AA warns on profits as firm ratchets up investment
Underlying annual earnings are expected to come in between £335 million and £345 million.
The AA has warned it will deliver lower annual earnings as it ramps up business investments that its chief executive assured are “vital” to the company’s long-term success.
The breakdown recovery and car insurance firm updated its profit guidance as part of its new strategic plan that is set to improve its roadside service, digitise the business and attract younger members.
But “incremental investment” of around £45 million this year is set to impact underlying earnings, which are now expected to come in between £335 million and £345 million for the full year 2019.
That is compared to forecasts for £390 million to £395 million in 2018.
It follows a company-wide review led by chief executive Simon Breakwell, who said the revamp was an essential move by the AA.
“These investments, while reducing our short-term profitability, are vital to our long-term success.
“I am confident the priorities we set out today will transform our products and service offerings to our customers by creating a truly innovative and differentiated product proposition which will deliver long-term shareholder value.”
He added: “It will take the AA from a company helping when you break down to one actually predicting when you might break down in the first place.
“This plan will deliver frontline resource to improve the efficiency, predictability and resilience of our operations as well as investment in game-changing growth drivers – in connected car and insurance.”
AA has also confirmed it will tighten its shareholder payouts, with dividends now restricted to 2p per share per year “until such time as the board is satisfied that the profit and free cash flow enable a change in policy”, the company said.
It is a marked climbdown from its previous payout, having issued a dividend of 9.3p per share for the last financial year.
The news sent AA shares down more than 24% in morning trading.
Among its plans to “innovate and grow” its roadside assistance programmes are efforts to appeal to younger customers by increasing the use of its app and advancing its connected car offerings, which AA said will help predict and prevent breakdowns rather than just reacting to them.
The firm hopes it will help retain customers, as it has failed to grow its membership “in a sustained manner”.
On the insurance side, the company is hoping to improve its data analytics to help improve pricing and drive more competitive premiums.
Mr Breakwell said: “The AA is a phenomenal business, with a market-leading position in roadside, a highly respected and trusted brand and thousands of highly skilled and committed employees with a deeply embedded customer service ethos.
“My review into all aspects of our business, from the bottom up, has further strengthened my confidence about the opportunities ahead of us and convinced me of the positive long-term outlook for the AA.”