Aviva Plc · LSE:AV.
Aviva — RAC — FY2004 Earnings Presentation
61 slides from Aviva's earnings presentation, Feb 16, 2005
Slide 1: Preliminary Results
1 Preliminary Results Wednesday 16 February 2005 Peter Smith Chairman Andy Harrison Chief Executive Richard Pennycook Finance Director
Slide 2: Preliminary results - agenda
Preliminary results - agenda Highlights of the year Opportunities and issues Financial summary Prospects 2
Slide 3: 2004 highlights
2004 highlights z Continuing revenues up by 8% z Underlying profits up by 12% z Profit before tax* up from £86.7m to £88.6m z Debt reduced by £15m to £139.8m z Dividend up 6.2% to 25.8p 3 *before goodwill amortisation and exceptionals
Slide 4: 2004 highlights
2004 highlights Revenue Growth z Total Roadside Ç 6% z Motoring Services Ç 29% z Business Solutions Ç 6% z LVL Ç 17% Profit Growth z Continuing growth in Roadside and Motoring Services z Business Solutions Ç271% z LVL Ç 16% Strategic z Financial Services; big opportunity z Paccar; value maximised z
Slide 5: RAC's vision – the best motoring services provider
RAC’s vision – the best motoring services provider Delivering inspirational service - by being a great place to work - and Six Sigma quality programme Growth through leveraging our brands and customer base - in Consumer and in B2B 5
Slide 6: Highlights - delivering inspirational service
Highlights - delivering inspirational service Fleet Excellence awards – Service Supplier of the Year and the Best in Driver Training - BSM Accident Management - RAC Business Solutions Vehicle Leasing - LVL Fleet Software - RAC Software Solutions Vehicle Recovery - Roadside J D Power No.1 In Roadside
Slide 7: Highlights - being a great place to work
Highlights - being a great place to work Colleague Satisfaction Survey 2002 2003 2004 Satisfaction 70% 71% 73% Response rate 73% 87% 86% 7
Slide 8: Leveraging our brands and customer base
Leveraging our brands and customer base Consumer z Grow our membership base z Expand Motoring Services Business Services z Grow in 5 target sectors: – Motor manufacturers – Insurance – Airside – Defence – Utilities 8
Slide 9: Challenges in 2004
Challenges in 2004 Consumer z Accelerating Roadside revenue growth RAC Auto Windscreens z Financial performance 9
Slide 10: Roadside revenues
Roadside revenues Continuing growth Consumer 3% Business Solutions 13% Total Roadside revenues 6% 10
Slide 11: Consumer - membership
Consumer - membership Units 2.2m 90% 80% 70% File Size (m) 2.1m 60% Renewal % 50% 40% 2.0m 30% 20% 10% 1.9m 0% 2000 2001 2002 2003 2004 z Membership growth of 4% pa 2000-2003 z 2004 dip in renewal rate, due to process issues z Renewal rate now back to 82% - membership returned to growth 11
Slide 12: Consumer - Roadside revenues
Consumer - Roadside revenues Competitive position remains strong z New member acquisition up 9% on 2003 z Market share maintained z Roadside service at record levels 12
Slide 13: Consumer - process issues resolved
Consumer - process issues resolved 2004 peak January 2005 Payment Failures - credit card 22% 8% - direct debit 7% 3% Abandoned call rate 25% 6% z Renewal rate in December 2004 and January 2005 back up to 82% z Membership returned to growth 13
Slide 14: RAC Auto Windscreens - generates substantial value
RAC Auto Windscreens - generates substantial value Units 900k £100m 800k £95m 700k £90m 600k £85m £80m 500k £75m 400k £70m 300k £65m 200k £60m 100k £55m 0k £50m 2002 2003 2004 Glass Jobs Sales z Good business in a mature market – Generated £44m cash flow since acquisition – Delivered a 10% return on
Slide 15: RAC Auto Windscreens - insurance sales
RAC Auto Windscreens - insurance sales z 3 major insurance companies chose to single source z Auto Windscreens was minor supplier and squeezed out z Profits impacted by financial and operational gearing z We are the leader in the fleet market 15
Slide 16: RAC Auto Windscreens - improvement plans
RAC Auto Windscreens - improvement plans Revenues z Won CIS business z New insurance proposition Efficiency z New working practices z Process improvement Profits z Expected to be stable 16
Slide 17: Opportunities arising in 2004
Opportunities arising in 2004 z Major financial services opportunity z Continuing growth and the potential deregulation of legal services z Continuing growth in Business Services 17
Slide 18: Major Financial Services opportunity
Major Financial Services opportunity z Financial Services is important – AA £50m profit – Saga £60m profit z 2004 RAC regained control: good progress – Sales up 59% – Integration ahead of schedule and costs below budget – On track for 450k policies by end of integration phase – Organic growth in 200
Slide 19: Major Financial Services opportunity
Major Financial Services opportunity z Strong and trusted brand – resonance in motoring financial services z A competitive proposition z Small market share of 0.5% for motor insurance 19
Slide 20: Major Financial Services opportunity
Major Financial Services opportunity z Untapped membership file (2% have RAC insurance) z Motor Insurance renewal dates will reduce cost of customer acquisition z Access to the young driver market – 150,000 BSM pupils z Big motor claims handler z Many motoring ‘touchpoints’ - breakdown, glass replac
Slide 21: Continuing growth in Legal Services
Continuing growth in Legal Services Performance in 2004 z Sales up 46% z Legal Expense Insurance (LEI) policies sold up 14% z Personal Injury (PI) cases handled up by 10% 21
Slide 22: Legal Services opportunity
Legal Services opportunity z LEI penetration of car insurance only 50% (12.5m policies) - RAC share 19% z Sell LEI directly to members z Scope to grow our market share of PI market – currently 6% z Margins very high; some pressure inevitable, especially from insurance companies, re-examining their b
Slide 23: Increased marketing investment already planned
Increased marketing investment already planned z 2005 will see a £5m increase in direct marketing to support these high growth areas z Partly funded by cost reduction programme end 2004 23
Slide 24: Continuing growth in Business Services
Continuing growth in Business Services Target £m 2003 2004 Market Defence 74 71 200 Insurance 105 107 500 Vehicle manufacturers 79 103 300 Airside 13 17 50 Utilities 5 5 50 Total 276 303 1100 Growth 10% hDefence – continuing success hVehicle Manufacturers – LVL Ford contract – Business Solutions hAi
Slide 25: Continuing growth in Business Services
Continuing growth in Business Services z ‘C’ vehicles – expected signature end Q1 – full implementation end 2006 z White label opportunities in Contract Hire z Vehicle Solutions opportunities z Continuing growth in LVL and RAC Business Solutions 25
Slide 26: Summary
Summary z Underlying profits continue to grow strongly z Continuing sales growth in Consumer and Business Services z Roadside renewal rate improvement - membership growing z Auto Windscreens responding to action z Big opportunities in Legal Services and Financial Services 26
Slide 27: Richard Pennycook, Finance Director
Richard Pennycook Finance Director
Slide 28: Financial review - revenue summary
Financial review - revenue summary £m 2003 2004 % Consumer Services 353.1 374.8 6 Business Solutions 160.8 169.8 6 LVL 207.2 241.8 17 Manufacturer Support Services 677.1 720.2 6 Other 3.3 2.5 -24 Total – continuing operations 1,401.5 1,509.1 8 28
Slide 29: Financial review - operating profit summary
Financial review - operating profit summary £m 2003 2004 % Consumer Services 51.3 47.5 -7 Business Solutions 1.4 5.2 271 LVL 19.6 22.7 16 Manufacturer Support Services 32.0 26.8 -16 Other -5.7 -4.7 -17 Total continuing operations 98.6 97.5 -1 Discontinued operations -2.5 - - PBIET 96.1 97.5 1 Intere
Slide 30: Financial review - underlying profit growth
Financial review - underlying profit growth £m 2003 2004 % Reported PBET 86.7 88.6 2 Leyland contribution -21.8 -17.4 End of DAF contract -3.8 - Discontinued operations 2.5 - Continuing business 63.6 71.2 12 30
Slide 31: Financial review - Consumer revenues
Financial review - Consumer revenues £m 2003 2004 % Roadside 198.7 205.4 3 BSM 31.8 34.9 10 Legal Services 10.3 15.0 46 Financial Services 8.7 13.8 59 Other 6.7 10.5 57 Motoring Services 57.5 74.2 29 RAC Auto Windscreens 96.9 95.2 -2 Total Revenue 353.1 374.8 6 31
Slide 32: Financial review - Consumer profits
Financial review - Consumer profits £m 2003 2004 Reported PBET 51.3 47.5 After charging: - restructuring - 2.5 One off - AXA integration - 1.9 One off - IMD implementation - 2.0 Recurring 32
Slide 33: Financial review - Business Services profit
Financial review - Business Services profit £m 2003 2004 % RAC Business Solutions 1.4 5.2 271 Lex Vehicle Leasing 19.6 22.7 16 Manufacturer Support Services 32.0 26.8 -16 Business Services - trading profit * 53.0 54.7 3 - end of DAF contract -3.8 - - normal Leyland conribution/other -10.0 -7.4 - add
Slide 34: Lex Vehicle Leasing - impairment provision
Lex Vehicle Leasing - impairment provision £m Impairment provision – December 2003 16.3 Created with Ford acquisition 2.5 Utilised in the year -1.0 Impairment provision – December 2004 17.8 34
Slide 35: Financial review - goodwill and exceptional items
Financial review - goodwill and exceptional items £m 2003 2004 Goodwill amortisation -5.6 -7.8 VAT refund - 3.0 Interest on VAT refund - 3.3 Leyland parts termination - 4.5 Exiting from Mechanical Handling -53.7 -11.2 Exiting from Isuzu/other -2.5 -3.9 Profit on disposal of fixed assets 0.8 1.2 Tota
Slide 36: Financial review - operating cash flow
Financial review - operating cash flow £m 2003 2004 Operating profit before goodwill 38.9 73.3 Interest paid -10.5 -6.2 Tax paid -13.6 -19.8 Working capital -4.5 5.2 Capital expenditure - net 36.3 5.4 Dividends from jvs and associates 15.2 18.5 LVL - Ford funding - -14.0 Operational cash flow 61.8 6
Slide 37: Financial review - cash flow
Financial review - cash flow £m 2003 2004 Operational cash flow 61.8 62.4 Disposals/ (acquisitions) 90.0 -15.1 Dividends paid -26.9 -28.4 Purchase of ESOS shares - -7.7 Other movements 3.0 3.3 Net reduction in debt 127.9 14.5 Closing debt 154.3 139.8 Average debt in period 211.0 145.9 37
Slide 38: Financial review - effect of Paccar disengagement
Financial review - effect of Paccar disengagement £m 2002 2003 2004 Lex Auto Logistics PBIT 24.5 23.5 15.5 Of which: DAF contribution 7.1 3.8 - Normal Leyland contribution 10.7 10.0 7.4 Additional Leyland margin 8.4 11.8 10.0 Pro forma LAL ex Paccar -1.7 -2.1 -1.9 hExcludes £18m exceptional terminat
Slide 39: Pensions
Pensions z RAC maintains an open defined benefit scheme z Actions were taken in 2003 to address the deficit, with additional annual company contributions of £5m and a similar level of contribution increase for members z Approximately half the company contribution (c£11m) goes towards deficit closure
Slide 40: Financial review - IFRS summary
Financial review - IFRS summary z Affecting RAC and UK plcs – Share options (IFRS 2) - executive and SAYE – Pensions (IAS 19) – Financial instruments (IAS 39) z Affecting LVL, Transfleet and Legal – Leases (IAS 17) y profit recognition towards end of contract y reduces short term earnings (timing di
Slide 41: Summary
Summary z Strong underlying profit growth – Up 12% pa over last 3 years z Expect continuing growth in Consumer and Business Services z Roadside renewal rate is improving - membership growing z Auto Windscreens is responding z Big Financial Services opportunity z Cashflow remains strong 41
Slide 42: Additional Material
Additional Material Preliminary Announcement 16 February 2005
Slide 43: Roadside – No.1 in breakdown and service excellence
Roadside – No.1 in breakdown and service excellence 2003 2004 % Revenue £198.7m £205.4m 3 Member 2.19m 2.19m - Renewal Rate 83% 80% -3% z Continuing revenue growth z Leading edge technology underpins service awards z Best ever service levels – Customer satisfaction 86.9% (2003: 86.5%) 43
Slide 44: Motoring Services continues to grow strongly - BSM
Motoring Services continues to grow strongly BSM Sales 2003 : £31.8m 2004 : £34.9m z Sales growth: 10% z Record number of instructors: 3,039 - (2,817) z Record number of pupil starts: 157k - (145k) 44
Slide 45: Motoring Services continues to grow strongly - Legal Services
Motoring Services continues to grow strongly Legal Services Sales 2003 : £10.3m 2004 : £15.0m z Strong sales growth continues - up 46% z 21.4k PI claims handled - up 10% z In-house legal team increased by 55% to 45 z 2.4m legal expense policies sold - up 14% 45
Slide 46: Personal injury market place
Personal injury market place RAC personal Market potential * injury cases handled 25 557k 20 2004 2002 15 21.4k 17.8k 375k Actual RTA 10 Claims 5 2003 19.4k Potential 0 RTA Claims 2002 2003 2004 46 * Source: Datamonitor Personal Injury Report 2004
Slide 47: Motoring Services - Financial Services
Motoring Services continues to grow strongly Financial Services Sales 2003 : £8.7m 2004 : £13.8m z Total sales grow by 59% z Like for like sales grow by 16% z Total policy base reaches 276k - up 4% z Industry leading renewal rates achieved z AXA Direct transaction on track - but early days 47
Slide 48: Business Solutions performs well
Business Solutions performs well £m 2003 2004 % Revenue 160.8 169.8 6 Profit 1.4 5.2 271 z New contracts and services – driver license verification – customer management centre (Kia) – centralise booking service (Vauxhall & Daimler Chrysler Fleet Services) – growth in France y accident management la
Slide 49: Lex Vehicle Leasing continues to grow
Lex Vehicle Leasing continues to grow £m 2003 2004 % Revenue 207.2 241.8 17 Profit 19.6 22.7 16 Fleet size 102.3 123.6 21 z Strong growth in core fleet (8%) z Ford integration successfully completed - other white label opportunities z Residual values more favourable than projected 49 *RAC share
Slide 50: Lex Vehicle Leasing - cash flow
Lex Vehicle Leasing - cash flow £15m £10m £5m £0m -£5m -£10m -£15m -£20m H1 -£25m 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Cumulative contribution to RAC – 50 £72m (RAC share)
Slide 51: Annual % change in the CAP composite
Annual % change in the CAP composite 15% H1 H2 10% 5% 0% -5% -10% 1997 1998 1999 2000 2001 2002 2003 2004 51
Slide 52: Profit & Loss
Profit & Loss £m 2003 2004 % PBIET 96.1 97.5 1 Interest -9.4 -8.9 -5 PBET 86.7 88.6 2 Goodwill amortisation -5.6 -7.8 Operating exceptional items -30.2 10.8 Exceptional items -25.2 -13.9 PBT 25.7 77.7 202 Taxation -16.2 -25.2 56 PAT 9.5 52.5 453 52
Slide 53: Balance sheet
Balance sheet £m 2003 2004 Fleet assets 10 - Goodwill 501 534 Other fixed assets/investments 222 234 Working capital/other -180 -200 Capital employed 553 568 Net debt -154 -140 Shareholders’ funds 399 428 Closing net debt is after offsetting £36m of ring fenced cash and investments 53
Slide 54: Financial ratios
Financial ratios 2003 2004 Interest cover 10.2 11.0 Net debt/EBITDA 1.3 1.2 Underlying tax rate 28% 28% EPS (p) (pre exceptionals) 54.4 55.7 Dividend per share (p) 24.3 25.8 Dividend cover 2.2 2.2 54
Slide 55: Capital expenditure (1 of 2)
Capital expenditure (1 of 2) £m 2003 2004 Mechanical Handling Additions -19.2 -1.8 Disposals 5.1 1.8 Depreciation 52.3 3.4 (Profit) / loss on disposal -0.5 - Net capital expenditure 37.7 3.4 BSM Additions -33.1 -39.2 Disposals 30.7 34.9 Depreciation 0.7 0.4 (Profit) / loss on disposal 0.1 0.1 Net ca
Slide 56: Capital expenditure (2 of 2)
Capital expenditure (2 of 2) £m 2003 2004 Rest of Group Additions -37.4 -29.9 Disposals 12.6 8.7 Depreciation 24.2 28.4 (Profit) / loss on disposal 0.8 -1.4 Net capital expenditure 0.2 5.8 Total Additions -89.7 -70.9 Disposals 48.4 45.4 Depreciation 77.2 32.2 (Profit) / loss on disposal 0.4 -1.3 Net
Slide 57: 2003 restated
2003 restated £m Industrial Manufacturer Discontinued Solutions Support Operations Services Turnover Reported 2003 117.0 627.9 56.9 Transfleet -78.3 78.3 - Mechanical Handling -38.7 - 38.7 Multipart Universal - -8.8 8.8 Isuzu - -20.3 20.3 Reported 2004 - 677.1 124.7 Profit & Loss Reported 2003 -1.4
Slide 58: Average debt
Average debt Average debt FY FY FY £m 2002 2003 2004 334 CH 133 78 15 282 £350m NCH 162 133 131 Total 295 211 146 £300m £250m 154 140 £200m £150m £100m £50m £0m 12/01 12/02 12/03 12/04 58
Slide 59: Growing long term business
Growing long term business FY2001 FY2002 FY2003* FY 2004* £3,500m 250 250 £3,000m 610 518 £2,500m 739 842 C Vehicles 789 713 £2,000m Inventory Mngt 767 RAC Subs 685 410 535 £1,500m RAC Bus Sols 404 Contract Hire £1,000m 357 1,407 1,275 £500m 849 922 £0m £2,733m £2,832m £3,466m £3,291m 59 * Includes
Slide 60: Joint ventures / associates - profile
Joint ventures / associates - profile £m 2003 2004 RAC Equity Lex Vehicle Leasing 40.1 56.7 Transfleet 9.6 10.4 Hyundai Car Finance 5.9 5.8 Debt (RAC share) Lex Vehicle Leasing 321.4 391.1 Transfleet 53.4 39.7 Hyundai Car Finance 87.3 84.3 60
Slide 61: Business Services Revenue by Division
Business Services Revenue by Division Bus £m MSS LVL Cons’er Solu’ns Total Defence 50 18 2 1 71 Insurance 8 0 9 90 107 Vehicle Manufacturers 24 27 0 52 103 Airside 17 0 0 0 17 Utilities 2 3 0 0 5 Total 101 48 11 143 303 61