INTRODUCTION TO THE AA - Investor presentation H1 17 Interims - AA plc
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
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
Fundamentals 2 – 16
Email: jill.sherratt@theaa.com sale and exceptional revenue item
Telephone: +44 (0) 20 7395 7301 • Trading EBITDA (earnings before interest,
H1 17 results 17 – 45 Mobile: +44 (0) 7791 137738
tax, depreciation and amortisation): excludes
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
(as at 20.4.15) 47 – 56
Email: James.curran@theaa.com exceptional items divided by Trading
EBITDA
Telephone: +44 (0) 20 7395 4443
FY16 results • Adjusted basic continuing EPS: Earnings per
Mobile: +44 (0) 77387 71835
share excluding discontinued operations
(in summary) 58 - 63 adjusts for a number of one-offs of which the
Lisa Shailer largest are exceptional items, items not
Investor Relations Assistant allocated to a segment, the amortisation of
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
www.theaaplc.com period end
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
Roadside Assistance Insurance Services Driving Services Ireland⁴
17% 4% 3%
FY16 Trading
EBITDA %1
76%
£361m3 £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. Ireland business sold on 11 August 2016 for EUR 156.6m 4
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
Mike Lloyd Janet Connor
Commercial Director Restructuring and Insurance Director
Previously Partner at Oliver Wyman focused on Previously Managing Director at More Than; MD at
Consumer Service businesses in FS, Energy, Home, Ageas-owned over-50s broker RIAS from 2006 to 2011
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 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 3.7m personal Members, 10.2m B2B customers
No 2 motor insurance broker, No 1 driving school
Retention and loyalty High Member retention, long-term B2B contracts
Significant revenues from repeat business
Operational excellence 3.4m breakdowns attended pa
Sophisticated deployment IP and services
Options for growth Trusted brand lends to relevant extensions
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
deployment, dated and Oil Crisis
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
£1,000 931 943
893
794 808
£800 755
£600
423 429 415
369 371 395
£400 366
334
273 292
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% 97% 101%
94%
Trading EBITDA
£395m £423m £430m £415m
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
9A HIGHLY TRUSTED COMMERCIAL BRAND
Highest test score for a major
“Which?” total test score 2015 provider from ‘Which?’ every
Major providers year since 2007
74% Widely recognised and trusted brand
High level of customer satisfaction
66% 50% of households hold an AA product
64% September 2015: AA ‘Recommended
provider’ in “Which?” survey for both
consumer and manufacturer cover for
10th consecutive year
10SCALE, 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
Others 3.4m
19%
40% B2B 2.5m
GF 67% 63% 0.7m1
50% Consumer
14%
RAC Motor Fleets AVA
27% manufacturers
Source: Industry sources;
Note 1: The number of breakdowns for GreenFlag is last year’s number
11HIGH 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
12LONG TERM B2B CONTRACTS
Selected B2B client base
Recent contract wins:
Added Volkswagen Group, Porsche,
Value Lex Autolease
Accounts
Recent renewals: Toyota,
Northgate, Subaru, Isuzu,
Fleet &
leasing MG, Lexus (Bentley, Ford,
Honda and Jaguar Land
Rover in FY15)
Extended contracts: BT and
OEMs
Vauxhall (Lloyds Banking
Group and TSB in FY15)
Tenure Other developments: VW
with AA 0–5 5-10 >10
emissions programme and
JLR mobile servicing pilot
13OPERATIONAL EXCELLENCE
Technical assets and expertise
High levels of customer service
Unique deployment IP
Modern multi-vehicle service technology
80% of breakdowns repaired at roadside
Skilled and experienced colleagues
AA “moment of truth” survey (%)
Average of 11 years tenure with the AA
22%
26% 31%
Call handling 80% in 20 seconds 57% 66%
53%
Repair rate 82%
App usageSTRONG BRAND IN INSURANCE
Insurance Services
Core insurance revenue breakdown Brand consideration³ for switching Motor Insurance
Other
6%
Home
38% Motor
56%
No 1 motor insurance broker in the UK private car
Jan-12 Jun-12 Nov-12 Apr-13 Sep-13 Feb-14 Jul-14 Dec-14 May-15 Oct-15
insurance market
Admiral AA Direct Line
No 2 private home insurance broker in the UK Churchill Hastings Direct Axa
Tesco Saga
Source: GfK FRS Study March 2016
15TRANSFORMATION STRATEGY
THE CHALLENGES
Core business performance flat
Several years of under-investment under previous ownership
THE STRATEGY
Three years of investment and consolidation to position AA for renewed growth
Refinancing to free up additional cashflow and facilitate dividends
Strengthening the foundations and revolutionising customer experience
• Investment in brand marketing - £10m pa additional marketing spend
• Investment in IT systems and digital capability - £128m over 3 years
• Restructuring and cost initiatives – Savings of £40m off FY15 cost base in FY19; cost of £45m over 3 years
• Investment in Membership growth and price
• Developing new business models – Financial Services and Insurance Underwriter
• New business initiatives – building on the strength of the brand and opportunities in the wider market
Transformation creates the UK’s pre-eminent Membership services organisation
16H117 INTERIM RESULTS 28 SEPTEMBER 2016
GOOD PROGRESS TO DATE IN YEAR 2 OF THE TRANSFORMATION
Results in line with expectations
TRANSFORMATION GAINING MOMENTUM
Transformation firmly on track
Growth in paid personal Members since April
Ireland sold; £106m for debt pay down Roadside retention up to 81%
App usage increased to 14% of personal
Recommend interim dividend of 3.6p per share breakdowns
Productivity improved
Cost savings on target
IT investment on plan
Transformation capex – c. £10m saving
Normalised capex levels in sight
Transforming the AA into the UK’s pre-eminent Membership services organisation
18FINANCIAL HEADLINES Trading Revenue¹ up 2.2% at £467m despite IPT increase • Roadside Trading revenue up 3.1% to £370m due to improved mix Trading EBITDA¹ flat at £192m • Roadside Trading EBITDA up 4.1% to £179m Trading EBITDA margin¹ 41.1% (H116: 42.0%) Adjusted EPS 10.3p (H116: 10.1p) Cash conversion 99% (H116: 114%); Net debt of £2,677m³ (6.7x Trading EBITDA²) post Ireland disposal in August Interim dividend of 3.6p per share declared In line with market expectations ¹ Excluding the Glass and Ireland businesses and exceptional revenue item ² Trading EBITDA for the last 12 months 19 ³ Net debt at 31 July 2016 plus the net proceeds from the sale of Ireland
P&L
£m H117 H116 YoY Items not allocated to segment reflect
Trading Revenue 467 457 +2% pension and share based payments
impact
Trading EBITDA 192 192 - Exceptional items comprise mainly
Items not allocated to a segment (10) (9) +11% restructuring activities and provision for
potential refund of customers with
Depreciation & amortisation (28) (25) +12%
duplicate cover
Exceptional items (22) (26) -15%
Operating profit 132 132 - Decline in net finance cost reflects
reduced interest on external borrowings
Net finance cost (84) (201) -58%
and the absence of one-off costs from the
Profit/(loss) before tax 48 (69) +170% prior year refinancing
Tax (expense)/credit (10) 13 +177%
Tax expense reflects current tax charge of
Profit/(loss) for the period from continuing 38 (56) +168%
operations £10m, in line with current statutory rate
Basic EPS – continuing operations (p/share) 6.2 (9.6) +165%
Adjusted basic EPS of 10.3p reflects the
Adj Basic EPS –continuing operations (p/share) 10.3 10.1 +2% capital structure in place since July 15
20ROADSIDE ASSISTANCE
Trading Revenue¹ up 3.1% to £370m H117 H116 YoY FY16 H1 on
FY
• Retention 81% (H116: 80%)
Personal Members (‘000s) 3,599 3,726 -3% 3,673 -2%
• Paid personal Members -0.6% YoY;
Average income per Member (£) 145 138 +5% 141 +3%
-0.3% on FY16
Personal paid² Members (‘000s) 3,321 3,340 -1% 3,331 flat
• Average income per personal paid
Member +1.9% to £157 (net of 3.5% Average income per paid² Member (£) 157 154 +2% 156 +1%
uplift in IPT)
Business customers (‘000s) 10,179 9,981 +2% 10,216 flat
• Ancillary revenue up 14%
Average income per business customer (£) 19 18 +6% 18 +6%
Trading EBITDA¹ up 4.1% to £179m
Breakdowns attended (‘000s)³ 1,759 1,662 +6% 3,459 n/a
• Growth in income per personal Member
and B2B revenue; lower H1 advertising
spend (£5m vs £7.5m in H116)
• Partially offset by increased workload
from higher level of breakdowns attended
¹ Excluding items held for sale and exceptional revenue item
² Paid Members: Personal Members excluding free Memberships
³ Relevant period basis 21INSURANCE SERVICES
Trading Revenue flat at £64m - lower core (000s) H117 H116 YoY FY16 H1 on FY
insurance offset by increased FS Total insurance 1,962 2,131 -8% 2,074 -5%
policies
Trading EBITDA down £2m to £35m – Motor policies 572 618 -7% 592 -3%
managed decline of total insurance policies
Home insurance 891 913 -2% 899 -1%
• Motor policies down - lower renewal volumes in policies
high rate increase market environment Average income per 67 63 +6% 63 +6%
• Decline in Home Services policies as we cease policy (£)
free policies Financial Services 82 na na 33 +148%
Products
Motor responding positively in last two months
• Successful retention initiatives; direct sales initiatives
• Additional motor policies through in-house
Underwriter
Financial Services
• Performance to plan: matched book of £160m
assets, £160m liabilities
• Revenue up £3m due to marketing and product
development services provided to BoI
22IN-HOUSE UNDERWRITER
DRIVING SERVICES
Underwriter H117 H116 YoY FY16 H1 on FY
• Progressing well Policies 25 na na na na
underwritten
• Motor launched 30 January – 54k policies to date (‘000s)
• Home insurance underwriting launched in August
Driving Services
H117 H116 YoY FY16 H1 on FY
• Trading Revenue down 3% but EBITDA flat at £9m
Driving 2,516 2,602 -3% 2,574 -2%
– Fewer driving school franchisees instructors
reflecting market conditions
– DriveTech police speed awareness
courses stable
– Cost savings support EBITDA
– Short term initiatives to improve driving school
performance
23STRONG OPERATIONAL CASHFLOW
£m H117 H116
Net cash flows before tax and exceptional items¹ 190 218 Capex
Tax, exceptional items and discontinued operations (6) (14)
Net operating cash flows 184 204
Transformation capex (20) (21)
Underlying IT capex (8) (10)
Non-IT capex (7) (9)
Capex accruals (2) (1)
FY 15 FY 16 FY 17e FY 18e FY 19e
Capital repayment of Finance Lease net of disposal
(14) (6)
proceeds Transformation capex
Other (2) (3) Maintenance capex
Net cash flows before refinancing, purchase of own 131 154 Note: Capex includes finance lease capital spend net of vehicle proceeds
shares, interest and dividends
Refinancing transactions - (186)
Purchase of own shares (2) (7)
Interest paid (76) (107)
Dividend paid (33) -
Net increase/(decrease) in cash and cash equivalents 20 (146)
¹Continuing Operations 24DEBT STRUCTURE
Fixed interest rates Leverage 6.7x net debt/EBITDA¹
with LIBOR hedged for Senior Term Facility
Blended cost of debt 4.97%;
Interest 4.36% 4.72% 6.27% 4.25% 3.78% 5.50% increased to 5.07% following pay
rate down of £106m of STF in August
Effective 2019 2018 2025 2020 2019 2022 Weighted average maturity 5 years
maturity
Run rate cash interest cover* close
Final 2019 2043 2043 2043 2043 2043 to 3x
maturity
Class A FCF to DSCR** 3.4x
£2,914m (covenant > 1.35x)
Class B FCF to DSCR** 2.3X
£735m
(covenant > 1.0x)
£475m £500m £500m Senior debt all investment grade
£454m
£158m Next bond refinancing due July
£250m 2018 (Class A1 notes)
Senior Term Class A1 Class A2 Class A3 Class A4 New Cash
Facility notes notes notes notes Class B2 *Run rate cash interest: Trading EBITDA
notes **Free cash flow: debt service cover ratio
¹Trailing 12 month trading EBITDA 25PENSIONS
IAS 19 pension deficit of £622m (31 July 15: £329m)
• Increase in deficit driven by decline in corporate bond yields, particularly since UK referendum
vote to leave the EU
Triennial review of AA UK pension scheme commenced
• Anticipate a significant increase from previous valuation of £202m (31 March 2013) due to
reduction in long term gilt yields
• Deficit likely to be materially below IAS 19 valuation
• Review completion due by June 2017
Review of options to mitigate current and future liabilities
Decline in bond yields provides refinancing opportunity
26FINANCIAL IMPLICATIONS OF THE TRANSFORMATION
Transformation capex: c.£10m saving allowing investment in other areas
Investment in marketing and brand: £10m plus additional spend on the product
proposition
IT opex: c£8m pa
Post-transformation capex run rate: IT c£10m; property & equipment c£10m; net
vehicle costs c£20m
Restructuring costs: £45m over three years
Cost savings: at least £40m in respect of the FY15 cost base in FY19
• Cost savings on target; phase 2 to commence once IT is in place
Driving revenue and earnings growth
27STRATEGY
BUILDING MOMENTUM IN YEAR 2 OF TRANSFORMATION
THE STRATEGIC PRIORITIES THE TIME LINE
1. Strengthen the AA to become the pre-
eminent membership services Year 1 FY16 Stronger foundations delivered
organisation in the UK
2. Revolutionise customer experience Year 2 FY17 Building momentum for change
through investing in the brand and
embracing new technologies
Year 3 FY18 Realise the transformation
3. Reduce Group borrowings and the
associated interest costs Year 4 FY19 Delivering growth
Transforming the AA into the UK’s pre-eminent Membership organisation
29ROADSIDE PERSONAL MEMBERSHIP – REVERSING THE DECLINE
MONTHLY PAID NEW BUSINESS VOLUMES
Growth in paid personal membership numbers
since April and continuing since July
YoY growth (%)
Retention improved to 81% (80% last year)
Stay AA since inception
• Calls to Stay AA down 9%
• Save rate up 7 percentage points
• Discount rate down 7 percentage points
Double-digit growth in new business volumes
• Re-invigorated marketing approach
• Improved digital capabilities
• Lower price increases to drive retention
• Advertising gaining traction
30PRODUCTIVITY IMPROVEMENTS
ROLLING 12 MONTH VARIABLE COST PER CASE*
Productivity improved since the full
implementation of new practices
Which? Recommended provider
for 11th successive year Roadside
training
Investments in productivity
• New technology (Bosch diagnostics, Battery
Sep-14
Feb-15
Sep-15
Feb-16
Jul-14
Aug-14
Jan-15
Jul-15
Aug-15
Jan-16
Jul-16
Oct-14
Oct-15
Mar-15
Mar-16
Dec-14
May-15
Dec-15
May-16
Nov-14
Apr-15
Jun-15
Nov-15
Apr-16
Jun-16
testers, universal spare wheel)
• New communications devices (tablets, i-phones)
FIX TIME PER JOB (MINUTES)
• Updated deployment system (AA Help) currently
being implemented
However 6% increase in breakdowns
attended in H1 compared with H116
Roadside
• £6m increase in total roadside operations costs training
partially offset by £2m of cost savings
Sep-14
Feb-15
Sep-15
Feb-16
Jul-14
Jan-15
Aug-14
Jul-15
Aug-15
Jan-16
Jul-16
Oct-14
Oct-15
Mar-15
Mar-16
Dec-14
May-15
Dec-15
May-16
Nov-14
Apr-15
Nov-15
Jun-15
Apr-16
Jun-16
*Inflation adjusted 31IT SYSTEMS TRANSFORMATION
Progress made across all key elements of the IT transformation programme
INFRASTRUCTURE SERVICE
Installed new IT infrastructure throughout New version of AA Help being rolled out
back office functions All patrols have new communications devices
Reduces manual reconciliations Improves efficiency of patrols
Reduces in house maintenance Improved information flows with call
Leads to efficiencies throughout the centres
business Provides for superior customer service
32IT SYSTEMS TRANSFORMATION
CRM
Marketing element live since March
Full CRM now being rolled out and uploaded
Expected be finalised in Autumn 2017
Improved on-boarding journey
Enables 360-degree view of customer,
integrating customer data
Real-time, automated reporting and
insight
Allows for relevant, personal and iterative
conversations with customers
Enables next best action to drive sales
Will facilitate easier cross sell
33IT SYSTEMS TRANSFORMATION
DIGITAL CONSUMER ROADSIDE ONLINE SALES
New commercial website launched in May YoY change 2013 – 2016
My AA launched in January Launch
of site
App refresh with improved functionality in
September Start of
activity
• App personal breakdown usage 14%
• App registration 23% of the Membership base
Improves online customer journey
Nov-13
Nov-14
Nov-15
Aug-13
Aug-14
Aug-15
Aug-16
Feb-13
Feb-14
Feb-15
Feb-16
May-13
May-14
May-15
May-16
Enables customer self service
Reduces call centre contact points
Gives us insights into customer behaviour
Opportunities to test product changes
34ADVERTISING ACHIEVING GREATER IMPACT
Investment of £5m in H1 with balance of £10m expected in H2
Greater reach and frequency
Additional “outdoor” has added visibility
TV ads delivering branded cut-through well ahead of norms
20161 20151 Norm²
ABC1 adults reached 94% 90% na
Average no of times reached 60 22 na
Execution Cut-through (i.e. remembered the ad) 52% 42% 39%
Brand Link (i.e. remembered that it was the AA) 79% 77% 62%
Branded Cut-through (i.e. remembered it and who 41% 32% 24%
it was)
¹Based on equivalent spend
²Ipsos Norm @ 500 Gross Rating Points (GPRs) i.e. for the same spend
35FINANCIAL SERVICES AND IN HOUSE UNDERWRITER
FINANCIAL SERVICES INSURANCE UNDERWRITER
Launched cards, loans, savings, and mortgages (in Insurance Underwriter launched in January to
August) in partnership with the Bank of Ireland participate on the AA’s motor insurance panel
£160m matched book value 25k policies written by end of July; 54k by end
of September
AA positioned in top 1-5 savings; top 10 for cards
and loans Home insurance launched in August
Too early for material financial contribution but
As at 12th September 2016 early signs are promising
AA UNDERWRITER POLICIES BY ORIGIN
16% Has never been an AA insurance
customer
52% Was once previously an AA
32% insurance customer
An existing AA insurance customer
*For cards, this analysis does not show the fee based long dated balance transfer (BT) card segment. 36SUMMARY
Transformation well on track
• Continue to invest in brand marketing and product proposition
• Targeting cost savings from FY19 of at least £40m pa off the FY15 base
• Saving of c.£10m transformation capex allowing investment in other areas
Growth in Membership numbers - continued improvement into August and September
Free cash flow generation to be enhanced following transformation
Trading in line with market expectations for FY17; building momentum for FY18
Strengthened foundations and revolutionising customer experience
37APPENDIX
REVENUE
% of
£m H117 H116 Change Group
Roadside Assistance 370 359 +3.1% 79% Increase in average revenue per customer and
B2B revenue
Insurance Services 64 64 - 14% Lower policy numbers offset by higher income
per policy
Driving Services 32 33 -3.0% 7% Lower driving school franchises
Insurance 1 1 - -
Underwriting
Trading revenue 467 457 +2.2%
Business held for - 9
sales¹
Exceptional revenue (10) -
provision
Total revenue 457 466 -1.9%
1 In
September 2015, AA plc group completed the sale of its subsidiary Autowindshields (UK) Limited. As a result, this business was presented as held for sale in
the prior period. 39TRADING EBITDA
% of
£m H117 H116 Change Group¹
Roadside Assistance 179 172 +4.1% 81% Revenue up 3.1%
Advertising and Bosch investment timing
difference offset by higher workload
Insurance Services 35 37 -5.4% 16% Lower policies numbers
FS and Home Services business re-set under
way
Driving Services 9 9 - 4% Lower driving school franchisees
Insurance (1) 0 - (1%)
Underwriting
Head office costs (30) (26) +15.4% Incremental IT licensing costs
Total Trading 192 192 -
EBITDA
1% of Group pre head office costs
40SEGMENTAL ANALYSIS
YoY YoY
Roadside Assistance H117 Change Insurance Services H117 Change
Trading Revenue¹ (£m) 370 +3.1% Trading Revenue (£m) 64 Flat
Trading EBITDA¹ (£m) 179 +4.1% Trading EBITDA (£m) 35 -5.4%
Paid Personal Members (‘000s) 3,321 -0.6% Policy numbers² (‘000s) 1,962 -7.9%
Business Customers (‘000s) 10,179 +2.0% Average income per policy (£) 67 +6.3%
Average income per Paid Personal 157 +1.9%
Member (£)
Breakdowns attended (‘000s) 1,759 +5.8% YoY
Driving Services H117 Change
Trading Revenue (£m) 32 -3.0%
Trading EBITDA (£m) 9 Flat
Driving school instructors 2,516 -3.3%
1 Excluding glass business and exceptional revenue items
41PROFIT AND LOSS¹
£m H117 H116
Revenue 457 466
Cost of sales (168) (167)
Gross profit 289 299
Admin & marketing (157) (167)
Operating profit 132 132
Trading EBITDA 192 192
Items not allocated to a segment (10) (9)
Depreciation & amortisation (28) (25)
Exceptional items (22) (26)
Operating profit 132 132
Net finance cost (84) (201)
Profit/(loss) before tax 48 (69)
Tax (expense)/credit (10) 13
Profit/(loss) for the period from continuing 38 (56)
operations
Basic EPS – continuing operations (p/share) 6.2 (9.6)
Adj Basic EPS –continuing operations (p/share) 10.3 10.1
1 Continuing operations
42BALANCE SHEET
£m H117 H116
Goodwill and other intangible assets 1,276 1,271
Property, plant and equipment 117 106
Investments in joint ventures and associates 11 8
Deferred tax assets 107 57
Non-current assets 1,511 1,442
Inventories 6 5
Trade and other receivables 169 185
Cash and cash equivalents 158 155
Current assets 333 345
Assets held for sale 93 3
Total assets 1,937 1,790
Trade and other payables (502) (523)
Current tax payable (11) -
Provisions (21) (7)
Current liabilities (534) (530)
Borrowings and loans (2,922) (2,911)
Finance lease obligations (21) (20)
Defined benefit pension scheme liabilities (622) (329)
Provisions (7) (11)
Insurance technical provisions (4) (4)
Non-current liabilities (3,576) (3,275)
Liabilities held for sale (40) (4)
Total liabilities (4,150) (3,809)
Net liabilities (2,213) (2,019)
43CASH FLOW
£m H117 H116
Operating profit including discontinued operations 139 138
Depreciation and amortisation 29 26
Other items 7 2
Cash exceptional items 9 21
Change in working capital 16 39
Operating cash flow before tax and exceptional items 200 226
Cash exceptional items (9) (21)
Tax paid (7) (1)
Net cash flows from operating activities 184 204
Investing activities
Capital expenditure (37) (41)
Other investing activities 4 (1)
Net cash flows use in investing activities (33) (42)
Financing activities
Refinancing transactions - (186)
Purchase of own shares (2) (7)
Interest paid on borrowings (73) (104)
Payment of finance lease capital (20) (8)
Payment of finance lease interest (3) (3)
Dividends paid (33) -
Net cash flows from financing activities (131) (308)
Net increase/(decrease) in cash and cash equivalents 20 (146)
44DEBT PACKAGE
Run rate cash
Expected interest Principal at 31 Principal at 31
maturity date Interest rate (£m) July 16 (£m) July 15 (£m)
Senior Term Facility 31 January 2019 4.36% 19.8 454 454
Class A1 notes 31 July 2018 4.72% 22.4 475 475
Class A2 notes 31 July 2025 6.27% 31.4 500 500
Class A3 notes 31 July 2020 4.25% 21.3 500 500
Class A4 notes 31 July 2019 3.78% 9.5 250 250
Class B2 notes 31 July 2022 5.50% 40.4 735 735
4.97% 144.8 2,914 2,914
Ring fenced cash and cash equivalents 122 114
Non ring fenced cash and cash equivalents 36 41
Total cash and cash equivalents¹ 158 155
Class A Net Debt: Trading EBITDA 4.9x 4.9x
(STF & Class A notes less ring fenced cash)
Class B Net Debt: LTM EBITDA 6.8x 6.8x
(WBS debt less ring fenced cash)
Total Net Debt : LTM EBITDA (total debt less total cash) 6.7x 6.7x
Class A FCF DSCR 3.4x 3.8x
Class B FCF DSCR 2.3x 2.2x
¹Excludes available and restricted cash balances available for sale
45TRANSFORMATION STRATEGY
BUILDING MOMENTUM IN YEAR 2 OF TRANSFORMATION
THE STRATEGIC PRIORITIES THE TIME LINE
1. Strengthen the AA to become the pre-
eminent membership services Year 1 FY16 Stronger foundations delivered
organisation in the UK
2. Revolutionise customer experience Year 2 FY17 Building momentum for change
through investing in the brand and
embracing new technologies
Year 3 FY18 Realise the transformation
3. Reduce Group borrowings and the
associated interest costs Year 4 FY19 Delivering growth
Transforming the AA into the UK’s pre-eminent Membership organisation
47TRANSFORMATION STRATEGY
Strengthening the foundations and revolutionising customer experience
1. Investment in brand marketing
2. Investment in IT systems and digital capability
3. Restructuring and cost initiatives
4. Investment in Membership growth and price
5. Developing new business models
6. New business initiatives
Transformation creates the UK’s pre-eminent Membership services organisation
481. UNDER INVESTMENT IN THE BRAND
Enhance brand awareness and communicate membership proposition
Substitute brand marketing for past excessive price discounting
Invest £10m in FY16 and beyond
Benefits expected to become apparent from FY17
66%
57%
47%
31%
21% 22%
11%
4% 2%
2006 2007 2008 2009 2010 2011 2012 2013 2014
Total media spend AA Share of voice
Underpins product transformation and membership proposition
Sources: Ebiquity Media Tracking (TV, Press, Radio, Cinema, Outdoor), Road Brand Tracker Survey, IPSOS
492. INVESTMENT IN IT SYSTEMS AND DIGITAL CAPABILITY
De-risk infrastructure and connections Financial implications
• Replace legacy systems • IT transformation capex spend of £128m
over 3 years
• Staged implementation and double running
• Rationalisation of processes and transform call • Thereafter steady state IT capex of £10m pa
(versus £30m previously)
centre effectiveness
• Maintenance spend will increase by £8m in
Enhance commercial agility a full year
• Faster times for price, product and customer
communication changes
Development of digital proposition for
customers
• New App
• Connected car developments including telematics
Drives productivity and revenue growth
503. RESTRUCTURING AND COST INITIATIVES
People and property strategy to cost £45m over 3 years
• Cost savings £40m pa thereafter
Phase 1 announced
• £4m savings in FY16; £8m in a full year
Investment in people and key skills
• New central London office to attract digital and marketing talent
Continued investment in front line people and equipment
Productivity gains and energised culture in the medium term
514. INVESTMENT IN MEMBERSHIP GROWTH AND PRICE
Investment in price to create sustainable base Communicate existing services
• Expect c3% increase in income per Personal • Fuel Assist: 98% fix rate;
Member in FY16 20% member discount on pay-for-use
• Key Assist: dedicated vans; free for gold members
Investment in product
Additional opportunities in ancillary revenue
• Battery sales
• AA tyres
Focus on retention processes
• Stay AA
Investment required to drive retention and Membership
525. DEVELOPING NEW BUSINESS MODELS
Financial Services and Insurance Underwriter Craig Staniland Dominic Bird
CEO Head of Pricing
New partnership model for elements of 30+ years experience in Insurance 10 years experience in Insurance
Financial Services business Previously MD, AXA Personal Previously Head of New Business
Lines Pricing, Direct Line Group
• Expected short term cost of £4m but
Prior to that Founding Underwriting Prior to that Consultant,
significant potential Director, Swiftcover and Head of Towers Watson
Motor Underwriting, RBS
Launch of new in-house underwriter in
Steve Gaywood Tony Peppard
early 2016 Head of Counter-Fraud Head of Claims
• Expected set up costs of £1m 15 yrs Counter-Fraud experience 30+ years Claims and Vehicle
Management experience
Previously Head of Counter-Fraud,
• £7.5m investment AXA Personal Lines and Head of Previously MD, AXA and
Systems and Data Analytics, Swiftcover Claims and MD,
• Experienced team to lead the underwriter Innovation Conversant Data Churchill Claims Services Group
Building on market strengths and brand
53OPERATING AS A BROKER AND INSURER
Activities in personal lines insurance value chain
Price Pricing
New Policy Investment
Lead comparison & Claims
Sales business admin & &
generation & under- handling
fulfilment servicing solvency
quotation writing
Google PCWs Broker – the AA now Insurer – the new model
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
546. NEW BUSINESS INITIATIVES
Adjacent motoring services markets
Key opportunities:
1 Tyres
C £60bn broader Motoring Services
market – the AA currently focused on Used Car SalesFINANCIAL IMPLICATIONS OF THE TRANSFORMATION
Cost rationalisation expected to deliver £40m of cost savings in medium term
• Phase 1 underway and expected to deliver £8m in FY17
IT transformation to modernise the business and enhance customer experience
• Incremental spend of £128m over 3 years
• Additional opex
• Leading to facilitates cost savings and reduced capex
Investment in price – increase in income per Member restricted to 3%
Continuing incremental PLC costs confirmed as £8m pa
Short term uplift in capex to facilitate transformation
• Normalised net capex for IT and vehicles on current assumptions c£40m pa from FY19
56FY16 RESULTS SUMMARY
FY16 REVENUE
% of
£m FY16 FY15 Change Group
Roadside Assistance 724 711 +1.8% 75% Increase in average income per Member
offsetting the decline in personal Members
Insurance Services 131 142 -7.7% 14% Lower policy numbers and income per policy
Driving Services 68 74 -8.1% 7% Lower driving school franchises and Police
courses
Ireland 38 39 -2.6% 4% Impact of lower € - revenue up £3m on
constant FX
Insurance 2 1 - -
Underwriting
Total revenue¹ 963 967 -0.4%
¹ Excluding glass business 58FY16 TRADING EBITDA
% of
£m FY16 FY15 Change Group
Roadside Assistance 361 358 +0.8% 76% Revenue up 1.8%
Advertising and Bosch investment
Insurance Services 78 84 -7.1% 17% Efficiency savings
FS business re-set under way
Driving Services 19 20 -5.0% 4% Lower driving school franchisees and Police
courses
Ireland 13 15 -13.3% 3% EBITDA flat on constant currency
Head office costs (56) (48) +16.7% Incremental PLC and IT licensing costs
Total Trading 415 429 -3.3%
EBITDA¹
Trading EBITDA
43.1% 44.4%
Margin¹
¹ Excluding glass business 59FY16 SEGMENTAL ANALYSIS
Y-o-Y Y-o-Y
Roadside Assistance FY16 Change Insurance Services FY16 Change
Revenue¹ (£m) 724 1.8% Revenue (£m) 131 -7.7%
Trading EBITDA¹ (£m) 361 0.8% Trading EBITDA (£m) 78 -7.1%
Personal Members (‘000s) 3,673 -2.6% Policy numbers (‘000s) 2,074 -4.1%
Business Customers (‘000s) 10,216 6.0% Average income per policy (£) 63 -4.5%
Average income per Personal 141 4.4%
Member (£)
Breakdowns attended (‘000s) 3,459 -2.3%
Y-o-Y Y-o-Y
Driving Services FY16 Change Ireland FY16 Change
Revenue (£m) 68 -8.1% Revenue (£m) 38 -2.6%
Trading EBITDA (£m) 19 -5.0% Trading EBITDA (£m) 13 -13.3%
Driving school instructors 2,574 -3.6% Personal Members (‘000s) 128 7.6%
Insurance policy numbers (‘000s) 185 3.9%
¹ Excluding glass business 60FY16 BALANCE SHEET
£m FY16 FY15
Goodwill and other intangible assets 1,298 1,257
Property, plant and equipment 122 100
Investments in joint ventures and associates 10 4
Deferred tax assets 52 81
Other receivables - 21
Non-current assets 1,482 1,463
Inventories 5 5
Trade and other receivables 172 187
Current tax receivables - 1
Cash and cash equivalents 166 302
Current assets 343 495
Total assets 1,825 1,958
Trade and other payables (525) (498)
Provisions (8) (8)
Current liabilities (533) (506)
Borrowings and loans (2,920) (3,241)
Finance lease obligations (21) (16)
Defined benefit pension scheme liabilities (296) (434)
Provisions (7) (12)
Insurance technical provisions (4) (4)
Non-current liabilities (3,248) (3,707)
Total liabilities (3,781) (4,213)
Net liabilities (1,956) (2,255)
61FY16 CASH FLOW
£m FY16 FY15
Operating profit 305 326
Depreciation and amortisation 54 48
Other items 12 0
Cash exceptional items 37 57
Change in working capital 12 (15)
Operating cash flow before tax and exceptional items 420 416
Cash exceptional items (37) (57)
Tax paid (2) (2)
Net cash flows from operating activities 381 357
Investing activities
Capital expenditure (75) (37)
Other investing activities 4 21
Net cash flows use in investing activities (71) (16)
Financing activities
Refinancing transactions (183) 12
Purchase of own shares (22) -
Interest paid on borrowings (178) (218)
Payment of finance lease capital (34) (31)
Payment of finance lease interest (8) (4)
Dividends paid (21) -
Net cash flows from financing activities (446) (241)
Net increase in cash and cash equivalents (136) 100
62FY16 DEBT PACKAGE
Run rate cash Principal at 31 Principal at 31
Expected interest January 16 January 15
maturity date Interest rate (£m) (£m) (£m)
Senior Term Facility 31 January 2019 4.36% 19.8 454 663
Class A1 notes 31 July 2018 4.72% 22.4 475 475
Class A2 notes 31 July 2025 6.27% 31.4 500 500
Class A3 notes 31 July 2020 4.25% 21.3 500 500
Class A4 notes 31 July 2019 3.78% 9.5 250 250
Class B notes 31 July 2019 - - - 655
Class B2 notes 31 July 2022 5.50% 40.4 735 -
PIK notes 6 November 2019 - - - 175
4.97% 144.8 2,914 3,218
Ring fenced cash and cash equivalents 94 262
Non ring fenced cash and cash equivalents 72 40
Total cash and cash equivalents 166 302
Class A Net Debt: Trading EBITDA 5.0x 4.9x
(STF & Class A notes less ring fenced cash)
Class B Net Debt: LTM EBITDA 6.9x 6.6x
(debt excluding PIK notes less ring fenced cash)
Total Net Debt : LTM EBITDA (total debt less total cash) 6.8x 6.9x
Class A FCF DSCR 3.9x 3.5x
Class B FCF DSCR 2.4x 2.2x
63You can also read
