Tuesday 20 August 2019

AA profits tumble on cost of investments in performance

The roadside assistance firm also announced a new partnership with Admiral.

Automobile Association (Barry Batchelor/PA)
Automobile Association (Barry Batchelor/PA)

By Alys Key, Press Association City Reporter

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

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

Full-year underlying earnings reached £341 million, in line with previous guidance.

Revenue ticked up to £979 million.

Chief executive Simon Breakwell said the reduction in profits was down to a strategic investment in the group’s long-term prospects.

We recognise there is still a lot to do, but we are building from a position of strength Simon Breakwell

This included additional resources being put into frontline services, in a bid to halt overrunning costs caused by a lack of operational resilience.

Investments were also made in people and marketing.

Mr Breakwell said: “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.”

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% 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.

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.”

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