Business World

Saturday 16 December 2017

AA slips to a loss as membership keeps falling

Tim Wallace

The AA’s finances hit the brakes in the first half of 2015 as it recorded a pre-tax loss of £63.6m, down from a profit of £10.2m in 2014.

The breakdown recovery firm is still struggling to retain customers. Although the rate of decline in its roadside assistance members slowed, its overall revenue dipped 1.4pc to £484.6m in the six months to the end of July.

That was combined with increased costs, including a £62.1m early repayment charge on the group's debts, as well as higher marketing and IT expenses.

The AA floated on the stock market last year, but any new shareholders expecting a strong return from a well-known consumer brand will have to wait: “The significant benefits of the transformation will not begin to be reflected in results until the latter half of the 2017 financial year,” the firm warned.

The company is hoping to draw greater revenue from financial services, after partnering with the Bank of Ireland to offer credit cards and mortgages alongside its existing insurance businesses.

The AA hopes that growth in financial services will offset the imapct of the hike in the insurance premium tax, which comes into force in November and is likely to hit its insurance division.

“The impact on the AA is that it is likely to create additional churn in both insurance and roadside assistance [divisions],” the firm said.

 In addition, the group warned that EU legislation on holiday pay was likely to increase its operating costs.

Executive chairman Bob Mackenzie said that his plan to turn the group around was on track, but would take some more time.

"On IPO we set ourselves three objectives: to turn the AA into the UK's pre-eminent motoring services organisation, to revolutionise customer experience through investing and embracing new technology and, finally, to reduce group borrowing and the associated interest cost,” Mr Mackenzie said.

"I am pleased to report early and positive signs that our strategy will deliver our expectations of the AA brand. Our roadside assistance advertising was launched in June and has been well received. This together with changes to our product offering, pricing and marketing, is showing encouraging new sales, improving retention and slowing the decline in personal member numbers.

"There is a great deal still to be done, particularly relating to the revenue increases and cost reductions which are contingent on the introduction of our new IT systems.”

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