INTERIM RESULTS 24 th September 2019
DEFINITIONS The following definitions apply throughout Trading EBITDA (earnings before interest, tax, depreciation and amortisation): excludes share-based payments, pension service charge adjustment and exceptional operating items. Cash conversion: net cash flow from continuing operating activities before tax and exceptional items divided by Trading EBITDA. Adjusted EPS: Earnings per share adjusted for a number of one-offs of which the largest are exceptional operating items, share-based payments, pension service charge adjustment, the write- off of debt issue fees, penalties on early repayment of debt and transfer from cash flow hedge reserve. Personal members and business customers: measured as the number at the period end. 1
AA INVESTMENT HIGHLIGHTS One of the UK’s most trusted commercial brands Leading market position High recurring revenue and EBITDA growth with strong cash generation Excellent standards of service delivery Partner of choice for B2B customers Mature, attractive market with significant barriers to entry 2
VISION FOR THE AA 3
FOUR KEY BUSINESS PERFORMANCE OBJECTIVES Key performance objectives H1 20 performance -0.6% H1 20 3.19m – membership base stabilising vs Grow B2C membership -1.2% H1 19 +22% Continue insurance acceleration 803k motor policies motor (y-o-y) Deliver Trading EBITDA growth £165m +2.5% (y-o-y) Stronger free cash flow generation – c.£80m FY20 £44m +214% (y-o-y) 4
H1 20 RESULTS IN LINE WITH EXPECTATIONS On-track to deliver strong Trading EBITDA and free cash flow growth in FY20; well placed to meet our medium-term targets for FY23 Roadside membership decline is stabilising; targeting return to growth in FY21 Insurance business delivering strong rates of profitable policy growth with record levels of cross-conversion into Roadside; well positioned to continue to grow strongly in H2 Making strong progress in developing new products and services including the rollout of Smart Breakdown in Q4 New brand marketing campaign launched in July; ‘Drive Smart’ proposition builds on best-in-class roadside customer service delivery New strategic partnership with Admiral. Partnership with BOI strong Putting service, innovation and data at the heart of the AA 5
FINANCIAL REVIEW
H1 20 FINANCIAL HEADLINES Revenue up 2% at £491m (H1 19: £480m) Trading EBITDA up 2.5% at £165m (H1 19: £161m) and Trading EBITDA margin stable at 33.6% (H1 19: 33.5%) Operating profit up 3% at £120m (H1 19: £116m) PBT up 50% to £42m (H1 19: £28m) Free cash flow generation of £44m (H1 19: £14m) • £20m bond buy-back programme successfully completed Rating reaffirmation from S&P Interim dividend maintained at 0.6p 7
INCOME STATEMENT Revenue up 2% broadly in line with inflation £m H1 20 H1 19 YoY reflecting solid performance across both Revenue 491 480 2% Roadside and Insurance Trading EBITDA 2.5% higher, in line with Trading EBITDA 165 161 2% expectations Share based payments (2) (3) 33% • H1/H2 split expected to be similar to last year Pension past service charge adjustment (2) (3) 33% • IFRS 16 impact of £2m, full year impact Depreciation & amortisation (41) (34) (21%) expected to be c.£4m Exceptional operating items - (5) 100% Operating profit 3% higher due to lower Operating profit 120 116 3% exceptional charge, reduction in share-based Net finance cost (78) (88) 11% payments and pension charges offset slightly by higher D&A Profit before tax 42 28 50% Tax expense (8) (5) (60%) Finance cost 11% lower due to the early Profit for the period 34 23 repayment penalty of £15m in the prior period 48% Basic EPS – continuing operations (p) 5.5 3.8 45% PBT and PAT ahead of last year; adjusted Adjusted Basic EPS 1 – continuing operations (p) 6.0 6.5 (8%) EPS lower due to reduced exceptional costs Notes: 1 Adjusted for operating exceptional items, share-based payments, pension service charge adjustment, penalties on early repayment of debt, transfer from cash flow hedge reserve for extinguishment of cash flow hedge, write-off of debt issue fees following refinancing, and tax expense 8
ROADSIDE AND INSURANCE SEGMENTAL REPORTING Revenue Trading EBITDA Trading EBITDA Margin H1 20 H1 19 H1 20 H1 19 H1 20 H1 19 £m £m £m £m Margin % Margin % Roadside Assistance 162 156 41.9 41.1 Roadside Assistance 387 380 Driving Services 7 7 22.6 22.6 Driving Services 31 31 Head Office costs (32) (31) n/a n/a Roadside Revenue 418 411 Roadside Trading EBITDA 137 132 32.8 32.1 Insurance Services 30 33 48.4 54.1 Insurance Services 62 61 Insurance Underwriting 4 1 36.4 12.5 Insurance Underwriting 11 8 Head Office costs (6) (5) n/a n/a Insurance Revenue 73 69 Insurance Trading EBITDA 28 29 38.4 42.0 Group Revenue 491 480 Group Trading EBITDA 165 161 33.6 33.5 9
ROADSIDE PERFORMANCE REVIEW Revenue H1 20 H1 19 YoY Up 2% reflecting the benefit of higher B2C income Revenue (£m) 418 411 2% as well as the acquisition of Prestige Trading EBITDA (£m) 137 132 4% Paid membership down 2% on H1 19, but only Trading EBITDA margin (%) 32.8 32.1 2% 0.6% down in period. On-track to deliver broadly flat membership this year and a return to growth next year Personal paid members (m) 3.19 3.25 (2%) Average income per paid member up 4%, tracking Average income per paid member (£) 165 159 4% in line with inflation on an annualised basis B2B customers down 7% largely due to non- Business customers (m) 9.00 9.68 (7%) renewal of Groupe PSA as well as expected decline Average income per business customer (£) 22 21 5% in new vehicles sales and AVAs Breakdowns attended (‘000s) 1,648 1,907 (14%) Average income per business customer up 5% to £22 reflecting margin improvement across B2B base Trading EBITDA Up 4% reflecting the improved performance of Roadside Assistance 10
INSURANCE PERFORMANCE REVIEW Revenue H1 20 H1 19 YoY Continued strong growth in motor book Revenue 1 (£m) 73 69 6% • Supported by profitable growth of underwriter and in particular Trading EBITDA 1 (£m) 28 29 (3%) non-member scheme • Insurer Hosted Pricing (IHP) has significantly improved pricing Trading EBITDA margin (%) 38.4 42.0 (9%) agility – Aviva to join panel in Q3 Home book growing in line with expectations • Ongoing investment in improving pricing agility Total insurance policies 2 (‘000s) 1,644 1,475 11% • IHP roll-out in FY21 Total Motor policies (‘000s) 803 659 22% Average income per policy reduced to £67 • Reflects investment in new business growth Motor policies underwritten (‘000s) 401 258 55% Financial Services performing well Total Home insurance policies (‘000s) 841 816 3% • Bank of Ireland partnership continues to develop strongly Home policies underwritten (‘000s) 304 205 48% Trading EBITDA Average income per policy 2 Additional investment in marketing and competitive 67 73 (8%) (Motor and Home) (£) pricing strategy to accelerate growth in motor book and home book Financial Services products (‘000s) 159 136 17% Trading EBITDA margin decline due to investment in marketing to grow broker as well as slight mix change to lower-margin underwriter revenue Notes: 1 Includes Home Emergency Services consumer book which was sold in January 2018. Under the terms of the agreement, approximately 70,000 consumer policies are migrating to HomeServe Plc from May 2018 under the AA brand over the next three years. 11 2 Includes Motor and Home only.
STRONGER FREE CASH FLOW GENERATION £m H1 20 H1 19 Cash conversion above 100% Trading EBITDA 165 161 Lower tax in H1 20 reflects lower Exceptional costs (2) (18) profitability in FY19 19 17 Working capital movements Pension deficit reduction contributions (12) (13) Capex in line with expectations Net other adjustments (e.g. other operating income and (2) 3 Acquisitions and disposals largely exceptional working capital) relates to the acquisition of Prestige Cash flow from operating activities before taxation 168 150 Slight increase in net interest due to Taxation (4) (10) July 2018 refinancing (37) (36) Capital Expenditure Finance lease capital and interest net of proceeds from Strong free cash flow generation of (11) (11) sale of fixed assets £44m (pre-dividends and bond buy- Acquisitions and disposals (8) (10) back) Refinancing transactions - (8) • On-track to generate c.£80m (64) (61) Net interest paid free cash flow in FY20 Free cash flow 44 14 Bond buy-back (20) - (8) Dividends (9) Net movement in cash 16 5 12
CAPEX GUIDANCE MAINTAINED FOR FY20 AND FY21 H1 20 Capex in line with £m H1 20 FY20 COMMENTS expectations • App and digital development, Additional IT, new investment in membership FY20 guidance maintained initiatives and 23 40 systems and insurance business. at c.£70m connected car Smart Breakdown and other connected car propositions FY21 guidance maintained Growth capex 23 40 of c.£60m • Reflects reduction in personnel IT maintenance 10 21 capitalised costs in respect of the legacy IT transformation • Reduced spend vs FY19 reflects Property and equipment 4 9 funding directed to growth capex Maintenance capex 14 30 Total capex 37 70 Notes: *Solvency capital for underwriter growth of c.£10m in FY20 to be provided by AA plc and excluded from the breakdown above 13
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