Rolls-Royce issues profit warning as new CEO takes the wheel

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Rolls-Royce’s new chief executive, Warren East, has been forced to issue a profit warning on his second day in the job at the engine maker.

The defence and aerospace company cut its guidance for annual profit by £75m to between £1.325bn and £1.475bn. It also scrapped a plan to buy back £1bn worth of shares halfway through, blaming weaker cashflow.

The company’s share price dropped 9% to 781p, the biggest fallers in the FTSE 100 index.

The unscheduled trading statement ahead of half-year results on 30 July is the latest in a series of profit warnings by Rolls-Royce since early last year.

Sales fell for the first time in a decade in 2014, with the company the subject of a Serious Fraud Office investigation into corruption allegations. The group said as recently as May that it was maintaining its full-year guidance.

East, who took over as chief executive on Friday, said profit this year would be affected by lower customer orders at Rolls-Royce’s marine division, which supplies the offshore oil industry. Sales have been hit by the continuing low oil price, he said.

Next year, the civil aerospace business’s profit will be affected by a £300m profit reduction caused mainly by lower than expected demand for its Trent 700 engines. Reduced demand for business jet engines in emerging markets and a weaker market for maintenance of existing planes will also affect the division.

East said: “This isn’t exactly how I would have chosen to spend my second day in the job. This news is disappointing for me and for our investors and our employees.”

The company has announced 2,600 job cuts that will mostly affect workers at its base in Derby and in Bristol. The company said it was looking for further cost cuts in its marine business.

East said that, despite the bad news, the company’s long-term prospects were good and that its order book was at record levels.

East took over from John Rishton, who retired after a gruelling few years for Rolls-Royce, traditionally seen as one of Britain’s strongest companies and manufacturers. East ran ARM Holdings, the semiconductor and software design company for 12 years until 2013. He joined Rolls-Royce as a non-executive director last year.

He said a review of the business which had started before he arrived was more rigorous than the company was used to.

“That [review] circulated literally in the last week and over the weekend,” East said, adding that the company, which was criticised in the past for poor communication, was reporting its problems earlier and more clearly than previously.

Powered by Guardian.co.ukThis article was written by Sean Farrell, for theguardian.com on Monday 6th July 2015 09.17 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010

 

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