UNION ASKS AA TO CONSIDER ‘DEBT FOR EQUITY’ SWAP

AA faces a tough few years

The GMB union is calling on the directors of the AA 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.

On 21st February, the AA announced that profits will be £50m lower than forecast and that it is cutting the dividend from 9.3p per share to 2p. Debts are nearly eight times net free cash flow, an unusually high amount. AA membership figures are also down.

The figures came as AA CEO Simon Breakwell announced a three-year ‘strategic review’ of the business, which included modernising the breakdown service with new IT systems
and connected car technologies, while also increasing the reach of its insurance services.

CAT has seen an all-staff email from Breakwell. In it, he admits that ‘the reality is that many of you are working against the odds’. He mentions the speed of dispatch, stretched patrols and the reliance on third party garaging as reasons why the service has been pushed. He also mentions the legacy IT systems used by the organisation ‘that do not always allow call handlers to access the information they need quickly when dealing with breakdowns’. He adds that these old systems are now being upgraded ‘to allow us to deliver our strategy’.

Paul Grafton, Regional Officer at the GMB union welcomed the sentiments in Breakwell’s email for ‘recognising the pressures staff are facing in the day to day operations of the business’

He added: “Directors need to now face up to and deal with the fundamental cause of the pressures- the £2.7bn debt mountain inherited from the private equity owners.

“When debts are more than two times net cash flows, warning lights flash in any normal business. At AA, the ratio is nearly eight 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”.

The news follows a report in last month’s CAT of how the AA announced 100 redundancies and closed a training centre. Despite bad headlines, the AA brand remains strong, topping a poll of the UK’s ‘Most loved brands’ several years running.

This post was written by:

- who has written 287 posts on CAT Magazine.

Editor of CAT Magazine and an experienced motoring journalist

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