AA wheels out shake-up for the 21st century

The AA will on Monday offer investors fresh details about plans to reinvigorate the business weeks after completing a near-£1bn refinancing.

A new management team that carried out a buy-in last summer plans to bring the roadside assistance company into the 21st century by unveiling connected car technologies aimed at younger drivers and better monetising online services, such as AA Route Planner.

"This is a company that's had a three-year strategy for seven years," Bob Mackenzie, executive chairman, told the Financial Times. "There has been no investment in it in any shape or form."

The AA, formerly owned by British Gas parent Centrica, spent a decade under ownership by private equity groups including CVC, Permira and Charterhouse, and was latterly controlled with retirement group Saga under the Acromas consortium.

Mr Mackenzie, Nick Hewitt and former Permira partner Martin Clarke took over the business and executed a fast-track listing in June, backed by investors including BlackRock, Aviva and Neil Woodford. Since then the AA's shares have risen by two-thirds.

But the company remains firmly in restructuring mode after the years from 2007 saw it loaded with debt - standing at just under £3bn in net terms - while advertising spending all but disappeared and IT systems and databases stagnated. Even today customers can register online but cannot renew via the website.

Mr Mackenzie will use an investor day on Monday to offer details about the new management's plans.

The AA, which operates a roadside assistance duopoly alongside the RAC, wants to boost the number of products it sells each customer. Only 11 per cent of members paying for roadside assistance - which accounts for about 75 per cent of the AA's operating earnings - buy some form of car or home insurance from the company.

In particular it is looking at marketing "black box" car insurance to the 160,000 young motorists who pass through the group's BSM driving school, the UK's biggest. "They just disappear," said Mr Mackenzie. "We don't even send them a letter of congratulation, let alone an email or a tweet."

The company is also keen to make better use of its Route Planner website, which helps theAA.com register 150m hits a year. Mr Clarke said the company was exploring ways of using the site to offer location-specific hotel, restaurant and pub discounts, from which the AA would take a commission.

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But the AA, which is spending £128m on IT over three years, says its main focus is on getting basic systems right. Analysts such as Joe Brent at broker Liberum expect a decline in operating income this year, because of restructuring costs, and only limited interest savings from the refinancing.

"It all amounts to short-term pain for long-term gain," he wrote in a recent note to clients.

Mr Mackenzie said: "It's very easy to get very excited about what we may be able to do. But it would be nice if our customers could renew online."

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