LONDON (Reuters) - British roadside recovery group and insurer AA said its performance this year had been positive, sending its shares more than 6 percent higher after core annual profit fell but met expectations.

The AA, whose distinctive yellow livery has been a feature of Britain's roads for more than a century, has been reeling from the unexpected departure of its executive chairman last year and from profit warnings, prompting a strategic review earlier this year.

AA is planning to increase investment in digital insurance products and customer service.

"In February we outlined our strategy - we are if anything more confident we can meet our growth ambitions," Chief Executive Simon Breakwell told a media call.

AA said in a statement it had seen a positive start for the year ending Jan 2019.

AA shares reversed sharp losses made at the open and stood 6.7 percent higher at 121.5 pence by 0840 GMT. They had traded as low as 90 pence in February after the company announced plans to cut its dividend.

Trading earnings before interest, tax, depreciation and amortisation (EBITDA) for the year ending Jan 31, 2018, were 391 million pounds, down 3 percent.

The figure was in line with forecasts and the decline reflected a higher number of breakdowns and greater costs for using external suppliers at busy periods.

MANAGEMENT UPHEAVAL

The company said it would pay a final dividend of 1.4 pence per share and total dividend of five pence, down 46 percent but in line with previous guidance.

The firm reiterated core profit guidance for the 2019 year of 335-345 million pounds and a dividend of 2 pence per share from the 2019 year "until profit and cash flow enables a change in policy".

Breakwell took over after the company dismissed Bob Mackenzie as executive chairman in Aug 2017 for gross misconduct.

The company said it was not setting aside any provisions for a claim by Mackenzie to retain shares and seek 225 million pounds in damages. Breakwell told the media call the case was "without merit."

Liberum analysts reiterated their buy rating on the stock, highlighting strong performance in the insurance division.

AA's largest shareholders include hedge fund Parvus and Woodford Investment Management.

Cleveland Square, an investment vehicle run by private equity investor Gary Klesch, has taken a 3 percent stake in the company, a filing this week showed.

AA's share slump has prompted speculation of takeover bids by private equity firms.

Chief financial officer Martin Clarke told the media call that the company had received no "substantive" approaches.

Five hedge funds had outstanding short positions in AA above 0.5 percent, the level above which European regulators require disclosure, according to the latest filing from Britain’s Financial Conduct Authority.

In a short trade, a fund borrows the stock to sell on, hoping to buy it back later at a cheaper price before returning it to its original holder.

(Additional reporting by Maiya Keidan; Editing by Sinead Cruise and Keith Weir)

By Carolyn Cohn