# AA plc on-track to meet FY19 guidance

- Link: https://www.directorstalkinterviews.com/aa-plc-track-meet-fy19-guidance/412756492
- Published: 2018-08-09T07:48:12+01:00
- Author: Charlotte Edwards

**AA plc **(LON:AA.), today published a trading update for the six-month period 
ended 31 July 2018. Despite the extreme weather conditions we remain on-track to
deliver our previously announced guidance of Trading EBITDA of between £335m to 
£345m for FY19.

**Roadside**

As announced with our strategy update in February 2018, in order to return our Roadside
business to growth, we are undertaking a phased programme of investment over the
next three years that will deliver a differentiated member and product proposition
to drive new membership growth and retention levels higher.

In line with our expectations, the paid membership base declined by 1% in the six-
month period to 3.25m impacted by a decrease in the retention rate to 81%. The retention
rate over the last 12 months has been impacted by regulatory pressures (including
renewal price transparency) and increased competitor activity. New business remains
robust, with sales broadly flat year on year. Looking ahead, the completion of the
new membership IT system (CATHIE) and ongoing improvements to the ‘Stay AA’ customer
retention proposition are expected to lead to improved retention rates and a growing
paid membership base over the medium term.

Total breakdowns during the period were 1.91m, an increase of 8% compared to the
same period last year. This was significantly higher than both our expectations 
and the average over the last 10 years due to the extreme weather conditions. This
resulted in increased costs of third-party garaging to supplement our own patrol
availability which was partially offset by the additional revenue generated from
our pay-for-use B2B contracts.

We continue to make good progress with the recruitment of new roadside patrols who
will be allocated to high service areas. In addition, we are also developing strategies
to enable us to monetise more referrals to third party garages and better manage
our workload through the AA breakdown app. In the longer term, increased utilisation
of the breakdown service drives brand awareness and retention.

The AA continues to build on its leadership position in digital mobile platforms,
including the AA breakdown app. More than 1 million members are now registered for
the app and it continues to be used in about one-third of breakdowns that we service
for our members. We are also making good progress with the development of our connected
car strategy. During the second half of this year, we will add new functionality
including integrating elements of our Car Genie app into the AA breakdown app thereby
allowing our members to benefit fully from an integrated journey from the point 
of breakdown that we believe will drive higher levels of member engagement.

**Insurance**

Our Insurance business, comprising the broker, in-house underwriter and our financial
services business, continues to perform well.

Since 31 July 2017, we have achieved 7% growth in motor policies to c659,000, in
line with our expectations. In addition, we are pleased to report that we are making
good progress with stabilising the decline in the home policy book. Since the year
end the home policy book has been broadly flat, well ahead of our expectations. 
Supported by our in-house underwriter and our investment in systems including Insurer
Hosted Pricing, we expect further growth in our motor policy book and to return 
the home policy book to growth in FY20.

Our in-house underwriter continues to grow rapidly and now has c463,000 policies,
approximately half of which are motor policies. As announced with the strategy update,
we commenced underwriting a new motor insurance scheme in the period with Munich
Re to specifically target non-members. Alongside increased penetration within the
existing membership base we remain on-track to deliver strong growth for both the
underwriter and broker.

**Cash generation**

Our business continues to experience strong and predictable levels of cash conversion.
As a result of the recent refinancing, we have successfully managed to extend our
effective near term maturities until January 2022. The average maturity of our debt
is now just below five years and gives us the runway to execute our plans and deliver
growth in our Roadside and Insurance businesses.

We expect total capex spend for FY19 to be £105m (excluding capex accruals), in 
line with our guidance.

Our interim results for the six months ended 31 July 2018 will be published on 26
September 2018.

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