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Road weather woes hurt breakdown service AA's first-half earnings

Published 26/09/2018, 07:59
Updated 26/09/2018, 07:59
© Reuters.  Road weather woes hurt breakdown service AA's first-half earnings

© Reuters. Road weather woes hurt breakdown service AA's first-half earnings

(Reuters) - Roadside recovery group and insurer AA Plc (L:AAAA) reported a 16.6 percent fall in first-half core profit, hurt by a rise in costs after it had to service more cars that broke down this year during the long icy winter.

AA has been investing heavily in its roadside business to ramp up company-owned patrols and improve its mobile-app based services for car breakdowns under Chief Executive Simon Breakwell, who took over the top job at the century-old firm last year.

Breakwell set out the new strategy in February as the company announced plans to pay lower dividends and forecast lower core profit for 2019.

"The first half of financial 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," Breakwell said on Wednesday.

That led to a 15-year high in the number of breakdowns AA serviced, Breakwell added.

Core earnings in the roadside business fell 17 percent in the first half due to the increased expenditure and higher costs as it needed to use third party garages to house the exceptionally higher number of cars that broke down.

AA, famous for its distinctive yellow livery, was formed by a group of motoring enthusiasts in 1905 and provides roadside assistance through personal membership and business partnerships as well as motor insurance policies.

The company reported trading earnings before interest, tax, depreciation and amortisation (EBITDA) of 161 million pounds in the six months ending July 18, from 193 million pounds reported a year earlier.

AA said its motor insurance policies grew 7 percent to 659,000, with a 6 percent rise in trading revenue to 67 million pounds.

It maintained its interim dividend at 0.6 pence per share and reaffirmed its fiscal 2019 trading EBITDA expectations of between 335 million pounds and 345 million pounds on Wednesday.

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