Rolls-Royce cuts dividend for the first time since 1992

12 Feb 2016


Iconic aerospace and engineering giant Rolls-Royce Holdings plc on Friday left its 2016 outlook unchanged and reported progress in business even as it reported a drop in underlying pretax profit and cut 2015 dividend - for the first time in 24-years.

This follows five consecutive profit warnings in two years that eroded the UK aerospace engineering company's profits and share price (See: Rolls-Royce sees 'very tough' 2016, profits expected at lower end of expectations).

However, the cut dividend - the first since 1992 - will help the British engineering giant conserve cash and maintain its credit rating.

Underlying pretax profit fell to £1.43 billion in 2015, from £1.62 billion in 2014, as underlying revenue fell to £13.35 billion from £13.86 billion.

"Our outlook for 2016 is unchanged. Despite steady market conditions for most of our businesses it will be a challenging year as we start to transition products and sustain investment in civil aerospace and tackle weak offshore markets in marine," chief executive Warren East said.

The company cut dividend for the year as a whole to 16.37 pence from 23.10 p in the previous year. East said the payment to shareholders will be halved at the next half year. Underlying free cash flow fell to £179 million from £447 million.

"The pace of INVESTMENT required to transform the business creates near-term pressure on free cash flow. At the same time, we need to sustain a healthy balance sheet to ensure we have the financial flexibility to maintain a strong investment grade credit rating," East said.

"We recognise the importance of a healthy 'dividend' to our shareholders. Subject to short-term cash needs, we intend to review the payment so that it will be rebuilt over time to an appropriate level," East said.

On a reported basis, pretax profit rose to £160.0 million from £67.0 million.

Rolls-Royce is bracing for its toughest challenges as earnings are expected to plunge this year amid declining markets for offshore oil vessels, regional jets and business aircraft forcing it to trim engine production costs and wait for sales to revive.

East, however, cheered shareholders by reporting 2015 earnings within the company's guidance and saying the outlook for this year remains on track.

Helped by an end to six years of profit warning in two years, Rolls-Royce stock, however, rose 18 per cent even after the company cut final dividend for last year by 50 per cent.

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