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The number of pothole-related breakdowns in the UK has risen by a third over the past two years, the AA said, as it welcomed the government’s promise to spend £8bn fixing UK roads.
While vehicles have become more reliable, a sharp rise in the number of call-outs resulting from potholes means that the total number of breakdowns is the same as two years ago, the company said, negating potential savings.
As a de facto breakdown insurance provider, the AA benefits financially if the number of breakdowns falls, assuming that the number of people taking out cover remains the same.
A 30 per cent rise in call-outs directly due to potholes was “a reflection on the state of the roads”, said Jakob Pfaudler, chief executive of the private equity-owned roadside rescue group.
Ministers have diverted some of the funding from the cancelled northern leg of the HS2 train line to fix potholes, including about £8bn to be spent over the next decade, something that Pfaudler welcomed.
Since being bought by private equity groups TowerBrook Capital Partners and Warburg Pincus in 2021, the AA has enacted a turnaround plan to increase profitability in order to pay down its debt pile. High levels of borrowing, built up under previous private equity owners, weighed on the business during its six years as a listed company.
On Monday, the group reported that pre-tax profits fell from £40mn to £23mn in the six months to the end of July, while revenues rose 10 per cent to £625mn on the back of higher membership numbers and more insurance customers. The AA’s total net debt stood at £2.28bn, down fractionally on the £2.29bn it recorded a year earlier.
In August, the AA repurchased £61mn of debt that had been due to be repaid in 2025, the first time it has bought back debt under its new owners. It also refinanced £550mn of longer-term borrowing during the six months.
Pfaudler said that the business had grown operating earnings in the past two years, and was generating cash, which the company plans to use to reduce its debt pile in the coming years.
The AA is “ultimately a cash flow generative business, and as we are growing profitability, that cash generation is expected to grow going forward,” Pfaudler said.
During the first half of the year, the company injected £8mn into developing a new smartphone app that will monitor a vehicle’s health and allow customers to book a servicing or maintenance job.
This, along with higher debt financing costs and writing down older software spending, pushed down pre-tax profits.
As the number of electric vehicles on the road increases, the company has had to train drivers to deal with specific battery issues.
Pfaudler said that four out of five patrols were fully qualified to deal with high-voltage faults with EVs, though added that most EV breakdowns are still due to the 12v battery or the tyres, issues that any of its drivers can deal with at the roadside.
The company has also been cutting its expensive use of third-party garages for remote breakdowns, and said the number of vans it had on patrol had risen to 2,721, up from 2,657 a year earlier.
The cost of motor insurance rose to an all-time high earlier this year, as soaring prices for repairs pushed up the value of payouts. The AA said its insurance business had experienced “strong price inflation”, which it had been forced to pass through to customers in higher prices.
Business customers, such as motorists who receive breakdown cover alongside a car service from their garage, increased 12 per cent to 10.67mn, while the number of paying individual customers rose 1 per cent to 3.27mn.
This article has been amended since first publication to put the correct profit and revenue figures for the whole group
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