AA Plc solid performance across Roadside and Insurance

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AA Plc (LON:AA.), today announced interim results for the six months ended 31 July 2018.

· Interim results in line with expectations; on-track to deliver FY19 Trading EBITDA of between £335m to £345m, despite extreme weather conditions

· Good operational progress across key strategic initiatives in Roadside and Insurance

· Building resilience through investment in key hires and technology whilst maintaining opex and capex discipline

· Continued strong and stable levels of cash conversion

· Successful refinancing and S&P credit ratings reaffirmed

· Well positioned to return to growth from FY19 base and meet our medium term growth targets

	Six months ended
	July 18	July 17	Change
GAAP measures
Revenue (£m)	480	471	2%
Operating profit (£m)	116	178	(35%)
Group profit before tax	28	80	(65%)
Group profit after tax	23	64	(64%)
Basic EPS	3.8	10.5	(64%)

Non-GAAP measures
Trading EBITDA¹ (£m)	161	193	(17%)
Trading EBITDA² margin (%)	33.5	41.0	(18%)
Adjusted basic EPS³(p)	6.5	10.2	(36%)
Cash conversion⁴ (%)	104	101	3%
Interim dividend per share	0.6	3.6	(83%)

Financial and operational headlines

· Financial performance in line with expectations

o Revenue rose by 2% to £480m reflecting a solid performance across Roadside and Insurance

o Trading EBITDA down 17% to £161m and operating profit down 35% to £116m reflecting the additional strategic opex and additional costs due to the higher weather induced workload

o Cash conversion (before capex) remains strong at 104% (H1 18: 101%), with capex in line with guidance, FY19 guidance of £105m (excluding accruals) maintained

o Extended effective near term debt maturities until January 2022; blended cost of debt reduced slightly to 4.51% (H1 18: 4.52%); S&P credit ratings reaffirmed

o Pension deficit reduced by £154m improves balance sheet position

o Interim dividend of 0.6p, full year total expected dividend of 2.0p as previously announced

· Key operational achievements

o Roadside

§ New business volumes steady with retention down 1%, in line with expectations reflecting regulatory pressures, increased competitor activity and the impact of re-phased marketing spend

§ Membership base down 2% to 3,254,000 (H1 18: 3,325,000) with average income per member up 2%, broadly in line with inflation, to £159

§ Average income per B2B member up 5% reflecting the additional income generated from the pay-for-use B2B contracts due to the higher weather induced workload

§ Extended and renewed all B2B contracts in the period including JLR and Volkswagen; won a three-year contract with Arval, a significant win in the Fleet and Leasing sector

§ Enhanced app functionality driving higher levels of engagement; levels of registration and usage in breakdowns growing steadily

§ Connected car strategy and forward investment plan being optimised

§ Building operational resilience through key management hires and target for recruitment of 65 additional patrols met

o Insurance

§ Strong performance from broker and in-house underwriter, well positioned to deliver significant growth from FY20

§ 7% growth in motor policies to 659,000, benefiting from increased acquisition marketing spend, incremental sales and renewals through our in-house underwriter as well as systems investments including Insurer Hosted Pricing (IHP)

§ Stabilised the decline in the home policy book, ahead of expectations

§ Average income per motor and home policy flat at £73 (H1 18: £73) despite the weakening rate environment

§ In-house underwriter commenced writing new motor insurance for never-members through a new reinsurance relationship with Munich Re

AA Plc, Simon Breakwell, CEO, said:

“The first half of FY19 has seen exceptional weather conditions, from extreme cold and snow in February and March to the hottest summer in recent memory, with the severe winter also creating a pothole ‘epidemic’ on the UK’s roads. All this led to a 15 year high in the number of breakdowns we serviced. Against this backdrop, I am extremely proud of our achievements and to be reporting results in line with our guidance as we continue to build resilience throughout the business.”

“We are making good operational progress across our Roadside and Insurance businesses and firmly believe that we have the people and strategy in place to unlock the full potential of the AA and crystallise long term value for our shareholders. We remain on-track to meet our Trading EBITDA guidance for FY19 and to return to growth thereafter.”

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