AA : FY17 Pre-close announcement

8 February 2017

AA plc

Trading in line with expectations

Transformation on track - Membership growth reverses long-standing decline

The AA will announce results for the financial year ending 31 January 2017 on 28 March.

Trading for the year is in line with market expectations and an important milestone has been achieved with growth in Membership numbers. The number of paid personal Memberships at 31 January 2017 was 3,335,000, a rise of 0.4% since 31 July 2016. This was driven by a 19% growth in new business volumes in the second half compared with the corresponding period in the prior year and an improved annual retention rate of 82%.

The IT transformation programme continues to make good progress. We are especially pleased that sales through our digital channel have grown significantly and that our new CRM (Customer Relationship Management) system allows us to undertake better targeted marketing campaigns. Our AA breakdown app has now been downloaded by more than one million personal Members and is being actively used in 22% of breakdowns. In the year ahead we expect to begin processing both new business and Membership renewals through our new IT systems which will improve the Membership experience and deliver further cost benefits. This and other efficiencies within our core business underpins our confidence that we can meet our cost saving targets for the 2019 financial year.

The number of breakdown incidents in the year grew by 5%, reversing the trend of gradual decline. Whilst unhelpful for costs in the short term, it nonetheless underscores the continued demand for our services and enhances a customer's likelihood of renewing their Membership.

The insurance business has also started to show progress. In its first year of business the AA's in-house underwriter has performed ahead of expectations underwriting 115,000 motor insurance policies. The majority of these were new customers to the AA's insurance business. The success of the underwriter has also contributed to the first increase in motor policy numbers within our broking business since 2008.

The external environment has been less than helpful following three successive rises in Insurance Premium Tax (IPT) which will have doubled the rate from 6% before November 2015 to 12% from June 2017. We have managed to protect our Members by absorbing some of this price rise, but this is an industry-wide challenge and we will need to review our pricing policy in the context of any future increase in IPT. We continue to invest in the quality and range of our Membership services. In this way we seek to mitigate the possible impact of price rises on the propensity of both new and existing Members to purchase our product.

Our most recent refinancing exercise in December 2016 has reduced our annual cost of borrowings by £10m, bringing the cumulative savings achieved since the IPO in June 2014 to £75m per annum. This reduction in interest costs, combined with much lower capital spend as our transformation programme nears completion, means that we should begin to see significant improvements in the cash flows available for debt repayment. We will continue to explore ways of further reducing our debt service costs as opportunities present themselves.

Looking forward, the resilience and underlying strength of the AA is clearly evident and the outlook remains positive. We are confident of achieving further progress in the 2018 financial year.

Enquiries

Investors - The AA IR
Jill Sherratt	[phone]
James Curran	[phone]
Media - Headland Consultancy
Francesca Tuckett	[phone]
Lucy Legh	[phone]