Introduction to the AA Investor day presentation given on 20 April - - PowerPoint PPT Presentation

Introduction to the AA

Investor day presentation given on 20 April 2015

Date published on website: 8th June 2015

Important notice

This document does not constitute or form part of any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for, any securities of AA plc or its subsidiaries (the “Company”) nor shall it or any part of it nor the fact of its distribution form the basis of, or be relied on in connection with, any contract commitment or investment decision in relation to any such matter nor does it constitute a recommendation regarding the securities of the Company. Investors and prospective investors in securities of the Company are required to make their own independent investigation and appraisal of the business and financial condition of the Company and the nature of the securities. Any decision to purchase securities in the context of a proposed

• ffering of securities, if any, should be made solely on the basis of information contained in an offering circular or prospectus published in relation to such an offering.

Securities of the Company have not been and will not be registered under the United States Securities Act of 1933, as amended (the “Securities Act”), and may not be offered or sold within the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. No public offer of securities of the Company is being made in the United States. Neither this document nor any copy of it may be taken or transmitted into the United States, its territories or possessions or distributed, directly or indirectly, in the United States, its territories or possessions. Neither this document nor any copy of it may be taken or transmitted into Australia, Canada, Japan, Switzerland, New Zealand or the Republic of South Africa or to any person in any of those jurisdictions. Any failure to comply with this restriction may constitute a violation of United States, Australian, Canadian, Japanese, Swiss, New Zealand or South African securities law. The distribution of this document in other jurisdictions may be restricted by law and persons into whose possession this document comes should inform themselves about, and observe, any such restrictions. Subject to certain exceptions, securities of the Company may not be offered or sold within the United States, Canada, Australia, Japan, Switzerland, New Zealand or the Republic of South Africa or to any national, resident or citizen of the United States, Canada, Australia, Japan, Switzerland, New Zealand or the Republic of South Africa. This presentation may include certain forward-looking statements, beliefs or opinions, including statements with respect to the Company’s business, financial condition and results of operations. These statements, which contain the words “anticipate”, “believe”, “intend”, “estimate”, “expect”, “forecast” and words of similar meaning, reflect the Directors’ beliefs and expectations and involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. No representation is made that any of these statements or forecasts will come to pass or that any forecast results will be achieved. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by these statements and forecasts. Past performance of the Company cannot be relied on as a guide to future performance. Forward-looking statements speak only as at the date of this presentation and are also provided strictly on an estimate and approximate basis, further the Company expressly disclaims any obligations or undertaking to release any update of, or revisions to, any forward-looking statements in this presentation. No statement in this presentation is intended to be a profit forecast. As a result, you are cautioned not to place any undue reliance on such forward-looking statements.

2

Definitions

The following definitions apply throughout the presentation:

Trading EBITDA (earnings before interest, tax, depreciation and amortisation): excludes exceptional items, share-based payments, acquisition earn-out costs and items not allocated to a segment. Adjusted EPS: adjusts for one-off adjustments from financing transactions, exceptional items, share-based payments, acquisition earn-out costs and applies tax at the Group’s effective rate. Cash conversion: net cash flow from operating activities before tax and exceptional items divided by Trading EBITDA. Financial Year: the Financial Year ends on 31 January and represents the 12 month period ended 31 January. Personal Members and Business Customers: measured as the number at the period end.

3

Introduction

Bob Mackenzie

Executive Chairman

Agenda

Topic Start time

Lunch and Walk of Pride 12:30 Introduction 13:30 Financials 13:45 Roadside Assistance 14:00 Service delivery 14:45 AA Help demonstration 15:15 Coffee

15:45

Membership Services 16:00 Insurance 16:30 Close and Q&A 17:00 Drinks and Walk of Pride 17:45

5

Today’s Presenters

Oliver Kunc Operations Director

Previously Managing Director of Central Heating Installations at British Gas Prior roles at Barclays, BA and L.E.K. MA Oxford University and MBA from LBS

Bob Mackenzie Executive Chairman

Previously Chairman and CEO of National Car Parks and its subsidiary Green Flag Prior to that CEO of Sea Containers ltd and Chairman of PHS Group plc

Mike Lloyd Commercial Director

Previously Partner at Oliver Wyman, focused on Consumer Service businesses in FS, Energy, Home, TV and Telecoms Graduated from Cambridge University

Kirsty Ross Membership Services Director

Previously Strategy and Innovations Director Prior to that Principal at Oliver Wyman Graduated from Oxford University

Janet Connor Managing Director Insurance

Previously Managing Director at More Than Prior to that MD at Ageas-owned over-50s broker RIAS from 2006 to 2011 Fellow of the Institute of Directors

Martin Clarke Chief Financial Officer

Previously Partner and Global Head

• f Consumer for Permira

Prior roles at Cinven, Silverfleet and board member of New Look and Gala Coral

6

Over 100 years, the AA has grown and expanded the services provided to its Members

1905 1907 1909 1912 1939 1949 1973 2003 2009 2010 2014 1992

Founded by motoring enthusiasts 35% share

• f 2m cars on

the road Launched Roadwatch and Relay Patrols issued with diagnostics equipment Patrols on bicycles and uniforms DriveTech and Auto Windshields acquired

IPO

Launched AA Routes and AA Stars 1st AA insurance policy New fleet to enable four wheel patrols BSM acquired, launch Home Services Launched AA Driving School

7

Segment

Roadside Assistance Insurance Services Driving Services Ireland Membership Services

Included in Roadside Assistance FY15 Trading EBITDA %1

£359m £84m £20m £15m £7m

Highlights

Leading provider in the UK 3.8m personal Members and 9.6m B2B customers 3,000 dedicated patrols, reaching 10,000 breakdowns per day No 1 market share (c40%) High personal member retention rate Leading insurance broker Offers Motor, Home, Travel and other specialist insurance Significant cross-sell to existing customers Also includes Home Services and Financial Services Provides educational driver awareness courses, fleet management and driver training Largest driving school in the UK2 (under AA and BSM brands) Leading branded breakdown provider and leading insurance broker in Ireland Publishing, Hotel Services, Digital and Car Essentials Motoring Services including BCA Car Inspections, Signs, Warranties and AA Cars

Today, the AA is a Membership business, built around leadership in Roadside Assistance

75% 18% 4% 3%

• 1. Segment Trading EBITDA has been expressed as a % of Group Trading EBITDA excluding Head Office Costs
• 2. By total UK driving pupils.

8

1.5%

Presenting today Presenting today Presenting today

Market fundamentals Strong, stable margins and cash conversion High barriers to entry, scale cost advantage Trusted brand The UK’s most trusted commercial brand1 Over 50% of households hold an AA product Market leadership 3.8m personal Members, 9.6m B2B customers #2 motor insurance broker, #1 driving school Retention and loyalty High Member retention, long-term B2B contracts Significant revenues from repeat business Operational excellence 3.5m breakdowns attended pa Sophisticated deployment IP and services Options for growth Trusted brand lends to relevant extensions 20m marketing contacts, strong cross-sell ability

Strong fundamentals, and a sustainable business model in a market leading position

• 1. Y&R Brand Asset Valuator Survey (2014).

9

However, a number of challenges are apparent

Broad based under investment; eg in systems, brand and capabilities Legacy of short-term decision making Premium position not underpinned by continuous investment in proposition IT platform, except patrol deployment, dated and constraining growth Individual business unit optimisation restricts commercial opportunity Limited and inflexible CRM systems No investment in brand marketing for many years Creates opportunity, but significant work to do

10

Strategic objectives and initiatives

Strategic objectives Key initiatives

Invest in technology and people Increase roadside membership through leading service and loyalty Deliver a step-change in Digital capability Evolve the Insurance Services and Financial Services business models to drive profitable growth Leverage the brand to capture the

• pportunity in the broader Motoring sector

Grow our B2B service offering through greater integration with our partners

1

Strengthen the AA as the pre-eminent motoring services organisation in the UK

2

Reduce Group borrowings and the associated interest costs

3

Revolutionise customer experience through investing in and embracing new technologies

11

The last nine months have focused on laying the groundwork for the new AA

Redesigned organisational structure, new executive team IT roadmap laid out; started investment in core systems Systematic capabilities and talent review Property review underway Investment in patrols and front line staff Governance and controls in place Premium listing and FTSE indexation confirmed Refinancing complete, and plan to pay dividend by end FY16 Solid progress to date

12

Now entering period of investment and consolidation

Core business performance flat Several years of under-investment by previous owners Period of investment and consolidation to position AA for renewed growth To be achieved through – Investment in brand marketing – Investment in IT systems and digital capability – Restructuring and cost initiatives – Investment in Membership growth and price – New business initiatives Refinancing to free up additional cashflow and facilitate dividends Investment creates longer term opportunities

13

Investment in IT infrastructure will deliver system upgrades and on-going benefits to the AA

De-risk infrastructure; operational stability and supported systems More efficient systems; less manual processing; higher productivity Flexibility and agility in commercial decision making Stronger CRM capabilities; opportunity for digital propositions and cross-sell Smoother, hassle-free experience for members Enhanced deployment and patrol support Enabler for further opex savings

14

IT transformation to modernise the business and enhance customer experience – Transformation capex of £128m over 3 years – Impact on depreciation and opex – Thereafter facilitates cost savings and reduced capex Cost rationalisation expected to deliver £40m of cost savings in medium term – Phase 1 underway and expected to deliver £8m in FY17 Short term uplift in capex to facilitate transformation – Thereafter steady state IT capex of £10m pa (versus £30m pa) £10m investment in brand marketing in FY16 and beyond

Transformation investments 15

A membership club serving a broader range of UK motorists’ needs in the digital age

Transform the AA into a modern, technologically led Membership business Reinforce and develop our unrivalled brand building on our tradition of services Enhance and broaden the range of products and services available to our Members

The new AA 16

Financials

Martin Clarke

Chief Financial Officer

FY15 performance headlines

Revenue up 1.0% to £983.5m Trading EBITDA1 up 1.7% to £430.1m Trading EBITDA margin up 30 bps to 43.7% Adjusted EPS2 (before refinancing) of 23.3p (38.0p) Cash conversion3 100% (102%) Dividends of c£50m expected to be recommended in respect of FY16

18

Summary financials

Stable growth, high margins and low cash requirements

(£m)

£968m £974m £984m £395m £423m £430m

FY13A FY14A FY15A Revenue Trading EBITDA

40.8% 43.4% 43.7% Trading EBITDA margin

Capital expenditure

3.3% 4.0% 10.1% % of revenue £32m £39m £99m

FY13A FY14A FY15A

Working Capital defined as stock, plus amounts due from debtors, less amounts due to creditors, deferred income and provisions for future costs, excluding balances relating to corporate income taxation, pensions, finance leases, deferred consideration and non-trading intercompany balances. Change in working capital derived from unaudited, non-statutory management information excluding the impact of exceptional items, restricted cash and pensions

19

Change in working capital

Impact on cash flow2 (£3.7m) (£14.9m) £0.4m

FY13A FY14A FY15A

Increasing EBITDA year on year Favourable working capital dynamics as a function of upfront payments by customers

Significant cash flow generation with exceptional cash conversion rates

Cash flow generation (£m)

Net cash flow from operating activities before tax and exceptional items3 £371m

£395m £423m £430m 93.9% 102.4% 100.1% FY13A FY14A FY15A Trading EBITDA¹ Cash Conversion²

£433m £431m

20

Trading EBITDA (£m) Trading revenue (£m)1

Historical financial performance has been remarkably stable through the economic cycle

Margin +£90m +1.6% pa +£96m +4.3% pa £893m £931m £943m £979m £971m £974m £984m FY09 FY10 FY11 FY12 FY13 FY14 FY15 £334m £369m £371m £368m £395m £423m £430m FY09 FY10 FY11 FY12 FY13 FY14 FY15 39.6% 39.3% 37.6% 40.7% 43.4% 43.7% 37.4%

• 1. Trading revenue excludes certain transactions not related to ongoing segment performance and includes revenue from Insurance Underwriting activities which prior to FY13 included significant revenue from reinsurance

activity within the Acromas group.

21

Refinancing objectives

Reduce overall cost of debt Increase average maturity Simplify debt structure Facilitate payment of dividends Reduce cost of debt and enable dividend

22

Raise £200m new equity to efficiently pay off balance of PIK Notes Issue £735m new high yield bonds to repay existing Class B Notes Repay £209m of Senior Term Facility from existing cash in WBS Impact – Reduced leverage – Reduced cash interest costs – Facilitates payment of dividends in respect of FY16 and thereafter

Refinancing overview 23

£663m £475m £500m £500m £250m £655m £175m £259m

Senior Term Facility Class A1 notes Class A2 notes Class A3 notes Class A4 notes Class B notes PIK notes Cash

FY15 debt structure

Highly leveraged capital structure 7.5 x gross debt / FY15 EBITDA High interest charges on PIK and B notes at 9.5% Blended interest cost of 5.9% Interest cover2 2.3x

Blended interest rate 5.9% including PIK 5.7% excluding PIK £3,218m Fixed interest rates (with LIBOR hedged for Senior Term Facility) Interest rate 3.98%1 4.72% 6.27% 4.25% 3.78% 9.5% 9.5% Effective maturity 2019 2018 2025 2020 2019 2019 2019 Final maturity 2019 2043 2043 2043 2043 2043 2019

Notes

1 Senior Term Facility at LIBOR + 2%. As a result of

certain hedging arrangements LIBOR is effectively fixed at 1.9797% until July 2018 and 2.9985% for the period between August 2018 and January 2019, such that if the Class A notes are rated “BBB-” or above, the maximum rate of interest payable until 31July 2018 is 3.9797%

2 Trading EBITDA divided by cash finance costs

excluding any early repayment fees

24

Sources and uses

Reduces interest charges and facilitates the paying of dividends

Sources £m Uses £m New Class B 735 PIK redemption 175 Equity placement 200 Class B redemption 655 Balance sheet cash used 209 STF partial redemption 209 Break costs on PIK 4 Break costs on B notes 60 New issuance fees 25 PLC non-ring fenced cash 16 Total sources 1,144 Total uses 1,144

25

Resulting debt structure

Leverage 6.8x gross debt / FY15 EBITDA Lower blended cost of debt at 4.9% Average maturity extended to 6 years

£454m £475m £500m £500m £250m £735m £50m

Senior Term Facility Class A1 notes Class A2 notes Class A3 notes Class A4 notes New Class B notes Cash

£2,914m Fixed interest rates (with LIBOR hedged for Senior Term Facility) Interest rate 3.98%1 4.72% 6.27% 4.25% 3.78% 5.50% Effective maturity 2019 2018 2025 2020 2019 2022 Final maturity 2019 2043 2043 2043 2043 2043

Note: 1 Senior Term Facility at LIBOR + 2%. As a result of certain hedging arrangements LIBOR is effectively fixed at 1.9797% until July 2018 and 2.9985% for the period between August 2018 and January 2019, such that if the Class A notes are rated “BBB-” or above, the maximum rate of interest payable until 31 July 2018 is 3.9797%

26

Benefits of new capital structure

Reduced cash interest cost by £46.7m with corresponding EPS enhancement Since IPO gross debt reduced by £470m Near term maturities (pre 2020) reduced from 69% to 40% of outstanding debt WBS dividend gating covenants simplified – Removal of PIK notes sets gating covenant for dividends at <5.5x EBITDA / net senior debt (currently within this at 5.1x) Significant savings in interest charges and enabling meaningful dividend

27

The AA’s foundations are strong FY16 a year of transition, consolidation and investment Refinancing to create a stable medium-term capital structure Dividends of c£50m expected to be recommended in respect of FY16 Progressive dividend policy thereafter Strong cash flow will facilitate further substantial deleveraging in medium term

28 Summary

Roadside Assistance

Mike Lloyd

Commercial Director

Revenue and Trading EBITDA

At the core of the AA sits a robust and profitable Member Roadside Assistance business…

Leader in Roadside Assistance Large base of 3.8m Members c40% market share in consumer market High customer satisfaction Customer loyalty leads to high renewals

697 713 728 323 348 359 FY13A FY14A FY15A Revenue Trading EBITDA

30

Fleet and leasing Motor manufacturers Banking: Added Value Accounts

An additional 9.6 million end customers are supported through our B2B relationships

Provides Breakdown cover with new and used car warranties sold by dealers Also provides vehicle fault and performance data

1

Provides Breakdown cover to SMEs, commercial fleets and leasing companies, and corporate-owned van fleets Other services eg risk management

2

Provides Breakdown cover to Lloyds Banking Group and TSB Added Value Accounts (AVAs)

3 Together, B2C and B2B cover 13.4 million customers

31

Roadside Assistance is at the AA’s core, with strong strategic advantages to build from…

Trusted brand The UK’s most trusted commercial Brand1 Over 50% of households hold an AA product Customer loyalty Strong Membership retention Average tenure 11 years, 800k > 20 years Market leadership 3.8m personal Members, 9.6m through B2B Over 3,000 dedicated patrols Operational excellence 3.5m breakdowns attended pa Unique services and deployment IP

Source: Y&R Brand Asset Valuator Survey (2014).

32

Differentiation, high loyalty, economies of scale, high to replicate IP

“Which?” Recommended Provider UK’s 5 most trusted commercial brands1

Roadside Assistance is at the core of the AA’s brand, which is trusted and iconic in the UK

75 72 69 The AA is still the mainstream breakdown provider of choice. Which?, 2014

1. 2. 3. 4. 5.

Source: Y&R Brand Asset Valuator survey in 2014, Which? breakdown service providers review 2014

1 Excludes charities and armed forces.

33

AA Membership vs. GDP growth

Roadside Membership levels have been maintained between 3.5m and 4.5 m since the 1970s

Financial crisis US savings and loan crisis Early 1980s recession Oil crisis Membership run-up and reduction following demutualisation 5.0 4.0 3.0 2.0 1.0 1975 1980 1985 1990 1995 2000 2005 2010 2015 20% 15% 10% 5% 0%

• 5%

0.0 AA Members (m) UK GDP growth (%)

Sources: Internal AA data; ONS

34

Breakdowns attended Consumer market share B2B market share

The AA has leading consumer and B2B market shares, and the largest number of breakdowns

AA 40% RAC 27% GF 14% Others 19%

3.5m 2.3m 0.7m Consumer B2B

Sources: Lake Research “Road market share tracker( Sep-14); Internal AA data; Company Websites (RAC / GF)

35

Motor manufacturers Fleets AVA

Operational excellence is delivered by unique technology, vehicles and highly skilled patrols

Unique deployment IP Modern multi-vehicle service technology 80% of breakdowns repaired at roadside Skilled and experienced colleagues Average of 11 years tenure with the AA AA “moment of truth” survey (%)

57% 68% 50% 26% 20% 33%

Overall experience with the AA Service provided by Patrol Overall experience

• ver the phone

Excellent Very Good

Technical assets and expertise… …and high levels of customer service

Source: AA Customer Survey

36

Fantastic underlying assets; brand, loyalty, leadership and operational scale Past profit growth drivers have been stretched as far as they can Need to reinvest to restart growth engine

The Roadside business is facing two key linked challenges, driven by historic investment horizons 37

1

Legacy of short-term decision making – across key marketing areas: – Shorter-term pricing focus – Marketing investment cuts – Limited product and service innovation pipeline

2

Broad-based under-investment eg in systems, brand and capabilities – IT platform and CRM systems dated and constraining growth – No brand marketing – direct response focused – Lack of digital investment

Year on year change in personal Members Income per Member AA share of voice in media

The impact of the drivers of profit growth are being seen in a decline in personal Members

0.0%

• 2.3% -2.4%
• 4.5%

FY12 FY13 FY14 FY15 £113 £119 £126 £135 FY12 FY13 FY14 FY15 22% 11% 4% 2% 2011 2012 2013 2014

38

Our priorities for the consumer Roadside business are centered around three themes as a consequence

Change

New systems to improve speed to market, learning, flexibility Add to commercial capabilities to deliver change

Trade better

Shorter-term Drive immediate opportunities to fund growth investment Longer-term More sophisticated value management to drive strong marketing returns

Supported by investment in CRM systems, service innovation and the brand

39

Drive growth

Drive growth in Members and services per Member Investment in innovation and the AA brand

We are focused on a number of plans to deliver EBITDA gains to re-invest in growth 40

Drive performance and deliver EBITDA to fund growth investment

Key plans

• 1. Retention: 24 month retention improvement

plan to step-change renewal performance

• 2. New Business: Sales channel optimisation

applying strong analytics

• 3. Discounting: targeted reductions in discounting
• 4. Costs: reduce costs by shifting communication

from paper and calls into digital channels

Feb Mar April May June July Aug Sept Oct Nov Dec Jan Discount rate Save rate

The focus on retention is already driving improvement

Save rate up 4% points; discount rate down 6% points since re-launch

Stay AA re-launch in March Discount rate down 6 percentage points Save rate up 4 percentage points

41

To stem the decline and drive growth in Member numbers, we are investing in our proposition for Members 42

Re-establish growth in the Membership by redeveloping the Membership proposition

Key plans

• 1. Brand: Invest in the AA’s brand through re-starting our

above-the-line advertising

• 2. Products: Innovation in products and services,

developing and implementing a new product pipeline

• 3. Membership: Differentiate being a Member

beyond breakdown integrating with broader AA services

• 4. Digital: New services, self-service and sales

capabilities

• 5. Connected Car: Lead opportunities – accelerating

trials and developing connected propositions

AA media spend and share of voice

We will be investing c£10m in the brand to improve key commercial metrics over the coming years

Plans

Broaden from only direct response marketing Invest c£10m in above-the-line marketing Additional capabilities created internally Effectiveness analysis used to determine

• ptimal spend going forward

Benefits

Market share of new business and improved campaign efficiency Rational and emotional impact on retention Employee engagement

43

Sources: Ebiquity Media Tracking (TV, Press, Radio, Cinema, Outdoor), Road Brand Tracker Survey, IPSOS

66% 47% 57% 31% 21% 22% 11% 4% 2%

2006 2007 2008 2009 2010 2011 2012 2013 2014 Total media spend AA Share of voice

Connect and services Self-service Sales

In parallel, we are investing £22m over three years to transform our digital capabilities…

AA digital platform

1

From: No self-service, phone and paper based To: Integrated multi- channel service Lowering contact cost intelligently

Self-service

From: Ageing platform To: Flexible low cost platform Lower maintenance, rapid digital development

Digital platform

4

From: Broad, but fragmented content To: UK’s digital motoring and travel hub integrating Membership Services Retention and cross-sell shift

Content and services

3

From: Old platform and limited capabilities To: Best-in-class digital sales capabilities Step-change in digital sales performance

Sales

2

44

We are ramping up our investment in the Connected Car… 45

Selected plans

New partnerships Telematics eCall and bCall Operational R&D

Membership in the modern world

Across four areas accelerated proposition development and trials Developments in each market area support the others Expanded operational investment in technology and capabilities

Consumers Manufacturers Insurance Fleet

Finally, work is underway to upgrade our commercial capabilities, the organisation and core systems 46

Upgrade commercial capabilities, the organisation and core systems

Key plans

• 1. CRM: new systems to help us talk to the right

Members with the right messages in the best channel

• 2. Digital platform: new digital platform to enable new

digital services, self-service and sales capabilities

• 3. Organisation: Investment in our people to strengthen
• ur capabilities
• 4. Analytical capabilities: Commercial MI and

improvements to enable us to drive stronger marketing and growth investment returns

Our aim is to transform the consumer Roadside business over the next three years… 47

Leading the market with stronger product and service innovation Innovative Re-invigorated membership proposition supported by stronger CRM and digital services Dedicated to Members Strengthened brand, operation, people, systems and digital platforms Strengthened core assets Supports rebalanced and more sustainable sources of profit growth Quicker to market with more targeted communications, offers and investment in current and prospective Members Agile

Summary

Strong underlying core – key strategic advantages in this market Past profit drivers not sustainable in the long-term (marketing cuts and pricing) Key areas of trading being driven to generate profit to re-invest Investment in brand, product and services, digital and Connected Car in plan – Progressively landing these investments of the next 3 years Expectation to halt, then reverse, decline in Membership numbers – Move to a more balanced and sustainable profit growth engine Built on unique assets – old and new

48

Service delivery

Oliver Kunc

Operations Director

AA Road operations – the largest in the UK

Breakdown patrols 2,032 Recovery patrols 452 Garage agents c350 Motorcycle patrols 20 Fuel Assist 59 Key Assist 15 Dedicated technicians 163 Other 360

(incl. Battery Assist, Glass, Home Emergency and Inspections)

50

13.4m customers 3.5m breakdowns pa Over 3,000 AA patrols

12 separate operations supported, both B2C and B2B 51

Breakdown Recovery Fuel Assist Key Assist Battery Assist Glass Motorcycle breakdown Motorcycle recovery SORT Vehicle inspections Dealer audits Accident management

Motor manufacturers branded schemes including dedicated programmes delivered by silver vans

c30 manufacturers supported - c67% of the new car market… …including unbranded vans for key accounts

52

Pay for use and insured roadside cover provided to seven of top 10 UK leasing companies Direct operational fleets Additional services include incident management, accident / risk management and HGV Long term relationship with Lloyds Banking Group and TSB Providing various levels of roadside cover to around 4m customers Home emergency cover provided to selected account holders

Strong position in Fleet and major Added Value Accounts with Lloyds Banking Group and TSB

Added Value Accounts (AVAs) Fleets

53

Operations is driven by four key strengths

Key pillars to our continued success

1

Exceptional service

2

Deep expertise

3

Constant innovation

4

Commercial focus

54

• 1. Exceptional service

Centralised operations in Oldbury 460 contact centre advisors 320 service advisors New integrated app growing in usage in 2015 Call handling 80% in 20 seconds App usage <1% Average call time <5 minutes Call to arrive time 45 minutes

55

Prestige brands 150 teleworkers Volkswagen Group Police

• 2. Deep expertise

Leicester training centre Self-managed recovery fleet Dedicated B2B resource International network (ARC) Fuel Assist Key Assist Battery Assist Special operations, Motorcycles, Glass, …

56

Patrol repair rate c80% Dedicated B2B resource c140k jobs Average patrol tenure 11 years

Best diagnostics tool in market Multi-year deal / exclusivity Retrofitted Bluetooth connected Significant fleet upgrade Speed of deployment Safety improvements Flexibility eg motorbikes

• 3. Constant innovation

Compact Recover Trailer (CRT) Bosch diagnostic systems

57

Tight operational and cost control Systems and controls

• 4. Commercial focus

58

Scale of business drives density of work, and cost efficiencies Proprietary deployment tool (AA Help)

• ptimises service / efficiency mix

Flexibility to manage peaks in demand – multi-skilled workforce and garaging Service expertise drives strong “tail” management Expertise improves repair rate, reduces “second resource” and improves fix time

The result is delighted customers…

Which? “Recommended Provider” for 4 years running Highest test score for a major provider from ‘Which?’ every year since 2007 Highest scores for core performance (eg call to arrive and Roadside repair rate)… …and highest scores for customer satisfaction across both the 2013 and 2014 surveys Highest overall ratings… … and ahead on key metrics The AA is still the mainstream breakdown provider of choice.

Which?, 2014 75 72 69

Source: Which? breakdown service providers review 2014

59

Rolling 12 month inflation adjusted variable cost per case

Indexed to 100

…and ever more efficient delivery

84 86 88 90 92 94 96 98 100 102

Feb-11 Aug-11 Feb-12 Aug-12 Feb-13 Aug-13 Feb-14 Aug-14

60

Source: AA internal Data

There are a number of challenges…

CRM systems aging and require significant upgrade Previously stretched fleet renewal cycles Reduced investment in training in last 5 years Strong focus in recent years on improving “as is”; not modernising Investment to turn challenges into opportunities

61

…which we are turning into strategic opportunities

Modernise our systems and fleet for efficiency and member experience Investment in infrastructure Re-emphasise training and continue to improve service by the roadside Patrol 2020 Revolutionise the member’s breakdown experience through digital (mobile first) Embrace digital Invest in Connected Car to future-proof the operation and continue to innovate Invest in Connected Car Trial and grow specialist services using

• ur unique capabilities and infrastructure

Commercial

• pportunities

62

These will align with, and deepen, our strengths

1

Exceptional service

– Investment in front end systems – Refresh patrol infrastructure; technology and fleet

2

Deep experience

– Upgrade patrol training – Recruitment and retention focus to identify and build expertise

3

Constant innovation

– App development – Investment in Connected Car driven operating model

4

Commercial focus

– Drive growth of existing commercial areas – New B2B and B2C services

63

Summary

Strong operating model – unique and at significant scale Challenging market with recent underinvestment Opportunity to strengthen core assets Investment focused on further building out existing strengths Modernisation is starting and will drive continuous evolution Opportunity to improve service, efficiency and commercial focus in the medium-term from a strong baseline

64

Membership Services

Kirsty Ross

Membership Services Director

1

Value generated within own P&L by selling Membership products and services

Membership Services is a new team that generates value for the AA in two distinct ways…

Significant opportunities for growth in both areas Media Motoring Services

66

2

Value generated for AA group by strengthening the Roadside Member proposition Member acquisition Member retention

AA Media generates c50% of Membership Services EBITDA, across 4 key divisions

c250 non-fiction titles across atlases, maps, driving, travel, leisure and “AA Inspected” guides (eg hotels) UK and International Subscription income from hotels, B&B, caravan and campsites, in return for an annual AA inspector visit and AA Guide profile Consultancy and training events Advertising revenue from Route Planner Creation of digital content eg eBooks Roadwatch traffic advice service “Car Essentials” products eg European breakdown kits Sold through major retailers, AA webshop and Eurotunnel shop

Publishing Hotel Services Digital Commercial

67

15pt car inspection pre-auction AA technicians based at BCA sites

BCA assured

Sign production and traffic management for events and housing developments

Signs

Warranty products eg Mechanical Breakdown Insurance B2B2C via dealers

Warranties

Used-car site, with

• ver 150k cars

and 2.5k dealers Launched in September 2013

AA Cars

154 point vehicle safety inspection Car data checks covering eg

• utstanding

finance, write-offs

Inspections and History Checks AA Tyres: New mobile tyres business launched in April ’15 Service and Repair: eg Garage inspection program launched 2014

AA Motoring Services comprises 5 divisions, as well as new growth areas eg Tyres

New Business

68

Stable and profitable portfolio of core Membership Services businesses Wide ranging experience and capabilities – “right to play” in broader Motoring Services AA reputation for trust unique in markets characterised by lack of transparency Proprietary sales channels not available to competitors eg Roadside Members Powerful historic position in navigation, travel and hotels Positive halo benefit on AA brand reputation and member proposition

69 Membership Services has strengths that are unique in many of the sectors in which we compete

Limited appetite to make investment with long-term paybacks in the past, resulting in some businesses lacking in scale Fragmented markets: need to be selective where and how we choose to operate Business models not evolved in Digital Age, new competitors in some markets Operated independently in the past, limiting connection to the broader AA Membership base

70 There are also historical challenges, which we are addressing

The opportunities and priorities are clear and consistent across Membership Services

Modernise the core; strengthen the AA proposition; grow in new markets

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1

Build on the AA’s investment in digital

2

Leverage our products and services to enhance the Member proposition

3

Build on the AA’s reputation for trust to grow in adjacent markets

Investment in digital is key to future growth; some progress to date – eg Route Planner in AA app

Now integrated with core breakdown app Simpler and cleaner layout and useability More frequent engagement with the app Future opportunity: over 50% of visitors to AA website come to read Media content

1

Developments this year focused on Route Planner traffic and hotels and travel content

72

Hotels and Restaurants Car Essentials Publishing

Work is underway to review the role of our unique assets in the Member proposition 73

2

There is potential to expand our reach through the car

• wnership lifecycle
• Inspiration and

research

• Valuation and

inspection

• Sale of previous car
• Finance
• Selection and

purchase

• Warranty
• etc…
• Consumables and

car care

• Car wash and clean /

valet

• Regular maintenance
• Traffic
• Route planning

and navigation

• Fuel pricing
• Parking
• Alternative mobility
• etc…
• In-car connectivity
• Infotainment
• En-route activities

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3

• Service and MOT
• Major repair work
• Accidents
• etc…

c£60bn

The Motoring Services market is characterised by lack

• f trust: an opportunity to leverage our brand

38% of consumers suspect there was a problem with the used car they bought 83% of consumers are not confident in the price they get at their garage “Have you ever bought a used car that you later suspected had any of the following?” “The cost of Service and Repair was higher than I expected”

No issue Mechanical/

• ther fault

59% 23% 17% Agree Unsure Disagree

Source: AA Populus Panel 2013 and 2014

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3

38%

In an accident Clocked Outstanding finance

Put together, attractive opportunities to expand into adjacent Motoring Services markets

Key opportunities: Used Car Sales Tyres Car Inspections Garages – Services, Maintenance and Repair Dealer Solutions …

Significant potential to build on existing assets in new markets

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3

1

c£60bn broader Motoring Services market – the AA currently focused

• n <10% of spend

2

Unique strength of the AA Brand in markets with low customer trust

Focus for today

AA Cars is the 3rd largest used car dealer by stock, with further headroom for growth

Largest used car dealers, by stock AA Cars USPs

50,900 106,352 112,600 115,259 120,762 124,999 162,769 255,774 404,613 What Car RAC Cars Sun Motors Driving E&M Pistonheads AA Cars Motors Autotrader

Source: Company Websites

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3

Selected growth plans Improve use of digital Drive vehicle inspections Open up new marketing channels Selective dealer targeting Free comprehensive Car History Check Unique AA content Free breakdown cover

AA Tyres: product and business model innovation

The UK tyre market is worth over £3bn pa, and offers an attractive growth opportunity for the AA

Market-leading proposition

– Competitive price; AA quality – Online / mobile booking process – Next day service; to home or work

Cost efficient and lean

– No fixed retail network – Supply chain management

Agile delivery model

– Collaboration with Mobile Tyre specialist – Minimises execution risk… – …whilst leveraging AA assets

Tyres are the 2nd most common cause of breakdowns…

10 20 30 Battery Tyre Engine Alternator Starter motor Clutch Lights (interior) Spark plugs Fuel pump (electrical) Cylinder head gasket Other And growing – as many new cars do not carry a spare tyre 17% 15%

Source: AA internal Data

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3

Summary

Set up in 2014 to bring together the value-added services which the AA offers Members and strengthen the Membership proposition Two key business segments: Media and Motoring Services Pursuing several additional opportunities, in line with broader AA membership strategy – Implementing digital transformation – Adding value to the Membership proposition – Building on recent launches in adjacent markets Powerful existing assets, strong brand presence, particularly in the motoring market – A number of opportunities to drive significant growth in future

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Insurance

Janet Connor

Managing Director Insurance

Core insurance revenue breakdown

Formed in 1967, the AA is the 2nd largest home and motor insurance broker

Value-added broker model

Motor / Home insurance underwritten by panel Panel actively managed Insurance strengthens Road Membership base

Scale in distribution

#9 personal lines broker in the UK by premium3 #2 home insurance broker by policies in force4 #2 motor insurance broker by policies in force4

The AA’s current business model

Motor (55%) Other (6%) Home (39%)

Core insurance policies in force

Product Policies1

• f which

Roadside Members2

Motor 635k 63% Home 907k 42%

Sources: 1: AA Internal Data, for the 12 months to 31/01/15 2: % of Insurance Policy holders that are also Roadside Assistance Personal Members 3: Insurance Times 2014 survey 4: GFK February 2015

81

Insurance policies are underwritten by a broad panel

Strong brand, frequent customer contact Long history, high awareness and consideration Extensive customer data and contact base Attractive risk-profile of Members Various commercial models across c20 products outside motor and home Outsourced – travel, pet, etc. Referral – learner drivers The AA’s panel model Brand and customers attractive for panel

82

Strong and diversified set of panel members Large and specialist players participate for different customer segments Insurer provides net rate, the AA then creates a customer price AA manages customer policy adminstration Insurer manages the claims process

The AA has high brand Consideration

Brand Consideration1

for switching Motor Insurance

Quote to Click conversion2

by position on MoneySupermarket

Dec 2010 Dec 2011 Dec 2012 Dec 2013 Dec 2014

AA Admiral Aviva Direct Line Churchill Tesco Morethan RAC Post Office Hastings Direct

1st 2nd 3rd AA Market

Sources: 1: GFK FRS Motor Dec 2014 of top 15 brands 2: eBenchmarkers Autumn 2014

83

Exclusive Member and breakdown data will continue to be at the heart of the AA insurance model

Used in relatively basic way today Cross-sell from and into Roadside Rates tailored for AA Members Efficiency in direct marketing Data protects profitability for insurer partners Opportunity to do more in future Further integration with Roadside to strengthen propositions and Membership Commercial agility driven through more sophisticated analytical techniques We understand our customers… … facilitating customer engagement, sales and retention

3.8m

personal members

3.5m

breakdowns a year

2.5m

policy records

20m

vehicle records

Source: AA internal Data

84

However, the AA has been challenged by a number

• f developments in the broader market …

Broader market development: – Importance of price comparison websites – Margin squeeze – Pace of regulatory change – Direct competition Customer decisions driven more and more by price, and less by brand Broker model challenged: – Limited view of end-to-end profitability – Adds cost into the value chain (already suffering from low margins) AA currently lacks pricing agility in an increasingly dynamic marketplace

85

Motor insurance policies in force (shown since 2010)

… leading to a decline over the last seven years

Motor insurance stabilised in FY15 through investment in pricing and marketing

2011 2012 2013 2014

c960k in 2011 c635k today

Source: AA Internal Data

86

2015

Customers predominately buy through PCWs Very high elasticity of demand – especially around top ranking positions 3/4 of customers shop around, and 1/3 switch at renewal for cheaper price

The rise of Price Comparison Websites (PCWs) has led to increased market commoditisation in personal lines

Market growth of online and PCWs1

% of new policies

Main factors driving Motor insurance purchase decision2

20 40 60 80 100

1997 2000 2003 2006 2009 2012 2015

Other online Price Comparison Website (PCW)

Cost of policy

85%

Features of policy

15%

Previous knowledge / experience of company

12%

Sources: 1: FPK, Datamonitor, eBenchmarkers 2: GFK FRS Motor Dec 2014 – all policies, responses were all that apply

87

Price is a key driver, however, brand Consideration is still important

Increasing conversion Brand strength under-utilised due to pricing However, extensive policy and customer data does give the AA ability to compete Future winners – AA well placed Relationship and niche portfolio owners Effective end-to-end claims management Analytics focused Providers not burdened by legacy systems Share of new business vs. brand Consideration in Motor Opportunity for the AA

Hastings Admiral

Brands that underperform Consideration Brands

• utgrowing

Consideration

Aviva Tesco Brand Consideration (%) Share of new business (%)

Source: GFK FRS Motor Dec 2014

88

Market fragmentation leads to inefficiency – many providers competing to make a return Market evolution has reduced the value added of the traditional broker model PCWs here to stay – model may be constrained

Insurance is a highly fragmented value chain, the AA currently only plays as a traditional broker

Activities in personal lines insurance value chain

Google PCWs Broker Insurer

Players:

89

Lead generation Price comparison & quotation Sales New business fulfilment Policy admin & servicing Pricing & under- writing Claims handling Investment & solvency

Make better use of unique data to drive more agile and competitive pricing for Members Broker will enable panel to price on own systems and make best use of data Improve customer experience and lower claims costs

The AA has the opportunity to remain a broker, and also take on the role of the insurer

Activities in personal lines insurance value chain

Lead generation Price comparison & quotation Sales New business fulfilment Policy admin & servicing Pricing & under- writing Claims handling Investment & solvency

Google PCWs Broker Insurer

Players:

90

Broker PLUS Insurer model builds on the AA’s experience as a broker, it does not replace it

Effective business model that maximises use of capital AND broker value New agile IT systems, integrated with AA and high-value external databases Newly built capabilities drive excellence in data mining and agile pricing Integrated policy and claims management, unencumbered by legacy systems Leveraging robust controls and governance, mitigating conflicts Experienced, proven team that has created and run successful operations Greenfield systems, new capabilities, combined with strong brand and proprietary customer data, provides significant medium-term growth opportunity

91

A minority of solvency capital will be provided through an in-house underwriter

c25% of capital provided in-house Combining co-insurance/ re-insurance with in-house capital gives balance of strategic control, cost and risk Retains strategic benefits of 100% in-house model Mitigates need to share intellectual property Investment in solvency capital assures re-insurers, supporting access to competitive rates Mitigates risk and limits capital exposure in a cost effective manner Shared capital and risk model

92

Using proprietary data with sophisticated analysis

Competitive advantage through unique insights, risk-modelling and pricing agility Agile data, analysis and pricing model

Internal AA data External Data

Advanced analytics platform

Unique breakdown and Membership data Consolidating broader data sources that exist in the AA New scoring models, also supporting management information and decision making Enrich analysis through addition of external public and government databases Enhance with additional vendor data sources to provide unique blend and granular insights

93

Insurer and broker separate with new agile systems 94

Broker and insurer systems setup

Customer

Broker IT system

AA quote and policy administration system Broker pricing Data enrichment

Insurer IT system

AA insurer quotes Insurer pricing Data enrichment + analytics Policy and claims administration system

An experienced and proven team has been recruited to lead the insurer 95

Craig Staniland CEO

30+ years experience in Insurance Previously MD, AXA Personal Lines Prior to that Founding Underwriting Director, Swiftcover and Head of Motor Underwriting, RBS

Dominic Bird, Head of Pricing

10 years experience in Insurance Previously Head of New Business Pricing, Direct Line Group Prior to that Consultant, Towers Watson

Steve Gaywood, Head of Counter-Fraud

15 yrs Counter-Fraud experience Previously Head of Counter-Fraud, AXA Personal Lines and Head of Systems and Data Analytics, Innovation Conversant Data

Tony Peppard Head of Claims

30+ years Claims and Vehicle Management experience Previously MD, AXA and Swiftcover Claims and MD, Churchill Claims Services Group

Summary

Significant scale and experience as motor and home insurance broker Market conditions and model have led to customer decline AA brand and proprietary customer data provide a competitive advantage that has not been fully utilised to date New broker PLUS insurer model designed to capitalise on opportunity through more agile and competitive pricing Capital sharing model mitigates risks while retaining strategic control Experienced team building new capabilities and systems

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Closing remarks

Bob Mackenzie

Executive Chairman

Closing remarks

A great, robust business, with strong assets at the core Work on the new AA has begun, after a period of under-investment Reshaped team and strategy for the future in place Near term focus on delivering IT and digital transformation Refinancing reduces interest cost by c£47m and enables payment of dividends Period of investment now to return the AA to growth in the medium-term

98

Q&A

Appendix

The AA is the market leader in Driving Services

Two of the UK’s most recognised brands c2,700 franchised instructors c500k police courses delivered pa Long-term contracts with police forces The clear leader across its markets UK’s largest driving school and trainer

No 1 driving school with c11% share No 1 leader in driver awareness schemes No1 c40% share

• f fleet

management training

Driver awareness schemes Training on fleet management

Driving Schools DriveTech

101

The AA has a small but profitable business in Ireland as leader in Roadside Assistance and Insurance

Resilient despite tough economic conditions Profitability under pressure from FX rates Roadside Assistance delivered by mix of AA Patrols and 3rd parties in remote areas Insurance sourced from underwriting panel Home Emergency launched in 2012 - the AA ‘creating the market’

Business in Ireland Ireland revenue

Breakdown of total FY15 revenue (£39m)

Present in Ireland since 1910

Roadside Assistance 52% Insurance 47% Other 1%

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Segment summary financials1

Roadside Assistance (£m) Insurance Services (£m) Driving Services (£m) Ireland (£m)

697 713 728 323 348 359 200 400 600 800 FY13A FY14A FY15A Revenue Trading EBITDA

Trading EBITDA margin (%)

46.3% 48.9% 49.3% 162 149 142 93 89 84 50 100 150 200 FY13A FY14A FY15A Revenue Trading EBITDA

Trading EBITDA margin (%)

57.4% 60.0% 58.9% 74 73 74 14 16 20 20 40 60 80 100 FY13A FY14A FY15A Revenue Trading EBITDA

Trading EBITDA margin (%)

19.2% 21.5% 27.7% 38 40 39 13 15 15 10 20 30 40 50 FY13A FY14A FY15A Revenue Trading EBITDA

Trading EBITDA margin (%)

33.9% 37.9% 38.2%

1 During the year ended 31 January 2015, our Media Business was transferred from Driving Services to Roadside Assistance. As a result, the results for the year ended 31 January 2014 have been restated to show the results of Media within the Roadside Assistance segment. The results for the year ended 31 January 2013 have not been restated.

103