AA warns on profits as firm ratchets up investment
Underlying earnings for 2019 are expected to come in between £335 million and £345 million.
The AA has seen its stock market value plunge by nearly a quarter after the company warned over profits and reined in shareholder payouts as it ramps up “vital” investments in the business.
The breakdown recovery and car insurance firm said increased spending would knock underlying earnings for 2019, now expected to come in between £335 million and £345 million.
That would mark a significant drop from 2018, when underlying earnings are forecast to come in at £390 million to £395 million.
The AA has also confirmed it will tighten its shareholder payouts, with dividends restricted to 2p a share per year “until such time as the board is satisfied that the profit and free cash flow enable a change in policy”.
It is a marked climbdown on its dividend of 9.3p per share issue in the last financial year.
Investors were unimpressed with the news, sending AA shares down around 22% to the bottom of the FTSE 250.
The firm issued the guidance as part of its new strategic plan to improve its roadside service, digitise the business and attract younger members.
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.
“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.”
Among 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.”