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Britain's AA profit hit by extreme weather on road to recovery

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Britain's AA profit hit by extreme weather on road to recovery
FILE PHOTO: An AA (Automobile Association) recovery vehicle drives along the M6 motorway near Knutsford, northern England, April 8, 2016. REUTERS/Phil Noble/File Photo   -   Copyright  Phil Noble(Reuters)
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By Muvija M and Noor Zainab Hussain

(Reuters) – Britain’s AA <AAAA.L> said on Wednesday extreme weather had raised its costs and hit first-half core profit, hindering the roadside recovery and insurance group’s strategic revamp.

“We are about 20 percent of the way through the implementation of the plan. It is a large company and there is a great deal of work,” AA Chief Executive Officer Simon Breakwell told reporters on a conference call following its results.

Shares in the company, which set out a new strategy earlier this year with plans to invest heavily in its breakdown business, fell by as much as 11 percent on the profit fall.

“It is a three-year programme, you should this time next year see some very different products and services out there in the marketplace from AA,” he said.

AA, famous for its distinctive yellow livery, plans to ramp up its own patrols and improve its mobile-app based services.

It had forecast lower core profit for 2019, but on Wednesday said first-half core profit suffered because of bad weather.

“Sometimes you have a rubbish winter and sometimes you have a really hot summer. But it is rare that you have a rubbish winter back to back with the hottest summer. So trying to manage all of this transformation when the operation is under extreme load was very challenging for us,” Breakwell said.

Core earnings in the roadside business fell 17 percent in the first half because AA had higher costs to use third party garages to house a 15-year high number of breakdowns.

Breakwell said AA has added 65 new patrols as it reported earnings before interest, tax, depreciation and amortisation of 161 million pounds in the six months ending July 18, from 193 million pounds a year earlier.

Shares in the century-old firm, which have fallen more than 28 percent this year, were down 8.2 percent to 109.75 pence at 0850 GMT, at the bottom of London’s Midcap Index <.FTMC>.

AA was formed by a group of motoring enthusiasts in 1905 and now provides roadside assistance through personal membership and business partnerships as well as motor insurance policies.

Breakwell said AA, whose largest shareholder is Woodford Investment, was talking to insurers about business partnerships.

(Reporting by Muvija M and Noor Zainab Hussain in Bengaluru; Editing by Gopakumar Warrier/Edmund Blair/Alexander Smith)

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