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LONDON, Feb 21 (Reuters) - AA shares fell by more than 25 percent on Wednesday after the British roadside recovery group and insurer said it planned to pay lower dividends and forecast lower core profit.
In an update on strategy following a profit warning and the sudden departure of its executive chairman last year, AA said it would pay a total dividend of 5 pence per share for the 2018 financial year, but that this would then fall.
AA's chief financial officer Martin Clarke said the firm, whose vehicles have been a feature of Britain's roads for more than a century, was prioritizing investment and that its debt structure prevented it from paying higher dividends.
"We are committing to paying two pence per year in subsequent years until such time as free cash flow and profitability gets us to a position where the board can justify higher dividends," Clarke told Reuters by telephone.
The dividend cut marks a change for AA, which paid a total dividend of 9.3 pence in the 2017 financial year and had attracted dividend-focused investors such as Neil Woodford's Woodford Investment Management, a major AA shareholder.
"Neil has been very supportive of investing in the business for long-term shareholder growth," AA Chief Executive Simon Breakwell told Reuters by phone.
AA forecast trading for the 2019 financial year of between 335 and 345 million pounds ($468.77-$482.76 million), below this year's forecast of 390-395 million pounds..
The AA, which was formed in 1905 by a group of motoring enthusiasts in London, issues preliminary results for the 2018 year in April.
The official duties of the first AA patrols were to indicate dangers on the road and help motorists who had broken down.
Breakwell said plans to boost investment in digital insurance products and customer service contributed to the lower 2019 profit forecast.
AA shares, which were floated in 2014, were trading at a record low of 86.92 pence per share at 0852 GMT, at the bottom of the FTSE mid-cap index.
"Risk reward is too negatively skewed on 'show me later' profits," Jefferies analysts, who rate AA "underperform," said. ($1 = 0.7146 pounds) (Reporting by Carolyn Cohn; editing by Maiya Keidan and Alexander Smith)