AA’s profits decline as it invests for long term

Roadside assistance firm AA has blamed hefty investments in improving the business for a decline in profit.

The 'Beast from the East' caused misery for motorists in 2018. Photo: Danny Lawson/PA Wire

Profit before tax came to £53 million for the year to January, compared with £141 million a year earlier.

Full-year underlying earnings reached £341 million, in line with previous guidance. Revenue ticked up by two per cent to £979 million.

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Chief executive Simon Breakwell said: “One year into our strategic plan we have made significant progress.

“The results we are announcing today are in line with our previous trading EBITDA (earnings before interest, taxation, depreciation and amortisation) guidance and reflect our investment in the business which puts service, innovation and data at the heart of the AA.

He added: “Our new contracts with Lloyds Banking Group, Jaguar Land Rover, Volkswagen Group, Arval and others firmly position the AA as the B2B (business to business) partner of choice for roadside.

“We recognise there is still a lot to do, but we are building from a position of strength as market leader in breakdown, with best in class customer service, a growing insurance business and a clear plan to differentiate the AA through digital capabilities and investment in connected car solutions.

“Looking ahead, we are confident that our strategic plan will deliver sustainable EBITDA growth and strong free cash flow generation that will enable us to return long term value for our shareholders.”

The period also saw an unusually high number of breakdowns as the Beast from the East blew in.

Membership numbers continued their decline, with paid personal memberships down 2 per cent to £3.21 million.

But AA said its major contract deals with businesses helped to offset sliding individual sign-ups.

The company announced separately on Wednesday that it has won a new three-year contract with Admiral to offer roadside assistance to the insurer’s 4.3 million UK motor insurance customers.

David Stevens, Admiral chief executive officer, said: “At Admiral the customer is at the heart of everything we do.

“With our two trusted brands working together for the customer we are excited to see what the AA and Admiral can achieve together to deliver an outstanding customer experience.”

Mr Breakwell, said: “We are delighted to have been awarded this significant new contract with Admiral, one of the UK’s leading insurers. It is a strong endorsement of our strategy. Partnerships are paramount to the success of this syndicated B2B model and the growing insurance market is critical.”

Emma-Lou Montgomery, of Fidelity Personal Investing’s share-dealing service, said the decision to invest for the longer term, at a time when the business was underperforming, was “a bold move, but a necessary one”.

She added: “The task of broadening the AA’s appeal away from over-50s and to the millennial audience is the next focus if it wants to retain and grow its customer base.”