AA shares fall by nearly a quarter after profits and dividends warning

Shares in the AA plunged by almost a quarter after the firm warned profits would be lower than expected and slashed dividend payouts to shareholders.

Revealing a new strategy, the company said plans to invest £45m to improve the business would weigh on profits for the year ending January 2019. It expects profits over the period to be in the range of £335m to £345m, below City expectations of £387m.

Annual dividend payments to shareholders will be cut to 2p a share, down from 5p the previous year. The news sent the share price down 23% to 89p, compared with a price of 250p when the firm floated in 2014.

The firm is hoping to capitalise on its “car genie” device, launched in August with the potential to predict up to a third of breakdowns before they happen, according to the AA.

Simon Breakwell, the AA’s chief executive since September, said a strategic overhaul and new investment were crucial to the firm’s future.

“It will take the AA from a company helping when you break down to one actually predicting when you might break down in the first place. These investments, while reducing our short term profitability, are vital to our long term success.”

The AA said it was now marketing to younger customers, as well as its traditional 50-year plus core demographic, and working on plans to offer a simple and easy breakdown service through new digital products.

Targets for 2021 include a return to membership growth, half of all members to be registered on the AA’s app, and a 20% reduction in breakdowns reported through its call centres.

The company is also hoping to persuade more of its 3.3m customers to take out AA insurance policies. Currently, just 9% have motor insurance policies with the firm and it is aiming for a total of 2m motor and home policies by 2023, up from 1.4m currently.

The AA is in dispute with its former chairman, Bob Mackenzie, who is taking the company to an employment tribunal after being sacked last year following a “sustained and violent assault” on a colleague at a five-star hotel, which was captured on hotel CCTV.

Mackenzie’s lawyers are understood to be claiming that he was wrongfully dismissed, having been under extreme pressure, and should be entitled to damages. He had been executive chairman of the AA since 2014, when he was instrumental in the stock market flotation.