Newly installed AA (AA.) chief executive Simon Breakwell is reviewing how best to get the motor services provider on track to achieve the priorities set out at its IPO – to grow membership numbers, reduce leverage and improve technology. Full details of the steps management plans to take will be given during the first half of next year. For now, Mr Breakwell says he will focus on improving the company's insurance business and call centres, as well as improving forecasting of its capacity needs. The additional investment required means management expects cash profits to be between £390m and £395m for the full year, below the £399m initially expected.
Despite a 13 per cent increase in new paid personal members, overall paid membership was up just 1 per cent. Last year’s figure benefited from an additional 70,000 paid members switching from free membership: now, the company is no longer getting this benefit of free-to-paid renewals.
An increase in insurance premium tax (IPT) and a one-off payment to an underwriting partner also meant sales for the roadside assistance business were flat at £370m. What’s more, average income per member was £1 lower at £156, due to management’s reluctance to pass through increases above IPT to customers during the past two years. Business customers also declined 2 per cent year on year to 10m, due to a reduction in 'added-value' accounts, primarily across the banking sector. Cash profit margins were down 1.4 per cent to 47 per cent, due to an increase in the use of third-party garages during peak demand.
Motor policies were up 8 per cent for the insurance business, benefiting from its in-house underwriter bringing new business. This was enough to offset a decline in home policies, lifting cash profits by 9 per cent to £38m. The underwriting business, which is in its second year of operation, also broke even, while driving services revenue was flat at £32m.
Analysts at Liberum reduced their forecasts for cash profits for the 12 months to January 2018 by 3 per cent to £392m and EPS by 7 per cent to 20.7p.
| AA (AA.) | ||||
| ORD PRICE: | 161.1p | MARKET VALUE: | £983m | |
| TOUCH: | 161-161.2p | 12-MONTH HIGH: | 304p | LOW: 148p |
| DIVIDEND YIELD: | 5.8% | PE RATIO: | 10 | |
| NET ASSET VALUE: | * | NET DEBT: | £2.7bn | |
| Half-year to 31 Jul | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2016 | 457 | 48 | 6.2 | 3.60 |
| 2017 | 471 | 80 | 10.5 | 3.60 |
| % change | +3 | +67 | +69 | |
| Ex-div: | 05 Oct | |||
| Payment: | 10 Nov | |||
| *Negative shareholder funds | ||||
