AA shares plummet after profit warning

Time 12:12 pm, February 21, 2018

SHARES in the AA have fallen sharply after the company issued a profit warning.

Yesterday, shares in the motoring organisation lost more than a quarter of their value, as it announced it was increasing its investment in new technology, as well as putting more breakdown vans on the road.

The company’s strategy update set out a plan to spend an extra £45m over the course of 2018 but acknowledged that profits would be hit in the short term as a result.

Its dividend is being reduced from 9p to 2p, with profit for 2018 expected to be around £340m, compared with expectations of about £393m for 2017.

After the update was sent out, the AA’s shares took a big hit, as dropping by 27.8 per cent of their value to 84p.

The investment is intended to help further embed the AA app as the organisation’s core digital hub, building on the 35 per cent of members already registered for it and the 100,000 people accessing member benefits on a monthly basis.

The roll-out of the company’s connected car product, which predicts when a car may break down by reading its systems through the on-board diagnostics port, is to be extended and younger groups of customers are being targeted to increase membership with new products and services.

Chief executive Simon Breakwell said: ‘The AA is a phenomenal business, with a market-leading position, a highly respected and trusted brand, and thousands of highly skilled and committed employees with a deeply embedded customer service ethos.

‘My review into all aspects of our business, from the bottom up, has further strengthened my confidence about the opportunities ahead of us and convinced me of the positive long-term outlook for the AA.

‘The strategic plan I am setting out will unlock the full potential of the AA by delivering targeted and strategic investment in our people, our products, our systems and operations.

‘This plan will deliver front-line resources to improve the efficiency, predictability and resilience of our operations, as well as investment in game-changing growth drivers – in connected car and insurance.

‘These investments, while reducing our short-term profitability, are vital to our long-term success. I am confident the priorities we set out today will transform our products and service offerings to our customers by creating a truly innovative and differentiated product proposition, which will deliver long-term shareholder value.’

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