Rolls-Royce share price plunges as profit warning issued

Rolls-Royce Holding Plc (LON:RR) announced today that it has trimmed its profit projections for 2015 and 2016, although it continues to believe that “the Group can achieve significant improvements to returns and cash flow, albeit later than previously indicated.”

The company cautioned of “significant market pressures in 2015 and 2016,” which would affect both its aerospace and marine divisions. Revenue guidance for 2015 remained unchanged, but underlying profit before tax is now expected to be between £1,325 million to £1,475 million, compared to previous guidance of £1,400m to £1,550m.
In Civil Aerospace, the engineering giant warned of business jet and regional jet aftermarket weakness, coupled with the impact of transitioning from the Trent 700 to the newer Trent 7000 jet engine. In 2015, these drawbacks will be offset by higher-than-expected benefits from contract provision releases and widebody aftermarket growth, but £300 million “net headwinds” are now projected for 2016, the company said.
In Marine, profit projections for both 2015 and 2016 were trimmed by £85 million due to offshore market weakness.
“I am clearly disappointed by today’s announcement and the impact this will have on our investors and employees,” chief executive Warren East commented. “In the near term we have to manage the important transition from the Trent 700 to the new Trent 7000 and build our capacity to service the Trent 1000 and XWB programmes. In addition, our Marine business needs to overcome its offshore market headwinds and rebuild a consistent trend of improving revenues and margins.”
The company also announced the discontinuation of the current share buyback programme, having already completed £500 million of the planned £1 billion programme.
“We continue to expect 2015 underlying profit before tax to be phased more to the second half than in 2014,” the company said. “Free cash flow is expected to be between £(570)m to £(620)m compared with £(347)m in the first half of 2014.”
Rolls’ share price had slumped 8.58 percent to an eight-month low of 783.00p as of 08:24 BST today. Adding pressure on markets across the globe was the outcome of the referendum in Greece on Sunday. Greeks rejected Europe’s bailout terms, sparking a sell off as insecurity gripped investors.
As of 08:38 BST, Monday, 06 July, Rolls-Royce Holding PLC share price is 779.75p.

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