Roadside Assistance Provider with Approximately 40% Share of the UK Consumer Market
Total Page:16
File Type:pdf, Size:1020Kb
AA plc Annual Report and Accounts 2017 Building momentum for change AA plc Annual Report and Accounts 2017 THE AA INVESTMENT CASE The AA has strong fundamentals and a sustainable business model A highly trusted commercial brand The AA has one of the most widely recognised and trusted brands in the UK. Market leadership We are by far the largest Roadside Assistance provider with approximately 40% share of the UK consumer market. We also have strong market positions across our other products and services. Opportunity for digital transformation We are at the forefront of digital development with the potential to transform the services we deliver and the experience our Members and customers receive. High barriers to entry Our deployment system, people and scale combined with the high start-up costs required to operate an efficient national roadside service pose significant barriers to entry. High recurring revenue Our personal Members are loyal with stable retention rates and average tenure of 12 years. High cash generation The majority of our customers pay for our services in advance so that virtually all of our accounting profits convert to operating cashflow. Experienced and skilled workforce Our selection process and continual training for our excellent workforce lead to long service and high repair rates in Roadside Assistance. OUR STRATEGIC PRIORITIES Strengthen the AA’s Revolutionise Reduce Group foundations providing customer experience borrowings and a modern platform through investment the associated to become the pre- in the Membership interest costs eminent Membership proposition and new services organisation in technologies the UK OUR STRATEGIC JOURNEY Year 1 (the 2016 financial Year 2 (the 2017 financial Year 3 (the 2018 financial year): Strengthening the year): Building year): Realising the foundations momentum for change transformation Our ambition for the AA is to transform it into the UK’s pre-eminent Membership services organisation Executive Chairman’s statement p10 i A TRUSTED BRAND The AA has a long tradition of service and innovation which is at the core of all we do and means that more than 110 years on, we are still one of the UK’s most trusted brands. We ensure our services are delivered with our long-standing values of courtesy, care and expertise. As we take the AA to the next stage of its development in the dynamic markets in which we operate, we will work collaboratively with our partners to realise the opportunities. 1906 1911 1945 1967 2016 STRATEGIC HIGHLIGHTS The transformation of the Roadside Assistance Members grew for the first time in years AA is now beginning to reap rewards. We are building the We are in the final stages of the IT transformation UK’s leading Membership We have improved the Membership proposition with better products, services organisation by rewards, advertising and marketing strengthening the AA’s Success in digital transformation has delivered growth in digital foundations and revolutionising sales and usage of our breakdown app. The first connected car trial customer experience to supports the development of new operating models provide a platform for growth. Our in-house Insurance Underwriter and Financial Services partnership with the Bank of Ireland are progressing well We delivered cost savings as part of the programme which will culminate in savings of at least £40m per year off the 2015 cost base from the 2019 financial year AA Ireland was sold and £106m of the proceeds were applied to paying down debt We reduced the cost of debt by a further £10m per annum and extended its average maturity through a refinancing A total dividend of 9.3p with respect to the 2017 financial year is recommended including the interim dividend of 3.6p Our marketplace p6 Forward-looking statements from those anticipated. The forward-looking statements reflect This Annual Report contains certain forward-looking statements knowledge and information available at the date of preparation of with respect to the operations, strategy, performance, financial this Annual Report and, other than in accordance with its legal and condition, and growth opportunities of the Group. By their regulatory obligations, the Company undertakes no obligation to nature, these statements involve uncertainty and are based on update these forward-looking statements. Nothing in this Annual assumptions and involve risks, uncertainties and other factors that Report should be construed as a profit forecast. could cause actual results and developments to differ materially i FINANCIAL HIGHLIGHTS THE AA’S AREAS OF BUSINESS Trading Revenue Net debt Roadside Assistance £940m £2.7bn Trading Revenue Trading EBITDA 2016: £925m 2016: £2.8bn £742m £365m Trading EBITDA Continuing adjusted basic EPS (£724m) (£361m) £403m 21.3p 2016: £402m 2016: 21.8p Insurance Services Trading Revenue Trading EBITDA Profit before tax from Continuing basic EPS continuing operations £131m £76m 12.2p (£131m) (£78m) £100m 2016: (0.2)p 2016: £9m Driving Services Cash conversion Interest cover Trading Revenue Trading EBITDA 92% 2.6x £67m £20m 2016: 101% 2016: 2.4x (£68m) (£19m) Financial review p26 Our performance p24 The following definitions apply throughout the report. Continuing adjusted basic EPS (earnings per share) adjusts for a 2017 financial year is the year to 31 January 2017 number of one-offs of which the largest are exceptional operating items, items not allocated to a segment and exceptional finance costs Trading Revenue is revenue excluding discontinued operations, (see note 6). business disposed of and exceptional revenue items. Cash conversion is net cash inflow from continuing operating activities Trading EBITDA (earnings before interest, tax, depreciation and before tax and exceptional items divided by Trading EBITDA. amortisation) excludes exceptional items and items not allocated to a segment. In the current period items not allocated to a segment Interest cover is Trading EBITDA divided by ongoing cash finance principally relate to the difference between the cash contributions to costs (see note 6). the pension schemes for ongoing service and the calculated annual Net debt includes the principal amounts of the Group’s borrowings service cost and share-based payments (see note 5). less cash and cash equivalents. AA plc Annual Report and Accounts 2017 1 CONTENTS STRATEGIC REPORT 2 The AA at a glance 22 Key performance indicators 44 Governance Report Introduction 88 Consolidated statement of 4 Highlights of the year 24 Performance: Roadside Assistance 46 Our Board financial position 6 Our marketplace Performance: Insurance Services 48 Executive Committee 89 Consolidated statement of changes of equity 8 Our business model Performance: Driving Services 50 Governance Structure 90 Consolidated statement of Business Our 10 Executive Chairman’s statement 26 Financial review 55 Nomination Committee Report cashflows 14 Strategic priorities 30 Risk Management 58 Risk Committee Report 91 Notes to the consolidated 36 Corporate Responsibility 60 Audit Committee Report financial statements 65 Directors’ Remuneration Report 122 Company statement of financial position 74 Relations with shareholders Company statement of 75 Directors’ Report 123 changes in equity 80 Independent Auditor’s Report 124 Notes to the Company 86 Consolidated income statement financial statements 87 Consolidated statement of 128 Shareholder information comprehensive income Our Performance The strength of the AA is inextricably linked with our brand and its foundations in our market-leading roadside assistance service in the UK. Roadside assistance is provided both through personal Membership and business partnerships. We offer other services which enrich Membership, such as AA Tyres and AA Cars. Governance Insurance Services includes broking of primarily motor and home insurance. We also offer financial services and home emergency services. We launched our in-house Insurance Underwriter in January 2016. Driving Services includes driving schools and DriveTech which provides driving training. Financial Statements 2 AA plc Annual Report and Accounts 2017 The AA at a glance We operate three main divisions: Roadside Assistance, Insurance Services and Driving Services. Trading Revenue split by division Roadside Assistance 79% Insurance Services 14% Driving Services 7% Trading EBITDA split by division1 Roadside Assistance 79% Insurance Services 17% Driving Services 4% 1 Excluding Head Office costs. Our performance p24 AA plc Annual Report and Accounts 2017 3 Our Business Our ROADSIDE ASSISTANCE We are the UK’s leading provider of Trading Revenue Personal Members roadside assistance, with approximately 3,000 patrols attending an average £742m 3.3m Our Performance of around 10,000 breakdowns by (2016: £724m) (2016: 3.3m) cars, motorbikes, caravans and vans Trading EBITDA Business customers every day. £365m 10.0m (2016: £361m) (2016: 10.2m) Our performance p24 Governance INSURANCE SERVICES The AA’s broking business offers Trading Revenue Insurance policies motor, home, travel and other specialist insurance policies, operating a diverse £131m 1.9m panel of underwriters including our (2016: £131m) (2016: £2.1m) in-house Underwriter since its launch in Trading EBITDA Average income per policy (includes FS policies) January. We also offer home emergency Financial Statements services. In 2015, we relaunched our £76m (2016: £78m) £70 Financial Services business in partnership (2016: £63) with the Bank of Ireland. Financial Services products 100k (2016: 33k) Our performance p25 DRIVING