H1 19 INTERIM RESULTS

Transcription

1 Vince Crane, RSS Patrol of the year H1 19 INTERIM RESULTS 26 September 2018

2 DEFINITIONS The following definitions apply throughout Trading EBITDA (earnings before interest, tax, depreciation and amortisation): excludes share-based payments, pension service charge adjustment and exceptional operating items. Cash conversion: net cash flow from continuing operating activities before tax and exceptional items divided by Trading EBITDA. Adjusted EPS: Earnings per share adjusted for a number of one-offs of which the largest are exceptional operating items, share-based payments, pension service charge adjustment, the writeoff of debt issue fees, penalties on early repayment of debt and transfer from cash flow hedge reserve. Personal members and business members: measured as the number at the period end. 1

3 H1 19 HEADLINES 2

4 VISION FOR THE AA 3

5 H1 19 HEADLINES Solid performance; on-track to deliver FY19 Trading EBITDA of between 335m to 345m Membership down 2% and retention down 1%, in line with expectations Positive operational momentum in Roadside and Insurance Building resilience through key hires, operational initiatives while maintaining cost discipline Cash conversion remains strong S&P ratings reaffirmed; strong balance sheet with effective maturity of debt extended to 2022 Well positioned to execute our strategy and deliver on our medium-term growth targets Putting service, innovation and data at the heart of the AA 4

6 MANAGING THE BUSINESS BETTER Organisation structure simplified with clear accountabilities Gareth Kirkwood, Managing Director, Roadside Janet Connor, CEO, Insurance Key leadership hires to drive operational efficiencies and product innovation Ollie Holden, Chief Information Officer James Frost, Chief Innovation Officer (joining October) Business and planning processes being optimised to drive greater focus on value creation and service excellence Collaborative approach to implementing major transformation initiatives across the business Moving towards a more engaged, collaborative and high-performance culture Putting service, innovation and data at the heart of the AA 5

7 FINANCE REVIEW

8 H FINANCIAL HEADLINES Revenue up 2% at 480m Roadside up 2% strong performance from B2B and consolidation of AA Cars Insurance flat motor policies up 7%, home policies broadly flat Trading EBITDA down 17% at 161m Roadside down 17% additional opex for growth and higher breakdown costs Insurance down 15% reflecting acquisition marketing spend to accelerate growth Trading EBITDA margin 33.5% (H1 18: 41.0%) Adjusted EPS 6.5p (H1 18: 10.2p) Cash conversion 104% (H1 18: 101%); free cash flow to equity 14m (H1 18: (38)m) Rating reaffirmed from S&P; successful refinancing with 4 year extension of maturities Net debt of 2,668m (7.4x Trading EBITDA) post refinancing Interim dividend of 0.6p per share declared 7

9 ROADSIDE AND INSURANCE SEGMENTAL REPORTING Revenue Trading EBITDA H1 19 H1 18 m m Roadside Assistance Driving Services Roadside Revenue Insurance Services Insurance Underwriting 8 3 Insurance Revenue Total Revenue Trading EBITDA Margin H1 19 H1 18 H1 19 H1 18 m m Margin % Margin % Roadside Assistance Driving Services Head Office costs (31) (24) na na Roadside Trading EBITDA Insurance Services Insurance Underwriting na Head Office costs (5) (4) na na Insurance Trading EBITDA Group Trading EBITDA

10 % INCOME STATEMENT m H1 19 H1 18 YoY Revenue % Trading EBITDA (17%) Share based payments (3) (5) (40%) Pension past service charge adjustment (3) (7) (57%) Depreciation & amortisation (34) (33) 3% Exceptional operating items (5) 30 (117%) Operating profit (35%) Net finance cost (88) (98) (10%) Profit before tax (65%) Tax expense (5) (16) (69%) Profit for the period (64%) Basic EPS continuing operations (p) (64%) Adj Basic EPS 1 continuing operations (p) (36%) Revenue 2% higher due to strong performance of B2B and consolidation of AA Cars EBITDA 17% lower in line with expectations due to additional opex for growth and higher cost of servicing additional breakdowns Operating profit lower due to lower EBITDA and one-off pension past service credit in the prior period of 34m Finance cost lower due to lower interest cost from July 2017 refinancing Effective rate of 19.2%, in line with the UK statutory rate Notes: 1 Adjusted for operating exceptional items, share-based payments, pension service charge adjustment, 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 9

11 ROADSIDE H1 19 H1 18 YoY Revenue ( m) % Trading EBITDA ( m) (17%) Trading EBITDA margin (%) (19%) Personal paid Members ( 000s) 3,254 3,325 (2%) Average income per paid Member ( ) % Business members ( 000s) 9,680 10,016 (3%) Average income per business member ( ) % Breakdowns attended ( 000s) 2 1,907 1,761 8% Driving instructors 2,747 2,669 3% Revenue up 2% reflecting strong performance of B2B and consolidation of AA Cars Paid membership down 2% to 3.25m and retention down 1% at 81% in line with expectations reflecting the impact of increased competition and regulatory pressures New business remains steady, with sales broadly flat year on year Average income per paid member up 3 broadly in line with inflation and reflecting an increase in ancillary sales B2B members down 3% AVAs; new vehicle sales Average income per business member up 5% to 21 Increased revenue from pay-for-use from higher workload Driving services franchises up 3% offset by the decline in speed awareness courses and delayed implementation of new contract wins Trading EBITDA down 17% Additional opex for growth Increased costs with higher workload 10

12 INSURANCE H1 19 H1 18 YoY Revenue 1 ( m) Flat Trading EBITDA 1 ( m) (15%) Trading EBITDA margin (%) (15%) Total insurance policies 2 ( 000s) 1,475 1,460 1% Total Motor policies ( 000s) % Motor policies underwritten ( 000s) % Total Home insurance policies ( 000s) (3%) Home policies underwritten ( 000s) % Average income per policy (Motor and Home) ( ) Flat Financial Services products ( 000s) % Note: Average income per policy no longer includes FS revenue. Revenue flat Strong growth in motor book driven largely by underwriter Commenced underwriting a new motor insurance scheme with Munich Re targeting never members Insurer Hosted Pricing (IHP) installed across five motor panel members has significantly improved pricing agility Home book broadly flat since year end Good progress made to stabilised decline in home book Average income per policy flat Financial Services performing well Bank of Ireland partnership continues to develop strongly Trading EBITDA down 15% Higher acquisition marketing spend and competitive pricing strategy to accelerate growth in motor book and return home book to growth Underwriter profitable but lowers Trading EBITDA margins on consolidation Notes: 1 Includes Home Emergency Services consumer book which was sold in January Under the terms of the agreement, approximately 70,000 consumer policies will migrate to HomeServe Plc from May 2018 under the AA brand over the next three years. 2 Includes Motor and Home only. 11

13 CASH CONVERSION REMAINS STRONG m H1 19 H1 18 Trading EBITDA Working capital excluding provisions and pensions 28 4 Pension deficit reduction contributions (13) (8) Other items (8) 5 Cash flow from continuing activities before exceptional items and taxation Capex (45) (35) of which Transformation capex (15) (13) of which Growth capex (4) nil of which Maintenance capex 1 (24) (21) of which Capex accruals (2) (1) Exceptional items and tax paid (28) (27) Acquisitions and disposals (10) - Net interest paid 2 (63) (75) Free cash flow to equity (pre-refinancing and dividends) Net financing adjustments (8) (95) Free cash flow to equity (pre-dividends) 14 (38) Notes: 1 Includes IT maintenance, finance lease capital net of proceeds from sale of vehicles, property and equipment 2 Includes net interest paid on debt and finance lease interest Cash conversion remains strong at 104% Cash flow from continuing activities before exceptional items and taxation lower due to lower Trading EBITDA Higher capex spend reflecting additional amounts spent on growth capex The final tranche of the original transformation capex spend on-track Growth capex spend on IT systems upgrade in Roadside and Insurance including app and product development as well as Connected car roll-out Acquisitions and disposals balance largely relates to the acquisition of AA Cars Net interest lowered as a result of refinancing in July

14 SUCCESSFUL REFINANCING SIGNIFICANT RUNWAY TO EXECUTE STRATEGY STF ('21) A2 notes ('25) A3 notes ('20) A5 notes ('22) A6 notes ('23) B2 notes ('22) New A7 notes 2 years years 570 A&E of STF to 2023 to de-risk A3 Notes stub New 6-year A7 Notes Non-redeemed Class A3 Notes To be refinanced via draw on STF in

15 S&P RATINGS REAFFIRMED, EFFECTIVE MATURITY OF DEBT EXTENDED Forward starting new STF available Facility Net Debt (post July 2018 refinancing) Amount outstanding Effective maturity Effective interest rate Class A3 notes 200m Jul % Class A5 notes 700m Jan % Class A6 notes 250m Jul % Class A7 notes 550m Jul % Class A2 notes 500m Jul % Cash in WBS ( 55m) - - Class A Net Debt 2,145m % Class B2 notes 570m Jul % Finance lease 53m NA NA WBS Net Debt 2,768m % AA plc cash ( 100m) - - Total Net Debt 2,668m % Notes: 1 Total Net debt to AA plc Trading EBITDA for the last 12 months 2 Run rate cash interest: Trading EBITDA 3 Free cash flow: debt service cover ratio 4 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%; 1/2/19 to 31/7/21 fixed at 2.75% S&P ratings reaffirmed: A notes: BBB-; B2 notes B+ Blended cost at 4.51% following July 2018 refinancing No immediate refinancing requirements Weighted average maturity just below 5 years Effective near term maturity extended to January 2022 Working Capital Facility of 60m in place ( 15m drawn) Dividend gating ratio: Class A notes only permit the release of cash providing the senior leverage ratio after payment is less than 5.5x Key metrics H1 19 FY19E Net debt/ebitda 1 7.4x 7.8x Run rate cash interest cover 2 2.5x 2.5x Financial covenants H1 19 FY19E Class A FCF to DSCR 3 (covenant > 1.35x) 3.3x 2.8x Class B FCF to DSCR 3 (covenant > 1.0x) 2.4x 2.0x 14

16 CAPEX GUIDANCE MAINTAINED m FY19 FY20 FY21 COMMENTS IT transformation Additional IT and new initiatives Connected car Growth capex IT transformation capex in relation to CRM implementation for existing members App and digital development, connected car integration and investment in insurance business Roll-out of connected car product including additional product and systems development Original IT transformation programme extension complete in FY20 Total growth capex of 73m from FY19 to FY21 Maintenance capex spend run-rate of 55m IT maintenance Higher than FY18 due to additional IT maintenance and improvement investment Finance lease capital repayments net of proceeds from sale of fixed assets In line with FY18 Property & equipment In line with FY18 Maintenance capex Total capex 105* Notes: *Excludes capex accrual of 5m **Solvency capital for growth of underwriter of c 20-25m to be funded by AA plc and is excluded from the breakdown above. 15

17 SUMMARY Solid financial performance despite impact of extreme weather FY19 guidance maintained Trading EBITDA: 335m - 345m Capex: 105m Medium term targets maintained Group Trading EBITDA CAGR of 5% to 8% from FY19 to FY23 Successful refinancing demonstrates support for our strategy and provides a clear run-way to execute our plans Reduction in leverage over time through Trading EBITDA growth and cash generation: targeting 3x - 4x in medium to long term Interim dividend declared of 0.6p, total full year proposed dividend 2.0p 16

18 OPERATIONAL REVIEW Brent Pugh, Recovery Patrol of the year

19 ROADSIDE - RETURNING MEMBERSHIP TO GROWTH Strategic priorities Progress to date TARGETS Ongoing innovation to differentiate our products and services Market to grow our base with younger segments Greatly accelerate digital adoption and innovation to drive broader member engagement Membership systems investment to drive retention Launched our premium onward mobility solution with JLR Marketing strategy being optimized to target younger segments Ongoing product development and improvements to app including member benefits, connected car and telematics 1/3 rd of our members have registered for the app Very advanced in 1 st wave of product development and moving to next phase New members on CATHIE Migration of existing members to commence by Q4 Investments in pricing systems and StayAA Returning membership to growth by FY21 50% members registered on app 20% reduction in breakdown calls into the contact centres Transform our breakdown service to be fully connected Roll-out of Car Genie progressing well, c16,000 units distributed and activated Launching a fully connected member proposition early next year On-going refinement and development of optimal connected car proposition Upside from connected car excluded 18

20 ROADSIDE ONGOING INNOVATION TO DIFFERENTIATE OUR PRODUCTS AND SERVICES B2B Example: member s car cannot be repaired we solve the problem at the roadside & keep them moving 1. Patrols DVLA check & initiate driver insurance instantly via tablet or iphone 2. Patrols select a relevant replacement vehicle 3. Patrol takes member to nearest dealer to collect replacement car 5. Replacement car sorted in less than 30mins versus c120mins today 4. AA team coordinate the endto-end vehicle repair and return process between dealers, repair centres and members 19

21 ROADSIDE AA S BEST IN INDUSTRY APP RANKING IN TRAVEL 23 rd RANKING IN TRAVEL 122 nd RANKING IN TRAVEL 72 nd APP STORE RATING 4.8 APP STORE RATING 3.9 APP STORE RATING 4.7 NUMBER OF RATINGS 23,000 NUMBER OF RATINGS 172 NUMBER OF RATINGS 5,900 1/3 rd of our personal members have registered, used in 34% of breakdowns up from 28% last year Source: Apple App store as at 20 September

22 ROADSIDE MEMBERSHIP SYSTEMS INVESTMENT TO DRIVE RETENTION Without Packlink Pricing TIARA Limited optionality to optimise renewal prices, lengthy deployment for changes CATHIE Enhanced pricing capability, greater speed of deployment Renewal Campaigns Limited ability to tailor renewals campaigns Greater ability to tailor renewal campaigns to different member cohorts Follow Up Patterns One size fits all journeys limits ability to follow up with non-auto renewal members Fully inclusive journeys & better visibility of non-auto renewal members Inbound Retention Limited capability to present relevant renewal offers linked to member value Call centre agents provided with tailored offers that reflect a member s cohort and value to the business New Propositions Monthly & multiple year propositions are tied into annual renewal / re-pricing cycle Flexible monthly and two year contract options offering more re-pricing flexibility / driving better member retention and value Self- Service 100% reliance on contact centre Members are able take up renewal offers, renew as a single payer and update payments details through our website 21

23 STEP-CHANGED GROWTH IN INSURANCE Strategic priorities Progress to date TARGETS Drive more competitive premiums Broaden underwriting footprint New insurance innovation Strong growth in motor policies benefitting from increased acquisition marketing spend, incremental sales and renewals through our in-house underwriter as well as systems investments including Insurer Hosted Pricing (IHP) New motor insurance scheme launched for never members with Munich Re Unrivalled expertise at utilising proprietary data provides unique understanding of members to be enhanced by Connected Car proposition 2m+ motor and home polices by end FY % EBITDA CAGR FY

24 BUILDING OPERATIONAL RESILIENCE AND DELIVERING SERVICE EXCELLENCE Road Operations Enhance proposition on ancillary sales Improve drive times - dispatch and traffic based routing technology Improve roadside repair rate - more granular taskbased performance measurement and training Reduce garaging - targeted patrol recruitment and utilisation improvements Improve flexibility and utilisation - new roster for Recovery Patrols Contact Centres Drive app usage in breakdown Deflect routine admin calls online Implement end to end case management and next best action techniques Cross-skill teams to improve resilience during high demand Progress to date Completed recruitment of more than 65 patrols Completed recruitment of more than 200 contact centre staff Driving ancillary sales (e.g. additional battery sales during cold weather) Improved rostering and resourcing in the front line TARGETS Investment in 65 patrols Investment in +200 contact centre staff Aim to absorb inflation in FY20 and FY21 Maintain improvement in roadside repair rate 10% pa increase in ancillary sales Improve consistency of call to arrive time at 45 mins Improve consistency of call handling at 80% in 20 seconds 23

25 KEY OPERATIONAL MILESTONES BY FY20 Roadside membership growth through system and product enhancement Membership system, CATHIE, installed Connected Car trial providing greater understanding of opportunity Key B2B renewals and extensions achieved Increased app usage in breakdowns Operational resilience Service resourcing in place IT resilience deepened Absorb cost inflation Insurance Continued strong growth on motor policies Home policies decline arrested Employee engagement Second survey Meaningful improvements in metrics 24

26 WELL POSITIONED TO DELIVER OUR MEDIUM-TERM GROWTH TARGETS 25

27 APPENDIX

28 GROUP REVENUE m H1 19 H1 18 Change % of Group Roadside Assistance % 79% Driving Services (3%) 6% Strong B2B performance and consolidation of AA Cars Decline in speed awareness courses and delays in implementation of new contract wins for corporate partners Roadside Revenue % 86% Insurance Services (8%) 13% Insurance Underwriting % 2% Additional acquisition marketing spend to accelerate growth of motor book and arrest decline in home book In-house underwriter growing strongly across motor and home book Insurance Revenue Nil 14% Group Revenue % 100% 27

29 TRADING EBITDA m H1 19 H1 18 Change % of Group Roadside Assistance (10%) 97% Additional strategic opex Higher cost of attending breakdowns Driving Services 7 9 (22%) 4% Decline in speed awareness courses Head Office costs (31) (24) (29%) (19%) Roadside Trading EBITDA (17%) 82% Insurance Services (13%) 20% Insurance Underwriting 1 - na Negligible Head Office costs (5) (4) (25%) (3%) Increased marketing spend by the broker and falling contribution from the Home Emergency consumer book Reduction reflects higher one-off ceding commissions on reinsurance Insurance Trading EBITDA (15%) 18% Trading EBITDA (17%) 100% 28

30 RECONCILIATION OF TRADING EBITDA TO OPERATING PROFIT m H1 19 H1 18 Trading EBITDA Pension service charge adjustment (3) (7) Share based payments (3) (5) Amortisation and depreciation (34) (33) Exceptional operating items (5) 30 Operating profit

31 INCOME STATEMENT m H1 19 H1 18 Group Revenue Cost of sales (197) (173) Gross profit Pension service charge adjustment - 34 Administrative & marketing expenses (167) (154) Operating profit Finance costs (88) (98) Profit before tax Tax expense (5) (16) Profit for the year Basic EPS (p/share) Adj Basic EPS (p/share)

32 CONSOLIDATED STATEMENT OF FINANCIAL POSITION m H1 19 H1 18 Goodwill and other intangible assets 1,316 1,291 Property, plant and equipment Investments in joint ventures and associates 5 10 Other receivables 2 - Deferred tax assets 2 56 Non-current assets 1,435 1,470 Inventories 7 7 Trade and other receivables Cash and cash equivalents Current assets Total assets 1,810 1,815 Trade and other payables (504) (477) Finance lease obligations (39) (39) Current tax payable (2) (12) Borrowings (15) - Provisions (1) (10) Current liabilities (561) (538) Borrowings and loans (2,718) (2,722) Derivative financial instruments - (17) Finance lease obligations (14) (17) Defined benefit pension scheme liabilities (86) (364) Provisions (5) (9) Deferred consideration (11) - Insurance technical provisions (24) (19) Non-current liabilities (2,858) (3,148) Total liabilities (3,419) (3,686) Net liabilities (1,609) (1,871) 31

33 CONSOLIDATED STATEMENT OF CASH FLOWS m H1 19 H1 18 Profit before tax Depreciation and amortisation Net finance costs Other adjustments to profit before tax 2 5 Change in working capital 17 (4) Difference between pension charge and cash contributions (19) (34) Net cash flows from operating activities before tax Tax paid (10) (11) Net cash flows from operating activities Investing activities Capital expenditure net of finance leases capital and proceeds from sale of fixed assets (45) (35) Other investing activities (10) - Net cash flows used in investing activities Financing activities Refinancing transactions (8) (95) Net interest paid on borrowings (61) (72) Payment of finance lease interest (2) (3) Dividends paid (9) (35) Net cash flows from financing activities (80) (205) Net increase/(decrease) in cash and cash equivalents 5 (73) 32

34 DISCLAIMER This presentation contains forward-looking statements which are prospective in nature and are not based on historical facts, but rather on current expectations and projections about future events. Such statements are therefore subject to risks and uncertainties which could cause actual results to differ materially from the future results expressed or implied by the forward-looking statements. Often, but not always, forward-looking statements can be identified by the use of forward-looking words such as plans, expects or does not expect, is expected, is subject to, budget, scheduled, estimates, forecasts, intends, anticipates or does not anticipate, or believes, or variations of such words and phrases or statements that certain actions, events or results may, could, should, would, might or will be taken, occur or be achieved. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by such forward-looking statements, including business, economic and regulatory changes as well as the risks set out in the Company s annual report and accounts, which can be found on its website ( Such forward-looking statements should therefore be construed in the light of such factors. Neither the Company, nor any of its associates or directors, officers or advisers, provides any representation, assurance or guarantee that the events expressed or implied in any forwardlooking statements in this announcement will actually occur. You are cautioned not to place undue reliance on these forward-looking statements. Other than in accordance with its legal or regulatory obligations (including under the Market Abuse Regulation, the Listing Rules and the Disclosure Guidance and Transparency Rules), the Company is not under any obligation to update, revise or correct any forwardlooking statements, whether as a result of new information, future events or otherwise. No statement in this presentation should be construed as a profit forecast or relied upon as a guide to future performance. 33

35 IR TEAM CONTACTS Zeeshan Maqbool Head of Investor Relations and Corporate Finance Lisa Shailer IR Assistant