The AA improves at the roadside, but insurance still weak

The group has made inroads into reducing the huge debt on its balance sheet. In July, the group raised £199m and issued £735m in new bonds, allowing it to retire its most expensive debt and reduce annual financing costs by more than £45m. While this resulted in a one-off £85m cost, it meant the group's net debt was down by £158m to an admittedly still huge £2.8bn. Crucially, it meant management was confident enough to pay out a healthy dividend.

However, reducing debt is secondary to transforming the group's businesses and increasing the customer base. The core roadside assistance business, which accounts for around three-quarters of cash profits, improved its customer retention rate by 2 percentage points to 81 per cent. The rate of decline in personal members has also slowed to 2.6 per cent, compared with a fall of 4.5 per cent the previous year. The roadside business has also stopped giving away free memberships to its insurance members. Higher spend per customer plus a 6 per cent increase in business customers meant roadside assistance revenue was up 2 per cent to £724m.

The insurance business suffered a 4 per cent decline in policies, resulting in an 8 per cent drop in revenue to £131m. Mr McKenzie says the business has been "handicapped by poor technology". Part of the problem is in its IT systems, which mean it can take three to four weeks to change prices in a fast-moving market, says Mr McKenzie. However, management are in the process of installing 'insurer hosted pricing', which will allow the group's in-house underwriter to change prices on almost daily basis. Meanwhile, a fall in franchised driving instructors in a strong market for driving services meant revenue fell there.

Analysts at Cenkos expect adjusted EPS of 24p for the financial year ending January 2017, up from 23.2p the previous year.