation 10 + yrs. away with penetration forecast to Autonomous solutions, capitalising on 10 + yrs. remain <30% by 2030 4 Vehicles AA scale 12 1. Internal estimates; 2. OC&C forecasts; 3. Department for transport 2016 data; 4.KPMG

1. CONNECTED CAR – MOVING THE AA ROADSIDE ‘BEYOND BREAKDOWN’ PREDICTION Solving customer Predict problems when Prevent they break down Protect DIAGNOSTICS 13

1. CONNECTED CAR – WHAT WE BELIEVE ROADSIDE AND WHAT WE HAVE LEARNT What we believe What we have learnt Will drive membership growth Early signs of strong appeal with target customers Will drive engagement / retention Highly engaging app experience • 20% of users log in daily • Average app session >3mins Will protect and grow B2B business Significant interest from B2B partners with discussions in progress Will drive down operational costs Predicts up to 1/3 of breakdowns 5,000 connected Car Genie cars range Car Genie launched devices - now in all from 1 month to Aug 17 regions of the UK almost 20 years old 14

1. CONNECTED CAR – PLAN ROADSIDE ADOPT FY21 onwards FY20 INNOVATE Mass adoption of FY20/21 connected membership FY19 - 20 SCALE Develop version 2 Scale through of proposition – FY19/20 prognostics as a Consumer, B2B, service for B2B Substantial Connected Insurance partners Car roll-out, Develop platforms identifying: for embedded • Member impact data streams • Operational benefits • Distribution models Integrate into membership proposition 15

2. MARKET TO GROW OUR BASE WITH ROADSIDE YOUNGER SEGMENTS Maintain (historical focus) Grow Stretch % of Driving Public % of Driving Public % of Driving Public 21% 24% 16% c60% c30% c20% AA share of drivers AA share of drivers AA share of drivers within segment with within segment with within segment with B2C cover B2C cover B2C cover Life’s too Short Retiring to the Easy Life Freedom Seekers ‘Be there if I need you’ ‘Get me back on track’ ‘Just fix it for me’ Older – Avg. 68 Younger – Avg. 41 Younger – Avg. 37 Strong connection with AA Less emotional AA history Need new reasons to buy AA direct Open direct mail; read TV; Magazines; Internet newspapers TV; Internet; Cinema Source: Old Street Data Sciences UK Driver Segmentation 16

3. ONGOING INNOVATION TO RESOLVE ROADSIDE BREAKDOWNS B2B Example: Customer’s car cannot be repaired – we solve the problem at the roadside & keep them moving 1. Patrols DVLA check & initiate 3. Patrol takes customer to 2. Patrols select a relevant driver insurance instantly via nearest dealer to collect replacement vehicle tablet or iPhone replacement car 4. AA team coordinate the end- 5. Replacement car sorted to-end vehicle repair and in less than 30mins return process between versus c120mins today dealers, repair centres and customers 17

ROADSIDE 4. DIGITAL ADOPTION - BREAKDOWN DIGITAL BREAKDOWN REPORTING & TRACKING As % B2C Breakdowns 50% 35% AA Members have registered with the App 40% 30% 45% Member breakdowns 20% are tracked on web & app 10% 20% Member breakdowns 0% FY16 FY16 FY17 FY17 FY18 FY18 do not involve a call Q1 Q3 Q1 Q3 Q1 Q3 Reported on App Tracked on App Tracked Online 18

4. DIGITAL ADOPTION – MEMBER ENGAGEMENT ROADSIDE USE OF MEMBER BENEFITS (MOBILE APP) # of unique monthly users 120,000 100,000 80,000 60,000 40,000 20,000 0 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 19

5. MEMBERSHIP SYSTEMS - INVESTMENT ROADSIDE TO DRIVE RETENTION Improvements in systems – full NEW RETENTION CAMPAIGN IMPACT, % deployment of new membership Control Test +1ppt system CATHIE +2ppt Increased sophistication in renewal pricing & proactive retention – targeted approach 1 yr 2 - 4 yrs Further improvement in ‘call & Customer tenure save’ reactive retention (Stay AA) – workflow and MORE CAMPAIGNS CAN BE TESTED organisational changes FASTER AND MADE SMARTER WITH OUR NEW CRM SYSTEMS 20

ROADSIDE RETURNING ROADSIDE TO GROWTH BY FY21 Returning membership to growth by FY21 50% members registered on App 20% reduction in breakdowns calls into the contact centres Plus additional upside from Connected Car 21

INSURANCE ROADSIDE INSURANCE Innovate Invest to & grow accelerate growth OPERATIONAL & SERVICE EXCELLENCE HIGH PERFORMING CULTURE Putting service, innovation and data at the heart of the AA 22