Armourguard $ cash problem, page-87

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    Linfox executive chairman Peter Fox says the billionaire family will keep Armaguard in business for at least three years, but only if the banks and major retailers agree to pay more for its monopoly cash transit services.

    Mr Fox, in a rare interview, singled out the Anna Bligh-led Australian Banking Association for the failure of negotiations last week. The negotiations were meant to provide short-term support for the business, which is losing money as the use of cash plummets.

    Peter Fox, executive chairman of Linfox, in Melbourne on Thursday. The company will guarantee Armaguard’s future for three years if contracts can be renegotiated. Eamon Gallagher

    Mr Fox is the son of Linfox founder Lindsay Fox. Linfox owns Armaguard – which provides cash-in-transit services and supplies ATMs, banks and retailers – and last year was given approval to acquire its only major competitor, Prosegur.

    At the time, the Australian Competition and Consumer Commission said it was likely that Armaguard or Prosegur would stop offering services if the merger did not proceed. But the deal has created a near-monopoly with no obvious fallback provider, making the firm more powerful.

    Mr Fox said banks were conspiring to move customers away from cash transactions and toward electronic payments to increase their own revenues, exacerbating the financial pressure on Armaguard since the Prosegur acquisition was finalised.



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    Armaguard – which handles 90 per cent of cash movements, totalling $6 billion a week – would continue to transport money for the next three years if banks and retailers paid an additional $50 million a year in fees to put it on a sustainable footing, he said.

    “We want to make sure [Armaguard] is sustainable, and we are committed to the future of it – we are not pulling the plug on it,” Mr Fox said in an interview. “But we need our customers to come to the party, in terms of repricing the services that we provide.”

    Mr Fox said Armaguard is continuing to engage with the ACCC on the undertakings imposed during its merger with Prosegur. This included caps on price increases for three years.

    A $26 million, six month cash injection was rejected last week when Armaguard refused the due diligence conditions demanded by the banks. It has started discussions this week with some retailers to put its service contracts on a firmer financial footing. Mr Fox wants to engage with individual banks, but not the ABA.

    ‘We will do everything we can’

    His comments suggest the sale of Armaguard, or transformation of the company into a co-operative, is off the table, at least in the short term. They also suggest a voluntary administration will not happen. Its new position will put pressure back on Commonwealth Bank, ANZ, National Australia Bank, Westpac, Australia Post, Wesfarmers, Coles and Woolworths to renegotiate contracts to prop up cash-in-transit services.


    “I am not going to put my family’s reputation at risk with the undertaking we have given to the ACCC. We will seek permission to get revision to our pricing through the regulator, if we have no other choice,” Mr Fox said. “We are not beggars here, mate. We are trying to keep an industry that handles, processes and transports cash to make sure it is sustained.”

    “I can’t say [Linfox] will have [Armaguard] forever. But for the next two to three years – I can give you an assurance – we will do everything we can, through our management team, to drive efficiencies in the integration of the Prosegur and Armaguard businesses, and endeavour to ensure cash is maintained safely and securely,” he added.

    “But we have to get pricing redone with our major retail customers and the banks, and we will sit down individually. We have to get some sensible pricing in place for the services we provide. Currently, it is unsustainable. We have to get things repriced.”

    Mr Fox said FTI Consulting, a forensic accountant appointed by the Reserve Bank, had confirmed Armaguard’s annual cash shortfall was around $50 million, similar to the number presented at an emergency meeting in October where it urged industry assistance. He accused the banks of refusing to believe the numbers and pushing for more extensive due diligence than Armaguard considered necessary.

    Linfox balked at the ABA’s demands, set out in a draft provided to Armaguard on March 19, which sought access to its commercial contracts and other intellectual property. It was worried about confidential information being passed on to banking sector advisers, including McKinsey, which is working on broader research involving the decline of cash. It also baulked at a demand to hire more staff to report back to the ABA.

    These are the first public comments made on Armaguard by a member of the Linfox family since the merger with Prosegur last year. Mr Fox said comments made by CBA chief executive Matt Comyn at The Australian Financial Review Banking Summit last week backed Armaguard’s position because it was an admission that banks had taken advantage of unsustainable competition for cash-in-transit services.


    “You had a very, very aggressive price-based competition ... and what we did was accept, and others did [too], very attractive commercial terms, that perhaps we should have had the foresight to think, that actually looks like unsustainable pricing,” Mr Comyn said.

    Mr Fox said this competition had stripped more than $100 million in annual revenue from the Armaguard business. “The pricing for the services we provide have been driven to a point that is below cost,” he said. “We need to get some pricing in place to ensure we have a sustainable future for the business.”

    Half of this shortfall would be made up by $50 million in annual synergies from the merger with Prosegur. These include redundancies and consolidation of processing centres and routes. He said it was fair for existing customers to make up the other half.

    Banks ‘want to ensure there is no cash’

    Mr Fox accused the banks of acting to reduce the overall use of cash, on which they incur costs for handling but no revenue when customers pay with it or merchants accept it. This is different to card payments, which have fees on both sides of transactions.

    He pointed to comments from CBA that it spends around $400 million annually on providing cash, and another comment by Mr Comyn at the Summit – that cash transactions over $500 should be limited as part of a productivity drive – as further proof of banks wanting “to ensure there is no cash”.


    “The federal government and RBA have an obligation to ensure cash is maintained in the Australian community. The banks don’t want that to happen,” he said. “They want to remove the cash, and clip the ticket with a digital transaction they can make money out of. They don’t make money out of handling cash. They are trying to get rid of it.”

    Mr Fox confirmed Linfox had provided a $10 million injection of funds to Armaguard last week, as first reported by The Australian Financial Review. That was part of negotiations last week led by former Australian Council of Trade Unions secretary Bill Kelty, who sits on the Linfox board, and RBA governor Michele Bullock.

    But he said this contribution had assumed the industry funding of $26 million would be made available. “We had an in-principle agreement until it got derailed by imposed terms and conditions that were not agreed upon. You don’t sign a marriage certificate until you agree to the vows,” he said, adding that he wanted to put aside the acrimony.

    “I would be hopeful some of the signatories of the agreement reach out to us personally, so we can sit down with them and find individual resolve with the individual parties,” he said. “We want to put a factual position out there on where our family sits – with longevity for the next three years – to settle this whole thing down, to get an amicable resolve, and we think there is sufficient goodwill to do this.”

    James Eyers writes on banking, payments and fintech. He is a former legal and investment
    Hi,
    Above is the article in the AFR with LinFox setting out their terms to continue the Armaguard services.
    Keep in mind that a few short months ago they were allowed a takeover which produced a near monopoly.
    So , late last year , no rises was ok , now they want to blackmail their customers for more money.
    A request for further due diligence ?
    You would think that the ABA wanted to fondle his bits .
    He threatens a strike , fair enough , they were silly enough to trust him with a monopoly , but lets not try and pretend that the guy isn't a toad.

 
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