INTRODUCTION TO THE AA Investor presentation H1 17 Interims
CONTENTS, IR CONTACTS AND DEFINITIONS CONTENTS IR CONTACTS DEFININTIONS THAT APPLY THROUGHOUT • Jill Sherratt Trading Revenue: Revenue excluding Head of Investor Relations discontinued operations, business held for 2 – 16 Fundamentals sale and exceptional revenue item Email: jill.sherratt@theaa.com • Trading EBITDA (earnings before interest, Telephone: +44 (0) 20 7395 7301 17 – 45 tax, depreciation and amortisation): excludes H1 17 results Mobile: +44 (0) 7791 137738 exceptional items, items not allocated to a segment and discontinued operations Transformation James Curran • Cash conversion: net cash flow from Investor Relations Manager and Analyst continuing operating activities before tax and 47 – 56 (as at 20.4.15) exceptional items divided by Trading Email: James.curran@theaa.com EBITDA Telephone: +44 (0) 20 7395 4443 • Adjusted basic continuing EPS: Earnings per FY16 results Mobile: +44 (0) 77387 71835 share excluding discontinued operations (in summary) 58 - 63 adjusts for a number of one-offs of which the largest are exceptional items, items not Lisa Shailer allocated to a segment, the amortisation of Investor Relations Assistant debt issue fees, penalties on early Email: lisa.shailer@theaa.com repayment of debt and double-running Telephone: +44 (0) 20 7395 7442 interest costs on Class B/B2 notes Mobile: +44 (0) 7950 868371 • Personal Members and Business Customers: measured as the number at the period end www.theaaplc.com 1
FUNDAMENTALS
PROVIDING SERVICES TO AA MEMBERS FOR MORE THAN 110 YEARS Brought under common Founded by Patrols on 35% share Launched Patrols issued ownership with DriveTech and motoring bicycles and of 2m cars on the Roadwatch and with diagnostics Saga in the Auto Windshields IPO enthusiasts uniforms road Relay equipment Acromas Group acquired 26 June 1905 1907 1909 1912 1939 1949 1973 1992 1999 2003 2004 2007 2009 2010 2014 1st AA insurance Launched New fleet Launched AA members Acquired by BSM acquired, policy AA Routes and to enable four AA Driving voted to private equity launch Home AA Stars wheel patrols School demutualize the groups CVC and Services AA and join Permira Fund Centrica Group 3
ROADSIDE ASSISTANCE AT THE CORE Segment Ireland ⁴ Roadside Assistance Insurance Services Driving Services 4% 3% 17% FY16 Trading EBITDA % 1 76% £361m 3 £78m £19m £13m 3.7m personal Members Leading insurance broker Provides driver awareness Leading branded and 10.2m B2B customers training, fleet management breakdown provider Offers Motor, Home, and driver training and leading insurance c3,000 dedicated patrols; Travel and other specialist broker in Ireland c10,000 breakdowns insurance Largest driving school in Highlights per day the UK² - AA and BSM Insurance lead with Cross-sell to existing brands breakdown usually ad No 1 with market share of customers additional benefit c40% 11% of the highly Also includes Home fragmented market 81% personal Member Services and Financial retention rate Services 1. Segment Trading EBITDA has been expressed as a % of Group Trading EBITDA excluding Head Office Costs 2. By total UK driving pupils. 3. Excluding Glass business disposed of 4 4. Ireland business sold on 11 August 2016 for EUR 156.6m
THE LEADERSHIP TEAM Bob Mackenzie Martin Clarke Executive Chairman Chief Financial Officer Previously Chairman and CEO of National Car Parks Previously Partner and Global Head of Consumer for and its subsidiary Green Flag Permira Prior to that CEO of Sea Containers Prior roles at Cinven, Silverfleet and and Chairman of PHS Group board member of New Look and Gala Coral Janet Connor Mike Lloyd Restructuring and Insurance Director Commercial Director Previously Managing Director at More Than; MD at Previously Partner at Oliver Wyman focused on Ageas-owned over-50s broker RIAS from 2006 to 2011 Consumer Service businesses in FS, Energy, Home, TV and Telecoms Accountable for broking operating as CEO of AAISL Responsible for Roadside Assistance and Insurance Services, marketing and digital functions Oliver Kunc Kirsty Ross Operations Director Membership Services Director Previously Managing Director of Central Heating Previously Strategy and Innovations Director; Installations at British Gas; prior roles at Barclays, BA Principal at Oliver Wyman and LEK consulting Responsible for Motoring Services, Media and Driving Responsible for operations including patrols, School businesses, connected car strategy and deployment, call centres and technical development Group strategy 5
THE INVESTMENT CASE Strong, stable margins and cash conversion Strong fundamentals High barriers to entry, scale cost advantage The UK’s most trusted commercial brand 1 Trusted brand Over 50% of households hold an AA product 3.7m personal Members, 10.2m B2B customers Market leadership No 2 motor insurance broker, No 1 driving school High Member retention, long-term B2B contracts Retention and loyalty Significant revenues from repeat business 3.4m breakdowns attended pa Operational excellence Sophisticated deployment IP and services Trusted brand lends to relevant extensions Options for growth 20m marketing contacts, strong cross-sell ability 1. Y&R Brand Asset Valuator Survey (2014). 6
RELATIVE RESILIENCE OF MEMBERSHIP SINCE 1975 Broad based under investment; eg in systems, AA Members (m) AA Membership vs GDP Growth UK GDP growth (%) brand and capabilities and legacy of short-term 5.0 20% decision making Premium position not 4.0 15% underpinned by continuous Membership run-up and investment in proposition reduction following and no investment in brand demutalisation marketing for many years 3.0 10% US savings and IT platform, except patrol loan crisis Financial Oil Crisis deployment, dated and 2.0 crisis 5% constraining growth; limited and inflexible CRM systems 1.0 0% Individual business unit optimisation restricts commercial opportunity 0.0 -5% 1975 1980 1985 1990 1995 2000 2005 2010 2015 7
FINANCIAL RESILIENCE THROUGH THE ECONOMIC CYCLE £1,200 Revenue and Trading EBITDA 979 971 974 967 963 £1,000 943 931 893 808 794 755 £800 £600 429 423 415 395 371 369 366 £400 334 292 273 219 £200 £0 Year to Year to 13 months FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 Dec 2005 Dec 2006 to Jan 2008 Trading EBITDA Revenue Note: 2005, 2006, 2008 and 2009 unaudited; FY15 and FY16 Revenue and Trading EBTIDA excludes the Glass business disposed of 8
EXCEPTIONAL CASH GENERATION Cash flow generation (£m) 102% 101% 97% 94% Trading EBITDA £430m £423m £415m £395m Cash Conversion Net cash flow from operating FY13 FY14 FY15 FY16 activities before tax and exceptional items £371m £433m £431m £416m Favourable working capital dynamics as a function of upfront payments by customers Underlying maintenance capital expenditure of c£40m pa 9
A HIGHLY TRUSTED COMMERCIAL BRAND “Which?” total test score 2015 Highest test score for a major provider from ‘Which?’ every Major providers year since 2007 Widely recognised and trusted brand 74% High level of customer satisfaction 50% of households hold an AA product 66% 64% September 2015: AA ‘Recommended provider’ in “Which?” survey for both consumer and manufacturer cover for 10th consecutive year 10
SCALE, LEADING MARKET POSITION AND BARRIERS TO ENTRY Large and resilient roadside market Scale and barriers to entry Relatively stable market Economies of scale: c3,000; 10,000 breakdown per day; c3.4m breakdowns pa High recurring revenue New entry barriers from investment required in systems – eg deployment B2B relationships: 10.2m B2B customers; partner of choice for major OEMs Consumer market share B2B market share Breakdowns attended 3.4m Others 19% 2.5m B2B 40% 67% 63% 0.7m 1 GF 50% Consumer 14% Motor Fleets AVA RAC manufacturers 27% Source: Industry sources; Note 1: The number of breakdowns for GreenFlag is last year’s number 11
HIGH MEMBER RETENTION AND LOYALTY Large personal Membership base Strong loyalty 3.7m personal Members Membership tenure Rate of decline slowing • FY16: -2.6% • FY15: -4.5% 1,500,000 3.3m paid personal Members 800,000 • H117: -0.6% > 10 years >20 years Stable over medium/longer term Average tenure of c12 years Proprietary long-standing database of c21m individuals Rising retention rate (81% for FY16) Competitive advantage for cross-selling Sophisticated customer rating and pricing capability based on proprietary information 12
LONG TERM B2B CONTRACTS Selected B2B client base Recent contract wins: Volkswagen Group, Porsche, Added Lex Autolease Value Accounts Recent renewals: Toyota, Northgate, Subaru, Isuzu, Fleet & MG, Lexus (Bentley, Ford, leasing Honda and Jaguar Land Rover in FY15) Extended contracts: BT and OEMs Vauxhall (Lloyds Banking Group and TSB in FY15) Tenure Other developments: VW 0 – 5 5-10 >10 with AA emissions programme and JLR mobile servicing pilot 13
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