Rolls-Royce releases third profit warning

BBC News

Rolls-Royce has issued its third profit warning in just over a year, blaming lower oil prices and weaker demand for some of its aircraft engines.

Rolls last issued a profit warning in February, claiming the sharp fall in oil prices had “increased uncertainty for many of our markets and customers”.

It had previously said its 2015 profit would be between £1.4bn and £1.55bn.

But on Monday, the engineering firm lowered its profit outlook again, this time to between £1.325bn and £1.475bn.

Rolls-Royce shares fell nearly 9% to 780p on the profit downgrade.

Two things are weighing heavily on Rolls Royce – the low oil price and the development of its new jet engine.

Rolls-Royce makes much of its money in its marine division supporting oil exploration – building vessels and rig support equipment. With oil giants pulling back on capital investment, the division has suffered.

It has also been caught out by its development of the new Trent 7000 jet engine – announced in Farnborough last year – which replaces the Trent 700. Orders have fallen for the older model faster than expected as customers wait for the new engine which will come into service in 2017.

“Bloody” was one description of this morning’s announcement by a senior figure close to the business.

Warren East, the new chief executive of Rolls Royce, will be given a period of grace while he works out where Rolls-Royce’s real growth areas are. But the fall in the share price this morning shows that investors are waiting to be convinced that the company has the right strategy in place.

The engineering and aerospace firm had originally said profit in 2015 would be flat to 3% lower, when it surprised investors in February last year by issuing its first profit warning in a decade.

In the end, underlying pre-tax profits in 2014 fell 8% to £1.62bn, roughly in line with expectations.

Rolls also said it would halt its £1bn share buyback – of which it had completed £500m – as a result of falling profits.

Rolls-Royce said lower demand and pricing for its Trent 700 engines and reduced demand for its business jet engines would hit profits by £300m.

“I am clearly disappointed by today’s announcement and the impact this will have on our investors and employees,” said Rolls-Royce chief executive Warren East.

“Notwithstanding the market developments, it is our responsibility to build a business that is sustainable and resilient, no matter what is thrown at us, and this will be my fundamental priority for the next few years.”

Mr East joined Rolls-Royce as chief executive earlier this year from microchip manufacturer Arm Holdings, replacing John Rishton, who announced his retirement after a difficult four years in charge of the 131-year-old company.