AA share price plunges on profit warning

AA recoveryImage copyright PA

AA shares have fallen by over a fifth after the firm warned that its full-year profit will fall short of analysts’ expectations.

The roadside recovery and insurance group expects underlying income to reach between £335m and £345m for 2019.

City analysts had forecast that profit would hit around £390m.

The AA blamed the shortfall on a decision to ramp up investment in its breakdown business, which it wants to predict breakdowns before they happen.

AA sacks boss for ‘gross misconduct’

The move is part of a new strategic plan that chief executive Simon Breakwell said “would unlock the full potential of the AA”.

However, the company’s share price plunged by 22.71% to 89.8p after it also said that it would cut its dividend payments to investors until it could improve its profits and cash flow.

Earnings before interest tax depreciation and amortisation (Ebitda) from its roadside business will fall by £12m for 2019.

The AA blamed a fall in memberships and business customers as well as the introduction of a higher Insurance Premium Tax rate last year.

The company expects to invest an extra £26m in its operations, £15m of which will go into its roadside business.

Younger customers aim

Part of the investment will be into the AA app and its Car Genie digital device which is installed in members’ cars and can alert the driver to potential motor problems before a breakdown occurs.

It said: “Such digital products will appeal strongly to younger customer segments and continue to strengthen already significant app engagement.”

It is part of a wider strategy to broaden its customer base.

The AA said: “In addition to our traditional 50-year plus core demographic, we are now marketing to a younger base.

“We have already grown in younger customer segments over the past 12 months, but there is clear room for further growth in these under-penetrated segments.”

Mr Breakwell was appointed as the permanent chief executive of the AA in September after its executive chairman Bob Mackenzie was dismissed for gross misconduct following a physical altercation with a colleague in a hotel car park.

Mr Mackenzie is taking the AA to an employment tribunal.

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