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AA profits tumble to £23m despite soaring cost of motor cover

By:

Transport Reporter

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Earnings at the AA's primary roadside recovery business were held back by cost inflation

The AA said profits had nearly halved this morning following a dip in trading at its breakdown service — and despite soaring motor insurance prices propping up revenue growth.

Pre-tax profits at the AA dipped from £40m to £23m year on year in a “challenging economic and competitive environment”, with earnings in its primary roadside recovery business hit by cost inflation.

But revenues across the group rose 10 per cent to £625m in the six months to July, driven by growth in customer numbers and higher average income per member.

Underlying earnings in its smaller insurance arm shot up 27 per cent to £33m, as the firm bumped up prices for consumers in line with the soaring cost of motor insurance.

That growth was aided by rising demand for its motor insurance cover, with the number of policies increasing 4 per cent to just over 1m for the half year.

Jakob Pfaudler, chief executive of the AA, said: “We have made excellent progress, with double-digit revenue growth, good cost management, and strong cash flow generation.”

The breakdown specialist has been undergoing a transformation since private equity firms TowerBrook Capital Partners and Warburg Pincus completed their acquisition of the group in 2021.

It had previously suffered under a significant debt pile and said today that total net debt dipped marginally from £2.29bn to £2.28bn year on year.

Pfaudler said: “I’m delighted to say that work is delivering results, and the AA is now a higher-quality and more predictable business, with an increasingly strong track record of profitable growth, into our third consecutive year of EBITDA growth.”

The results come as the cost of motor insurance reaches record levels this year, with inflation pushing up the price of repairs and consumers facing expensive policies.

Motor insurance premiums hit the highest levels since records began in August, according the Association of British Insurers (ABI), with the average price paid for car insurance climbing to £511.

Samantha Holland, head of insurance at the law firm Gowling WLG, said that while the insurance sector had faced “multiple challenges in recent times”, the AA’s ability to “pass savings on to motorists” and boost sales had helped it weather the storm.

“Despite profits going down in the short term, the input being made into customer retention by the company now will inevitably pay off and provide it with a further competitive edge,” she added.