AA Intermediate Co Ltd Interim Results Nine months to 31 October - - PowerPoint PPT Presentation

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AA Intermediate Co Ltd Interim Results

Nine months to 31 October 2014

16 December 2014

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AA Intermediate Co Ltd

Performance Highlights

• Revenue of £736.0m up 1.1% over the nine months
• Trading EBITDA1 of £315.8 million in line with market expectations for the full year
• Trading EBITDA margin 42.9% in line with Q2
• Significant cashflow generation with 101.9% cash conversion before tax and

exceptional items

• 4.0% increase in Income per Personal Member to £129 offsetting 2.4% reduction in

Personal Members

• 4.0% increase in Business customers due to new contract wins
• Motor insurance policies remain stable through Q3, offset by reduction in free Home

Emergency policies Increased revenue, Trading EBITDA and margins and strong cash conversion

1Trading EBITDA (earnings before interest, tax, depreciation and amortisation) excludes exceptional items, share-based

payments, acquisition earn-out costs and items not allocated to a business segment.

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AA Intermediate Co Ltd

Trading EBITDA

• Roadside income increased

due to stable retention rates and increased income per Personal Member

• Roadside EBITDA margin

enhancement from stable call

• ut volumes
• Insurance EBITDA has reduced

due to the reduction in motor policies during 2013 and increased marketing costs to drive new business volumes

• Head office costs include £2.4m
• f PLC costs – expected to be

£8m in a full year

Trading EBITDA increased to £315.8m

Nine months ended October 2014 Nine months ended October 2013 Six months ended July 2014 Trading EBITDA £m £m £m Roadside Assistance 263.7 251.3 176.2 Insurance Services 61.1 67.2 41.6 Driving Services 16.9 14.0 10.7 Ireland 11.2 11.3 7.1 Head Office costs (37.1) (36.0) (23.8) Total Trading EBITDA 315.8 307.8 211.8 Net cashflows from operating activities before tax and exceptional items 321.9 345.3 214.5 Cash Conversion1 101.9% 112.2% 101.3%

1Net cashflows from operating activities before tax and exceptional items divided by Trading EBITDA.

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AA Intermediate Co Ltd

Key Performance Indicators

• Continuing trend of increasing income per Personal Member offsetting reduction in volumes
• Stable breakdown volumes in Q3
• Insurance policy reduction due to ceasing Home Emergency free policies, other books all stable
• Change in Insurance income per policy due to marginal mix changes

Year on year increase in income per Personal Member

12 months ended 12 months ended 12 months ended Key Performance Indicators October 2014 October 2013 July 14 Personal Members1 (000s) 3,922 4,019 3,955 Business customers1 (000s) 8,893 8,551 8,814 Breakdowns attended (million) – last twelve months 3.5 3.6 3.4 Average income per Personal Member (£) 129 124 128 Insurance policy numbers in force2 (000s) 2,205 2,388 2,222 Insurance income per policy (£) 65 64 66

1Reported on a 12 month average basis 2Excluding business customers

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AA Intermediate Co Ltd

Key Financials – Profit & Loss

• Administrative & marketing

expenses include exceptional items

• Trading EBITDA1 is key

measure of underlying performance

• Improvement in Trading

EBITDA due to increased revenue and margins

• Increase in finance costs due to

implementation of WBS on 2 July 2013 and write off of issue costs due to April 2014 refinancing

• Tax credit relates to one-off

recognition of deferred tax asset, ongoing tax rate c 20%

Performance in line with market expectations for full year

1Trading EBITDA (earnings before interest, tax, depreciation and amortisation) excludes exceptional items, share-based

payments, acquisition earn-out costs and items not allocated to a business segment. Nine months ended Nine months ended October 2014 October 2013 £m £m

Revenue 736.0 728.1 Cost of sales (259.1) (258.0) Gross profit 476.9 470.1 Other operating income 0.1 0.2 Administrative & marketing expenses (230.7) (213.3) Share of profit on joint ventures 0.9

• Operating profit

247.2 257.0 Trading EBITDA 315.8 307.8 Items not allocated to a segment (3.0) (6.5) Amortisation and depreciation (34.8) (29.1) Share-based payments and acquisition earn-out costs (1.0) (1.5) Exceptional items (29.8) (13.7) Operating profit 247.2 257.0 Loss on disposal of subsidiary undertaking

• (3.4)

Profit on disposal of joint venture

• 0.5

Finance costs (171.0) (93.5) Finance income 0.5 0.2 Profit before tax 76.7 160.8 Tax (expense)/credit 7.2 (42.4) Profit for the period 83.9 118.4

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AA Intermediate Co Ltd

Key Financials – Balance Sheet

Continued reduction in Net Debt to less than £2.8bn

• Continued maintenance

investment in software and vehicles

• Reduction of £68m in net debt

since January due to increase in cash

• Pension deficit increase due to

reduction in the corporate bond rate we are required to use as the liability discount rate

1Net debt includes the principal amounts outstanding, the fair value of interest rate swaps, interest accrued less cash and cash

equivalents and unamortised issue costs.

October 2014 July 2014 January 2014 October 2013 £m £m £m £m Goodwill and other intangible assets 1,250.6 1,249.2 1,245.0 1,239.0 Property, plant and equipment 107.8 93.0 77.3 78.4 Other non-current assets 66.9 70.5 41.3 46.6 Current assets (exc cash) 1,398.6 1,383.7 1,369.8 1,375.6 Current liabilities (490.6) (475.7) (450.7) (482.6) Net Debt1 (2,798.2) (2,828.2) (2,866.3) (2,874.1) Finance lease obligations (48.6) (39.4) (20.0) (21.5) Defined benefit pension scheme liabilities (318.9) (266.5) (265.5) (295.6) Other non-current liabilities (17.6) (14.3) (15.9) (23.1) Net liabilities (850.0) (827.7) (885.0) (957.3)

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AA Intermediate Co Ltd

Key Financials - Cashflow

• Working capital in 2013

benefitted from the changes in intercompany balances with Acromas prior to the refinancing transaction

• Substantial exceptional costs

relating to debt refinancing and restructuring activities

Substantial cash reserve of £273m available for debt reduction and business investment

Nine months ended Nine months ended October 2014 October 2013 £m £m Trading EBITDA 315.8 307.8 Exceptional items (29.8) (13.7) Other items including investing and tax (33.5) (31.2) 252.5 262.9 Financing activities (127.4) (160.5) Net cash flow 125.1 102.4 Cash as at 31 January 144.7 34.0 Net cash flow 125.1 102.4 269.8 136.4 Working capital 3.2 31.6 Cash as at 31 October 273.0 168.0

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AA Intermediate Co Ltd

Detailed Cashflow

Nine months ended 31 October 2014 Nine months ended 31 October 2013 £m £m

Profit before tax 76.7 160.8 Amortisation and depreciation 34.8 29.1 Net finance costs 170.5 93.3 Other items (1.0) 2.7 Working capital movement 3.2 31.6 Net cash flow from operating activities before tax 284.2 317.5 Tax paid (2.1) (7.5) Net cash flow from operating activities 282.1 310.0 Investing activities Software development expenditure (19.4) (10.5) Purchase of property, plant and equipment (6.8) (7.3) Disposal of subsidiaries and joint ventures

• (1.2)

Proceeds from fixed term investments - restricted

• 2.6

Interest received 0.5 0.3 Net cash flow used in investing activities (25.7) (16.1) Financing activities Financing transactions (6.2) 0.1 Interest paid on borrowings (102.1) (21.6) Payment of finance lease capital and interest (19.1) (16.7) Payment to group treasury

• (122.3)

Net cash flow from financing activities (127.4) (160.5) Net increase in cash and cash equivalents 129.0 133.4

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Improvement in Class A leverage ratio due to cash generation

AA Intermediate Co Ltd

Debt Package (including PIK notes)

1PIK notes are not part of the whole business securitisation and therefore are not included in the financial results of AA Intermediate

Co Limited

Expected maturity date Interest rate Run Rate Cash Interest Principal at Principal at Principal at Principal at 31 October 31 July 31 January 31 October 2014 2014 2014 2013 £m £m £m £m £m Senior Term Facility 31-Jan-19 3.98% 26.4 663 663 913 1,413 Class A1 notes 31-Jul-18 4.72% 22.4 475 475 475 475 Class A2 notes 31-Jul-25 6.27% 31.4 500 500 500 500 Class A3 notes 31-Jul-20 4.25% 21.3 500 500 500

• Class A4 notes

31-Jul-19 3.78% 9.5 250 250

• Class B notes

31-Jul-19 9.50% 62.2 655 655 655 655 PIK notes1 06-Nov-19 9.50% 33.3 350 350 350

• 6.08%

206.3 3,393 3,393 3,393 3,043 31 October 31 July 31 January 31 October 2014 2014 2014 2013 Class A Net Debt: LTM EBITDA 4.9 5.1 5.3 5.3 Class B Gross Debt: LTM EBITDA 7.2 7.2 7.2 7.4 Total Net Debt including PIK notes : LTM EBITDA 6.8 6.9 7.6 7.0

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Appendix

AA Intermediate Co Ltd vs AA PLC

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AA Intermediate Co Ltd vs AA PLC

Profit & Loss

AA Int Co Ltd AA plc Difference Explanation £m £m £m

Revenue 736.0 736.8 0.8 Small European driving services acquisition1 Cost of sales (259.1) (259.2) (0.1) As above Gross profit 476.9 477.6 0.7 Other operating income 0.1 0.2 0.1 Insurance underwriting2 Administrative & marketing expenses (230.7) (245.2) (14.5) As above + IPO costs Share of profit on joint ventures 0.9 0.9 - Operating profit 247.2 233.5 (13.7) Trading EBITDA 315.8 316.0 0.2 Insurance underwriting Items not allocated to a segment (3.0) (3.0)

• Amortisation and depreciation

(34.8) (34.8)

• Share-based payments and acquisition earn-out costs

(1.0) (1.0)

• Exceptional items

(29.8) (43.7) (13.9) IPO costs Operating profit 247.2 233.5 (13.7) Finance costs (171.0) (197.1) (26.1) PIK interest Finance income 0.5 0.6 0.1 Profit before tax 76.7 37.0 (39.7) Tax (expense)/credit 7.2 12.0 4.8 Tax on above Profit for the period 83.9 49.0 (34.9)

1VVCR 2The Insurance Underwriting segment is a wholly owned subsidiary of AA plc and therefore not included in the AA Intermediate Co

Ltd financial results

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AA Intermediate Co Ltd vs AA PLC

Balance Sheet

AA Int Co AA plc Difference Explanation £m £m £m Non-current assets Goodwill and other intangible assets 1,250.6 1,251.3 0.7 Small European driving services acquisition Property, plant and equipment 107.8 107.8 - Investments in joint ventures and associates 4.2 4.2 - Deferred tax assets 60.4 60.4 - Other receivables 2.3 2.3 - 1,425.3 1,426.0 0.7 Current assets Inventories 5.3 5.3 - Trade and other receivables 188.5 190.2 1.7 Insurance underwriting Amounts owed by parent undertaking 1,204.8 - (1,204.8) Amount due to immediate parent of AA Int Co – AA Mid Co Ltd Cash and cash equivalents 273.0 503.0 230.0 IPO proceeds; Prefunded PIK interest; Insurance Underwriting 1,671.6 698.5 (973.1) Total assets 3,096.9 2,124.5 (972.4) Current liabilities Trade and other payables (550.2) (563.5) (13.3) PIK interest accrual & IPO costs Amounts owed to parent undertaking (6.4) - 6.4 Group relief on PIK interest Provisions (6.1) (6.1) - (562.7) (569.6) (6.9) Non-current liabilities Borrowings and loans (3,034.0) (3,379.6) (345.6) PIK notes Finance lease obligations (13.7) (13.7) - Defined benefit pension scheme liabilities (318.9) (318.9) - Provisions (17.4) (17.4) - Insurance technical provisions (0.2) (4.1) (3.9) Insurance underwriting (3,384.2) (3,733.7) (349.5) Total liabilities (3,946.9) (4,303.3) (356.4) Net liabilities (850.0) (2,178.8) (1,328.8)

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AA Intermediate Co Ltd vs AA PLC

Cashflow

AA Int Co AA plc Difference Explanation £m £m £m Profit before tax 76.7 37.0 (39.7) IPO costs and PIK note interest Amortisation and depreciation 34.8 34.8 - Net finance costs 170.5 196.5 26.0 PIK note interest Other items (1.0) (1.1) (0.1) Insurance underwriting Working capital movement 3.2 4.3 1.1 IPO costs and insurance underwriting Net cash flow from operating activities before tax 284.2 271.5 (12.7) Tax paid (2.1) (2.1)

• Net cash flow from operating activities

282.1 269.4 (12.7) Investing activities

• Software development expenditure

(19.4) (19.4)

• Purchase of property, plant and equipment

(6.8) (6.8)

• Acquisition of subsidiaries, net of cash acquired
• (0.1)

(0.1) Small European driving services acquisition Proceeds from fixed term investments - restricted

• 5.0 5.0

Insurance underwriting Interest received 0.5 0.6 0.1 Insurance underwriting Net cash flow used in investing activities (25.7) (20.7) 5.0 Financing activities

• Financing transactions

(6.2) (6.3) (0.1) PIK note fees Issue of share capital

• 199.5 199.5

IPO proceeds Interest paid on borrowings (102.1) (122.3) (20.2) PIK note interest Payment of finance lease capital and interest (19.1) (19.1)

• Net cash flow from financing activities

(127.4) 51.8 179.2 Net increase in cash and cash equivalents 129.0 300.5 171.5