The AA has slid to a near-£64m loss and said that the government’s increase in insurance premium tax would increase “churn” among its customers – the number of policyholders shopping around and switching to rival insurers.
The insurance and roadside assistance group also reported a dip in revenues for the six months to 31 July, but Bob Mackenzie, its executive chairman, insisted plans to overhaul the business were on track. It came as shares in AA, which floated last year at 250p, fell by nearly 8% to 307p in early trading on Tuesday.
The loss was primarily caused by the refinancing of expensive debt put in place by its former private equity owners, who each made hundreds of millions of pounds from the IPO of the company.
The AA racked up £202m of finance costs during the period, including a £62.1m penalty for the early repayment of £655m of loan notes and PIK notes of £175m.
It posted a pre-tax loss of £63.6m, compared with a profit last year of £10.2m. Stripping out the finance costs, AA reported that trading earnings before interest, tax, depreciation and amortisation fell 6% to £199.2m. Revenues fell from £492m to £485m.
In addition, Mackenzie warned that a 58% increase in insurance premium tax due in November would “add considerably to the cost of car insurance and is likely to exacerbate price sensitivity and increase churn”. He added: “We are taking specific steps to protect profits, which may affect revenue in the short term.”
The AA boss also said changes in EU legislation on holiday pay may increase operating costs. Nonetheless, Mackenzie insisted the AA was making progress with a plan to become “the UK’s pre-eminent motoring services organisation”.
Mackenzie took charge of AA when Chris Jansen resigned just two months after the company floated on the stock market last year. The IPO had raised almost £1.4bn for the company’s private equity owners Charterhouse, CVC Capital Partners and Permira. Shares were changing hands at more than 400p earlier this year before falling back.
Mackenzie said: “I am pleased to report early and positive signs that our strategy will deliver our expectations of the AA brand. There is a great deal still to be done, particularly relating to the revenue increases and cost reductions which are contingent on the introduction of our new IT systems. The first phase of the IT investment is firmly on track and expected to be in place in July 2016.”
