AA crashes as investors snub plan to get back on road

Investors cut the brakes on the AA on Wednesday, sending its shares plunging 25% as the embattled breakdown firm rolled out a massive cut to the dividend and a profit warning.

New chief executive Simon Breakwell — who was brought in after former boss Bob MacKenzie was fired after allegedly punching a colleague — unveiled a new strategy designed to bring revenue growth. It will see the motoring and insurance company by focusing on self-diagnosing “connected” cars and younger members.

However, investors took fright at the news that dividends are to be slashed from 9p a share to 2p and that earnings for 2019 will fall from £390 million to between £335 million and £345 million.

The shares slid to 90p and are now down 66% since February 2017.

The AA said the revised dividend was “affordable from cash in the business” but investors are wary of the firm’s £2.7 billion of debt and fear it could breach its banking covenants if restructuring costs rise. The AA plans to move from just fixing breakdowns to being able to predict and prevent breakdowns through a new phone app and diagnostics device that is being used by 5000 members.

“It is clear that cars are going to be connected and by focusing on digital and connected products we will have the data and the scale to respond to the disruption of autonomous cars and changing ownership structures,” Breakwell said.