PRESENTATION H1 18 INTERIM RESULTS FUNDAMENTALS PROVIDING - - PowerPoint PPT Presentation

INVESTOR PRESENTATION H1 18 INTERIM RESULTS

FUNDAMENTALS

PROVIDING SERVICES TO AA MEMBERS SINCE 1905

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 26 June 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 AA members voted to demutualize the AA and join Centrica Group Acquired by private equity groups CVC and Permira Fund AA and Saga under common

• wnership in

Acromas Group

2

1905 1907 1909 1912 1939 1949 1973 2003 2009 2010 2014 1992 1999 2004 2007 Appointment

• f Simon

Breakwell as CEO 2017

ROADSIDE ASSISTANCE AT THE CORE (FY 17)

3 Roadside Assistance Insurance Services Driving Services

Consumer

3.3m paid personal Members Average income per Members £158 82% retention

B2B

10.0m business customers Largely pay-for-use Average income per B2B customer £20

Broking

Leading insurance broker Predominantly motor and home 1.9m policies Average income per policy £70

Home Services

Developing home emergency position

Financial Services

AA-branded partnership with Bank of Ireland 100k products in first full year

Driving Schools

Largest driving school in the UK (by pupils) AA and BSM brands 10% of pupils in highly fragmented market 2,607 instructors franchised

DriveTech

Provides driver awareness training, fleet management and driver training 79% 14% 4% Trading Revenue Roadside Assistance Insurance Services Driving Services 79% 17% 4% Trading EBITDA

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

RESILIENT AND CASH GENERATIVE BUSINESS MODEL

4

219 273 292 334 369 371 366 395 423 430 415 403 755 794 808 893 931 943 979 971 974 984 973 940 Year to Dec 2005 Year to Dec 2006 13 months to Jan 2008 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 Trading EBITDA Revenue

Note: 2005, 2006, 2008 and 2009 unaudited; FY 17 excludes Ireland business disposed of in August 2016.

371 433 431 420 371 94% 102% 100% 101% 92% FY13 FY14 FY15 FY16 FY17 Operating cash flow Cash Conversion

£m £m

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

MARKET LEADERSHIP AND HIGH BARRIERS TO ENTRY

5

Widely recognised and trusted brand 50% of households hold an AA product Unique deployment IP 3,000 patrols; average tenure 12 years attending 10,000 breakdowns per day 83% of breakdowns repaired at roadside

42% RAC 23% GF 18% Others 17%

Consumer market share (H1 18)

67% 63% 50% Motor manufacturers Fleets and Leasing AVA

B2B market share (FY 17)

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.

B2B 3.6m Consumer 2.4m 0.7m

Breakdowns attended FY 18

A TRUSTED BRAND, BASED ON EXCELLENT SERVICE LEVELS

6 74% 66% 64% 77% 66% 67% Which? total test score

57% 66% 53% 26% 22% 31% Overall experience with the AA Service provided by Patrol Overall experience

• ver the phone

AA “moment of truth” survey (%), FY 17

Excellent Very Good

Call handling 80% in 20 seconds Repair rate 83% App usage in breakdowns >28% Average call time <5 minutes Call to arrive time 45 minutes

2016 2017 2016 2017 2016 2017

LONG TERM STRATEGIC PARTNERS

7

6 years

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

Motor 52% Home 39% Other 9%

Insurance broking revenue split FY 17

42% 41% 34% 35% 25% 24% 20% 17% 16% 14% 11% 11% 9% 9% 9%

STRONG BRAND IN INSURANCE

Source: GfK FRS Study September 2016.

Source: Old Street Data Sciences “Brand tracker” June 2017

Brand awareness in Motor Insurance 8

No 1 motor insurance broker in the UK private car insurance market No 2 private home insurance broker in the UK

RELATIVE RESILIENCE OF MEMBERSHIP BUT CHALLENGES IN RECENT YEARS

9

Under-investment in systems, brand and capabilities Legacy of short-term decision making Premium position not underpinned by marketing, advertising, proposition IT platform dated and constraining growth (except Deployment system)

• 5%

0% 5% 10% 15% 20% 0.0 1.0 2.0 3.0 4.0 5.0 1975 1980 1985 1990 1995 2000 2005 2010 2015 UK GDP growth (%) AA Members (m)

AA Membership vs GDP Growth

US savings and loan crisis Financial crisis Membership run-up and reduction following demutalisation Oil Crisis

THE UK’S PRE-EMINENT MEMBERSHIP SERVICES ORGANISATION

10

Market leader with a highly trusted brand Resilient, high-return business model Clear strategy to transform the AA for the digital age Platform for growth and accelerated cash generation

H1 18 INTERIM RESULTS

26 SEPTEMBER 2017

DEFINITIONS

12

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.

Introduction John Leach Financials Martin Clarke Strategy and outlook Simon Breakwell

AGENDA

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

15

Robust, cash generative platform; now refining strategy for future growth

FINANCIALS

FINANCIAL HEADLINES – IN LINE WITH MARKET EXPECTATIONS

17

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 EBITDA1) post refinancing in July 2017

1 Trading EBITDA for the last 12 months

P&L – QUALITY OF EARNINGS IMPROVED

Pension past service credit: one-off gain

• Switch to CPI from RPI (£22m) and closure of the Final

Salary section (£12m)

Items not allocated to segment

• £7m of pension-related and £5m of share-based payments

Exceptional items

• £7m of business and IT transformation costs and £1m of

income from disposal of fixed assets

• Last year’s provision for duplicate cover sufficient

Finance cost

• £10m of early repayment penalties and £5m transfer from

cash flow hedge reserve from July refinancing

Tax expense

• £11m of current tax charge and £5m of deferred tax arising

from temporary timing differences

• Effective rate of 20%

18

£m H1 18 H1 17 YoY Trading Revenue 471 467 1%

Trading EBITDA 193 192 1% Pension past service credit 34

• 100%

Items not allocated to a segment (12) (10) (20%) Depreciation & amortisation (33) (28) (18%) Exceptional items (4) (22) 82% Operating profit 178 132 35% Net finance cost (98) (84) (17%) Profit before tax 80 48 67% Tax expense (16) (10) (60%) Profit for the period from continuing

• perations

64 38 68% Basic EPS – continuing operations (p) 10.5 6.2 69% Adj Basic EPS1 – continuing operations (p) 10.2 10.3 (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

reserve for extinguishment of cash flow hedge, write-off of debt issue fees following refinancing, and tax expense

ROADSIDE ASSISTANCE ROBUST

19

H1 18 H1 17 YoY FY 17 Trading revenue (£m) 370 370 0% 742 Trading EBITDA (£m) 174 179

• 3%

365 Trading EBITDA margin (%) 47.0 48.4

• 3%

49.2 Personal paid Members (‘000s) 3,325 3,321 0% 3,335 Average income per paid Member (£) 156 157

• 1%

158 Business customers (‘000s) 10,016 10,179

• 2%

9,976 Average income per business customer (£) 20 19 5% 20 Breakdowns attended (‘000s) 2 1,761 1,759 0% 3,635

Trading Revenue¹ flat (membership subscriptions up) Membership slightly up

• Retention 82% (H1 17: 81%, FY 17: 82%)
• 13% growth in new paid members

Average income per member down £1

• Price increases held due to IPT
• Introductory discounts for new sales
• Increased monthly payments from new members
• One-off payments to third party underwriter

B2B decline from bank AVAs as anticipated; average income up 5% Trading EBITDA down 3%

• Increased costs related to erratic workload combined with inflexible resourcing
• One-off charge for losses accumulated since the IPO with a third-party underwriter

1 Revenue is reported after IPT and payments for third-party underwritten products. 2 Relevant period basis.

INSURANCE SERVICES GROWTH

20

H1 18 H1 17 YoY FY 17 Trading Revenue (£m) 66 64 3% 131 Trading EBITDA (£m) 38 35 9% 76 Trading EBITDA margin (%) 57.6 54.7 5.3% 58.0 Total insurance policies (‘000s) 1,845 1,962

• 6%

1,879 Motor policies (‘000s) 616 572 8% 594 Home insurance policies (‘000s) 844 891

• 5%

857 Average income per policy (£) 72 67 7% 70 Financial Services Products (‘000s) 131 82 60% 100

Trading Revenue up 3% Growth in motor book; decline in other products – plans for improvement in home

• Stable retention despite challenges
• Supported by in-house underwriter attracting new

business

• Insurer Hosted Pricing being implemented to

improve agility in pricing for motor insurance

Average income per policy up as we continue focus on more profitable products Trading EBITDA up 9% Focus on products with higher profitability Disciplined cost management Financial Services 131,000 active financial services customers Matched book of c£250m

IN-HOUSE UNDERWRITER PERFORMING WELL

21

H1 18 H1 17 FY 17 Trading Revenue (£m) 3 1

• Trading EBITDA (£m)
• (1)

(1) Motor policies (‘000s) 200 25 115 Home policies (‘000s) 121 NA 25

Trading Revenue up Good progress with strong growth High proportion of new policies incremental to AA insurance High retention due to our competitive pricing Trading EBITDA at break even Revenue recognition deferral impact to EBITDA £2m

DRIVING SERVICES STABLE

22

Trading Revenue flat Driving schools

• Number of instructors up
• Improvements in our sales and marketing approach
• Success of driver instructor training product
• Encouraging progress with Learner Driver L Drive app

DriveTech

• Revenue flat
• Police speed awareness courses stable

Trading EBITDA stable

H1 18 H1 17 YoY FY 17 Trading Revenue (£m) 32 32 0% 67 Trading EBITDA (£m) 9 9 0% 20 Trading EBITDA margin (%) 28.1 28.1 0% 29.9 Driving instructors 2,669 2,516 6% 2,607

STRONG OPERATIONAL CASHFLOW

£m H1 18 H1 17 Net operating cash flows before tax and exceptional items¹ 194 190 Tax, exceptional items and discontinued operations (27) (6) Net operating cash flows 167 184 Transformation capex (13) (20) Underlying IT capex (9) (8) Non-IT capex (3) (7) Capex accruals (1) (2) Capital repayment of Finance Lease net of disposal proceeds (9) (14) Other

• (2)

Net cash flows before refinancing, purchase of own shares, interest and dividends 132 131 Proceeds from borrowings 250

• Issue costs on borrowings

(6)

• Debt repayment premium and penalties

(11)

• Repayment of borrowings

(328)

• Refinancing transactions

(95)

• Purchase of own shares
• (2)

Interest paid (75) (76) Dividend paid (35) (33) Net (decrease)/increase in cash and cash equivalents (73) 20

23

1 Continuing operations

£250m £500m £700m £250m £500m £570m £138m

Senior Term Facility Class A3 notes Class A5 notes Class A6 notes Class A2 notes Class B2 notes Cash

Gross debt: £2,770m

Interest rate 5.71%1 4.25% 2.88% 2.75% 6.27% 5.50% Effective maturity

2021 2020 2022 2023 2025 2022

DEBT STRUCTURE FOLLOWING JULY 2017 REFINANCING

Blended cost of debt 4.52% following pay down of £98m of STF Weighted average maturity just over 5 years Rating: A notes BBB-; B notes B+ Next bond refinancing due in 2020 (Class A3 notes) New Working Capital Facility (undrawn) of £75m put in place

Key metrics H1 18 Net debt/EBITDA2 6.7x Run rate cash interest cover3 3x Class A dividend gating ratio4 5.5x Financial covenants H1 18 Class A FCF to DSCR5 (covenant > 1.35x) 3.1x Class B FCF to DSCR5 (covenant > 1.0x) 2.2x

Note:

1 Fixed interest rates with LIBOR hedged for Senior Term Facility: to 31/7/18 fixed at 5.71%; 31/7/18 to 31/1/19

fixed at 8.42%; 31/1/19 to 31/7/21 fixed at 2.75%

2 Total Net Debt to Trading EBITDA for the last 12 months 3 Run rate cash interest: Trading EBITDA 4 The Class A notes only permit the release of cash providing the senior leverage ratio after payment is

less than 5.5x and providing there is sufficient excess cash flow to cover the payment.

5 Free cash flow: debt service cover ratio

24

PENSIONS UPDATE

25 AA UK Pension Scheme deficit of £295m (FY17: £325m; H1 17: £547m) Triennial review of AA UK pension scheme

• Deficit increase to £366m as of 31 March 2016 (from £202m 31 March 2013) - lower long term gilt yields
• Nine-year additional deficit recovery funding plan

– Existing contributions of £13m pa increasing with inflation until November 2038 – Additional contributions of £8m pa to March 2019 – Total payment in FY18 approximately £20m – Estimated increases to employer pension contributions of c£3m in FY18 (EBITDA and cash)

• Next review as at 31 March 2019

Changes to defined benefit pension scheme help stabilise service charges and enhances competitiveness

• Closure of Final Salary section and transfer of all employees to the existing CARE section
• Switch from RPI to CPI in the CARE section
• One-off credit: £12m from closure of Final Salary section and £22m from change to CPI
• Increase to employer service charge £3m in current year; £5m in FY 19 and thereafter

OUTLOOK

26

We expect FY 18 EBITDA to be between £390m and £395m We expect to extend transformation capex by c£35m into FY19 Interim dividend maintained Continued strong cash generation and investment to be funded from operational cash flow Fundamental cash flow characteristics to generate value

STRATEGY

STRONG PROGRESS ON THE IPO TRANSFORMATION PLAN

28

Investment strengthening commercial capabilities, brand and member experience

Market-leading brand further boosted by the 2017 advertising campaign Digital investments improve member experience and support retention Core IT system developments reduce cost and improve service New equipment and processes lead to record high patrol performance levels Car Genie innovation reinforces market leadership and deepens engagement

Improved debt profile

Reduced interest by £90m pa excluding hedging (down 43% vs IPO) Reduced leverage with gross debt down by c. £620m Improved commercial capabilities in Roadside membership and Insurance

80% 79% 82% 82%

0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 80.00% 90.00% 100.00%

78% 78% 79% 79% 80% 80% 81% 81% 82% 82% 83% 83%

Aug-14 Nov-14 Feb-15 May-15 Aug-15 Nov-15 Feb-16 May-16 Aug-16 Nov-16 Feb-17 May-17

• 30.00%
• 20.00%
• 10.00%

0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00%

Aug-14 Nov-14 Feb-15 May-15 Aug-15 Nov-15 Feb-16 May-16 Aug-16 Nov-16 Feb-17 May-17

CAPABILITY INVESTMENTS STRENGTHEN CORE ROAD TRADING

29

New business volume yoy growth

Continued growth in new membership against strong prior year comparables New and expanded marketing channels Improved efficiency by shifting channel spend mix

Roadside retention rate1

Stable despite major headwinds: IPT; duplicate cover; renewal price transparency Proposition and retention activity, such as the App and member benefits, enabled performance to remain in line YoY

1 12 month rolling average

H1 18 Avg +13% H1 17 Avg +11% H1 16 Avg

• 3%

• c. 5%
• c. 20%
• c. 35%

618 597 572 594 616

0.2 0.4 0.6 0.8 540 560 580 600 620 640

Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 In-house Underwriter Share of Policies (%) Motor Policies (#)

7+ YEAR DECLINE IN MOTOR INSURANCE TURNED AROUND

30

Motor Insurance portfolio and in-house Underwriter share of policies

Long term decline due to historic under-investment in price, proposition and systems Turnaround supported by:

• Launch of underwriter
• Improvement in broker pricing systems and commercial capabilities

48% 59% 64% AA Pre-2017 TV Campaign AA During 2017 TV Campaign 21% 13% 26% 40% AA RAC Green Flag

• ther

17% 18% 23% 42%

BRAND REINFORCED BY THE 2017 ADVERTISING CAMPAIGN

Unprompted Brand Awareness Increases to 94% vs 85% for the RAC with Green Flag significantly lower at 71% Market leading brand perceptions Latest TV advert extends superiority in customer perceptions including ‘best breakdown provider’ Growing market share Total market share increases to over 40% in 2017 YTD

Recent campaign success

+5%

‘Best breakdown provider’

RAC

AA Roadside market share

+2%

• 3%

2014 2017

Source: Ipsos MORI 2014 – Q1 2017; : Old Street Data Science Q2 & Q3 2017

31

DIGITAL INVESTMENTS IMPROVE MEMBER EXPERIENCE AND RETENTION

32

App registration and usage in breakdowns

38% of members registered to use the App

• +9ppt increase over H1 FY17

The App is now used in nearly 1

• ut of 3 breakdowns
• +8ppt over H1 FY17

250% increase in usage of member benefits in the App

• Driving regular Membership engagement
• Supports Member retention

Member benefit usage in App (no of members using)

Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17

+250%

38% 28%

May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17

Membership Base Registered in App (%) Usage of App in Breakdowns (%)

DEPLOYMENT SYSTEM REDUCES COST AND IMPROVES SERVICE

33

Reduced average call handling time (10 – 15 seconds per call) from easy-to-use, intuitive interface Better member experience through improved geolocation of the breakdown Fewer ring-backs through new digital developments like a patrol tracking link Faster training time

New AA Help deployment platform

SEP-2014 NOV-2014 JAN-2015 MAR-2015 MAY-2015 JUL-2015 SEP-2015 NOV-2015 JAN-2016 MAR-2016 MAY-2016 JUL-2016 SEP-2016 NOV-2016 JAN-2017 MAR-2017 MAY-2017 JUL-2017 SEP-2014 NOV-2014 JAN-2015 MAR-2015 MAY-2015 JUL-2015 SEP-2015 NOV-2015 JAN-2016 MAR-2016 MAY-2016 JUL-2016 SEP-2016 NOV-2016 JAN-2017 MAR-2017 MAY-2017 JUL-2017

RECORD HIGH PATROL ROADSIDE PERFORMANCE

34

Patrol Roadside Repair rate (%)

Patrol Roadside Repair rate, Arrive-to-Complete and Single Task Completion metrics have continued to improve to record levels, supported by investments in equipment and training

Arrive-to-Complete (minutes)

• c. 10%

reduction +3% improvement

INNOVATION REINFORCES LEADERSHIP AND DEEPENS ENGAGEMENT

35

1m views of the ad online, tens of millions on TV Over 5.5 million trips since TV launch Total UK coverage Believe we can pre-empt up to 30% of breakdowns Great member feedback Preventing breakdowns

Car Genie launch

‘The AA called me with a DPF related fault code, preventing a breakdown. I thought ‘wow you guys are quick, the light only came on a few minutes ago!’

Driving management Saving costs

(for members & AA)

Car location support Detecting crashes Spotting faults

‘I successfully disputed a labour cost at a local garage as the device showed me that the car had not been worked

• n for as long as stated’

‘My car was stolen but the police recovered my car by using the “Find My Car” feature on the Car Genie app’ ‘Car Genie is brilliant for checking mileage. Really useful, and it’s definitely helped me save time and effort.’ ‘Car Genie detected a head-on collision and the AA instantly phoned and helped me’ ‘Surfaced 10 faults on my new car, so it went straight back to the dealer to get sorted!’

Invest further in our people, capabilities and culture to drive even better customer service FURTHER INVESTMENTS NEEDED TO SUPPORT FUTURE GROWTH

36

Slow pace of CRM migration and increase ongoing IT spend to create operational efficiencies and enhance member proposition Address the inflexibility in our Roadside operations to improve responsiveness to workload volatility Invest in our Insurance businesses to drive growth based on our strong brand and competitive pricing

1 2 3 4

Forecasting FY18 EBITDA of £390m to £395m Forecasting c£35m capex extended into FY19

Sharpen focus on areas with most future profit growth: Roadside membership and Insurance

FURTHER INVESTMENTS: PEOPLE AND SERVICE OFFER

37

Invest further in our people, capabilities and culture

1

Address the inflexibility in our Roadside operations

2

Putting customer service as our top priority: call handling; training; recruitment Investing to improve our facilities to support staff morale Tactically increasing headcount to ensure we retain market leading service delivery Building more flexibility into how we roster patrols Continuing to invest in and increase the number of patrols Further improving our forecasting and planning capability

FURTHER INVESTMENTS: PROPOSITIONS AND SYSTEMS

38

Invest in Insurance Broking and Underwriting

3

Increase ongoing IT spend and slowing CRM migration

4

Continuing to invest in motor insurance for member growth Given our success, doing the same with home Accelerate full investment in pricing systems for Insurance Deliberately slowing the pace of implementation to ensure an improved roll-out Implementation well progressed but pace needs to be appropriate Additional ongoing investments in systems to fully transform the business

WE REMAIN CONFIDENT IN THE FUTURE

39

Significant successes across the AA since IPO Further investment needed to support sustainable growth FY18 EBITDA expected to be between £390m and £395m Capex to increase by c£35m extending IT implementation into FY19

Strong foundation for growth Continued growth in new Membership; significant retention headwinds offset Brand leadership improved through advertising Member experience improved through digital and service investments Patrol productivity at the Roadside at record levels Motor policies growing, supported by insurance underwriter and broker investments Innovation deepening our Member relationships

Immediate plans for greater strategic focus and better customer service

APPENDIX

£m H1 18 H1 17 Change % of Group Roadside Assistance 370 370 Flat 78%

Flat membership base: retention stable at 82%, new memberships up 13%

Insurance Services 66 64 3% 14%

Growth in motor book Success of the in-house underwriter attracting new business

Driving Services 32 32 Flat 7%

Attracting more instructors DriveTech flat with police speed awareness courses stable

Insurance Underwriting 3 1 200% 1%

Good progress ahead of target in both motor and home policies

Trading revenue 471 467 1% Exceptional revenue provision

• (10)

Na Total revenue 471 457 3%

REVENUE

42

TRADING EBITDA

£m H1 18 H1 17 Change % of Group¹ Roadside Assistance 174 179

• 3%

79% Erratic workload and inflexible resourcing One-off charge for historic losses with a third party underwriter Insurance Services 38 35 9% 17% Motor book growth Focus on higher profitability business Disciplined cost management Driving Services 9 9 Flat 4% Stable performance Insurance Underwriting

• (1)

Na 0% Break even reversing last year’s losses Head office costs (28) (30)

• 7%

Improved cost management Total Trading EBITDA 193 192 1% 43

1 % of Group pre head office costs

PROFIT AND LOSS¹

£m H1 18 H1 17 Revenue 471 457 Cost of sales (173) (168) Gross profit 298 289 Admin & marketing (120) (157) Operating profit 178 132 Trading EBITDA 193 192 Pension past service credit 34

• Items not allocated to a segment

(12) (10) Depreciation & amortisation (33) (28) Exceptional items (4) (22) Operating profit 178 132 Net finance cost (98) (84) Profit before tax 80 48 Tax expense (16) (10) Profit for the period from continuing operations 64 38 Basic EPS – continuing operations (p/share) 10.5 6.2 Adj Basic EPS – continuing operations (p/share) 10.2 10.3

44

1 Continuing operations

BALANCE SHEET

£m H1 18 H1 17 Goodwill and other intangible assets 1,291 1,276 Property, plant and equipment 113 117 Investments in joint ventures and associates 10 11 Deferred tax assets 56 107 Non-current assets 1,470 1,511 Inventories 7 6 Trade and other receivables 200 169 Cash and cash equivalents 138 158 Current assets 345 333 Assets held for sale

• 93

Total assets 1,815 1,937 Trade and other payables (516) (502) Current tax payable (12) (11) Provisions (10) (21) Current liabilities (538) (534) Borrowings and loans (2,739) (2,922) Finance lease obligations (17) (21) Defined benefit pension scheme liabilities (364) (622) Provisions (9) (7) Insurance technical provisions (19) (4) Non-current liabilities (3,148) (3,576) Liabilities held for sale

• (40)

Total liabilities (3,686) (4,150) Net liabilities (1,871) (2,213)

45

CASH FLOW

£m H1 18 H1 17 Operating profit including discontinued operations 178 139 Depreciation and amortisation 33 29 Other items 5 7 Cash exceptional items 16 9 Change in working capital (38) 16 Operating cash flow before tax and exceptional items 194 200 Cash exceptional items (16) (9) Tax paid (11) (7) Net cash flows from operating activities 167 184 Investing activities Capital expenditure (26) (37) Other investing activities 10 4 Net cash flows use in investing activities (16) (33) Financing activities Refinancing transactions (95)

• Purchase of own shares
• (2)

Interest paid on borrowings (72) (73) Payment of finance lease capital (19) (20) Payment of finance lease interest (3) (3) Dividends paid (35) (33) Net cash flows from financing activities (224) (131) Net (decrease)/increase in cash and cash equivalents (73) 20

46

DEBT PACKAGE

Expected maturity date Interest rate Run rate cash interest (£m) Principal (£m) Total at 31 July 17 (£m) Total at 31 July 16 (£m) Senior Term Facility 31 July 2021 5.71%1 14.5 250 249 453 Class A1 notes 31 July 2018

• 474

Class A2 notes 31 July 2025 6.27% 31.4 500 499 499 Class A3 notes 31 July 2020 4.25% 21.3 500 499 498 Class A4 notes 31 July 2019

• 249

Class A5 notes 31 January 2022 2.88% 20.2 700 667

• Class A6 notes

31 July 2023 2.75% 6.9 250 246

• Class B2 notes

31 July 2022 5.50% 31.4 570 562 722 4.52%3 125.7 2,770 2,722 2,895 Ring fenced cash and cash equivalents 80 122 Non ring fenced cash and cash equivalents 58 36 Total cash and cash equivalents2 138 158 Class A Net Debt: Trading EBITDA (STF & Class A notes less ring fenced cash) 5.2x 4.9x Class B Net Debt: LTM EBITDA (WBS debt less ring fenced cash) 6.8x 6.8x Total Net Debt : LTM EBITDA (total debt less total cash) 6.7x 6.7x Class A FCF DSCR 3.1x 3.4x Class B FCF DSCR 2.2x 2.3x

47

Note:

1 Fixed interest rates with LIBOR hedged for Senior Term Facility: to 31/7/18 fixed at 5.71%; 31/7/18 to 31/1/19 fixed at 8.42%; 31/1/19 to 31/7/21 fixed at 2.75% 2 Excludes available and restricted cash balances available for sale 3 Weighted average interest rate of all borrowings

FORWARD-LOOKING STATEMENTS

48

This document contains various forward-looking statements that reflect management’s current views with respect to future events and anticipated financial and operational performance. By their nature, forward-looking statements involve known and unknown risks, uncertainties and other factors because they relate to events and depend on circumstances that may or may not occur in the future. Forward-looking statements are not guarantees of future performance and the Group’s actual financial condition, results of operations and cash flows, and the development of the industry in which it operates, may differ materially from (and be more negative than) those made in,

• r suggested by, the forward-looking statements contained in this document. In addition, even if its financial condition, results of operations

and cash flows and the development of the industry in which it operates are consistent with the forward-looking statements contained in this document, those results or developments may not be indicative of results or developments in subsequent periods. Although the Group believes that the expectations reflected in these forward-looking statements are reasonable, it can give no assurance that they will materialise or prove to be correct. Because these forward-looking statements are based on assumptions or estimates and are subject to risks and uncertainties, the actual results or outcome could differ materially from those set out in the forward-looking statements.

IR TEAM

49 Jill Sherratt Head of Investor Relations +442073957301 +447791137738 Jill.Sherratt@theaa.com Lisa Shailer IR Assistant +442073957442 Lisa.Shailer@theaa.com Zeeshan Maqbool Investor Relations and Corporate Finance Manager +447738790402 Zeeshan.Maqbool@theaa.com Anna Gavrilova Interim Investor Relations Manager +442073957303 Anna.Gavrilova@theaa.com