The AA starts its journey

Executive chairman Bob Mackenzie and his team, who were only in charge for three weeks of the half-year under review, have set out three objectives: strengthening the brand, revolutionising the customer experience by investing in new technologies, and reducing debt. Long-term, Mr Mackenzie is looking at ways to apply the AA name to products and services for members, including tyres and batteries.

“We have deals on those items for members, but we don’t communicate them very well," he says, pointing out that an ‘AAA’ card in the US gets members discounts around the world. “We want the same for the AA in the UK”. He also plans to develop the AA's customer relationship management and other data-based systems. "We have all sorts of proprietary data about breakdowns, but we don’t use it when writing motor insurance." A more detailed plan of the forthcoming changes will be unveiled in the new year.

As for the half-year results, the reported profit figures are skewed by £39m of exceptional costs for the IPO and a £18m write-off related to debt restructuring. Trading profit, excluding exceptional costs, rose 4 per cent to £212m. The increase in revenue was driven by roadside assistance, as the AA renewed a five-year contract with Lloyds and won new business with Volkswagen, Hyundai and Porsche.

As for the huge debt pile, management has already refinanced banking facilities and used funds from the IPO to pay off notes attracting 9.5 per cent interest. Accordingly, cash costs on interest have fallen dramatically, though this has not been reflected in the results. The group is highly cash generative, with a 101 per cent conversion rate, negative working capital and low capex, which should enable it cut the debt. Broker Cenkos expects adjusted pre-tax profit of £163m for the full-year, giving EPS of 26p, rising to 30p in 2016.