AA blames bad weather and pothole '˜epidemic' for drop in half year profits
The AA has blamed extreme weather and an 'epidemic' of potholes for sending breakdowns to a 15-year high and leaving its half-year profits sharply lower.
Shares tumbled as the group reported a 65% plunge in pre-tax profits to £28 million for the six months to July 31.
It said underlying earnings tumbled 35% to £116 million, largely due to a hit in its roadside recovery business, as the Beast from the East in February and March caused an 8% rise in breakdowns to a cost of £1.91 million.
Earnings in the AA’s roadside business dropped 17% to £132 million in the first half.
The group also said earnings were knocked by the cost of hiring extra staff and patrols to cope with the flurry of breakdown calls.
Simon Breakwell, chief executive of the AA, said: “The first half of full-year 2019 has seen exceptional weather conditions, from extreme cold and snow in February and March to the hottest summer in recent memory, with the severe winter also creating a pothole ‘epidemic’ on the UK’s roads.
“All this led to a 15-year high in the number of breakdowns we serviced.”
He said the group remained on track for annual earnings of between £335 million and £345 million and to return to earnings growth in the next financial year.
Earlier this year, the firm saw its stock market value plunge by nearly a quarter after the warning over profits.
Half-year figures showed its membership base fell 2% to 2.35 million, with average income per member up 2% at £159.
AA’s insurance division also suffered a drop in earnings, down 15% to £29 million, dragged lower by marketing costs to attract new customers and as a result of its move to sell the home emergency services consumer business in January.
But revenues in the division were flat at £69 million.
Russ Mould, investment director at AJ Bell, said the stock market reaction to AA’s half-year results showed a “build-up of shareholder frustration with the group’s patchy track record since its 2014 IPO (initial public offering)”.
Andew Nussey, analyst at Peel Hunt, said the AA showed signs of recovery, given its assurances that full-year earnings remains on track.
He said the “strengthened management team” are set to turn around the membership and insurance businesses.
“The AA looks to be shifting up a gear,” he added.