AA shares have crashed, falling by more than a fifth after it warned on profits and said it planned to pay lower dividends.

Shares in the roadside recovery and insurance group were down 22 per cent after a strategy update by its new boss set out details of £45m worth of investment for the current financial year, as reported by Sky.

The AA said the additional spending on the new strategy would result in annual underlying earnings in a range of £335m to £345m, compared to expected earnings for the year of £390m to £395. The figure is also expected to take a £12m hit from a small decline in AA memberships and business customers.

The AA's new strategic plan aims to improve its roadside service, build up use of the AA app, and widen its appeal from a traditional 50-plus demographic to attract younger drivers. The investments are designed to not just help drivers when they break down, but also to predict when they might breakdown.

A pay-out of 5p a share for 2017-18 is expected to go down to 2p per year in subsequent years, after the AA paid a dividend of 9.3p for the last financial year.