INVESTOR PRESENTATION H1 18 INTERIM RESULTS
FUNDAMENTALS
PROVIDING SERVICES TO AA MEMBERS SINCE 1905 AA and Saga under common DriveTech Patrols Launched ownership in and Auto Founded by Patrols on 35% share issued with of 2m cars on Roadwatch diagnostics Acromas Windshields motoring bicycles and IPO and Relay Group acquired enthusiasts uniforms the road equipment 26 June 1905 1909 1939 1973 2004 1999 2009 2014 1949 1992 2003 2007 2010 2017 1907 1912 1st AA BSM Appointment Launched New fleet Launched AA members Acquired by insurance AA Routes to enable four AA Driving voted to acquired, of Simon private equity policy launch Home Breakwell as and wheel patrols School demutualize groups CVC AA Stars the AA and and Permira Services CEO join Centrica Fund Group 2
ROADSIDE ASSISTANCE AT THE CORE (FY 17) Roadside Assistance Insurance Services Driving Services Trading Revenue 4% Consumer Broking Driving Schools 14% 3.3m paid personal Members Leading insurance broker Largest driving school in the UK (by pupils) Average income per Members Predominantly motor and 79% £158 home AA and BSM brands 82% retention 1.9m policies 10% of pupils in highly Roadside Assistance fragmented market Average income per policy Insurance Services B2B £70 2,607 instructors franchised Driving Services 10.0m business customers Home Services DriveTech Trading EBITDA Largely pay-for-use Developing home emergency Provides driver awareness Average income per B2B 4% position training, fleet management customer £20 17% and driver training Financial Services AA-branded partnership with Bank of Ireland 79% 100k products in first full year Trading Revenue: Revenue excluding discontinued operations, business disposed of and exceptional revenue items Trading EBITDA (earnings before interest, tax, depreciation and amortisation): excludes exceptional items, items not allocated to a segment and the Ireland discontinued business 3
RESILIENT AND CASH GENERATIVE BUSINESS MODEL £m Trading EBITDA Revenue 984 979 971 974 973 943 940 931 893 808 794 755 423 430 415 403 395 369 371 366 334 292 273 219 Year to Year to 13 months FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 Dec 2005 Dec 2006 to Jan 2008 £m Operating cash flow Cash Conversion 102% 100% 101% 94% 92% 433 431 420 371 371 FY13 FY14 FY15 FY16 FY17 Note: 2005, 2006, 2008 and 2009 unaudited; FY 17 excludes Ireland business disposed of in August 2016. Trading Revenue: Revenue excluding discontinued operations, business disposed of and exceptional revenue items Trading EBITDA (earnings before interest, tax, depreciation and amortisation): excludes exceptional items, items not allocated to a segment and the Ireland discontinued business Cash conversion: net cash flow from continuing operating activities before tax and exceptional items divided by Trading EBITDA 4
MARKET LEADERSHIP AND HIGH BARRIERS TO ENTRY Widely recognised and trusted brand Consumer market share (H1 18) Others 50% of households hold an AA product 17% Unique deployment IP 42% GF 3,000 patrols; average tenure 12 years attending 18% 10,000 breakdowns per day RAC 83% of breakdowns repaired at roadside 23% Breakdowns attended FY 18 B2B market share (FY 17) 3.6m 2.4m B2B 67% 63% 50% 0.7m Consumer Motor Fleets and Leasing AVA manufacturers 5 Source: Industry sources, Old Street Data Sciences “Brand tracker” . The number of breakdowns for RAC and Green Flag is for 2016, AA for FY 17.
A TRUSTED BRAND, BASED ON EXCELLENT SERVICE LEVELS Call handling 80% in 20 seconds Repair rate 83% Which? total test score App usage in breakdowns >28% Average call time <5 minutes 77% 74% 67% 66% 66% 64% Call to arrive time 45 minutes AA “moment of truth” survey (%), FY 17 22% 26% 31% 2016 2017 2016 2017 2016 2017 66% 57% 53% Overall experience Service provided Overall experience with the AA by Patrol over the phone Excellent Very Good 6
LONG TERM STRATEGIC PARTNERS Contract wins in the last two years: Lex Autolease Recent renewals or extended contracts: PSA, GM, VWG, BT Fleet, Hertz, MG, LeasePlan, Venson, FTA, McLaren, ALD 6 years 7
STRONG BRAND IN INSURANCE Brand awareness in Motor Insurance Insurance broking revenue split FY 17 42% 41% Other 35% 34% 9% 25% 24% 20% Motor 17% Home 16% 52% 14% 39% 11% 11% 9% 9% 9% No 1 motor insurance broker in the UK private car insurance market No 2 private home insurance broker in the UK Source: Old Street Data Sciences “Brand tracker” June 2017 Source: GfK FRS Study September 2016. 8
RELATIVE RESILIENCE OF MEMBERSHIP BUT CHALLENGES IN RECENT YEARS Under-investment in AA Members (m) AA Membership vs GDP Growth UK GDP growth (%) systems, brand and capabilities 5.0 20% Legacy of short-term decision making 4.0 15% Membership run-up and reduction following Premium position not demutalisation 3.0 10% underpinned by marketing, US savings and advertising, proposition loan crisis Financial Oil Crisis 2.0 crisis 5% IT platform dated and constraining growth 1.0 0% (except Deployment system) 0.0 -5% 1975 1980 1985 1990 1995 2000 2005 2010 2015 9
THE UK’S PRE -EMINENT MEMBERSHIP SERVICES ORGANISATION Resilient, Market leader high-return with a highly business model trusted brand Clear strategy to Platform for growth and accelerated cash transform the AA for generation the digital age 10
H1 18 INTERIM RESULTS 26 SEPTEMBER 2017
DEFINITIONS The following definitions apply throughout • Trading Revenue: Revenue excluding discontinued operations and exceptional revenue items. • Trading EBITDA (earnings before interest, tax, depreciation and amortisation): excludes exceptional items and items not allocated to a segment and discontinued operations. • Cash conversion: net cash flow from continuing operating activities before tax and exceptional items divided by Trading EBITDA. • Adjusted EPS: Earnings per share excluding discontinued operations adjusted for a number of one-offs of which the largest are exceptional items, items not allocated to a segment, the write off of debt issue fees, pension past service credit, 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. 12
Introduction John Leach AGENDA Financials Martin Clarke Strategy and outlook Simon Breakwell 13
INTRODUCTION
HEADLINES New leadership, greater strategic focus, improving the customer proposition Simon Breakwell appointed as CEO Results in line with market expectations Roadside resilient; Insurance growing; cash generation healthy Cost of borrowings reduced further and average maturity of debt extended UK Pension Scheme review brought certainty on deficit and mitigated service costs Interim dividend maintained at 3.6p per share Robust, cash generative platform; now refining strategy for future growth 15
FINANCIALS
FINANCIAL HEADLINES – IN LINE WITH MARKET EXPECTATIONS Trading Revenue up 1% at £471m • Roadside flat – new memberships up; retention stable despite challenges • Insurance up 3% – motor policies up 8% Trading EBITDA up 1% at £193m • Roadside down 3% – costs associated with erratic workload • Insurance up 9% – focus on profitability Trading EBITDA margin 41.0% (H1 17: 41.1%) Adjusted EPS 10.2p (H1 17: 10.3p) Cash conversion 101% (H1 17: 99%) Net debt of £2,688m (6.7x Trading EBITDA 1 ) post refinancing in July 2017 1 Trading EBITDA for the last 12 months 17
P&L – QUALITY OF EARNINGS IMPROVED Pension past service credit: one-off gain £m H1 18 H1 17 YoY • Trading Revenue 471 467 Switch to CPI from RPI (£22m) and closure of the Final 1% Salary section (£12m) % 192 Trading EBITDA 193 1% Items not allocated to segment - Pension past service credit 34 100% • £7m of pension-related and £5m of share-based payments (10) Items not allocated to a segment (12) (20%) Exceptional items (28) Depreciation & amortisation (33) (18%) • £7m of business and IT transformation costs and £1m of income from disposal of fixed assets (22) Exceptional items (4) 82% • Last year’s provision for duplicate cover sufficient 132 Operating profit 178 35% Finance cost (84) Net finance cost (98) (17%) 48 • Profit before tax 80 67% £10m of early repayment penalties and £5m transfer from cash flow hedge reserve from July refinancing (10) Tax expense (16) (60%) Tax expense 38 Profit for the period from continuing 64 68% operations • £11m of current tax charge and £5m of deferred tax arising Basic EPS – continuing operations (p) 6.2 from temporary timing differences 10.5 69% Adj Basic EPS 1 – continuing operations (p) • 10.3 Effective rate of 20% 10.2 (1%) 1 Adjusted for exceptional items, items not allocated to a segment, pension past service cost, penalties on early repayment of debt, transfer from cash flow hedge 18 reserve for extinguishment of cash flow hedge, write-off of debt issue fees following refinancing, and tax expense
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