AA improves trading EBITDA by 3% but suspends final dividend due to Covid-19

The AA has reported a 3% improvement in its trading earnings before interest, taxes, depreciation, and amortisation (EBITDA) between January 2019 and January 2020 – this has risen by £341m to £350m.

These figures form part of the firm’s key unaudited financial information that was published today for the year ending 31 January 2020.

The AA also announced that it has suspended its final dividend in respect of FY20 in light of the ongoing coronavirus outbreak. Total dividend payments in FY20 will therefore remain at 0.6p per share, representing the amount paid in respect of the interim dividend.

This move has been designed to align with the AA’s “proactive management of its capital structure”.

Financial results

The organisation’s operating profit as at the end of January was £257m, a 17% improvement on the £219m recorded in 2019. Profit before tax, on the other hand, increased by a colossal 102%, moving from £53m in 2019 to £107m this year. Adjusted profit before tax saw a 7% loss though, falling from £115m last year to £107m as at January.

Revenue grew by 2% over the same time period to now stand at £995m compared to £979m last year. Free cash flow, which is the net increase in cash and cash equivalents pre-dividends, re-financing costs and bond buy-back, saw a 592% spike – this rose from £12m last year to £83m this January.

Insurance focus

In terms of the AA’s insurance business, it reported a 19% growth in motor policies to reach 869,000 compared to 731,000 policies last year. Its number of home insurance policies also improved by 2% - as at the end of January this year, the AA operated 844,000 home policies versus the 830,000 it recorded last year.

The insurer attributed this overall policy growth to investments in marketing, incremental sales and renewals through in-house underwriters and systems investments, including its Insurer Hosted Pricing product.

The average income per motor and home policy, including income from underwriting and the AA’s accident management business, was up 4% to reach £83 in January 2020 compared to £80 in 2019.

The firm also recorded a 36% conversion rate into its roadside business – this is greater than the 25% conversion rate it reported in 2019.

Coronavirus impact

The AA further used its trading update to discuss its stance and actions surrounding the coronavirus pandemic – the firm said the Covid-19 outbreak has been “unprecedented in its impact on society and the global economy”.

The statement continued: “The AA provides an essential service and we have initiated a number of actions across our roadside and insurance businesses to ensure the continuity of our operations and services.

“We have put in place appropriate safety protocols across the group, including the implementation of an extensive programme of home working which has enabled the temporary closure of all of our offices, with the exception of Oldbury, our emergency contact centre.

“To date, the spread of Covid-19 has not impacted the group materially but there continue to be risks, including disruptions to our operations and, consistent with the rest of the market, there can be no certainty as to the future impact.

“We are planning and executing changes to our operations that include the deferral or reduction of operating costs and capital expenditure across the group to ensure we limit as much as possible the impact to our trading EBITDA and cash flow forecasts.

“The AA has proved resilient through previous economic downturns and the steps we are now taking will help us maintain that resilience.

“The management team has successfully turned the operational and commercial performance of the AA around in the last two years and remains focused on navigating the challenges ahead.”

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