Rolls-Royce sales fall for first time in a decade

Oil Barrels

British engineering group Rolls-Royce experienced its first fall in sales in a decade last year and warned that its performance in 2015 would be worse than previously feared owing to low oil prices.

The aircraft engine-maker is already cutting thousands of jobs but added on Friday that a fall in the price of Brent crude, which has hit less than $50 per barrel this year, is forcing customers in other parts of the business to delay spending plans.

Rolls-Royce reported lower demand for products in its marine business, which designs ships and supplies equipment for the offshore oil and gas industry, as well as cutbacks from customers who use its equipment in power generation, construction and mining projects.

As a consequence, the group downgraded forecasts for 2015 issued in October, when it shocked the markets with a profits warning. The group expects profits this year to fall by up to 14% against its forecast of a 4% fall four months ago.

In annual results published on Friday, revenues at the FTSE 100 company were lower last year for the first time in a decade, down 6% to £13.7bn. Pre-tax profits plunged 96% to £67m in 2014, a year that included two profits warnings, the departure of its long-serving finance director, and an investigation into corruption allegations by the Serious Fraud Office.

In November, Rolls-Royce announced it was cutting 2,600 jobs over the next 18 months, with about 1,700 expected in the UK.

Asked if there would be further job cuts, John Rishton, its chief executive, said Rolls-Royce was continuing to look at how efficiency could be improved across the group. “We will need to look at all elements of the business to make sure we are competitive.” He added that the group was committed to maintaining its engineering capability, and it would be a case of balancing the two.

Outlining some of the difficulties the group faced last year, Rishton said: “2014 has been a mixed year during which underlying revenue fell for the first time in a decade, reflecting reduced spending by our defence customers, macroeconomic uncertainty, and falling commodity prices. The fundamentals of our business remain solid, with long-term growth in demand for the complex power systems we deliver across our aerospace and land and sea divisions.”

Looking ahead to this year, the company said: “Since we last gave guidance, the external environment has deteriorated in some of our major markets. In particular, oil prices have halved over this period, creating increased uncertainty for many of our markets and customers, particularly in marine offshore.”

Rolls-Royce’s marine business accounts for about 20% of the group’s activities, with about half of that focused on the oil and gas industry.

Rishton said Rolls would be hit as its customers among the big oil companies scaled back their spending plans as a result of the slump in oil prices, which have roughly halved since last summer.

Last month Shell announced plans to cut spending by $15bn (£10bn) over the next three years, while BP said a “raging gale” was sweeping through the industry and said it was cutting spending plans by 20% for 2015.

Until last year, the company had enjoyed a consistent run of of strong profit and revenue growth, as demand for fuel-efficient engines by aircraft makers Airbus and Boeing boosted its civil aerospace unit.

Rami Myerson, an analyst at Investec, said: “Following 2014, investors will likely remain cautious. We expect focus to move rapidly to 2016 where Rolls will continue to face headwinds in most of its businesses. A continued drag on group performance by Rolls’s non-aerospace businesses should serve as a catalyst for a strategic review.”

Mark Morris, finance director at Rolls-Royce for 27 years, left in November to be replaced by David Smith, who was promoted from finance chief of the aerospace division.

Rolls-Royce employs 55,000 people in 45 countries, including more than 24,000 in the UK.

Powered by Guardian.co.ukThis article was written by Angela Monaghan, for The Guardian on Friday 13th February 2015 17.20 Europe/London

guardian.co.uk © Guardian News and Media Limited 2010

 

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