AA Races Towards £4bn Stock Market Listing

By Mark Kleinman, City Editor

The AA, Britain's biggest roadside recovery group, is poised to press ahead with a £4bn flotation despite a disappointing stock market debut from Saga, its sister company.

Sky News can reveal that Acromas Holdings, the AA's parent, could announce plans for the listing through a process known as an accelerated initial public offering as soon as Friday.

The deal will involve approximately 10 City institutions acting as cornerstone investors, each of which will agree to acquire a substantial number of shares in the AA.

The fund managers expected to back the flotation, which will value the AA's equity at roughly £1.3bn, include Aviva Investors, Blackrock, JP Morgan Asset Management, Lansdowne Partners and Legal & General Investment Management.

A source said on Thursday that details of the share sale were still being finalised and that there was a chance that the deal could still be aborted.

Bob MacKenzie, a former boss of Green Flag, the car insurance provider, has been lined up to act as the company's new chairman, they added.

Deutsche Bank has been brought in to advise the company, while Cenkos Securities is acting as broker overseeing the recruitment of the major investors.

Acromas is a private equity-backed group which continues to own a majority stake in Saga, the financial services and travel specialist for the over 50s.

Shares in Saga closed up 1.6% on Thursday but have disappointed since listing last month.

Some institutions approached by Cenkos about participating in the AA deal were deterred by the motor insurer's £3bn debt mountain, which they believed was inappropriately high for a public company.

The AA, which generates hundreds of millions of pounds of free cashflow every year, is expected to outline a plan for reducing its borrowings as part of of its listing prospectus.

If the listing goes ahead, the AA could make its own public debut by the end of June, completing a change of ownership for one of the UK's biggest membership organisations.

Acromas has been expected to retain ownership of the AA for some time, given the scale of its borrowings relative to its earnings.

In the third quarter of last year, the AA reported sales of £244m, with earnings up 8.2% to £104m.

It has taken advantage of strong financing markets by launching a £350m bond, the proceeds of which are being used to repay a chunk of Acromas's vast debt-pile.

The AA, which has styled itself as "the fourth emergency service", has four million personal members and nine million business customers, giving it a 40% share of the roadside insurance market.

The accelerated IPO technique was first used in the City more than a decade ago by Collins Stewart, the investment bank which a group of Cenkos executives left to set up.

Like Saga, the AA has turned to new leadership, appointing Chris Jansen, a former British Gas executive, as its new boss.

Acromas is owned by Charterhouse, CVC Capital and Permira, three of the UK's biggest private equity groups. They acquired the AA from Centrica, the owner of British Gas nearly a decade ago, before putting it under the same corporate ownership as Saga.

The AA's principal rival, the RAC, is also racing towards the stock market, with Carlyle, its private equity owner, working on plans for a listing.

An Acromas spokesman declined to comment.

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Vodafone Blows Whistle On State Snooping

By Tom Cheshire, Technology Correspondent

Security services should not be snooping on people's data just because it is technically possible, Vodafone has warned, in a report that reveals the global extent of government surveillance on the operator's customers.

It called on authorities to submit to "regular scrutiny by an independent authority", and to "amend legislation which enables agencies and authorities to access an operator's communications infrastructure without the knowledge and direct control of the operator".

In some countries, governments have "direct" and "permanent access" to Vodafone's infrastructure - so don't have to make an interception request.

"In our view, it is governments - not communications operators - who hold the primary duty to provide greater transparency on the number of agency and authority demands issued to operators," Vodafone says.

But the company made clear it would continue to comply with the requests, rather than cease its operations in a country: "If we do not comply with a lawful demand for assistance, governments can remove our license to operate, preventing us from providing services to our customers."

The report breaks down lawful intercept requests and communications data request for the 29 countries in which Vodafone operates.

Nine governments already publish this information. The UK government made 2,760 interception requests and 514, 608 communications data requests to all mobile phone operators in 2013.

By comparison, Italy made 139.962 interception requests in total and 605,601 communications requests to Vodafone alone. In the US, Verizon said it received 321,545 requests for customer information. 

Some of the figures are being disclosed by Vodafone for the first time, including those for Spain and Tanzania.

But several countries refused to reveal the number of requests they made, including Egypt, India, Qatar, Romania, South Africa and Turkey.

The report also lays bare just how much communications data - often referred to as metadata - can reveal about a person.

"It is possible to learn a great deal about an individual's movements, interest and relationships from an analysis of metadata … In many countries, agencies and authorities therefore have legal powers to order operators to disclose large volumes of this kind of communications data."

Vodafone said it was publishing the report because "questions have been asked about the role of communications operators such as Vodafone in support of those activities".

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Game Makes Market Return After 2012 Collapse

Video games retailer Game Digital is back on the stock market, two years after its collapse into administration and subsequent rescue.

Game, owned by US hedge fund Elliott Advisors, announced ahead of conditional trading this morning that the offer price for its flotation would raise gross proceeds of £121m - giving the firm a market value of £340m.

The offer was said to be fully subscribed.

The Initial Public Offering on the London Stock Exchange marked a new chapter for Game after the UK and Spanish arms were rescued from administration.

Game collapsed in 2012 with shareholders receiving nothing while 2,000 staff lost their jobs.

It was a casualty of not only the-then slump in high street spending but also a business model that left it with high rent bills and little access to the digital marketplace.

A number of key suppliers, including Electronic Arts, had refused to distribute major titles to the chain over cash flow fears.

Elliot Advisors has since slashed 300 poorly-performing stores and its new management team, led by former HMV executive Martyn Gibbs, has been credited with boosting sales and profits.

Mr Gibbs said today: "Game Digital is a profitable and cash generative business with a great team, strong supplier partnerships and exciting digital growth opportunities.

"These fundamentals have enabled us to attract quality investors who we welcome into our business.

"We are a truly specialist retailer, with a loyal customer base, operating in a growing market. Our supplier partners are producing increasingly advanced  gaming content, for which we will continue to develop and facilitate new ways to buy and play."

However, there was concern raised over the timing of the flotation and Game's past history.

Speaking after an hour's trading, Mark Priest, head of index and equity markets at ETX Capital, told Sky News: "It's come in at the offer price and not done a great deal.

"It's once bitten twice shy with a company that has been in administration in the past.

"You look at yesterday's 40% fall at ASOS and the shine has been slightly taken off online retailers. I think we're going to see the same with this stock."

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Euro Bank Set For Negative Interest Rates

By Ed Conway, Economics Editor

The European Central Bank is expected to become the first major central bank to introduce negative interest rates, as it seeks to fight off the threat of deflation.

The Frankfurt-based institution is widely-anticipated to cut the rate it pays on deposits from high street banks from the current rate of zero to around -0.1%, meaning it would charge them to keep money on deposit.

The move comes amid growing worries about the long-term economic health of the Eurozone.

Although many economists agree its financial system has now passed its crisis phase, there are concerns that it could be heading towards a lengthy period of deflation, marked by falling shop prices and wages.

ECB president Mario Draghi may consider Quantitative Easing

Inflation - the measure of annual price increases across the economy - was running at just 0.5% in May, well below the ECB's 2% target.

In previous speeches, the ECB's president, Mario Draghi, signalled that he would be prepared to take further measures to prevent it dropping down any more.

The ECB would not be the first central bank to experiment with negative interest rates - Sweden and Denmark have attempted similar schemes - but it would be by far the largest.

Other central banks, including the Federal Reserve and the Bank of England, have briefly contemplated such a measure, but have opted against them, for fear of damaging the financial system.

Economists said the argument in favour of negative rates would be to encourage banks to lend out cash to businesses and households rather than hoarding it at the central bank.

However, Marchel Alexandrovich of Jeffries added that negative rates alone may not be enough.

He said: "With the negative deposit rate so heavily discounted already, what may ultimately matter much more tomorrow is whether Draghi goes beyond what is generally expected and 'surprises' the markets.

"And in particular, whether he signals the ECB's readiness to do more and introduce full blown Quantitative Easing."

Thus far, Mr Draghi has stopped short of Bank of England style QE - buying up government bonds with created money - but he has dropped a number of hints in recent months that it might soon be on the menu.

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City Fund Manager Calls For Tesco Boss To Go

By Mark Kleinman, City Editor

One of the City's top fund managers has urged Tesco to replace Philip Clarke, its chief executive, or face an accelerated period of "managed decline".

Speaking to Sky News, Robert Talbut, chief investment officer of Royal London Asset Management (RLAM), said that this week's disappointing trading update from Britain's biggest retailer meant that a change in its leadership team was necessary.

Tesco announced on Wednesday that like-for-like sales in the first quarter of its financial year had fallen 3.7%, a figure that Mr Clarke described as the worst he could remember during nearly 40 years with the company.

"My view is that the business needs a management team who will implement more bold actions in order to restart growth. At present we appear to have managed decline," Mr Talbut said.

Asked whether his view was that Tesco should seek to replace Mr Clarke, he said that it was.

While several institutional investors have been quoted anonymously calling for Mr Clarke to step down, Mr Talbut is among the first to do so publicly.

RLAM is not currently a major Tesco shareholder, partly because of its concerns about the company's strategy and performance, although as chairman of the investment affairs committee at the Association of British Insurers, Mr Talbut's views carry significant weight in the City.

Mr Clarke said on Wednesday that the most recent quarter had been one of significant progress but said turning around its performance would not take place in the short term.

"Our accelerated plans are making a real difference for customers and we are more competitive than we have been for many years. Since February, we have cut prices on the products that matter most, cut home delivery charges and made Grocery Click & Collect free.

"As expected, the acceleration of our plans is impacting our near-term sales performance.

"The first quarter has also seen a continuation of the challenging consumer trends in the UK, reflecting still subdued levels of spending in addition to the more structural changes taking place across the retail industry. We are determined to lead in this period of change, building long-term customer loyalty and positioning the business to win in the multichannel era."

Sir Richard Broadbent, Tesco's chairman, is also facing criticism for his stewardship of the board following the recent resignation of Laurie McIlwee, the company's finance director.

Sources said that Tesco directors were due to gather in Thailand next week for a board meeting, with the retailer's annual meeting scheduled for later this month.

Tesco could not be reached for comment.

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Asos Shares Slump 40% After Profit Warning

Shares in the online fashion retailer Asos fell 40% in early trading on Thursday after it issued a profit warning.

The company - a darling for investors since its flotation in 2001 - had seen its value double in the 12 months preceding an announcement last March, which sparked a sell-off, that it planned to invest heavily in its infrastructure to help meet future demand.

In Thursday's unexpected trading update, ASOS said it would be less profitable this year due to higher promotional activity, the strong rate of growth in low-margin British products and the hit from the strong pound.

Price correct at 09:24 BST

Chief executive Nick Robinson said: "Whilst our profit performance for this financial year is not what we had hoped for due to an unusual combination of factors, our accelerated investment in technology and infrastructure to support our £2.5bn sales ambition is progressing and capex (capital expenditure) remains within guided levels."

The firm forecast its operating margin for the current financial year to come in at around 4.5% from around 6.5% due to strong sales in Britain where its margins are generally lower because of strong competition.

Retail sales in Britain in the three months to the end of May were up 43% while international sales, which tend to sell at a higher margin, were up 17% but hit by the strong pound.

The resulting stock sell-off eased as morning trading continued, with shares trading 30% lower though it still meant more than £1bn had been wiped from the value of Asos.

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Pensions Changes At Centre Of Queen's Speech

By Jon Craig, Chief Political Correspondent

Sweeping reforms to boost pensions for millions of people will be the centrepiece of a Queen's Speech outlining new laws for the final year of the Coalition Government.

Changes in George Osborne's Budget will end the requirement for pensioners to buy an annuity to provide a guaranteed income and legislation is also expected on collective workplace pension schemes.

Stung by allegations of a "zombie Parliament" and claims that the coalition has run out of steam, David Cameron and Nick Clegg claim the programme will be "unashamedly pro-work, pro-business and pro-aspiration".

But there are likely to be only around a dozen major Bills, with the bulk of the 2010 Coalition Agreement now enacted and the Conservatives and Liberal Democrats keen to differentiate themselves from each other.

In a coalition bid to rebuild trust with voters after a battering at the polls last month, the Queen's Speech will include a Bill giving voters the power of recall of MPs, with a by-election being triggered if 10% of voters sign a petition.

Another pledge with far-reaching implications for millions will be a 5p charge on plastic bags in supermarkets, pledged by Mr Clegg in his 2013 Liberal Democrat party conference speech.

This will not require primary legislation, because it is already provided for in the 2008 Climate Change Act and therefore will only need the passing of regulations in Parliament to enforce it.

The major Bills expected to feature are:

:: "Tax-free childcare" worth up to £2,000 per child each year, another move championed by the Liberal Democrats

:: Extra legal protection for people carrying out good deeds against liability for health and safety risks

:: A so-called "Cinderella law", outlawing emotional neglect of children by their parents

:: A hugely controversial Bill to authorise fracking, the exploitation of shale gas

:: Regulation of pubs, highlighted by Mr Clegg and Vince Cable in their pub photocall on the eve of the Queen's Speech.

Last year's State Opening of Parliament

In their joint statement, Mr Cameron and Mr Clegg said the speech marks "the next big step in our long-term plan for Britain. Its aim: to secure the recovery for our country".

They added: "Its guiding principle: to back everyone who wants to get on in life.

"We may be two parties, with two different philosophies, but we understand one thing: countries rise when their people rise. So this Queen's Speech is unashamedly pro-work, pro-business and pro-aspiration."

On the pensions legislation, they said: "By no longer forcing people to buy an annuity, we are giving them total control over the money they have put aside over their lifetime and greater financial security in their old age."

And on the coalition's future in the final year before the election, they said: "Four years on, our parties are still governing together and still taking bold steps."

But Labour leader Ed Miliband said: "We would have a Queen's Speech with legislation which would make work pay, reform our banks, freeze energy bills and build homes again in Britain."

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Tesco Sales Slump Continues In First Quarter

Tesco has reported a 3.8% fall in like-for-like sales in the UK - its worst quarterly performance under chief executive Philip Clarke.

The drop in sales also marked the third successive quarterly decline.

The first quarter UK figure, which excludes fuel and VAT, was announced 24 hours after separate industry statistics charted a continuing decline in market share for the country's biggest supermarket chain.

But Tesco moved to paint a positive picture of trading as it intensifies efforts to stop customers flocking to discounters.

Mr Clarke, who is two years into a multi-billion pound turnaround plan, blamed price cuts and a weak food market for the core UK performance but said its improved offering was making a "real difference for customers".

He said: "We are pleased by the early response to our accelerated efforts to deliver the most compelling offer for customers.

"We expect this acceleration to continue to impact our headline performance throughout the coming quarters and for trading conditions to remain challenging for the UK grocery market as a whole," he added.

Tesco, like its main rivals Asda, Sainsbury's and Morrisons, is facing a squeeze from discounters Aldi and Lidl.

It has responded by investing £200m in price cuts on "the products that matter most" - and Mr Clarke said sales volumes rose 28% in those areas during the quarter.

Tesco also hailed lower delivery and service charges for online delivery and enhanced rewards through its Clubcard Fuel Save initiative as measures that would boost loyalty.

The retailer said it had refreshed a further 100 stores in the period and expected a further 200 to be improved by the end of its first half - admitting the disruption will have a negative impact on sales.

While Tesco's continuing sales woes have held down its share price since Mr Clarke took over in 2011, he has repeatedly brushed off speculation about his future, despite little sign his £1bn turnaround plan is bearing fruit.

Tesco stock rose 1.3% in early trading on the FTSE 100 on Wednesday, with analysts saying the first quarter performance was slightly better than had been expected by many forecasters.

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Mobile Phone Call Costs Set To Fall Further

The telecoms regulator is proposing further cuts to charges imposed by mobile phone operators for connecting calls to rival networks.

Ofcom said mobile termination rates - as they are known - would drop to just half a penny per minute by April 2017 under its plans.

The proposal, which should result in cheaper bills for customers, follows earlier cuts which saw rates falling from about 25p a minute in 1995 to 0.8 pence currently.

A decade ago, termination rates, which apply to calls from landlines as well as mobiles, were about 14p a minute.

This wholesale charge is part of the cost of delivering calls that providers consider when they set retail prices for consumers.

Ofcom Competition Policy Director Brian Potterill said: "The average cost of a call bundle has fallen from £40 to around £13 in real terms over the last ten years.

"We want to ensure mobile users continue to benefit from competition, which will deliver affordable services in the years ahead."

Ofcom, which said its plans would be finalised by March 2015 following a consultation period, confirmed the rates fall would affect all operators including the 'big four' of EE, Vodafone, O2 and  Three.

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Cyber Attack 'To Hit In Next Two Weeks'

Computer users are being urged to protect their machines from malware which allows hackers to steal financial data.

British investigators have been working with the FBI to trace the hackers behind ongoing attacks, and the botnet system used by the targets has been temporarily disrupted.

But the UK's National Crime Agency says people have just two weeks before the system could be functioning again, and urged people to protect their computers from an expected "powerful computer attack".

Bogachev is said to use the online monikers 'lucky12345' and 'slavik'

Between 500,000 and one million machines have so far been infected worldwide, according to court documents.

US officials have accused a Russian hacker of masterminding the scam - and prosecutors say those involved have already raked in more than $100m (£60m).

The NCA is urging people to back up important files and make sure their security software and operating system are up to date.

Two pieces of malware software known as GOZeuS and CryptoLocker are responsible for the alert.

They typically infect a computer via attachments or links in emails.

If a user clicks on GOZeuS, it silently monitors activity and tries to capture information such as bank details.

"(The links or attachments) may look like they have been sent by genuine contacts and may purport to carry invoices, voicemail messages, or any file made to look innocuous," the NCA warned.

"These emails are generated by other victims' computers, who do not realise they are infected, and are used to send mass emails creating more victims."

The Cryptolocker malware is activated if the first attack is not profitable enough.

It locks a user from their files and threatens to delete them unless a "ransom" of several hundred pounds is paid.

Some 234,000 machines were hit by Cryptolocker - bringing in $27m (£16m) in payments - in its first two months, the US Justice Department said.

Computers running Windows software are said to be most vulnerable

More than 15,500 computers in the UK are infected and "many more" are at risk, according to the NCA.

Stewart Garrick, a senior investigator with the NCA, told Sky News the threat was mainly against individuals or businesses running Windows-based computers.

Thirty-year-old Russian Evgeniy Bogachev is the alleged leader of the gang behind the attacks, FBI executive assistant director Robert Anderson told a news conference in Washington DC.

US and other agents seized servers around the world this weekend and freed 300,000 computers from the infection.

"They (the FBI) have disrupted the network and taken control of it," said Sky's Tom Cheshire.

"So when the hackers try to speak to the computer that's affected, that line of communication has been cut off.

"You now have a chance to clean up. The first thing you should do is update your operating system - especially if you're on Windows, then look to scan your computer for viruses and it should be able to find it."

For more information visit www.getsafeonline.org/nca.

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