Breakdown firm AA set for £935million restructuring to cut its crippling debts and allow it to pay a maiden dividend

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Breakdown rescue firm AA plans to cut its crippling debt payments and pay a maiden dividend by raising £935million as part of its restructuring plan.

The recently-listed FTSE 250 group will raise £200million via an equity placement and refinance £735million of expensive debt – reducing interest costs by about £45million a year - enabling it to pay out at least £50million as a dividend which could equate to around 8p a share.

The group, which listed in June, was previously owned by private equity and as a result the company was ‘starved of capital’ executive chairman Bob Mackenzie said.

Rescue plan: Breakdown rescue firm AA plans to cut its crippling debt payments and pay a maiden dividend by raising £935million as part of its restructuring plan

The group is now investing £128million over the next three years to improve its IT systems, back office functions and website and will also invest £10million on advertising across TV and other media.

Mackenzie said: ‘We send out 35 million letters a year and our customers have to renew by post with documents that contain 36 different telephone numbers. It cannot continue like that.’

Jump start required: AA executive chairman Bob Mackenzie said: 'The service by our patrol force is absolutely excellent but we haven’t invested in our systems or marketing’

He added: ‘There has been no advertising in a decade. The service by our patrol force is absolutely excellent but we haven’t invested in our systems or marketing.’

The group also revealed its full year pre-tax profit slumped by nearly 70 per cent to £60.8million for the year to the end of January compared to last year – hit by marketing and administration costs.

The float of the business last year and the associated costs reached £33million and it also paid out various other restructuring charges during the year.

Earnings rose 1.7 per cent to £430.1million in the year, sales rose 1 per cent to £983.5million and income rose 7.1 per cent to £135 per member.

Mackenzie added: ‘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.’

AA shares have gained more than 70 per cent since floating at 250p last year. Shares slipped 0.5p to 426.6p in lunchtime trade today.