RAC plc Interim results statement for the six months to 30 June 2004

Article date: 28 July 2004

Continuing progress

RAC plc continues to make progress and we have delivered a solidfinancial performance in the first six months of 2004. Thehighlights include:

  • Delivering increased customer satisfaction through ourroadside services. In June we were voted No.1 Roadside AssistanceProvider in the annual JD Power and Associates survey. Thisreflects the calibre of our colleagues and the support theyreceive through our systems and infrastructure investments
  • Growing revenue by 19% in our Motoring Servicesbusinesses
  • Achieving good profit growth and higher quality earnings inRAC Business Solutions and providing a broader range of servicesto customers
  • Building on Lex Vehicle Leasing’s UK position as aleading leasing company, with a 26% growth in the total fleet to125,000 vehicles. This includes the successful integration of theFord contract, announced at the end of 2003
  • Delivering strong revenue growth at Hyundai, with a record19,600 new registrations
  • Financial results
    The Group has performed well in the first half with trading inline with our expectations. We have made further progress towardsfocusing on our core activities with the completion of thedisposal of the Mechanical Handling businesses in France, Belgiumand the UK. We also concluded the disposal of Isuzu, our smalltruck importership.

    Total turnover from continuing operations, includingRAC’s share of joint ventures and associates, increased by6% to £753.2 million (first half 2003, £710.2 million). Profitbefore goodwill amortisation, exceptional items and tax grew by4% to £44.9 million (first half 2003, £43.1 million). Earningsper share on this basis increased by 4% to 28.2p (first half2003, 27.2p).

    During the period we benefited from the net repayment of aretrospective VAT claim of £1.7 million and an associatedinterest credit of £2.0 million. These have been treated asexceptional items. After goodwill amortisation and otherexceptional losses resulting from disposals, profit before taxwas £33.9 million (first half 2003, £15.4 million).

    Earnings per share calculated in accordance with FRS 14 were19.0p (first half 2003, 8.3p).

    Net debt reduced to £122.8 million from £154.3 million at theend of 2003. Of this £31.5 million reduction, £12.3 million camefrom disposals.

    The Board hasincreased the interim dividend to 10.2p (2003,9.7p), an increase of 5%. This will be paid on 2 September 2004to shareholders registered at the close of business on 6 August2004.

    Operating results
    Across the UK we now cover over 7 million motorists througheither individual membership, affinity sales, insurance or coverprovided through our motor manufacturer relationships.

    In June, RAC was voted No.1 Roadside Assistance Provider inthe annual JD Power and Associates survey and came top in 22 outof the 23 measures in the survey. This reflects the investment wecontinue to make in our colleagues, our systems and ourinfrastructure. Our roadside patrols are now equipped withRACScan, a PC-based tool designed to diagnose faults, allowingthem to quickly and accurately identify the breakdown problem atthe roadside. This has undoubtedly helped us keep our membersmoving and our patrols now fix 80% of vehicles at theroadside.

    Consumer Services
    RAC Consumer Services provides a range of motoring and relatedservices for individual motorists including: roadside assistance,financial services, legal services, driver tuition and training,and vehicle glass replacement.

    The business performed well in the first half of 2004 withrevenues up by 7% to £185.1 million, (first half 2003, £173.6million) and profits up by 4% to £26.6 million (first half 2003,£25.7 million). We are confident in our ability to drive furthervalue to our customers through extending our relationship withthem.

    Roadside revenues grew by 5% to £101.6 million in the first halfof the year (first half 2003, £96.6 million).

    Our individual file continued to grow and at the end of theperiod we had 2.2 million members. This represented a lower rateof growth than had been experienced previously; reflecting thenatural period of bedding down required by the new CCM systeminstalled at the end of 2003. Our renewal rate remained high at83%.

    Motoring Services
    Motoring Services’ revenues increased by 19% to £33.5million in the first half of the year (first half 2003, £28.1million).

    RAC Legal Services operates a panel of 24 firms of solicitorsaround the UK and an in-house team of 45 solicitors. Personalinjury claims handled increased by 22% to 13,100. The number oflegal expense policies sold grew by 7% to 1.1 million and we nowunderwrite more than 2.1 million policies. Overall, RAC LegalServices maintained its double digit growth rate established overthe past four years, with revenue increasing by 39% to £6.8million (first half 2003, £4.9 million).

    BSM, the UK’s largest driving school, underpinned itsmarket leadership by growing to over 3,000 instructors in thefirst half of 2004 which represents a 7% growth in the period. Wedelivered revenue growth of 4% to £16.8 million (first half 2003,£16.1 million).

    RAC Financial Services provides financial products rangingfrom motor insurance and motor loans through to home and travelinsurance. This business continues to show potential, developingsteadily over the last 12 months, albeit from a small base, andnow operates a broker panel of 20 leading insurers. We alsoprovide complementary benefits for policy holders in other areasof our business, with RAC Auto Windscreens as the supplier ofchoice for glass replacement, and RAC Legal Services providingservices for first notification of loss and personal injuryclaims. Revenue increased by 24% to £5.2 million (first half2003, £4.2 million).

    RAC Auto Windscreens
    RAC Auto Windscreens is number two in its market and operates ina highly competitive environment. In the first half of 2004 wehave delivered a more robust performance, albeit on a reducedmargin, and stabilised our revenue. Revenues in the first half of2004 were £50.0 million (first half 2003, £48.9 million).

    Business Services
    Through our existing operations, we work across the business tobusiness market with both the Lex brand, principally focused onfleet and commercial vehicle support services, and the RAC brandfor motoring-related insurance activities such as the claimshandling we provide for large insurance companies.

    In the first six months of 2004 Business Services’revenues from continuing operations grew by 6% to £566.8 million(first half 2003, £535.1million). As expected, there was areduction in profit as a result of the loss of the DAF contractand a lower contribution from the additional Leyland margin.

    RAC Business Solutions includes a range of services coveringvehicle inspections, customer contact centres, breakdown servicesand motor claims sold to motor manufacturers, fleet operators andinsurance companies. In the first six months of 2004, we extendedour customer relationships by selling existing customers newcontact centre and inspection services. Revenue grew by 8% to£85.0 million in the first half of 2004 (first half 2003, £78.7million) and profits by 188% to £2.3 million (first half 2003,£0.8 million). In France, we successfully launched an accidentmanagement business to fleet customers and expanded our warrantybusiness to corporate customers.

    Lex Vehicle Leasing, our joint venture with HBOS, continues toperform well, with the fleet growing to 125,000 vehicles, whichincludes the successful integration of vehicles from FordFinancial, a contract announced at the end of 2003. This contractwill be earnings enhancing in 2005. Although the used car markethas been stronger than expected, we are continuing to be cautiouswhen pricing contracts.

    Our share of revenue grew by 16% to £118.7million (first half2003, £102.5 million) and profit by 8% to £10.3 million (firsthalf 2003, £9.5 million). Lex Vehicle Leasing continues to be anintegral part of our service offering and provides significantvalue for shareholders, paying a net dividend to RAC plc of £64million over the last decade.

    Manufacturer Support Services includes: Lex Commercials, LexAuto Logistics, Hyundai, our car importership, and LexTransfleet, our joint venture with Lombard. Revenue grew 3% to£363.1 million, and profits were £12.6 million (first half 2003,£18.3 million) reflecting the expected reduction in profits fromour Paccar contracts; a £3.8 million reduction from thenon-renewal of the DAF contract and additional Leyland margin of£5.3 million (first half, 2003, £6.7 million). Hyundai performedwell, registering 19,600 new vehicles and increasing its marketshare to 1.4%.

    In addition to these individual operations we focus on fivekey sectors where the scope and range of our group services forma comprehensive proposition for major organisations.

    • Defence: where we manage over 14,000 vehicles for the MoDand are preferred bidder for their “C” VehicleCapability PFI – with an expected award made by the end of2004
    • Insurance: where we provide services from roadsideassistance to claims handling for clients including NorwichUnion, NFU Mutual and Lloyds TSB
    • Vehicle manufacturers: where we deliver roadside services– resulting in 41% of all new cars sold carrying RACmembership. We also provide parts supply, call centre supportand vehicle inspection services and have recently won a contractto provide outsourced contract hire services to FordFinancial
    • Airside: where we operate fleet management services and runover 6,300 vehicles for British Airways Ground FleetServices
    • Utilities: where we provide vehicle services to a range ofutilities including Thames Water, East Midlands Electricity andScottish Power

    We will continue to build our presence in these targetsectors, whilst taking a realistic view on the time it takes tocomplete large outsourcing contracts.

    Our strategy is to encourage growth through leveraging our brandsin both the consumer and business to business markets. We aredelivering results through this strategy and have confidence thatthe combination of our motoring heritage and broad-based motoringservice capabilities will create sustained growth opportunities.The Board anticipates delivering a full year performance in linewith their expectations.

    Notes to Editors
    RAC was ranked "No. 1 Roadside Assistance Provider in CustomerSatisfaction" in the J.D. Power and Associates 2004 UK RoadsideStudy SM. Study based on responses from 23,641 owners and driversof 51 and 02 registered vehicles who required roadsideassistance. www.jdpower.com

    Successfully completing thedisposal of Isuzu and the Mechanical Handling businesses

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