Rolls-Royce sees ‘very tough’ 2016, profits expected at lower end of expectations

14 Nov 2015


Engine maker Rolls-Royce last morning warned of a ''very tough'' 2016 for the company, which has a base on the northern edge of Bristol.

In a warning to shareholders delivered to the stock exchange, it added profits for 2015 would come in at the lower end of expectations.

This comes as fourth time this year the firm issued a profit warning. It also comes after the company cut about 3,500 jobs across in its engineering and marine divisions globally in recent months.

It now plans more cuts, which it describe as being a  ''wide ranging restructuring programme'' aimed at simplifying its organisation, streamlining management, cutting fixed costs and improving accountability over decision making.

The defence and aerospace engineering giant also expects to save £150-200 million per year.

Chief executive Warren East said, ''While 2015 remains broadly as expected, the outlook for 2016 is very challenging.''

He added parts of the business, which had been strong performers earlier, had been hit by the ''speed and magnitude of change'' in the market that showed how sensitive the business had become to such turbulence in the short term.

Depressed demand for corporate jets with Rolls engines and the servicing and repair market in both corporate and small regional jets accounted for a hit on profits of £ 100 million.

The FTSE 100 suffered its biggest weekly loss following the mid-August stock sell off after rating agency Fitch warned Rolls-Royce's credit rating would come under pressure if trading conditions continued to deteriorate.

Shares in the engine maker fell 153.5p, or 23.9 per cent, to 513.5 per cent since it issued its fourth profit warning in a year yesterday due to weakness in its aerospace and marine businesses.

With demand declining, the board further announced it would ''review'' its dividend policy.

Fitch further cut the outlook of the company to ''negative'', although it believed the company can recover in the medium-term.

It cautioned that a downgrade was likely in case the recovery stalled or took longer than anticipated, resulting in a prolonged period of weak cash generation.

The agency added, ''Restructuring measures are likely to aid the recovery of key metrics over the medium term, but the ratings will face pressure if the company's free cash flow generation does not return to historical levels from around 2018.''

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