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Motoring group AA considers pension deals as deficit widens

Motoring group AA is considering a bulk annuity deal with an insurer as it weighs how to deal with its ballooning pension deficit, its chief financial officer said on Wednesday.

The group’s trading revenue rose to 467 million pounds in the six months to end-July from a year earlier, slightly ahead of a company-supplied consensus forecast of 461 million pounds.

But the firm’s defined benefit, or final salary, pension scheme deficit widened to 622 million pounds, from 296 million at end-January, as a result of falling bond yields following Britain’s vote to leave the European Union.

“We are looking at ways of mitigating current and future liabilities,” chief financial officer Martin Clarke told Reuters by telephone.

“We are looking at a range of options to see what we can do,” he added, without giving further details.

AA has one of the largest pension deficits as a percentage of equity capital among FTSE 250 companies, Thomson Reuters data shows.

Some companies have carried out bulk annuity deals – transferring the risk of part or all of the pension scheme to an insurer, to remove it from their balance sheets.

Pension deficits can affect companies’ capital positions or even their ability to pay dividends.

Small-cap plastic component maker Carclo said last month it would likely not be able to pay a final dividend declared in June because of its pension deficit.

AA, however, said on Wednesday it would pay an interim dividend of 3.6 pence per share, up from 3.5 pence a year earlier.

Trading earnings before interest, tax, depreciation and amortisation were unchanged at 192 million pounds because of increased costs associated with higher number of breakdowns in the period.

The results strip out any contribution from AA Ireland, which AA agreed to sell to a Carlyle Group fund and financial services buyout team in June for 156.6 million euros.

AA’s shares rose 0.84 percent to 287.4 pence at 0836 GMT.

Analysts at Liberum reiterated their buy rating on the stock, pointing to AA’s reversal of a decline in members of its roadside recovery service.

(Reporting by Carolyn Cohn in London and Noor Zainab Hussain in Bengaluru; Editing by Sunil Nair and Alexandra Hudson)

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