AA plans for £200m share sale
In a statement, the company said the share placing would be used to redeem PIK notes issued before its IPO last June, which was led a management buy-in team headed up by former NCP chairman Bob Mackenzie. It also announced a proposed £735m refinancing to redeem all existing Class B notes and to prepay approximately £209m of the Senior Term Facility.
Bob Mackenzie, executive chairman, commented: “The refinancing will help us to deliver a key financial objective set out at the time of IPO in June: to reduce borrowings and associated interest costs. The refinancing enables us to pay down the most expensive debt we inherited and reduce our Senior Term Facility. As a consequence, on completion, our interest payments would be expected to fall by approximately £45 million per annum. In addition, some of the restrictions which limit our scope to pay dividends will be removed.”
The AA added that the move would remove some of the restrictions that limit the payment of dividends and as a result the Board intends to recommend dividends of no less than £50m in respect of FY16 and to adopt a progressive dividend policy going forward.
The announcement comes as the breakdown recovery group reported preliminary results that show pretax profits slumped a massive 70% to £60.8m for the year to end January whilst earnings rose 1.7% to £430.1m and sales rose 1% to £983.5m.
Mackenzie said: “These results reflect the resilient and cash generative characteristics of the business. Our investment plans will enable us to revolutionise customer experience through new technology and strengthen the AA as the UK’s pre-eminent motoring services organisation. The significant and accelerated investment in our IT systems, digital capability and brand marketing will have an impact on operating profit in the current financial year, but we expect to see the benefits in the medium term.”
He added: “In view of the strength of our business model, characterised by strong cash generation, our confidence in our transformation plans and the impact of the proposed refinancing, the Board’s current intention is to recommend dividends of no less than £50m with respect to the current year, ending 31 January 2016. Thereafter, we intend to adopt a progressive dividend policy.
“This is a very exciting time for the AA – and our members – as we put in place the building blocks for long-term future growth as the UK’s pre-eminent motoring services organisation.”