AA Limited AA Limited Annual Report and Accounts 2021 Annual Report and Accounts 2021 Company number: 05149111 Appointment of new Chairman and Chief Executive Officer Under new ownership, in March 2021, the AA announced the future appointments of Rick Haythornthwaite as Non-Executive Chairman and Jakob Pfaudler as Chief Executive Officer as the Group gears up for an exciting period of growth and fantastic delivery for its customers and members. Simon Breakwell will continue to support the business in his new role as Deputy Chairman. “I would like to thank John Leach, my predecessor, and his Board colleagues for their service. I am hugely excited to be joining the AA, which is one of Britain’s most iconic companies with a skilled and committed workforce and a proud history of exceptional customer service. Like a number of the companies I have been fortunate enough to lead, the AA has a critical and trusted role in the lives of its many customers up and down the country. We now have an exciting opportunity to unlock the full potential of the business. I have no doubt that the AA will go from strength-to-strength in the years ahead, and I look forward to working closely with the Company’s leadership team and stakeholders to achieve our ambitions for this wonderful business.” Rick Haythornthwaite, Non-Executive Chairman OUR AWARDS Presentation of financial information UK regulations/APM Forward-looking statements This Annual Report contains forward-looking statements. These forward-looking statements are not guarantees of future performance, rather they are based on current views and assumptions as at the date of this Annual Report. These assumptions are made in good faith based on the information available at the time of the approval of this report. These statements should be treated with caution due to the inherent risks and uncertainties underlying any such forward-looking statements, and the Board has no obligation to update these statements. © 2020 Friend Studio Ltd File name: IFC_AtXaXGlance_v121 Modification Date: 13 April 2021 9:52 pm Making Britain’s drivers’ lives simpler and smarter Strategic Report This is our guiding purpose, closely aligned with our longstanding and trusted reputation as the UK’s leading roadside assistance business. We have always been passionate about driving and the freedom that comes with it. However, the experience of owning and managing a vehicle is increasingly complex as customers demand greater convenience and better access to technology. Recognising these and the emerging trends in the automotive sector, we are looking to build on our leading market position to deliver a range of exciting products and services to support a broad range of driver needs and to make these available to customers through simple, intuitive, digital channels. Governance Read more on P4-6 FINANCIAL AND OPERATIONAL HIGHLIGHTS Revenue Profit before tax Personal members and business Diversity across the Group customers £967m £52m 32% 20202: £993m 20202: £105m 11.9m Female Financial Statements 2020: 12.3m Trading EBITDA1 Adjusted basic EPS1 Total motor and home policies 68% £341m 13.6p Male 20202: £348m 20202:13.8p 1,941,000 2020: 31% Female, 69% Male 2020: 1,713,000 Operating profit Free cash flow1 Total greenhouse gas emissions £218m £40m (tonnes carbon dioxide equivalent) 20202: £255m 2020: £83m 33,652 2020: 40,615 RECOMMENDED CASH OFFER APPROVED In recognition of the challenges posed by the Group’s level of indebtedness and the need to reduce this significantly, on 25 November 2020, the Board of AA plc recommended to its shareholders a cash offer of 35p per share from Basing Bidco Limited (Bidco), a newly incorporated company indirectly wholly owned by a consortium of (i) funds advised by TowerBrook Capital Partners (U.K.) LLP or its affiliates; and (ii) private equity funds managed by Warburg Pincus LLC or its affiliates (together, the Consortium). On 14 January 2021, the shareholders approved the acquisition of AA plc (the Acquisition), which successfully completed post year-end on 9 March 2021. Following the completion of the Acquisition, AA plc delisted from the London Stock Exchange and was re-registered as AA Limited on 17 March 2021. The Acquisition by the Consortium has enabled the Group to significantly reduce leverage, rebalance its capital structure towards long-term sustainable leverage levels and, as a result, has helped to reduce the risk and cost of future refinancing. The expected cash savings that this will generate, in combination with the Consortium’s extensive investment and operational expertise, will enable the Group to accelerate its plans for long term growth. CONTENTS STRATEGIC REPORT GOVERNANCE REPORT FINANCIAL STATEMENTS 2 Group at a glance 39 Directors’ report 50 Independent auditors’ report 4 Group performance 42 Directors’ remuneration report 56 Consolidated income statement 9 FY21 review 56 Consolidated statement of comprehensive income 14 Key performance indicators 57 Consolidated statement of financial position 16 Our performance 58 Consolidated statement of changes in equity 20 Financial review 59 Consolidated statement of cash flows 25 AA risk management framework 60 Notes to the consolidated financial statements 28 Stakeholder engagement and s172(1) statement 96 Company statement of financial position 30 Environmental, social and governance 96 Company statement of changes in equity 97 Notes to the Company financial statements 1 Non-Generally Accepted Accounting Principles (GAAP) measures explained on P15. 2 Revenue, Trading EBITDA, operating profit, profit before tax and adjusted basic earnings per share for the year ended 31 January 2020 have been restated. Please see P73 for further details. AA Limited Annual Report and Accounts 2021 1 © 2020 Friend Studio Ltd File name: IFC_AtXaXGlance_v121 Modification Date: 13 April 2021 9:52 pm STRATEGIC REPORT Group at a glance We are the leading provider of roadside assistance services in the UK with a fast-growing insurance platform. Roadside Insurance and Financial Services We are the leading provider of UK Our Insurance Services segment roadside assistance, with approximately includes our insurance broker business 2,500 patrols attending an average that operates a panel of motor and home of around 8,000 breakdowns daily. policy distribution. It also includes our Our Roadside segment also consists of successful in-house underwriter, which several developing businesses, including started trading in January 2016 and is our market-leading driving schools, a member of this panel. The segment AA Driving School and BSM, DriveTech, also includes our Financial Services the market leader in driver education partnership with the Bank of Ireland and including driver awareness courses our AA Cars business, which operates offered by police forces, and Prestige, our online used cars and vans platform. our growing service, maintenance and repair (SMR) platform. Revenue Revenue £799m £168m 20201: £827m 20201: £166m Trading EBITDA margin Trading EBITDA margin 35% 36% 2020: 34% 20201: 38% Trading EBITDA Trading EBITDA £280m £61m 20201: £285m 20201: £63m Paid personal members Insurance policies 3.168m 1,941,000 2020: 3.215m 2020: 1,713,000 Business customers Underwritten policies 8.7m 1,006,000 2020: 9.0m 2020: 780,000 Financial Services products 101,000 2020: 90,000 1 See P65 and 73. 2 AA Limited Annual Report and Accounts 2021 © 2020 Friend Studio Ltd File name: IFC_AtXaXGlance_v121 Modification Date: 13 April 2021 9:52 pm The services we deliver Strategic Report Breakdown cover Service, maintenance and repair AA Cars Whether drivers are looking for personal cover, Smart Care allows customers to access our Our trusted online AA Cars platform enables vehicle cover or even European cover, we have SMR services online in one simple, smart customers to sell their current car or van and a range of breakdown products to ensure they place. Wherever our customers are, it just takes can help them buy their next. We can even get the cover they need. In addition, through a few taps to book an MOT, service or repair help with funding their purchase with our large our market-leading Smart Breakdown platform, online. Our Smart Care service is contact-free panel of lenders giving them greater choice we can identify 80% of faults in engine-related – customers can book and pay online, with free and flexibility. breakdowns, which means we can identify collection and return across 87% of the UK – many faults before the vehicle breaks down. so they don’t need to leave their home. Financial services We can then either help our customers fix the Our partnership with the Bank of Ireland fault remotely, send a patrol to repair their Driving school includes AA branded car finance products vehicle or direct them to our AA approved From learning to drive to finally passing the to sit alongside our successful savings and garage network, Prestige, using our Smart driving test, our leading driving schools business loan products. Governance Care platform. offers a trusted and reliable platform for pupils and instructors alike. We are enhancing our Leasing Insurance digital capabilities to deliver a seamless offering In partnership with LeasePlan, we launched Our insurance broking business sells both that nurtures long-term brand affinity and our AA Smart Lease proposal to our members motor and home insurance. These policies promotes greater cross-sell opportunities. in January 2021. AA Smart Lease offers AA are underwritten by a panel of underwriters members a flexible and hassle-free alternative including the AA’s in-house underwriter. DriveTech to traditional vehicle ownership. For a single Utilising our proprietary data, we are currently Our DriveTech business is a world-leading monthly price, AA Smart Lease includes an underwriting 57% of the motor broker policies provider of fleet risk and safety management insured car, service and maintenance and and 46% of the home broker policies. Through and driver training, which is available online vehicle tax.