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Trading statements

The AA's membership expected to be marginally higher, FY broadly in line

01 August 2017 13:57

In today's pre-close update, the AA said it expects its membership to be marginally up year-on-year, with early indications that paid members will be at c3,327,000 (3,321,000 at 31 July 2016).

The Company said this demonstrates the resilience of its business at a time when it complied with new transparency disclosure rules and passed on an additional 2% increase of Insurance Premium Tax.

However, the financial performance in the first six months has been negatively impacted by the effect of erratic work load patterns on an inherently fixed cost base. This was especially true in June and July which saw significant spikes in demand.

The Company added:

"This performance reflected both stable retention and continued growth in new business as the benefits of the investment in our modernisation and brand marketing become increasingly evident. Business customers have, as anticipated, continued to decline marginally to c9,994,000 (10,179,000 at 31 July 2016) driven by the contraction by banks of added-value accounts.

"The IT transformation continues to progress well. 1.3 million personal members are now registered users of the AA app and usage in breakdowns has continued to rise, reaching 27% of breakdowns.

"We have seen growth in Motor insurance policies to c619,000 (572,000 at 31 July 2016), although overall insurance policies are down in line with our strategy to reduce our exposure to underperforming insurance segments. Our in-house underwriter has continued to perform ahead of expectations with c220,000 policies underwritten in its first 18 months.

"The financial performance in the first six months has been negatively impacted by the effect of erratic work load patterns on an inherently fixed cost base. This was especially true in June and July which saw significant spikes in demand.

"Two other factors will also adversely affect the result. We have this year incurred a one-off, accelerated cost relating to a profit sharing arrangement with a third party relating to certain products which they underwrite, such as Breakdown Repair Cover. In addition, we have seen a significant growth in the number of insurance policies underwritten by our underwriting business on behalf of our broker. Our accounting policies relating to revenue recognition mean that this intra-Group revenue is deferred over the life of the policy with a corresponding impact on profits in the year in which that policy is written.

"We now expect the full year performance to be broadly in line with that of the last financial year.

"We are announcing results for the six months ended 31 July 2017 on 26 September. At that stage, Simon Breakwell will be in a position to provide an update on our plans.

"We remain confident in the resilience and long-term prospects of the AA."

At 1:57pm: (LON:AA.) AA Plc share price was -31.15p at 213.15p

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Related Company: AA.

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