GMB CALL ON AA DIRECTORS TO CONSIDER A DEBT TO EQUITY SWAP TO RELIEVE PRESSURE OF £2.7 BILLION DEBTS ON DAY TO DAY OPERATION OF THE BUSINESS AFTER PROFITS WARNING AND DIVIDEND CUT
When debts are more than 2 times net cash flows warning lights flash in any normal business while at AA the ratio is more than 8 times and is not sustainable says GMB Southern.
GMB, the union for workers in the AA breakdown service, is calling on the directors of the company to give serious consideration to negotiations on converting debts to equity to relieve growing pressures on the day to day operation of the business from having to service the £2.7 billion debt mountain inherited from the private equity previous owners. This follows an announcement by AA on a profits warning and dividend cuts. [See notes to editors for copy of the statement from Simon Brakewell to staff dated 21st February and a separate statement to the market and press]
On 21st February AA announced that profits will be £50m lower than forecast and that it is cutting the dividend from 9.3p per share to 2p. Shares are now 83.5p down from the issue price of 250p. The Company is valued at £510m. Debts are nearly 8 times
net free cash flow. Numbers of individual members down 100,000.
Paul Grafton, GMB Regional Officer, said:
“Simon Breakwell the Chief Executive on Wednesday released to the market a statement which is long on hopeful scenarios in the business in the future to go along with the profits warning and dividend cuts.
“However in the email to AA staff he was more downbeat recognising the pressures staff are facing.
He said ” The reality today is that many of you are working very hard against the odds. Dispatch can be slow, our patrols are stretched, we rely on third party garaging, and our customer management systems do not always allow our call handlers to access the information they need quickly when dealing with breakdowns. That is why we are investing in customer service and operations. We are also investing in our change and IT delivery capability to allow us to deliver our strategy.”
“GMB welcome this recognition of the pressures staff are facing in the day to day operation of the business.
“GMB consider that the directors need now face up to and deal with the fundamental cause of the pressures- the £2.7billion debt mountain inherited from the private equity owners.
“When debts are more than 2 times net cash flows warning lights flash in any normal business. At AA the ratio is nearly 8 times. It is not sustainable. No amount of hopeful scenarios will make it so. Growing the insurance business, patrols selling more batteries and tyres and in car diagnostics will never fix this.
“It won’t be easy but AA directors have to give serious consideration to negotiations on converting debts to equity to relieve growing pressures on the day to day operation of the business.
“It has to be done. Putting it off will only increase the risks of further damage to the business.
“This problem started in the City with the private equity takeover in 2004. It is time to go back to the City and to get the shareholders and leñders in the same room to thrash out a debt for equity SWAP which is now the only way to relieve growing pressures
on the day to day operation of the business.”
Contact: Paul Grafton on 07714 239092.
Notes to editors
1 statement from AA to staff.
Building a Better AA
Today, we announce a new business strategy
to innovate and grow our Roadside business and invest to accelerate the growth of our Insurance business. It builds on the AA’s phenomenal heritage and the deeply embedded
customer service ethos that motivates everyone in our company.
My vision is to put service, innovation and data at the heart of our business. Our new strategy will unlock the AA’s full potential through targeted investment in our people, our products, our systems and operations. It will take
the AA from a company helping when people break down to one actually predicting when you might break down in the first place.
We are investing in front line customer service support with 65 new roadside patrols and 200 new call centre agent jobs. This will improve the efficiency, predictability and resilience of our operations. We intend to transform our
customer propositions in both Connected Car and Insurance which will be game-changing growth drivers for the business.
The strategy requires significant financial investment which will reduce our short-term profitability. That said, the AA remains a strong business. We generate healthy levels of cash and will deliver between £335m to £345m of profit
in FY19 – that’s a third of a billion pounds of underlying profit.
As a result of the investment outlined today, the Board has changed its policy on dividends. Going forward, we propose paying 2p per share per year until such time as the Board is satisfied that the profit and free
cash flow enable a change in policy. For FY18, we currently expect to pay a final dividend of 1.4p per share. Added to the interim dividend already paid, this would give total dividends for FY18 of 5p per share.
The reality today is that many of you are working very hard against the odds. Dispatch can be slow, our patrols are stretched, we rely on third party garaging, and our customer management systems
do not always allow our call handlers to access the information they need quickly when dealing with breakdowns. That is why we are investing in customer service and operations. We are also investing in our change and IT delivery capability to allow us to deliver
I’m going out on the road with the Exec team to speak with as many of you as we can about the new strategy. We aim to create a high performing culture, where everyone is supported to give their best in delivering our strategy. Meanwhile,
take a look at my video message.
If you have any questions, please raise them with your manager in the first instance. You’ll also find a set of FAQs on our strategy SharePoint page.
Today marks the start of our work to build a better AA for the future. Our members and our employees deserve the very, very best from this wonderful company.
Posted: 23rd February 2018