David BurrowsThe AA says it is likely to deliver lower-than-expected annual earnings as it prioritises investments in the business that CEO Simon Breakwell insists are vita” to the company’s long-term success.
The breakdown recovery and car insurance specialist has updated its profit guidance following the launch of a new strategic plan designed to improve its service, digitise the business and attract younger members.
But “incremental investment” of around £45m this year is set to impact underlying earnings, which are now expected to come in between £335m and £345m for the full year. Previous forecasts were in the £390m to £395m range.
Essential investment
Breakwell insisted 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.”
Among its plans to innovate and grow its roadside assistance programmes are efforts to appeal to younger customers by increasing the use of the AA app and advancing 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”.
Dividend restriction
AA has also confirmed it will tighten pay-outs to shareholders, 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 statement said.
This represents a major shift as the AA issued a dividend of 9.3p per share for the last financial year.
The revised earnings forecasts from the AA impacted on the company’s share price – down just under 23% in mid-morning trading at 89.98.