AA PLC AGM statement and results (5650H)

TIDMAA.

RNS Number : 5650H

AA PLC

08 June 2017

AA plc

Legal Entity Identifier: 213800DTPE4O5OI17349

8 June 2017

For immediate release

AA plc 2017 Annual General Meeting statement and results

Executive Chairman's statement

Today's AGM gives us the opportunity to highlight some of our achievements since the management buy-in and simultaneous IPO of the AA almost exactly three years ago.

We acquired the business with the intention of modernising the AA and transforming it into the UK's pre-eminent Membership services organisation. We are well on track. There is a great deal to excite Members, employees and stakeholders.

I shall start with a reminder of what the AA was at the outset and what we planned to do.

Three years ago:

   --     The AA had been deprived of investment in brand and technology. 
   --     Annual price rises were excessive and retention was falling. 

-- New business was nowhere near offsetting the decline in renewals and Membership numbers were declining at about 4% per year.

   --     Investment not being made to manage costs or improve productivity. 

-- There was little sense of what the AA did do or could do for Members beyond roadside assistance.

But against all that:

   --     Service levels had remained high because of the tenacity and talent of the patrol force. 
   --     Our brand still earned great loyalty and trust. 
   --     This was one of the most resilient, robust and cash generative businesses anywhere. 

In the original prospectus we set out our plan to transform the AA: strengthening its foundations, revolutionising the customer experience; and, creating the UK's pre-eminent services organisation. Simply, our intentions were to:

   1.   Revolutionise and expand our IT and technical capability. 
   2.   Grow our market leading position in Roadside Assistance, the core of our business. 
   3.   Build on our strong brand. 

4. Reduce the cost of borrowings which were too high as a result of the debt burden the previous owners had put on the AA.

This was always planned as a five-year project including an initial three years of much needed new investment, which will be substantially completed in the current financial year. We are delighted with the progress we have made and believe that we are approaching an inflection point when the sum total of all that labour will begin to bear fruit.

Let me summarise what has already been achieved:

We have hugely improved and expanded our technical capability with a total investment that will eventually amount to close on GBP130m.

-- In the 2017 financial year we delivered the bulk of our digital transformation, replacing our website and developing capability for customers to start self-serving online. Since the launch of our new website we have delivered double digit year on year growth in new business sales. In addition, our breakdown app is now used in 25% of breakdowns - providing a differentiating benefit to Members.

-- We also completed our new version of AA Help (our bespoke operational system), which is supporting further efficiency gains.

-- We have delivered a sophisticated, user-driven pricing engine which speeds up pricing changes from weeks to hours and facilitates "flexible" pricing. However, full usage and benefits depend on migrating all our legacy customers to our new PEGA customer relationship management (CRM) system.

-- Within our IT infrastructure we have upgraded 8,000 desktop machines, upgraded 700 servers (hardware and software) to the latest release, and have upgraded our networks, creating a platform to deploy our new systems. We upgraded from Windows XP to Windows 10 some 18 months ago.

-- We are currently building our solution to renew customers in our new policy administration and CRM system. The build remains on track, and we have begun early stage system.

-- The solution integrates policy administration with our already delivered investments in our new CRM system and pricing infrastructure. This combination will give us far greater flexibility and a step-change in the sophistication of how we target customers at renewal with the right offer, at the right time and at the optimum price. We believe that this new capability will deliver further improvements in our Roadside Assistance retention rates and average income per Member.

-- Full end-to-end testing of our new Roadside Assistance renewal capability is scheduled to start in September 2017. We will then commence two waves of live testing with small cohorts of customers to validate the operational processes and commercial benefit with subsequent roll out to all renewing customers.

Turning now to the correction of a decade's under-investment in the brand. We have improved marketing, established meaningful rewards for Membership and advertised our Roadside Assistance services on TV for the first time in nearly a decade.

Our latest advertisement was aired for the first time last Friday and it is too early to measure its impact. However, one very telling measure of our success to date - and effective management of resource - is that our first campaign was seen or heard by an individual on average 22 times in the first year but 60 times when it was refreshed a year later.

Overall spontaneous brand awareness has risen remarkably. At the time of the IPO it was 91% and it has risen to 94% which means that an extra 1.8 million people are aware of us.

This increased awareness, combined with the much improved marketing communications and the highly attractive Membership rewards has led to:

   --     Growth in new Members -  we reported growth of 14% at the year end. 
   --     A significant drop in the number of calls from people wanting to cancel their Membership. 
   --     Increased retention rates - up from 79% at the IPO to 82% last financial year. 

Turning around the decline in Membership to a position from which we can now begin to grow is a very significant achievement in just three years, especially in light of the increase in IPT and increased regulatory scrutiny.

Membership - what we are doing to make it more attractive. Our aim is to become the UK's pre-eminent Membership organisation. We do this by developing a suite of services and products that are part of Membership and by improving how we communicate with our Members. We are only at the beginning of this journey but I will give you a few examples of our progress to date.

We launched our partnership with Mitchells & Butlers in late 2015 which offers 20% off food and beverage at more than a thousand of their pubs and restaurants. We are nearing a run rate of one million redemptions per annum. We are also developing the technology which enables us to track individual usage so we can tell Members exactly how much that and other benefits are worth to them personally.

This is important because we know it drives retention. Members who engage with our benefits programme have renewal rates over 2% higher than the average. This increases as the level of engagement rises and is strongest among our younger Members. We already have ambitious plans to offer a much wider range of exclusive Membership benefits and rewards which will further enhance the offering.

The app is an important part of this journey. 35% of our Members are now registered to use it (up 15 percentage points on last year) and the Member benefits section is already the third most visited section.

We also offer much more relevant and personalised communication. In the past, a quarter of Members received more than five pieces of communication (usually mail) in the first 40 days of Membership. We now offer something much more succinct, targeted and personal. The welcome pack also arrives within eight days compared with 20 days a year ago.

All this is as a result of our new PEGA marketing system which will become even more powerful when properly integrated into our new CRM system

We have also done much to take full advantage of the power of our brand beyond Roadside Assistance. Our insurance broking business was started in the 1970s and has grown to become a very profitable operation in its own right, selling motor and home insurance policies to nearly 1.5m customers. Our brand consideration for people buying insurance is one of the highest in the industry.

However, over the last six years, our insurance business has suffered, like its peers, through the growth of price comparison websites which have been largely responsible for a reduction in the number of motor policies sold by the AA of almost 50%. Our investment in systems, technology and our underwriter has now stemmed the decline and we have seen the first growth in the size of our motor portfolio in eight years.

We recognised that if we could use our data on Members, we should be able give many of them the benefit of more competitive pricing. Our underwriter, which was launched in January 2016, takes advantage of that data. The book now comprises 270,000 insurance policies, sold mostly to Roadside Members many of whom are coming into our insurance fold for the first time. This has also helped to reverse the decline in motor insurance policies sold by our broker.

We have rebuilt our financial services positioning. In the past, we made a lot of money from selling financial services and there is no reason we should not do so again. We launched our partnership with the Bank of Ireland in August 2015 and are very pleased with our progress.

There are many other opportunities for the AA brand, in driving schools, home emergency, used car sales, vehicle inspections among other opportunities. All of these will play a growing part in the future of the AA.

Touching on Car Genie, our connected car product which we launched in April.

We are excited about the potential this brings as a tool for Members to manage their own vehicles but also for us as a means of anticipating potential problems. Our trial has shown that we can remotely predict about a third of breakdowns, enabling us to offer Members appointments to resolve problems before they cause a breakdown. This could dramatically change the nature of our business for the good of Members and our own cost management.

Which brings me onto costs. We have done much to improve productivity and cut costs throughout the business. We have already set out our plans to reduce costs off the 2015 cost base of at least GBP40m from the 2019 financial year, and we are half way through that plan. As anticipated, we have reinvested some of those savings as part of the transformation, most notably in the brand and people.

One of the most material benefits for shareholders has been the reduction in the cost of servicing our debt. The cost of new investment and our transformation programme has meant that we have not yet focused on deleveraging, except through the application of the GBP106m of proceeds from the sale of our Irish business. However, we have substantially reduced our interest costs.

The two refinancings since the IPO have reduced the blended cost of debt from 5.9% to 4.6% which equates to a cash reduction of GBP78m per annum on interest paid. A great achievement.

Finally, we have are making progress on pensions. This will be the subject of a separate announcement.

These achievements have only been possible through the very deep change we have made to the culture of the AA. We have transformed the way people think about the business and the potential for improving it, expanding it and growing it, without losing the quality of service and the values which lie at its core.

In summary, we have created the strong foundations for the UK's pre-eminent Membership services organisation which is now poised for growth. We expect revenue growth to lead to higher cash generation giving us the potential to return more cash to shareholders, directly or indirectly through debt repayment.

Trading in line. We are trading in line with market expectations and will announce half year results on 26(th) September.

Bob Mackenzie

Executive Chairman

8 June 2017

Results of the AGM

AA plc (the 'Company') announces that:

(1) In accordance with Listing Rule 9.6.3(1) R and 9.6.18 R, copies of the resolutions (other than those resolutions comprising ordinary business) passed by the Company at its Annual General Meeting ("AGM") held on 8 June 2017 have been submitted to the National Storage Mechanism and are available for inspection at www.hemscott.com/nsm.do;

(2) All of the resolutions put to the Company's AGM, with the exception of Resolution 16, were passed on a show of hands. Details of the proxy voting instructions lodged for each resolution are set out below:

 
       Resolution        Proxy             %                 Proxy         %       Total              Proxy 
                          Votes                               Votes                 Proxy              Votes 
                          For (including                      Against               Votes              Withheld* 
                          Chairman's                                                Cast (excluding 
                          discretion)                                               votes 
                                                                                    withheld) 
----  ----------------  ----------------  ----------------  ------------  ------  -----------------  ----------- 
                                                ORDINARY BUSINESS 
---------------------------------------------------------------------------------------------------------------- 
                                              ORDINARY RESOLUTIONS 
---------------------------------------------------------------------------------------------------------------- 
       Accounts 
        and the 
 1.     report               447,981,581             99.92       340,000    0.08        448,321,581      278,113 
----  ----------------  ----------------  ----------------  ------------  ------  -----------------  ----------- 
       Directors' 
        Remuneration 
 2.     Report               416,215,015             93.13    30,698,628    6.87        446,913,643    1,686,051 
----  ----------------  ----------------  ----------------  ------------  ------  -----------------  ----------- 
       Final 
 3.     Dividend             448,587,508             99.99         9,155    0.01        448,596,663        3,031 
----  ----------------  ----------------  ----------------  ------------  ------  -----------------  ----------- 
       Re-elect 
 4.     Bob Mackenzie        382,038,559             96.40    14,263,273     3.6        396,301,832   52,297,862 
----  ----------------  ----------------  ----------------  ------------  ------  -----------------  ----------- 
       Re-elect 
        Martin 
 5.     Clarke               396,185,213             99.97       108,583    0.03        396,293,796   52,305,898 
----  ----------------  ----------------  ----------------  ------------  ------  -----------------  ----------- 
       Re-elect 
 6.     John Leach           446,873,033             99.62     1,682,590    0.38        448,555,623       44,071 
----  ----------------  ----------------  ----------------  ------------  ------  -----------------  ----------- 
       Re-elect 
        Andrew 
 7.     Miller               447,417,215             99.74     1,166,733    0.26        448,583,948       15,746 
----  ----------------  ----------------  ----------------  ------------  ------  -----------------  ----------- 
       Re-elect 
        Andrew 
 8.     Blowers              448,040,761             99.88       543,187    0.12        448,583,948       15,746 
----  ----------------  ----------------  ----------------  ------------  ------  -----------------  ----------- 
       Re-elect 
        Simon 
 9.     Breakwell            448,138,391             99.90       445,557     0.1        448,583,948       15,746 
----  ----------------  ----------------  ----------------  ------------  ------  -----------------  ----------- 
       Re-elect 
 10.    Suzi Williams        448,479,794             99.98       105,465    0.02        448,585,259       14,435 
----  ----------------  ----------------  ----------------  ------------  ------  -----------------  ----------- 
       Re-appointment 
 11.    of auditors          441,048,258             98.43     7,017,234    1.57        448,065,492      534,202 
----  ----------------  ----------------  ----------------  ------------  ------  -----------------  ----------- 
       Remuneration 
 12.    of auditors          442,928,341             98.74     5,663,575    1.26        448,591,916        7,778 
----  ----------------  ----------------  ----------------  ------------  ------  -----------------  ----------- 
       Political 
 13.    donations            371,590,016             82.83    77,006,495   17.17        448,596,511        3,183 
----  ----------------  ----------------  ----------------  ------------  ------  -----------------  ----------- 
       Authorise 
        directors 
        to allot 
 14.    shares               339,812,090             75.75   108,781,425   24.25        448,593,515        6,179 
----  ----------------  ----------------  ----------------  ------------  ------  -----------------  ----------- 
                                               SPECIAL RESOLUTIONS 
---------------------------------------------------------------------------------------------------------------- 
       Disapplication 
        of pre-emption 
 15.    rights               392,952,854             87.60    55,627,993    12.4        448,580,847       18,847 
----  ----------------  ----------------  ----------------  ------------  ------  -----------------  ----------- 
       Further 
        disapplication 
        of pre-emption 
 16.    rights               287,810,711             64.16   160,773,541   35.84        448,584,252       15,442 
----  ----------------  ----------------  ----------------  ------------  ------  -----------------  ----------- 
       Authority 
        to purchase 
 17.    own shares           446,365,824             99.58     1,865,688    0.42        448,231,512      368,182 
----  ----------------  ----------------  ----------------  ------------  ------  -----------------  ----------- 
       Reduced 
        notice 
        for general 
        meetings 
        (other 
        than annual 
        general 
 18.    meetings)            434,687,483             96.90    13,902,707    3.10        448,590,190        9,503 
----  ----------------  ----------------  ----------------  ------------  ------  -----------------  ----------- 
 

* A vote withheld is not a vote in law and is not counted in the calculation of the proportion of votes for or against a resolution.

AA plc acknowledges that Resolution 16, in relation to a further 5% disapplication of pre-emption rights, was not passed at the AGM held on 8 June 2017. Resolution 14, which grants authority to allot shares, was passed although a high number of votes were received against it. A process of shareholder consultation has commenced and we have been informed that some significant shareholders generally oppose share issuances with pre-emptive rights above 33% and without pre-emptive rights above 5% and therefore this vote against is not specific to the AA.

The issued share capital as at 8 June 2018 was 609,806,764. The total number of proxy votes cast was 448,596,663, which represents 73.6% of the issued share capital of the Company.

Enquiries

 
 Investors 
 Jill Sherratt, Head of Investor 
  Relations, AA plc 
  James Curran, Investor Relations 
  Manager, AA plc                     [phone] 
  Mark Millar, Company Secretary       [phone] 
  and General Counsel                  [phone] 
 Media - Headland                     [phone] 
 Francesca Tuckett / Rob Walker 
 

This information is provided by RNS

The company news service from the London Stock Exchange

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June 08, 2017 07:37 ET (11:37 GMT)