Wednesday 3 April 2019 7:33 am

Breakdown group AA blames investments for profit slump

Breakdown and insurance firm AA said today that its profit before tax for the year ended January 2019 fell more than 60 per cent to £53m.

The figures

The company said its steep profit drop was a result of a £26m investment in its roadside and insurance business and said it was distorted by a £22m non-cash adjustment for guaranteed minimum pensions equalisation and a pension credit of £34m in the previous year.

Read more: Breakdown group AA boosts full-year profit expectations

It said its trading earnings before interest, tax, depreciation and amortisation (ebitda) was £341m, in line with previous guidance of £335m to £345m, but down on the £391m it posted last year.

Its trading ebitda margin fell to 35 per cent from 41 per cent the previous year.

Looking forward the company said it was “well placed to deliver Ebitda growth” in the current financial year and said it maintains its medium-term target of delivering a compound annual growth rate in group trading ebitda of between five and eight per cent by the 2023 financial year.

Its total proposed dividend per share was 2p, down from 5p the previous year.

What the company said

Chief executive Simon Breakwell said: “The results we are announcing today are in line with our previous trading ebitda guidance and reflect our investment in the business which puts service, innovation and data at the heart of the AA.

Read more: AA shares double in value: Markets believe they're on the road to recovery

“Our new contracts with Lloyds Banking Group, Jaguar Land Rover, Volkswagen Group, Arval and others firmly position the AA as the B2B 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 delever and return long term value for our shareholders.”

Richard Hunter, Head of Markets at interactive investor, said “"AA is treading the fine line of continuing to invest in the business whilst realising that the overall numbers are under pressure. As such, a 2 per cent rise in revenues is something of an achievement given that the company is in the midst of a transformation.

"Even so, the challenges the company are facing are in plain sight. Competitor activity and regulatory pressures crimped growth, while such a transformation has inevitably slowed the business down, with trading earnings down 13 per cent, adjusted earnings per share 32 per cent lower and pre-tax profit 62 per cent shy of the previous number. Net debt is being serviced, but nonetheless remains stubbornly high at over £2.7bn, while the reduction in the dividend, albeit prudent, removes some of the attraction of the stock as the yield has slumped to 2.2 per cent."