LONDON (Alliance News) - AA PLC on Wednesday reported a significant drop in interim profit, in line with expectations, due to the extreme weather conditions in the half and the UK's pothole "epidemic".
Shares in AA were down 8.3% Wednesday morning at 109.57 pence each.
In the six months ended July, the roadside rescue service had a 65% drop in pretax profit to GBP28 million from GBP80 million.
AA's revenue increased 1.9% to GBP480 million from GBP471 million.
The profit decrease was largely due to the reduction in Roadside earnings.
The combination of higher planned "strategic" operational expenses as well as additional "unplanned" costs from third party garaging due to the "exceptionally" higher number of breakdowns in the period drove the reduction.
Overall head office costs increased 29% to GBP36m from GBP28 million, due to additional IT software costs.
The company's cost of sales increased 14% to GBP197 million from GBP173 million as well as its administrative & marketing expenses increasing 8.4% to GBP167 million from GBP154 million.
The motoring association said its Roadside revenue was up 2% in the first half to GBP411 million, principally due to the additional revenue generated from pay-for-use contracts.
The company's Insurance revenue was flat on the year before at GBP69 million. AA considers this a "strong" performance considering the lower revenue from its Home Emergency Services consumer business, having sold it in January.
The Insurance division had a "strong" performance from its broker and in-house underwriter, leading AA to believe it is well positioned to deliver significant growth from financial year 2020.
The division had a 7% growth in motor policies to 659,000, with the average income per motor and home policy flat at GBP73.
AA is proposing an interim dividend of 0.6 pence per share, an 83% decrease from the previous year's payout of 3.6p. The company reiterated its intention to pay a total dividend of 2.0p for the year.
Despite the "extreme weather", the company said it remains on track to deliver trading Ebitda of between GBP335 million and GBP345 million.
In the first half, AA recorded trading Ebitda of GBP161 million, down 17% from GBP193 million the year prior. In financial year 2018, the company had a trading Ebitda of GBP391 million.
AA remains "highly confident" its strategy will build a "better, more resilient" company that will give it the platform to achieve sustainable long-term growth.
Chief Executive Officer Simon Breakwell said: "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.
"All this led to a 15 year high in the number of breakdowns we serviced. Against this backdrop, I am extremely proud of our achievements and to be reporting results in line with our guidance as we continue to build resilience throughout the business.
"We are making good operational progress across our Roadside and Insurance businesses and firmly believe that we have the people and strategy in place to unlock the full potential of the AA and crystallise long term value for our shareholders."