After a pretty rough time of late, the AA provided a decent recovery after a stronger-than-expected trading update.
The company’s share price rose 2.74% in early morning trading to 137.49, this in a week when the AA has been targeted by short-sellers with the FTSE 250 firm tumbling to an all-time low.
The sacking of former boss Bob Mackenzie, for allegedly lashing out at a colleague as well as speculation of a merge with insurance rival Hastings have proved unsettling. The company’s share price has taken a hit as the City looks for some stability and direction within the company.
New chief executive Simon Breakwell has insisted he can turn around the scandal-hit breakdown cover provider by focusing on the AA’s core businesses of roadside rescue and insurance.
In its latest trading statement today, the AA says it expects to deliver trading EBITDA in line with the guidance of between £390m and £395m as provided in September 2017.
New members grew 7% year-on-year and, despite the challenges of passing through insurance premium tax increases and the costs arising from regulatory changes, retention was broadly flat at 82%.
However, paid members declined by around 1% to 3.29 million, principally as a result of the discontinuation of free roadside membership for AA insurance customers from December 2015.
Therefore, from December 2016 to December 2017, the AA no longer had this pipeline of free-to-paid conversion. This represents an impact on paid membership of approximately 70,000.
The AA continues to build on its digital mobile platforms, including the AA breakdown app. More than 1 million members are now registered for the app and it is used in 30% of the breakdowns that the AA services.
In August 2017, the AA launched Car Genie, a connected car technology. Where installed, Car Genie has demonstrated a capability to predict up to one third of breakdowns.
Insurance Services, comprising the broker and financial services business, performed stronger. The company achieved 6% growth in motor policies to 629,000 which offset the expected 5% decline in home policies to 818,000. The AA expects further growth in the motor policy book.
The business has continued to generate healthy levels of cash. As a result of the refinancing in July 2017, the AA has further reduced the cost of borrowings and extended the average maturity of its debt. The group has no near-term refinancing requirements.