Half Yearly Report

AA plc

("AA", "the Company" or "the Group")

Interim results for the six months ended 31 July 2014

AA plc, the UK's largest Roadside Assistance provider, announces its interim results for the half year ended 31 July 2014.

1 Earnings before interest, tax, depreciation and amortisation excluding exceptional items, share-based payments, acquisition earn-out costs and items not allocated to a business segment

2 Trading EBITDA divided by revenue arising within operating segments

3 Net cash inflows from operating activities before tax and excluding cash flows from exceptional items

4 Net cash inflows from operating activities before tax and exceptional items divided by Trading EBITDA

Summary of key developments

· Maiden interim results as public company after accelerated IPO in June 2014; follows acquisition and Management Buy-in with backing of cornerstone institutional investors.

· Solid financial performance during the six months to 31 July 2014.

· Recent operational developments include:

o Retention for further five years of Lloyds Banking Group and TSB roadside accounts;

o Contract awarded by Volkswagen Group UK to provide Roadside Assistance, representing 20% of new car sales in the UK;

o Consolidation of leadership position in car manufacturer sector to 68% market share;

o Superior quality of the AA demonstrated by ninth year as Which? Recommended Provider for Roadside Assistance;

o Improved motor insurance policy sales stemming decline seen over recent years.

· Since the Management Buy-in and subsequent IPO, the Buy-in team has focused on familiarising itself with the business and developing a plan for growth based on three core strategic objectives:

o Further strengthen the AA as the pre-eminent motoring services organisation in the UK;

o Revolutionise the customer experience through investing in and embracing new technologies;

o Reduce Group borrowings and associated interest costs.

· New Non-Executive Director appointed and Board seeking to appoint an additional Non-Executive and a Senior Independent Director ahead of the anticipated Premium Listing.

· Successful launch of all-employee share plan with 58% take up, giving staff the opportunity to share in the success and performance of the business.

Financial highlights for the six months ended 31 July 2014

· Group revenues increased by 1.6% to £491.7m (2013: £484.1m);

· Trading EBITDA increased by 3.9% to £211.8m (2013: £203.8m), driven by Roadside Assistance;

· Trading EBITDA margins improved to 43.1% (2013: 42.1%), supported by operational cost efficiencies;

· Cash conversion (before exceptional items) at 100.9% (2013: 114.0%); positive working capital contribution to cash flow;

· Adjusted earnings per share of 11.6 pence for the period;

· Net debt to EBITDA reduced to 6.9 times; net debt as at 31 July 2014 £2,994.0m, driven by cash generation and IPO proceeds.

Reported results for the six months ended 31 July 2014

· Group revenues increased by 1.6% to £491.7m (2013: £484.1m);

· Reported operating profit decreased by 11.7% to £148.5m (2013: £168.2m);

· Exceptional costs were £39.4m (2013: £10.2m) and financing costs increased to £138.6m (2013: £47.1m);

· Reported profit before tax of £10.2m (2013: £121.2m) after total exceptional costs of £39.4m (2013: £10.2m) and the full impact of increased financing costs resulting from the refinancing put in place by the previous owners;

· Reported earnings per share of 5.7 pence (2013: 19.6 pence) reflecting exceptional costs and increased financing costs.

Bob Mackenzie, Executive Chairman, commented:

"These results demonstrate the stability and hugely cash-generative characteristics of this business. Since arriving at the AA less than three months ago, the new executive team has focused on getting to know the business in detail, assessing the business operations and infrastructure and developing the strategy for future long term growth. Progress has been made on all fronts but there is more to be done. In terms of the future, our task is to better capitalise on the strength of the AA brand; make the right investments to enhance our service to members and customers, and reduce the leverage of the business. These are the objectives we have set ourselves to deliver long-term value to our investors. The business continues to perform satisfactorily and the Board expects the full-year to be in line with market expectations."

Chairman's Statement

Following the acquisition and Management Buy-in in June 2014, the Group is pleased to report a solid financial performance in its maiden results as a public company. The AA continues to demonstrate the key characteristics that have proven attractive to the investors who supported the Management Buy-in team; predictable revenue generation, strong margin performance and excellent cash generation.  

Growth in profitability in the period has been driven by the core Roadside Assistance business which represents over 80% of the Group's Trading EBITDA. In addition, improved performance in Driving Services has also contributed to profit growth in the first half. Trading EBITDA has declined slightly in Insurance Services. However, some signs of improvement can be seen in motor insurance with a stabilisation of policy sales of this product. While the mandate of the buy-in team is to improve the longer-term performance of the business, overall trading results in the short-term are stable.

In the first six months, the AA has further consolidated its position as the leading provider of Roadside Assistance to business customers. The Group's largest customer, Lloyds Banking Group, renewed its Roadside Assistance contract for five years from April 2014, encompassing both Lloyds Bank and TSB brands. In the car manufacturer sector, the AA retained Ford Motor Company and Jaguar Land Rover contracts in the period and added the VW Group, Hyundai and Porsche more recently. In aggregate, the AA now provides Roadside Assistance to 68% of the UK's new vehicle market via manufacturer contracts.

The superior quality of service that the AA is able to provide to its Members and business customers was further highlighted in August by the Which? survey of Roadside Assistance providers for 2014. The AA again came top in terms of major breakdown providers and retained its Which? Recommended Provider status for the ninth year running. While customer service is closely monitored in the business, it is satisfying to know that the AA's market and product leadership is also independently validated by consumers.

Since the Management Buy-In and subsequent IPO in late June, the new management team has immersed itself within the AA so as to form a detailed understanding of the workings of the business. It has also made material progress in establishing appropriate practices and procedures for a public company in anticipation of a move to a Premium listing. Work has now begun on the development of a long-term plan for growth based on the three core strategic objectives set out at the time of the buy-in:

· To further strengthen the AA as the pre-eminent motoring services organisation in the UK;

· To revolutionize the customer experience through investing in and embracing new technologies; and

· To reduce Group borrowings and associated interest costs.

The recent history of the AA shows exactly why it is such a great business. Through one of the worst consumer downturns in living memory it has continued to grow profits and generate cash. It will continue to do so but there is also the potential to grow the business substantially. The new management team has already identified a number of opportunities and initiatives that have the capacity to deliver significant returns. As a public company committed to delivering long-term shareholder value, now is the time to invest for the future.

One of the key objectives of the plan will be to invest in new systems, people and, most importantly, the brand, so as to capitalise on the significant business opportunities that are available. Work is already underway to assess these and establish priorities for investment that will drive tangible growth in revenue and realise cost efficiencies. At the core of these plans will be investment in technology and systems designed to improve significantly the customer experience, particularly in the digital environment. Over the course of the next few months the buy-in team will quantify the investment required and the time scale necessary to achieve the anticipated results. These findings will be incorporated in a wider strategy review and vision that will be communicated to investors in advance of the publication of the full year results to January 2015.

During the first six months the Group issued further long-term bonds and refinanced its bank facilities for five years. Net cash generation after finance costs and exceptional items in the period of £35.6m, along with the equity proceeds of £200.1m received at the time of the IPO, means that net debt to Trading EBITDA has reduced to 6.9 times at the end of July 2014. Cash generation and reduction in borrowings will remain a key focus for the foreseeable future with emphasis on retiring the most expensive bonds in the debt structure efficiently and when cash generation allows.

The accelerated nature of the process by which the Group was brought to the public markets meant that changes to, and further strengthening of the Board, would be required following the listing. The recent, mutually agreed, departure of Chris Jansen has further clarified executive responsibility to investors and within the business. I would like to take this opportunity to thank Chris for his help and co-operation during our assimilation into the Company and wish him the best for the future. We have also initiated a search for a new Chief Financial Officer to replace Andy Boland, who will leave the Board in due course. We have recently announced the appointment of Simon Breakwell as Non-Executive Director. He brings with him a wealth of relevant experience to the AA and I very much look forward to working with him in the modernisation of the AA. In addition, we are seeking to appoint a further Non-Executive Director and also a Senior Independent Director and achieve a majority of independent non-executive Directors on the Board. Following these changes it is intended that the Company will seek a Premium Listing on the London Stock Exchange.

While the buy-in team has been in place for less than three months, significant progress has been made and momentum created in the business that will deliver sustained long-term growth that more fully reflects the potential of the AA brand. The business continues to perform satisfactorily and the Board looks forward to updating the market after the third quarter.

Bob Mackenzie

Executive Chairman

23 September 2014

Financial Report

As the Group operates in a number of markets with different performance measures, the aggregate performance of the Group is reported as shown in the table below.

1 Earnings before interest, tax, depreciation and amortisation excluding exceptional items, share-based payments, acquisition earn-out costs and items not allocated to a business segment

2 Trading EBITDA divided by revenue arising within operating segments

3 Net cash inflows from operating activities before tax and excluding cash flows from exceptional items (see note 6)

4 Net cash inflows from operating activities before tax and exceptional items divided by Trading EBITDA

Group revenues increased by £7.6m in the six months ended 31 July 2014 to £491.7m (2013: £484.1m). This was principally as the result of growth in revenues in Roadside Assistance due to stable retention rates and an increase in the average income per Personal Member.

Group Trading EBITDA increased by 3.9% to £211.8m (2013: £203.8m) in the six months ended 31 July 2014, principally as a result of continued profit growth in Roadside Assistance and the on-going benefits of cost management. As a result Trading EBITDA margins improved in the six months ended 31 July 2014 to 43.1% (2013: 42.1%).

Exceptional costs incurred in the six months ended 31 July 2014 of £39.4m included £33.6m relating to the IPO. In the corresponding period in the previous year, exceptional costs of £10.2m included £6.5m of costs relating to the financing transaction that took place on 2 July 2013 (see note 13). The remaining exceptional items of £5.8m in the six months ended 31 July 2014 (2013: £3.7m) principally related to cost restructuring activities.

Finance costs increased to £138.6m in the six months ended 31 July 2014 (2013: £47.1m). This increase is due to the full impact of the Group's financing activities that completed on 2 July 2013 and includes an exceptional write-off of debt issue fees of £17.9m (2013: £nil) due to the refinancing of £913m of debt in May 2014 and the on-going amortisation of debt issue fees of £6.2m (2013: £1.1m).

The tax credit for the period is £17.3m (2013: tax charge of £29.2m). This includes a credit of £21.9m relating to the recognition of tax losses that are forecast to be utilised against future taxable profits. Excluding this credit and the impact of non-deductible costs for corporation tax purposes relating to the IPO, the Group's underlying effective tax rate is 19.0% (2013: 24.1%).

No dividend has been declared in the period. For the six months ended 31 July 2013, the Acromas group was paid a dividend of £2,284.2m from the proceeds of the financing transactions that occurred when the Group was owned by Acromas Holdings Limited.

Segmental analysis

1Reported on a 12 month average basis

2Last 12 months

The Roadside Assistance revenue growth of 2.3% in the six months ended 31 July 2014 was driven by stable retention rates and an increase in the average income per Personal Member. The increase in Trading EBITDA also reflects a small reduction in the number of breakdowns attended over the last 12 months.

Roadside Personal Members have reduced by 2.2% compared to the same period last year, while average income per Personal Member has increased by 5.8% over the same period. Online new business prices were increased during the first six months of the year to more properly reflect the premium nature of our service, resulting in a short-term reduction in sales volumes. In addition, while retention performance has been stable, reduced Membership holdings in the six months ended 31 July 2013 have affected the overall level of renewing Personal Members in the current period. On-going improvements to both new business and retention performance will form an important part of the Management Buy-in team plans.

The average numbers of business customers have increased by 2.7% compared to the same period last year, which reflects the new contract wins during the period including the VW Group, Hyundai and Porsche and which are expected to continue to increase over the next 12 months.

1 Last 12 months excluding business customers

The Insurance Services segment includes the insurance brokerage activities of the AA, primarily in arranging motor and home insurance for customers, its home services activities and intermediary financial services business.

Revenue for the six months to 31 July 2014 has reduced to £72.3m (2013: £75.5m) due principally to lower income from fewer motor insurance customers than in the six months ended 31 July 2013. Trading EBITDA margin has also declined, reflecting the increased marketing costs associated with new business sales that has led to a stabilising of motor policy sales since the year end.

Insurance Services policy numbers in force reduced by 9.2% compared to the same period last year, due to lower volumes of motor insurance and home services policy sales. However improved competitiveness for AA motor insurance has led to a relative stabilisation of total policy sales at 2,222 for the year ended 31 July 2014 compared to 2,290 for the year ended 31 January 2014, with the fall since year end mainly relating to the curtailment of an introductory offer to home services customers.

The Driving Services segment contains the AA Driving School and the British School of Motoring, which are the two largest driving schools in the UK, as well as AA Drivetech, which provides driver training and educative programmes. The Driving Services segment also includes the AA's publishing and related media activities.

Revenue increased by £3.3m in the six months to 31 July 2014 due to increased volumes in AA Drivetech.

Trading EBITDA grew by £2.1m in the period driven by continued growth in AA Drivetech activities and savings on fleet costs within the driving schools. In July, the Group renegotiated the terms of its leases for the supply of driving school vehicles. This resulted in a change in the classification of these leases as finance leases and increased Trading EBITDA by £0.5m although operating profit is unchanged. During the period, the Group recognised an asset of £21.9m and a finance lease liability of £21.4m relating to these vehicles.

The Ireland business competes in the same segment types as the AA UK business, with the largest parts of their business being Roadside Assistance and Insurance Services. Despite the difficult economic conditions in the Republic of Ireland, the business has continued to perform well demonstrating the resilience of the AA business model. The weakening of the Euro compared to the comparative reporting period is the main driver of the small reduction in revenue in the period. On a constant currency basis, both Revenue and Trading EBITDA have improved by £0.3m.

Head Office costs include £0.4m of on-going incremental public company costs. Incremental public company costs are expected to be approximately £8m in a full year. This amount excludes the impact of share-based schemes that are separately disclosed and reported on outside Trading EBITDA.

Head Office costs, which include IT, finance, property and other back office support functions, have reduced by £1.1m due to a group restructuring project in the year ended 31 January 2014 as well as an on-going programme of cost management.

Cash flow, net debt and liquidity

1 Principal amounts of the Senior Term Facility and Class A Notes less AA Intermediate Co Limited group cash and cash equivalents

2 Principal amounts of the Senior Term Facility, Class A Notes, Class B Notes and finance leases less AA Intermediate Co Limited group cash and cash equivalents

3 Total cash and cash equivalents for the Group excluding the value reported as the AA Intermediate Co Limited group cash and cash equivalents

4 Ratio of Total Net Debt to Trading EBITDA for the last 12 months

5 Ratio of Net Debt excluding PIK notes2 to Trading EBITDA for the last 12 months

6 Ratio of Net Senior Secured Debt1 to Trading EBITDA for the last 12 months

7 Ratio of last 12 months free cash flow to proforma debt service relating to the Senior Term Facility and Class A Notes. For the prior period, these are presented on a proforma basis as if the Group had entered into these facilities on 1 August 2012.

8 Ratio of last 12 months free cash flow to proforma debt service. For the prior period, these are presented on a proforma basis as if the Group had entered into these facilities on 1 August 2012.

Cash generation for the Group has remained strong with net cash inflows from operating activities before exceptional items and tax of £213.7m (2013: £232.4m) and cash conversion of 100.9% (2013: 114.0%) in the six months ended 31 July 2014. Overall, improved profitability combined with net cash generation after debt service and primary proceeds from the IPO, has led to a further deleveraging of the Group. Net debt to Trading EBITDA for the last 12 months stood at 6.9 times and net senior secured debt to Trading EBITDA at 5.1 times as at 31 July 2014.

The Group has a cash balance of £438.4m, invested in AAA money market funds, giving overnight access and high liquidity. The Group has not drawn its Working Capital Facility and does not currently envisage needing to do so.

The Group is required to hold segregated funds as 'restricted cash' in order to satisfy regulatory requirements governing our insurance underwriting business and Irish subsidiaries. These restricted cash balances were £23.7m at 31 July 2014 (2013: £31.5m). The Group also holds £35.3m of pre-funded cash to pay PIK interest (2013: £nil).

Class A free cash flow to debt service was 3.2 times as at 31 July 2014 and Class B free cash flow to debt service was 2.1 times, showing substantial covenant headroom.

Financing transactions in the period

On 2 May 2014, the Group issued £250m of Class A4 notes with an interest rate of 3.78% and an expected maturity date of 31 July 2019. The proceeds from this note issuance were used to partially repay the Initial Senior Term Facility.

Contemporaneously, a New Senior Term Facility of £663m and New Working Capital Facility of £150m were put in place with the Group's key relationship banks replacing the Initial Senior Term Facility and Initial Working Capital Facility respectively. Following this, the Group wrote off £17.9m of debt issue fees relating to the Initial Senior Term Facility (see note 3a)

The margin on the New Facilities has been set at 2% per annum over LIBOR with a maturity date of 31 January 2019. Additional interest rate swaps have been entered into, fixing LIBOR at 1.98% until 31 July 2018 and then at 3.00% until 31 July 2019.

Principal Risks and Uncertainties

The Group follows a structured, proactive risk identification and assessment process that involves all of its Directors and which is updated on an on-going basis. The principal risks and uncertainties for the remainder of the financial year outlined below are in line with those identified in the Group's annual report for the year ended 31 January 2014.

The key risks that the Group manages are those that could impact on the perception of the AA brand in the eyes of its customers or the public generally, those posed by the operational challenges within its Roadside Assistance business, and the systems and processes that support the effective delivery of a high quality of service to customers. In addition, external factors, such as extremes in temperature, can significantly increase the workload and threaten customer service levels in the short term.

The AA seeks to manage threats to the perception of the AA brand through investment in operational capability and training to ensure the best possible service at the roadside for its customers and via a policy of active engagement with the media through its public relations activities. The operational resilience of systems and processes are tested on an on-going basis and supported by business continuity plans.

The AA operates as an intermediary in the personal lines insurance market which is subject to significant competition and is impacted by factors outside its immediate control. In addition, the continuously changing regulatory environment for our insured products and services requires constant monitoring to ensure continued compliance.

Extensive use of operational and financial information is made to monitor the performance of the business and the external environment allowing the management team to take action when appropriate. In addition, the AA has dedicated internal audit, risk management, quality monitoring, health and safety and regulatory compliance resources supporting the management team.

Andy Boland

Chief Financial Officer

23 September 2014

Consolidated income statement

Earnings per share:

Consolidated statement of comprehensive income

Consolidated statement of financial position

Consolidated statement of changes in equity

Consolidated statement of cash flows

Notes to the financial statements

1 Basis of preparation

a) Accounting policies

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting' (IAS 34). Accordingly, they do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Group's annual financial statements as at 31 January 2014.

The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group's annual consolidated financial statements for the year ended 31 January 2014 which were prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and have been applied consistently across all periods.

These financial statements do not constitute statutory accounts within the meaning of Section 435 of the Companies Act 2006. Statutory accounts for the year to 31 January 2014 were approved by the board of directors on 27 May 2014 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified and did not contain any statement under Section 498 of the Companies Act 2006.

b) Going concern

The Group has long-term contracts with a number of suppliers across different industries and is strongly cash generative. The Group's borrowings are long-term in nature and in addition to the cash balances at the reporting date the Group has agreed undrawn credit facilities. The Directors have considered this along with projected cash flows and have concluded that the Group has sufficient funds to continue trading for the foreseeable future. Therefore, the interim condensed consolidated financial statements have been prepared using the going concern basis.

c) Segmental analysis

The nature of the Group's operations means that for management's decision making and internal performance management the key performance metric is earnings before interest, tax, depreciation and amortisation (EBITDA) by trading segment which excludes certain unallocated items (referred to as Trading EBITDA). Items not allocated to a segment relate to transactions that do not form part of the on-going segment performance and include transactions which are one-off in nature. Trading EBITDA is further analysed as part of the segmental analysis in note 2.

d) Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries). Control is achieved where the Company has rights to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.

The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies into line with those used by the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation.

2 Segmental information

With the exception of Ireland, all other segments operate wholly in the UK. Turnover by destination is not materially different from turnover by origin.

Exceptional costs incurred in the six months ended 31 July 2014 of £39.4m includes £33.6m relating to the IPO. In the corresponding period in the previous year, exceptional costs of £10.2m included £6.5m of costs relating to the financing transaction that took place on 2 July 2013 (see note 13). The remaining exceptional items of £5.8m in the six months ended 31 July 2014 (2013: £3.7m) principally related to cost restructuring activities.

For management purposes, the Group is organised into business units based on their products and services, with the exception of Ireland, which represents a separate geographical area. The Group has six reportable operating segments as follows:

· Roadside Assistance: This segment is the largest part of the AA business. The AA provides a nationwide service, sending patrols out to members stranded at the side of the road, repairing their vehicles where possible and getting them back on their way quickly and safely.

· Insurance Services: This segment includes the insurance brokerage activities of the AA, primarily in arranging motor and home insurance for customers, its home emergency activities and its intermediary financial services business.

· Driving Services: This segment contains the AA Driving School and the British School of Motoring, which are the two largest driving schools in the UK, as well as AA Drivetech, which provides driver training and educative programmes. The Driving Services segment also includes the AA's publishing and related media activities.

· Ireland: This segment competes in the same segment types as the AA UK business, with the largest part of its business being Roadside Assistance and Insurance Services.

· Insurance Underwriting: This segment consists of a reinsurance company, which historically reinsured certain private motor insurance business from the Acromas Holdings Limited group's dedicated underwriter, Acromas Insurance Company Limited (AICL).

· Head Office costs: This segment includes IT, finance, property and other back office support functions.

Segment performance is primarily evaluated using the Group's key performance measure of Trading EBITDA.

Trading EBITDA is profit after tax as reported adjusted for depreciation, amortisation, net finance costs, exceptional items, share-based payments and acquisition earn-out costs, items not allocated to a segment and tax expense.

Items not allocated to a segment relate to transactions that do not form part of the on-going segment performance and include transactions which are one-off in nature. In the six months ended 31 July 2014 these principally related to the difference between the cash contributions to the pension schemes for on-going service and the calculated annual service cost.

Depreciation, amortisation, net finance costs, share-based payments and acquisition earn-out costs, exceptional items, net finance costs and tax expense are not allocated to individual segments as they are managed on a group basis.

3 (a) Finance costs

Cash at bank and in hand - restricted (see note 10) includes an amount of pre-funded interest to cover interest payments on the PIK notes until June 2015.

Amortisation of debt issue fees includes £17.9m that was immediately written off following the repayment of the Senior Term Facility in May 2014 (see note 13).

3 (b) Finance income

4 Tax

The major components of the income tax expense are:

Tax for the period has been calculated by applying the forecast effective tax rate for the full year excluding some exceptional items to the profit before tax result for the period (excluding some exceptional items).

Following the IPO, a deferred tax asset of £21.9m has been recognised on tax losses carried forward as the Group now expects to have sufficient taxable profits to be able to recover these losses. Excluding the impact of the recognition of this deferred tax asset and the impact of expenses relating to the IPO that are disallowable for tax purposes of £14.0m, the Group's effective tax rate is 19.0%.

Following the asset-backed funding arrangements on the AA UK pension scheme detailed in note 14, there was a £39.5m release of the AA UK pension deferred tax asset during the year to 31 January 2014. The remaining £12.9m of tax relief relating to this transaction is expected to be utilised in the year ending 31 January 2015.

5 Earnings per share

Basic earnings per share amounts are calculated by dividing net profit for the year attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year.

Immediately prior to the IPO, the existing share capital of the Company was reorganised to have 469.3 million shares. This had no impact on the overall share capital of the Company and therefore for all periods prior to the IPO, the Company has been deemed to have 469.3 million shares outstanding for the purposes of the earnings per share calculation.

Reconciliation of reported earnings per share to adjusted earnings per share:

6 Cash flow from operating activities

The cash flows from operating activities are stated net of cash outflows relating to exceptional items of £38.0m (2013: £18.5m). This relates to the cost of the IPO of £27.0m (2013: £nil), re-financing of the Group's borrowings £0.8m (2013: £4.8m), restructuring expenditure costs from the re-organising of Group operations of £8.5m (2013: £11.4m) and onerous property provision lease costs in respect of vacant properties of £1.7m (2013: £2.3m).

7 Goodwill and other intangible fixed assets

8 Property, plant and equipment

9 Trade and other receivables

Trade receivables from fellow subsidiary undertakings at July 2013 and January 2014 are unsecured, payable within one month and bear no interest.

10 Cash and cash equivalents

Ring-fenced cash and cash equivalents relate to cash held by AA Intermediate Co Limited and its subsidiaries. There are restrictions on dividends that can be paid to AA plc until certain debt to EBITDA criteria are met.

Cash at bank and in hand - restricted includes £35.3m (July 2013: £nil, January 2014: £55.4m) held as pre-funded interest to cover interest payments on the PIK notes (see note 13) until June 2015 and cannot be used for any other purpose.

Cash at bank and in hand - restricted and fixed term investments (see note 9) includes £23.7m (July 2013: £31.5m, January 2014: £23.7m) held by and on behalf of the Group's insurance businesses which are subject to contractual or regulatory restrictions. These amounts are not readily available to be used for other purposes within the Group.

11 Trade and other payables

Trade payables owed to group undertakings as at July 2013 and January 2014 arose under arrangements permitted by the financing transaction documents. These amounts are unsecured, are payable between one and three months and bear no interest.

12 Borrowings and loans

13 Borrowings

A summary of the Group's refinancing transactions since July 2013 is shown below:

At 31 July 2014, the Senior Term Facility carried interest at a rate of LIBOR plus a margin of 2%. The variable element has been fully hedged using matching interest rate swap arrangements. All other borrowings have fixed interest rates. The weighted average interest rate for all borrowings of 6.08% has been calculated using the effective interest rate and carrying values on 31 July 2014.

In order to show the Group's net borrowing, the notes and the issue costs have been offset. Issue costs are shown net of any premium on the issue of borrowings. Interest rate swaps are recognised in the Balance Sheet at fair value at the period end (see notes 9 and 12).

All of the Class A notes and Senior Term Facility are secured by first ranking security in respect of the undertakings and assets of AA Intermediate Co Limited and its subsidiaries. The Class A facility security over the AA Intermediate Co group's assets ranks ahead of the Class B notes. The Class B notes have first ranking security over the assets of the immediate parent undertaking of the AA Intermediate Co group, AA Mid Co Limited. There are restrictions on the ability of the AA Mid Co Limited group to pay a dividend until certain net debt to EBITDA ratios have been achieved. The PIK notes are unsecured.

The Class B notes and the PIK notes have an initial non-call period of up to two years from the period end when no voluntary repayments can be made, after this there is a two year period when any voluntary early repayments would incur a make-whole payment. The Class A notes do not have a non-call period, however any voluntary early repayments would incur a make-whole payment.

14 Defined benefit pension scheme liabilities

The Group operates two funded defined benefit pension schemes: the AA UK Pension scheme (AAUK) and the AA Ireland Pension scheme (AAROI). The assets of the schemes are held separately from those of the Group in independently administered funds. New entrants to the AAUK scheme accrue benefits on a career average salary basis. The AAUK scheme has final salary sections that are closed to new entrants but open to future accrual for existing members. The AAROI scheme is closed to new entrants and future accrual of benefits. The Group also operates an unfunded post-retirement Private Medical Plan scheme (AAPMP), which is a defined benefit scheme that is not open to new entrants.

In November 2013, the Group completed the AAUK pension scheme triennial valuations agreeing a deficit of £202m with the pension trustees and implementing an asset backed funding scheme. The asset backed funding scheme provides a long-term deficit reduction plan where the Group has an annual deficit reduction contribution of £12.2m increasing with inflation, over a period of up to 25 years secured on the Group's brands and gave a one-off £198.0m tax deduction that the Group will finish utilising this year.

The amounts recognised in the balance sheet are as follows:

15 Share premium

16 Fair values

Financial instruments held at fair value are valued using quoted market prices or other valuation techniques.

The fair values are periodically reviewed by the Group Treasury function. The following tables provide the quantitative fair value hierarchy of the Group's interest rate swaps, obligations under finance leases and loan notes. The carrying values of all other financial assets and liabilities approximate to their fair values:

At 31 July 2014:

At 31 July 2013:

Valuation techniques include net present value and discounted cash flow models, and comparison to similar instruments for which market observable prices exist. Assumptions and market observable inputs used in valuation techniques include interest rates.

The objective of using valuation techniques is to arrive at a fair value that reflects the price of the financial instrument at each period end at which the asset or liability would have been exchanged by market participants acting at arm's length.

Observable inputs are those that have been seen either from counterparties or from market pricing sources and are publicly available. The use of these depends upon the liquidity of the relevant market. When measuring the fair value of an asset or a liability, the Group uses observable inputs as much as possible. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation as follows:

Level 1 - Quoted market prices in an actively traded market for identical assets or liabilities. These are the most reliable.

Level 2 - Inputs other than quoted prices included in Level 1 that are observable for the assets or liabilities. These include valuation models used to calculate the present value of expected future cash flows and may be employed either when no active market exists or when there are quoted prices available for similar instruments in active markets. The models incorporate various inputs including interest rate curves and forward rate curves of the underlying instrument.

Level 3 - Inputs for assets or liabilities that are not based on observable market data.

If the inputs used to measure the fair values of an asset or a liability might be categorised in different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level as the lowest input that is significant to the entire measurement.

17 Related parties

Following the Company listing on the London Stock Exchange, Acromas Holdings Limited sold all of its shares in AA plc and therefore the Acromas Holdings Limited group ceased to be a related party. Prior to the listing, all transactions with other companies within the Acromas Holdings Limited group were, and continue to be, governed by the Umbrella Services Agreement, which was put in place in connection with the financing transactions that closed on 2 July 2013.

Transactions between AA plc and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed. There were no further transactions with related parties which had a material effect on the financial position or performance of the Company during the periods covered by this interim report.

 The directors confirm that to the best of their knowledge:

· The consolidated interim financial information contained in this report has been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting' (IAS 34); 

 · The Chairman's statement and the financial report together include a fair review of the information required by the Financial Conduct Authority's Disclosure and Transparency Rules ('DTR') 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

· The interim report includes a fair review of the information required by DTR 4.2.8R (disclosure of related party transactions and changes therein).

By order of the Board

Bob Mackenzie

Executive Chairman

23 September 2014

Forward-looking statements

This document contains various forward-looking statements that reflect management's current views with respect to future events and anticipated financial and operational performance. By their nature, forward-looking statements involve known and unknown risks, uncertainties and other factors because they relate to events and depend on circumstances that may or may not occur in the future. Forward-looking statements are not guarantees of future performance and the Group's actual financial condition, results of operations and cash flows, and the development of the industry in which it operates, may differ materially from (and be more negative than) those made in, or suggested by, the forward-looking statements contained in this document. In addition, even if its financial condition, results of operations and cash flows and the development of the industry in which it operates are consistent with the forward-looking statements contained in this document, those results or developments may not be indicative of results or developments in subsequent periods. Although the Group believes that the expectations reflected in these forward-looking statements are reasonable, it can give no assurance that they will materialise or prove to be correct. Because these forward-looking statements are based on assumptions or estimates and are subject to risks and uncertainties, the actual results or outcome could differ materially from those set out in the forward-looking statements.

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 31 July 2014 which comprises the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of financial position, the consolidated statement of changes in equity, the consolidated statement of cash flows and the related explanatory notes. We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements. 

This report is made solely to the Company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our work, for this report, or for the conclusions we have formed.

Directors' Responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union. 

Our Responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 31 July 2014 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Ernst & Young LLP

London

23 September 2014