FY19 RESULTS 3 April 2019
DEFINITIONS The following definitions apply throughout Trading EBITDA (earnings before interest, tax, depreciation and amortisation): excludes share-based payments, pension service charge adjustment, contingent consideration remeasurement movements 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, contingent consideration remeasurement movements, 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 year end. 1
Introduction Simon Breakwell Finance review Martin Clarke AGENDA Strategic review Simon Breakwell and outlook 2
AA INVESTMENT HIGHLIGHTS The UK’s most trusted commercial brand 1 Market leadership position Mature market with significant barriers to entry Excellent standards of service delivery Partner of choice for B2B customers High recurring revenue with strong cash generation Notes: 3 (1) Y&R Brand Asset Valuator Survey (2014)
OUR SERVICE EXCELLENCE IS OUR BEDROCK – WHICH? 2018 REVIEW REPAIRED AT THE ROADSIDE THIRD-PARTY COVER OVERALL SCORE 78 75 72 69 Green Flag 66 66 TOP 5 OEM-BRANDED COVER PROVIDED BY AA 1 2014 2018 2014 2018 2014 2018 Green Flag 91% (1 st ) 84% (2 nd ) 80% (3 rd ) 73% (4 th ) 72% (5 th ) Sources: Which? Recommended Breakdown Provider June 2018 4 Notes: (1) Overall Which? score relating to carmaker-branded cover
WE ARE THE PARTNER OF CHOICE FOR THE AUTOMOTIVE INDUSTRY SELECTED B2B CLIENT BASE BY LENGTH OF RELATIONSHIP AND TYPE OF CUSTOMER Financial Institutions & Partnerships Fleet & Leasing Companes Car Manufacturers No. of years 0 – 5 5 – 10 >10 AA customer 5
ROADSIDE – AA’S BEST -IN-INDUSTRY APP RANKING IN RANKING IN RANKING IN TRAVEL TRAVEL TRAVEL 22 nd 96 th 45 th APP STORE APP STORE APP STORE RATING RATING RATING 4.8 4.4 4.8 NUMBER OF NUMBER OF NUMBER OF RATINGS RATINGS RATINGS 37k 2k 15k • One third of our personal members have registered • Used in 31% of breakdowns, up from 29% last year Source: Apple App store as at 29 March 2019 6
VISION FOR THE AA 7
FY19 HEADLINES IN LINE WITH GUIDANCE Solid operational progress across key strategic initiatives in Roadside and Insurance Successful renewal or extension of all key B2B contracts including LBG; new contract win with Arval and JLR mobility Continued strong cash conversion S&P ratings reaffirmed; strong balance sheet with effective maturity of debt extended to 2022 Well positioned to execute our strategy and deliver on our medium-term growth targets Putting service, innovation and data at the heart of the AA 8
FINANCE REVIEW
FY19 FINANCIAL HEADLINES Revenue up 2% at £979m • Roadside up 3% – strong performance from B2B and consolidation of AA Cars • Insurance down 5% – motor policies up 16%, home policies returned to growth up 1.5% Trading EBITDA down 13% at £341m • Roadside down 12% – additional opex for growth • Insurance down 18% – reflecting acquisition marketing spend to accelerate growth Trading EBITDA margin 35% (FY18: 41%) Adjusted EPS 14.9p (FY18: 21.8p) Cash conversion 87% (FY18: 94%) Rating reaffirmed from S&P; successful refinancing with extension of maturities to January 2022; £20m bond buyback programme successfully completed Net debt of £2.7bn (FY18: £2.7bn) Proposed final dividend of 1.4p, total proposed dividend for FY19 of 2.0p (FY18: 5.0p) 10
ROADSIDE AND INSURANCE SEGMENTAL REPORTING Revenue Trading EBITDA Trading EBITDA Margin FY19 FY18 FY19 FY19 FY18 FY18 £m £m £m £m Margin % Margin % Roadside Assistance 322 345 41 46 Roadside Assistance 778 747 Driving Services 17 22 27 33 Driving Services 63 67 Head Office costs (56) (47) na na Roadside Revenue 841 814 Roadside Trading EBITDA 283 320 34 39 Insurance Services 62 79 52 59 Insurance Services 119 133 Insurance Underwriting 6 1 32 8 Insurance Underwriting 19 12 Head Office costs (10) (9) na na Insurance Revenue 138 145 Insurance Trading EBITDA 58 71 42 49 Group Trading Revenue 979 959 Group Trading EBITDA 341 391 35 41 11
INCOME STATEMENT Revenue 2% higher due to strong performance FY19 FY18 YoY £m of B2B and consolidation of AA Cars Revenue 979 960 2% EBITDA 13% lower in line with guidance due to additional opex for growth and higher cost of Trading EBITDA 341 391 (13)% servicing additional breakdowns during H1 19 Share based payments (5) (7) (29)% • IFRS 16 adoption in FY20 expected to add c£4m Pension past service charge adjustment (5) (10) (50)% to Trading EBITDA Contingent consideration remeasurement gain 1 - 100% Operating profit lower due to lower EBITDA and Depreciation & amortisation (73) (70) 4% impact of non-cash pension past service Exceptional operating items (40) 3 na adjustments in FY18 (credit £34m) and FY19 (cost £22m) Operating profit 219 307 (29)% Net finance cost (166) (166) - Finance cost broadly flat due to cost of Profit before tax 53 141 (62)% refinancing in July 2018. Finance cost expected Tax expense (11) (30) (63)% to be lower in FY20 Profit for the period 42 111 (62)% Basic EPS – continuing operations (p) 6.9 18.2 (62)% Adjusted Basic EPS 1 – continuing operations (p) 14.9 21.8 (32)% Notes: 12 1 Adjusted for operating exceptional items, share-based payments, pension service charge adjustment, contingent consideration remeasurement gain, 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
RECONCILIATION OF ADJUSTED PROFIT AFTER TAX FY19 FY18 Profit after tax 42 111 Adjusted for: Exceptional operating items 40 (3) Share based payment 5 7 Contingent consideration remeasurement gain (1) - Pension service charge adjustment 5 10 Exceptional finance cost 13 9 Tax expense 11 30 Adjusted profit before tax 115 164 Tax at the effective rate of 20.8% (FY18: 19.1%) (24) (31) Adjusted profit after tax 91 133 13
ROADSIDE FY19 FY18 YoY Revenue up 3% reflecting strong performance of B2B and consolidation of AA Cars Revenue (£m) 841 814 3% Average income per paid member up £5 broadly in Trading EBITDA (£m) 283 320 (12)% line with inflation and reflecting improved product mix and an increase in new members taking Trading EBITDA margin (%) 34 39 (13)% monthly subscriptions Paid membership down c2% to 3.21m and Personal paid Members (m) 3.21 3.29 (2)% retention was just above 80%. Targeting broadly flat membership in FY20 and a return to growth Average income per paid Member (£) 162 157 3% in FY21 Business members (‘000s) 9,793 9,928 (1)% Average income per business member up 5% to £21 reflecting revenue from new contract wins and Average income per business member (£) 21 20 5% additional revenue from pay-for-use due to higher Breakdowns attended (‘000s) 3,730 3,679 1% demand in H1 19 B2B members down 1% – AVAs; new vehicle sales Trading EBITDA down 12% • Additional opex for growth • Increased costs due to higher demand 14
INSURANCE Revenue FY19 FY18 YoY Strong growth in motor book Revenue 1 (£m) 138 145 (5)% • Commenced underwriting a new motor insurance scheme with Trading EBITDA 1 (£m) 58 71 (18)% Munich Re targeting non-members • Insurer Hosted Pricing (IHP) installed across six motor panel Trading EBITDA margin (%) 42 49 (14)% members has significantly improved pricing agility Home book returned to growth ahead of expectations Average income per policy reduced to £69 Total insurance policies 2 (‘000s) 1,561 1,447 8% • Reflects investment in new business growth Total Motor policies (‘000s) 731 629 16% Financial Services performing well Motor policies underwritten (‘000s) 339 223 52% • Bank of Ireland partnership continues to develop strongly Total Home insurance policies (‘000s) 830 818 1% Trading EBITDA Home policies underwritten (‘000s) 259 184 41% Higher acquisition marketing spend and competitive Average income per policy pricing strategy to accelerate growth in motor book and 69 74 (7)% (Motor and Home) (£) home book Underwriter profitable but lowers Trading EBITDA Financial Services products (‘000s) 112 142 margins on consolidation Note: Average income per policy no longer includes FS 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 will migrate to HomeServe Plc from May 2018 under the 15 AA brand over the next three years. 2 Includes Motor and Home only.
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