FY15 Results, Strategy Update and Refinancing. 25 March 2015

Transcription

1 FY15 Results, Strategy Update and Refinancing 25 March 2015

2 Important notice 2 This document does not constitute or form part of any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for, any securities of AA plc or its subsidiaries (the Company ) nor shall it or any part of it nor the fact of its distribution form the basis of, or be relied on in connection with, any contract commitment or investment decision in relation to any such matter nor does it constitute a recommendation regarding the securities of the Company. Investors and prospective investors in securities of the Company are required to make their own independent investigation and appraisal of the business and financial condition of the Company and the nature of the securities. Any decision to purchase securities in the context of a proposed offering of securities, if any, should be made solely on the basis of information contained in an offering circular or prospectus published in relation to such an offering. Securities of the Company have not been and will not be registered under the United States Securities Act of 1933, as amended (the Securities Act ), and may not be offered or sold within the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. No public offer of securities of the Company is being made in the United States. Neither this document nor any copy of it may be taken or transmitted into the United States, its territories or possessions or distributed, directly or indirectly, in the United States, its territories or possessions. Neither this document nor any copy of it may be taken or transmitted into Australia, Canada, Japan, Switzerland, New Zealand or the Republic of South Africa or to any person in any of those jurisdictions. Any failure to comply with this restriction may constitute a violation of United States, Australian, Canadian, Japanese, Swiss, New Zealand or South African securities law. The distribution of this document in other jurisdictions may be restricted by law and persons into whose possession this document comes should inform themselves about, and observe, any such restrictions. Subject to certain exceptions, securities of the Company may not be offered or sold within the United States, Canada, Australia, Japan, Switzerland, New Zealand or the Republic of South Africa or to any national, resident or citizen of the United States, Canada, Australia, Japan, Switzerland, New Zealand or the Republic of South Africa. This presentation may include certain forward-looking statements, beliefs or opinions, including statements with respect to the Company s business, financial condition and results of operations. These statements, which contain the words anticipate, believe, intend, estimate, expect, forecast and words of similar meaning, reflect the Directors beliefs and expectations and involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. No representation is made that any of these statements or forecasts will come to pass or that any forecast results will be achieved. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by these statements and forecasts. Past performance of the Company cannot be relied on as a guide to future performance. Forward-looking statements speak only as at the date of this presentation and are also provided strictly on an estimate and approximate basis, further the Company expressly disclaims any obligations or undertaking to release any update of, or revisions to, any forward-looking statements in this presentation. No statement in this presentation is intended to be a profit forecast. As a result, you are cautioned not to place any undue reliance on such forward-looking statements.

3 Definitions 3 The following definitions apply throughout the presentation: Trading EBITDA (earnings before interest, tax, depreciation and amortisation): excludes exceptional items, share-based payments, acquisition earn-out costs and items not allocated to a segment. Cash conversion: net cash flow from operating activities before tax and exceptional items divided by Trading EBITDA. Adjusted EPS: adjusts for one-off adjustments from financing transactions, exceptional items, share-based payments, acquisition earnout costs and applies tax at the Group s effective rate. Personal Members and Business Customers: measured as the number at the period end.

4 Agenda 4! Headlines Bob Mackenzie, Executive Chairman! FY15 results Martin Clarke, CFO! Strategic priorities Bob Mackenzie! Refinancing Martin Clarke! Outlook Martin Clarke

5 Headlines Bob Mackenzie

6 Headlines 6! Robust operating and financial results! Excellent cash generation! Strategic priorities to transform the AA and position it for growth! Refinancing reduces financing costs by c 45m pa and facilitates dividends! Dividends of c 50m expected in respect of FY16 and progressive dividends thereafter

7 Refinancing overview 7! Raise 200m new equity to pay balance of PIK! Issue 735m new high yield bonds to repay existing Class B Notes! Repay 209m of Senior Term Facility from existing cash in WBS! Impact Reduced leverage Reduced cash interest costs Facilitates payment of dividends in respect of FY16 Accelerates progressive dividend policy Transformational transaction

8 Results for the year ended 31 January 2015 in summary Martin Clarke

9 Performance headlines 9! Revenue up 1.0% to 983.5m! Trading EBITDA 1 up 1.7% to 430.1m! Trading EBITDA margin up 30 bps to 43.7%! Adjusted EPS 2 (before refinancing) of 23.3p (38.0p)! Cash conversion 3 100% (102%)! Outlook reflects strategic objectives and refinancing! Dividends of c 50m expected to be recommended in respect of FY16 Notes apply throughout the presentation. 1 Trading EBITDA (earnings before interest, tax, depreciation and amortisation): excludes exceptional items, share-based payments, acquisition earn-out costs and items not allocated to a segment 2 Adjusted EPS: adjusts for one-off adjustments from financing transactions, exceptional items, share-based payments, acquisition earn-out costs and applies tax at the Group s effective rate 3 Cash conversion: net cash inflow from operating activities before tax and exceptional items divided by Trading EBITDA

10 Operational performance 10! Increase in income per Personal Member offset the decline in Personal Member numbers! Roadside retention rates stable! New contracts drove increase in Business Customers! Insurance policies down but average income per policy up! Motor insurance flat year on year FY15 Change Personal Members 3.8m - 4.5% Business Customers 9.6m % Average income per Personal Member % Insurance policies 2.2m - 5.5% Average income per insurance policy % Robust performance - foundations for future growth

11 Trading EBITDA 11! Roadside Assistance revenue growth offset higher costs of service delivery owing to weather and garaging! Insurance affected by reduction in Motor policies in FY14 and increased marketing costs to win new customers! Driving Services Trading EBITDA up due to re-classification of car leases! Ireland impacted by FX - Trading EBITDA rose 5% on constant FX! Head Office costs include 4.4m of incremental PLC costs - c 8m in a full year Trading EBITDA FY15 m FY14 m Roadside Assistance Insurance Services Driving Services Ireland Insurance Underwriting (0.1) (0.1) Head Office costs (47.8) (45.3) Total Trading EBITDA Trading EBITDA margin 43.7% 43.4% Increased revenue and margins led to the 1.7% increase in Trading EBITDA

12 Cashflow 12 FY15 m FY14 m Trading EBITDA Exceptional items (57.2) (37.4) Other items including investing and tax (25.6) (30.4) Financing activities (excluding IPO and PIK repayment) (262.0) (193.1) Net cash flow (including IPO costs) Cash as at 1 February Proceeds from IPO PIK repayment (178.5) - Net foreign exchange differences (1.2) (0.6) Net cash flow (including IPO costs) Working capital (excluding exceptional items) (6.5) 7.9 Cash as at 31 January Substantial cash reserve of m available for debt reduction and business investment Cash conversion 100% (2014: 102%) Includes 15.4m of proceeds from sale of vehicles (2014: nil) 199.2m raised in the IPO principally used to repay PIK notes Substantial exceptional IPO cost, increased investment in IT and full year impact of interest Increase in cash lower than prior year due to IPO costs and other exceptional costs Note 1 : Cash of 302m less restricted cash of 43m

13 Strategic priorities Bob Mackenzie

14 A great business 14! The UK s most trusted commercial brand 1! Market leader in roadside assistance! Mature and concentrated roadside assistance market! High barriers to entry! High recurring revenue! High cash generation! Experienced and skilled workforce The key strengths we and our shareholders saw and liked 1 Y&R Brand Asset Valuator survey in 2014

15 Investment and consolidation 15! Core business performance flat! Several years of under-investment under previous ownership! Period of investment and consolidation to position AA for renewed growth! To be achieved through Investment in brand marketing Investment in IT systems and digital capability Restructuring and cost initiatives Investment in Membership growth and price New business initiatives! Refinancing to free up additional cashflow and facilitate dividends Investment creates longer term opportunities

16 Investment in brand marketing 16! 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% 47% 57% 31% 21% 22% 11% 4% 2% 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

17 Investment in IT systems and digital capability 17! De-risk infrastructure and connections Replace legacy systems Staged implementation and double running Rationalisation of processes and transform call centre effectiveness! Enhance commercial agility 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

18 Investment in IT systems and digital capability Financial implications 18! IT transformation capex spend of 128m over 3 years! Front-ended with capex of 82m in FY16! Net incremental spend of 70m over next 5 years as originally anticipated! Thereafter steady state IT capex of 10m pa (versus 30m pa)! Maintenance spend will increase by 8m in a full year Generates medium term savings; underpins transformation strategy

19 Re-launch of the AA breakdown app 19! Market-leading in Roadside Assistance market! Easier and quicker to use! Rescue Tracker tracks Patrol s ETA! Improvements: Where s my car for multiple cars Route Planner now part of the app Improved mapping Virtual membership card Local benefits on screen

20 Restructuring and cost rationalisation Financial implications 20! 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

21 Investment in Membership growth and price Financial implications 21! Price rises in the past with no commensurate improvement in product! Investment in price and product To stem decline in Personal Members in medium term Expect c3% increase in income per Personal Member in FY16 Lower than previously but creates sustainable base! Additional opportunities in ancillary revenue Investment required to drive retention and Membership

22 Improving retention processes 22 Stay AA re-launch in March Save rate up 4 percentage points Discount rate down 6 percentage points Feb Mar April May June July Aug Sept Oct Nov Dec Jan Discount rate Save rate Save rate up 4% points; discount rate down 6% points since re-launch

23 Communicate existing services! Fuel Assist: 98% fix rate; 20% member discount on pay-for-use! Key Assist: dedicated vans; free for gold members! Glass: 150 technicians patrols trained for repairs; 60% member discount Improve awareness of pay-for-use products 23

24 New business initiatives Financial implications 24! Launch of new in-house underwriter in early 2016 Expected set up costs of 1m 7.5m investment! New partnership model for elements of Financial Services business Advanced negotiations Expected short term cost of 4m but significant potential! Actively investigating other new business areas Evaluating net benefit of additional investment Building on market strengths and brand

25 AA Tyres 25! Partnership agreed and signed! AA branded mobile fitting service! Sales through SEO, breakdowns, membership! Small market, but strong growth

26 AA Cars! Free comprehensive car history check! Dealers access AA Car Inspection! Unique AA content! 13,000 member car reviews! Live advice from AA tech team 26

27 Financial impacts in summary 27! 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 net spend of 70m over next 5 years Impact on opex Thereafter 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

28 Refinancing Martin Clarke

29 Refinancing objectives 29! Reduce overall cost of debt! Increase average maturity! Simplify debt structure! Facilitate payment of dividends Reduce cost of debt and enable dividend

30 Current debt structure 30 Fixed interest rates (with LIBOR hedged for Senior Term Facility) Interest rate Effective maturity Final maturity 3.98% % 6.27% 4.25% 3.78% 9.5% 9.5% ,218m Highly leveraged capital structure 7.5 x gross debt / FY15 EBITDA High interest charges on PIK and B notes at 9.5% Blended interest cost of 5.9% Interest cover 2 2.3x 663m 655m 475m 500m 500m 250m 175m 259m Senior Term Facility Class A1 notes Class A2 notes Class A3 notes Class A4 notes Blended interest rate 5.9% including PIK 5.7% excluding PIK Class B notes PIK notes Cash Notes 1 Senior Term Facility at LIBOR + 2%. As a result of certain hedging arrangements LIBOR is effectively fixed at % until July 2018 and % for the period between August 2018 and January 2019, such that if the Class A notes are rated BBB- or above, the maximum rate of interest payable until 31July 2018 is % 2 Trading EBITDA divided by cash finance costs excluding any early repayment fees

31 Proposed refinancing Illustrative sources and uses 31 Sources m Uses m New Class B 735 PIK redemption 175 Equity placement 200 Class B redemption 655 Balance sheet cash used 209 STF partial redemption 209 Break costs on PIK 4 Break costs on B notes 60 New issuance fees 25 PLC non-ring fenced cash 16 Total sources 1,144 Total uses 1,144 Reduces interest charges and facilitates the paying of dividends

32 Proposed debt structure 32 Fixed interest rates (with LIBOR hedged for Senior Term Facility) Interest rate Effective maturity Final maturity 3.98% % 6.27% 4.25% 3.78% % Leverage 6.8x gross debt / FY15 EBITDA Lower blended cost of debt expected to save c 45m Average maturity extended to 6 years 2,914m 735m 454m 475m 500m 500m 250m 50m Senior Term Facility Class A1 notes Class A2 notes Class A3 notes Class A4 notes New Class B notes Cash Note: 1 Senior Term Facility at LIBOR + 2%. As a result of certain hedging arrangements LIBOR is effectively fixed at % until July 2018 and % for the period between August 2018 and January 2019, such that if the Class A notes are rated BBB- or above, the maximum rate of interest payable until 31 July 2018 is %

33 Benefits of proposed capital structure 33! Reduced cash interest cost with corresponding EPS enhancement! Since IPO gross debt reduced by 470m! Near term maturities (pre 2020) reduced from 69% to 40% of outstanding debt! WBS dividend gating covenants simplified Removal of gross leverage <6.5x test from the Class B notes Removal of PIK sets gating covenant for dividends at <5.5x EBITDA / net senior debt (currently within this at 5.1x) Significant savings in interest charges and enabling meaningful dividend

34 Dividends and further deleveraging 34! Dividends of c 50m expected to be recommended in respect of FY16! Progressive dividend policy expected thereafter! Strong cash flow will facilitate further substantial deleveraging in medium term Dividend from FY16 and further deleveraging in the future

35 Indicative timetable 35! Announcement of the equity raise and wider refinancing 25 March! Closing of new high yield offering 13 April! Admission and commencement of dealings 24 April! Redemption of PIK Notes 25 April! Annual General Meeting 9 June! Redemption of Class B Notes 31 July

36 Outlook Martin Clarke

37 Outlook 37! The AA s foundations are strong! Significant progress already made to address strategic priorities! FY16 a year of transition, consolidation and investment! Refinancing to create a stable medium-term capital structure! Dividends of c 50m expected to be recommended in respect of FY16! Progressive dividend policy thereafter Creation of the AA as the pre-eminent motoring services organisation is well underway

38 Questions

39 Appendix

40 Roadside Assistance 40! Personal Members down due to increased competition at low end! Average income per Personal Member up as result of price increased and mix change due to higher levels of cover! Strong growth in B2B from manufacturer contracts offset lower value of renewed Lloyds contract! Margin increase reflects higher revenue offsetting greater costs of service delivery due to weather and higher garaging costs FY15 Change Revenue 728.1m +2.2% Trading EBITDA 358.9m +3.1% Personal Members 3.8m - 4.5% Business Customers 9.6m % Average income per Personal Member % Breakdowns attended 3.5m flat Lower Personal Members offset by increase in income per Personal Member

41 Insurance Services 41! 7 year decline in Motor policy volumes stemmed! Renewal rates of Motor and Home reached their highest levels since 2008! Lower policy numbers following ending of prior year s introductory offer of Home Emergency Response! Margin reduction reflected increased marketing costs of new business FY15 Change Revenue 142.4m -4.4% Trading EBITDA 83.9m -6.2% Policy numbers 2.2m - 3.5% Average income per policy % New business and improved retention stabilised Motor and Home portfolios

42 Driving Services 42! Driving School revenue reflects reduction in the number of driving instructors! DriveTech revenue grew from low 2014 base (following new police admin processes)! Trading EBITDA driven by the new treatment of car leases following renegotiation of contract FY15 Change Revenue 73.7m -1.5% Trading EBITDA 20.4m +30.8% Driving school instructors 2, % Trading EBITDA benefitted from new leasing arrangements

43 Ireland 43! Difficult economic conditions in Ireland! Euro exchange rate depressed growth! EBITDA at constant FX up 0.7m! Improved margin due to effective cost management FY15 Change Revenue 38.7m -2.3% Trading EBITDA 14.8m -1.3% Personal Members 119, % Insurance policy numbers 178, % A strong performance affected by currency weakness

44 Profit & loss 44 FY15 m FY14 m Revenue Cost of sales (345.4) (343.6) Gross profit Administrative & marketing expenses (313.5) (259.4) Other items Operating profit Trading EBITDA Items not allocated to a segment (6.4) 5.2 Amortisation and depreciation (48.3) (39.6) Share-based payments and acquisition earn-out costs (1.9) (2.2) Exceptional items (47.6) (14.6) Operating profit Profit on disposal of a joint venture Net finance costs (265.1) (179.2) Profit before tax Tax credit/(expense) 8.3 (39.4) Profit for the period Trading EBITDA up 1.7% to 430.1m through increased revenue and margins A&M expenses include exceptional items, mainly IPO costs Net finance costs reflect WBS and write-off of 2015 refinancing issue costs Tax credit relates to one-off recognition of deferred tax asset Ongoing tax rate c 20%

45 Balance sheet 45 Non-current assets Goodwill and other intangible assets 1, ,245.7 Property, plant and equipment Investments in joint ventures and associates Deferred tax assets Other receivables Current assets FY15 m FY14 m 1, ,369.3 Inventories Trade and other receivables Current tax receivable Cash and cash equivalents Total assets 1, ,740.3 Current liabilities Trade and other payables (498.2) (461.9) Provisions (8.0) (11.9) Non-current liabilities (506.2) (473.8) Borrowings and loans (3,240.9) (3,351.4) Finance lease obligations (15.8) (7.9) Defined benefit pension scheme liabilities (434.4) (265.5) Provisions (12.2) (15.7) Insurance technical provisions (3.9) (4.2) (3,707.2) (3,644.7) Total liabilities (4,213.4) (4,118.5) Net liabilities (2,255.2) (2,378.2)

46 Cashflow 46 Operating profit Depreciation and amortisation Other items 0.3 (0.7) Purchase and sale of vehicles Change in working capital (16.1) (14.9) Cash exceptional items Operating cash flow before tax and exceptional items Cash exceptional items (57.2) (37.4) Tax paid (2.5) (8.2) Net cash flows from operating activities Investing activities Capital expenditure (excluding vehicles) (36.4) (29.6) Other investing activities Net cash flows used in investing activities (30.0) (24.5) Financing activities Issue of share capital Repayment of PIK notes (178.5) - Other refinancing transactions (6.3) 13.9 Interest paid on borrowings (220.4) (102.9) Payment of finance lease capital and interest (35.3) (21.9) Payments to group treasury - (82.2) Net cash flows from financing activities (241.3) (193.1) Net increase in cash and cash equivalents FY15 m FY14 m

47 Debt package as at 31 January Expected maturity date Interest rate Run Rate Cash Interest m Principal at 31 January 2015 m Principal at 31 January 2014 m Senior Term Facility 31 Jan % Class A1 notes 31 Jul % Class A2 notes 31 Jul % Class A3 notes 31 Jul % Class A4 notes 31 Jul % Class B notes 31 Jul % PIK notes 06 Nov % % ,218 3,393 Ring-fenced cash and cash equivalents Non ring-fenced cash and cash equivalents Total cash and cash equivalents Class A Net Debt: Trading EBITDA (STF and Class A notes less ring-fenced cash) Class B Gross Debt: LTM EBITDA (debt excluding PIK notes) Total Net Debt : LTM EBITDA (total debt less total cash)