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AA shares slump after lower FY'19 profit forecast

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AA shares slump after lower FY'19 profit forecast

AA Plc shares were down more than 20% in early morning trading Feb. 21 after the company said its profits will fall in the financial year ending Jan. 31, 2019, and proposed to lower dividends per year.

In a strategic update, the U.K.-based insurer and roadside assistance provider said it expects to post trading earnings before interest, taxes, depreciation and amortization of between £335 million and £345 million for the 2019 financial year, compared to the expected trading EBITDA of between £390 million and £395 million for the previous financial year.

AA is targeting annual trading EBITDA growth of 5% to 8% from the 2019 financial year to the financial year ending in 2023. The company added it plans to grow its roadside assistance business and accelerate the growth of insurance with combined incremental investment of £45 million in 2019.

As a result of the investment, the company's board changed its dividend policy and proposed paying a dividend of 2 pence per share per year, until it is satisfied with the company's profit and free cash flows. AA expects an interim dividend and a final dividend for the 2019 financial year of 0.6 penny per share and 1.4 pence per share, respectively.

For the 2018 financial year, AA expects to pay a final dividend of 1.4 pence per share, resulting in a total dividend of 5 pence per share, having already paid an interim dividend of 3.6 pence per share.