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UK 'pothole epidemic' helps fuel surge in callouts, says AA AA blames profits fall on callout surge fuelled by 'pothole epidemic'
(about 5 hours later)
The AA has said a “pothole epidemic” caused by the “beast from the east” contributed to the highest number of vehicle breakdown callouts in 15 years. The AA has blamed a “pothole epidemic” caused by the “beast from the east” and low road maintenance spending for a drop in half-year profits, after it was forced to deal with the highest number of vehicle breakdown callouts in 15 years.
The company said core earnings in the roadside vehicle recovery business fell 17% in the six months to the end of July, due to the increased expenditure and higher costs needed to use third-party garages to house the much higher number ofvehicles that broke down. The roadside vehicle recovery firm said core earnings fell 17% to £161m in the six months to the end of July, owing to the increased expenditure and higher costs needed to use third-party garages to house the much higher number of vehicles that had broken down.
This contributed to a 65% decline in pre-tax profit, from £80m to £28m. AA shares were down about 4.5% in early trading on Wednesday, the biggest faller on the FTSE 250. The number of breakdowns rose by 8% to 1.91m in the six-month period.
Simon Breakwell, the AA chief executive, said: “The first half of [the financial year] 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. This contributed to a 65% decline in pre-tax profit, from £80m to £28m. Investors were spooked, with AA shares down about 12% at 105p by lunchtime on Wednesday, the biggest fall on the FTSE 250.
“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.” Simon Breakwell, the AA chief executive, said: “We’ve had a 15-year high in breakdowns, we had the worst winter back to back with the hottest summer; all of which causes everyone to drive their cars – and more cars on the road generally means more breakdowns.
The AA, famous for its distinctive yellow livery, was formed by a group of motoring enthusiasts in 1905 and provides roadside help through personal membership and business partnerships as well as motor insurance policies. “Sometimes you have a rubbish winter and sometimes you have a really hot summer but it’s rare that you have a rubbish winter back to back with the hottest summer.”
It has been investing heavily in its roadside business to increase the number of company-owned patrols and improve its mobile-app based services for car breakdowns under Breakwell, who took over the top job at the century-old firm last year. Chris Grayling, the transport secretary, admitted in May that the winter had been “particularly bad” for local roads and that some had twice as many potholes as last year.
Breakwell set out the strategy in February as the company announced plans to pay lower dividends and forecast lower core profit for 2019. Councils received an additional £100m to fix potholes since the winter, he told the Times, but he added: “We probably haven’t spent enough on roads in this country since the 1980s.”
The company reported trading earnings before interest, tax, depreciation and amortisation (Ebitda) of £161m for the six-month period, down from £193m reported a year earlier. A survey published by the AA in May showed nearly nine out of 10 drivers said roads were worse compared with a decade ago, while two-thirds said they had “considerably deteriorated” in that period.
The AA reaffirmed its full-year Ebitda expectations of between £335m and £345m. More than half of motorists in Scotland said residential streets were poor; a third of main roads in the east Midlands were considered to be in a bad condition.
Road safety One in 10 drivers in the north-east said their motorways were riddled with potholes, although motorways were generally rated the roads in the best overall condition, while local roads were the worst affected, with less spending per mile.
Road transport Despite the “pothole epidemic”, the AA stuck to its full-year forecast of £335m and £345m for core earnings, before interest, tax, depreciation and amortisation.
Motoring According to the Annual Local Authority Road Maintenance (Alarm) survey 2018, £9.3bn needed to be spent to bring roads back into reasonable condition in England and Wales. Councils were fixing a pothole every 21 seconds but it would still take more than a decade to clear the repair backlog on local roads, according to the Local Government Association.
Local authorities have reported an increase in average highway maintenance budgets – up from £17.1m in 2017 to £20.6m this year – although budgets have barely kept in line with inflation over the past decade, according to the Alarm survey. This year’s figures also hid a wide disparity, with some councils spending £100m and others less than £1m.
Between the financial years 2010-11 and 2016-17, spending on local roads declined by 13%, whereas on motorways and major A roads maintained by Highways England, spending went up by 5.5%, according to the Department for Transport.
The AA was formed by a group of motoring enthusiasts in 1905 and provides roadside help as well as motor insurance policies.
It has been investing heavily in its roadside business to increase the number of company-owned patrols and improve its mobile-app-based services for car breakdowns under Breakwell, who took over the top job last year.
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