VDL EN MODO 4

to deliver on its strategic priorities.

The most material risks are then reported to the Committee so that it has a clear understanding of our aggregate risk profi le and can ensure that control processes are in place for the monitoring and management of signifi cant risks. At each of the Risk Committee meetings a risk update is received which provides an assessment of the key risks facing the Group and the adequacy of the associated controls.

Risk identifi cation

The Group-wide risk assessment requires business units to formally review business risks each quarter. This approach to identifi cation, analysis and assessment of risks ensures responsibility so that they are managed, controlled and monitored. A broad spectrum of risks are considered through this process including those relating to strategy, operational performance, fi nance, product engineering and technology, business reputation, human resources, health and safety and the environment. The causes and the consequences of each risk are considered and, where appropriate, linked to strategic and operational objectives.

Manage and mitigate

Management controls designed to monitor and mitigate risks are documented. Risk owners are assigned to each risk.

Assessment

The Group-wide risk team and database ensure a consistent set of defi nitions and a common approach to risk evaluation with specifi c reference to likelihood and impact.

Respond

The risk response is based upon the assessment of potential risk exposure and the level of accepted tolerance. The response refl ects whether we accept the risk on the basis of its assessed level of exposure and mitigating controls currently in place, where possible, or reduce the risk through additional mitigation to bring it in line with required levels of tolerance.

Monitor

The output from the Group-wide risk assessment tool process is regularly reviewed together with live tracking of delivery of planned improvement actions.

Risk appetite

The duties of the Risk Committee include advising the Board on the Group’s overall risk appetite, tolerance and strategy.

The Risk Committee and the Board have reviewed and approved a revised risk appetite since we became a listed public company.

Principal risks and uncertainties

As with any business, we face risks and uncertainties on a daily basis. It is the effective management of these that places us in a better position to be able to achieve our strategic objectives and to embrace opportunities as they arise. The Board has considered carefully the nature and extent of the signifi cant risks it is willing to take in achieving the Group’s strategic objectives and delivering a satisfactory return for shareholders. Set out on pages 30 and 31 are the main risks the Board considers to be of most signifi cance to the Group in terms of preventing or restricting execution of our strategy, with the mitigating activities that we have put in place to try to prevent such risk materialising. We recognise that other risks are still present and seek to ensure that they are managed accordingly.

It is recognised that the Group is exposed to a number of risks, wider than those listed. However, a conscious effort has been made to disclose those of most concern to the business at this moment in time and those that have been the subject of debate at recent Board or Risk Committee meetings.

Next steps

The Committee is taking steps to enhance the risk management process given the Company’s ambitious plans for business transformation and its new status as a premium listed company. In that regard it has, with the plc Board, agreed a new Risk Management Policy. It is now pursuing a plan of improvements for 2015 taking into account the FRC September 2014 Guidance.

Andrew Blowers

Chairman of the Risk Committee

Business divisions

Risk management led by business leaders

in operations Product and customer outcome forums Compliance with good customer outcomes Functional experts Risk Management, Compliance, Health & Safety, Business Continuity,

Data Security etc.

plc Board \ Responsible for overall approach to risk management

and internal control

Board Risk Committee

Assist the Board in the effective discharge of the Board’s responsibility for risk management

Executive Risk and Compliance Committee (ERCC)

Ensures the culture and process of risk management is embedded

and operating effectively. Monitors and reports on key risks

Risk Governance

GO

Dear shareholder,

On behalf of the Board, I am pleased to present our fi rst Directors’ Remuneration Report since the management buy-in (MBI) and IPO in June 2014 and our subsequent move to the premium list of the London Stock Exchange in January 2015.

Over the past year, the Company has undergone signifi cant change. The circumstances surrounding our listing and our ongoing transformation are both unique. The IPO was delivered under an accelerated timetable led by an MBI team and backed by many leading institutional investors. Since listing the AA has seen a signifi cant increase in share price and became a constituent of the FTSE 250 index in March 2015. The Company has clear growth aspirations over the next fi ve years, and the Committee has considered remuneration in this unique context.

The Committee’s activities during the year can be split into two categories. First, the Committee have resolved certain legacy matters which were outstanding from Admission. Secondly, the Committee have given further consideration to how remuneration should be structured in the future.

IPO legacy matters

The main elements of the Executive Directors’ pay arrangements were disclosed in the IPO prospectus. However, due to the accelerated nature of the IPO, some of the key decisions regarding the detail of arrangements were not fi nalised at this time. Therefore, part of the Committee’s activity during the year has been to complete this process.

The Management Value Participation shares are a fi ve year structure, implemented at the time of Admission, as disclosed to shareholders in the Prospectus. Under this structure, value only accrues to participants if total shareholder return from the date of Admission to the vesting dates exceeds 12% per annum. Over fi ve years, this would equate to growth of 76%.

At the time of Admission, there was a degree of uncertainty in relation to the roles and responsibilities of the senior management team. Therefore the full allocation of shares was deferred until there was greater clarity on senior management roles. The Committee has now completed this review, and allocations have now been fi nalised and will be awarded in due course. Further details of the allocations to Executive Directors are set out in the Annual Report on Remuneration. Once the MVP shares are fully allotted, there is currently no intention to grant further awards to any Executive Director under this plan.

Remuneration in the future

Due to the accelerated timetable for the IPO, the Committee did not have the opportunity to undertake a full review of the remuneration packages for Executive Directors in the lead up to Admission. Therefore in the Prospectus, shareholders were informed that the Committee intended to undertake a review of annual compensation to ensure it was in line with comparable listed company practices.

As part of this review, the Committee recognised that although the one-off MVP shares structure provided a clear focus on shareholder value creation following IPO, this was not a conventional structure amongst FTSE 250 companies. Therefore, over time, the Committee intends to transition to more conventional arrangements.