AA sets aside £1m to fight £225m legal battle against sacked boss MacKenzie

The AA has set aside £1m to fight a legal battle with its former boss that threatens to wipe out three-quarters of the firms annual profits.

In its full-year results announcement today the breakdown giant said it had not made provisions for £225m of damages claimed by Bob MacKenzie.

AA boss Simon Breakwell insisted the demands, which also include share options, are spurious.

Investors were shocked last summer as MacKenzie was sacked amid allegations of a physical altercation with a colleague. The former executive chairman has mounted a legal challenge against his dismissal, which AA said was on “gross misconduct” grounds.

“We are at law with the previous executive chairman,” Breakwell said.

We havent made any allowance for the quantum of shares that he is requesting because we believe the case is without merit.

AA shares were Londons biggest gainer today, rising almost seven per cent. They crashed to an all-time low in February after the firm cancelled its dividend and revealed a turnaround plan perceived by City analysts to be capital intensive.

Full-year earnings were £391m, within previous guidance, with operating profit of £307m.

Read more: The AA has broken down. Can its new boss get the company back on track?

Clearly a big number

On Friday, the firm was buoyed by ratings agency S&P refraining from downgrading the AA – a move analysts had warned could have been “terminal” for the firm and its near-£3bn debt pile.

Both Breakwell and finance chief Martin Clarke hailed the S&P decision and what this meant for what Clarke called “clearly a big number in terms of debt”.

“[We will] continue to look at refinancing opportunities,” Clarke said, though this would not reduce the cost of its debt pile, rather with a view to extending its maturity.

Meanwhile, Breakwell denied the spat with MacKenzie was overshadowing the boards attempt to right-size the AAs fortunes.

He added: “In the two months since we set this [the restructuring plan] out, we are if anything, more confident.”

The AA will announce a new non-executive director in the coming weeks as it beefs up its board and pivots away from its pre-2014 existence as a private equity-backed firm.

Jefferies analyst Will Kirkness said the annual results were "understandably in-line".

While forecasts for the next 12 months "look well ground", he added: "We continue to see earnings risk from 2020 as we remain sceptical that initiatives can deliver the five to eight per cent group earnings growth.

In addition, even returning to 'normalised' free cash flow of £100m per annum, the debt burden of £2.6bn is unsustainable.

Read more: AA shares leap as rating agency surprises on "terminal" debt pile

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