Rolls-Royce share price tumbles as it warns profits will be at lower end of expectations after “sharply weaker” demand
Shares in troubled engineer Rolls-Royce opened more than 20 per cent lower, at 528p, as it warned profits will be at the lower end of expectations in 2015, thanks to "sharply weaker " demand.
After a review of operations by chief executive Warren East, the company said this morning that profit headwinds in 2016 are likely to increase to £650m, thanks to falling demand for its wide-bodied aftermarket, corporate and regional aerospace markets and offshore marine arm. Not much wiggle room there…
In July the company admitted underlying revenue had fallen three per cent to £6.3bn in the first half of the year, while profit before tax fell 32 per cent to £439m. Since then, shares have lost more than a third of their value – almost 40 per cent since the beginning of the year.
The company said its offshore marine business, which works closely with offshore oil rigs, has "continued to deteriorate throughout the year", the company said. It now expects a 15-20 per cent decline in demand from the market, which is likely to hit profits by another £75m-£100m.
A reduction in Trent 700 engine deliveries in 2016 and 2017 is also expected to "have a marked effect on profit performance", it added.
But East said the company will make changes in the coming months.
"The next few years are going to be important in laying the foundations for our long-term profitable growth. Therefore it is important to ensure we are financially stronger, more resilient to short-term shocks and more flexible to take advantage of growth opportunities.
"My operating review has already highlighted a number of areas where I believe Rolls-Royce can make fundamental changes to its structure and ways of working that can generate material improvements to the business. Rolls-Royce is already undergoing significant change, but I am convinced these new actions are vital if we are to invest sensibly and grow, well into the next decade and beyond."
However, analysts remained unconvinced.
"After its worse year in a decade, punctuated by multiple profit warnings, today’s news of £650 million “headwinds” will do little to reassure long-term investors," pointed out Alex Joyner, senior equity analyst at Galvan Research and Trading.
"The company is already worth 40 per cent less than two years ago and it looks like the shares have still got further to fall. East’s cost-cutting plans suggest he knows what needs to be done, but will it be enough to stem the bleeding?"
