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Rolls-Royce shares plunge on 2016 'headwinds' Rolls-Royce shares plunge as profits face 'headwinds'
(35 minutes later)
Shares in aerospace group Rolls-Royce have plunged 18% after it warned that profits in 2016 will be hit by £650m of "headwinds" as a result of "sharply weaker demand". Shares in aerospace group Rolls-Royce have sunk 20% after it warned "sharply weaker demand" would hit its profits.
The company said the main areas where demand was weaker were "selected aerospace and offshore marine markets". It said profits this year would be at the low end of expectations, while next year it would face £650m of "headwinds" - more than previously forecast.
In July, it said a reduction in deliveries of its Trent 700 engine would affect profits in 2016 and 2017. Rolls-Royce is carrying out a review of its business, which it said was likely to involve job losses among its 2,000 senior managers.
It added its profits this year would be at the "lower end" of expectations. It has previously announced 3,600 job cuts across the group.
It has previously forecast profits in 2015 would be between £1.325bn and £1.475bn. Rolls-Royce also said it would review of its shareholder payments policy, signalling the possibility that dividend payments could be cut.
Structural review By mid-morning, shares in Rolls-Royce were down 134.5p at 532.5p. The company's shares have now nearly halved since April.
Warren East, who was appointed as chief executive of Rolls-Royce in April, said: "The speed and magnitude of change in some of our markets, which have historically performed well, has been significant and shows how sensitive parts of our business are to market conditions in the short-term." Rapid change
In July, the company warned lower deliveries of its Trent 700 engine would affect profits in 2016 and 2017.
It also said at the time that profits in 2015 would be between £1.325bn and £1.475bn.
Warren East, who was appointed chief executive of Rolls-Royce in April, said: "The speed and magnitude of change in some of our markets, which have historically performed well, has been significant and shows how sensitive parts of our business are to market conditions in the short-term."
Rolls-Royce said there were three areas where it had seen demand weaken - corporate jets powered by Rolls-Royce engines, servicing of the firm's wide-bodied engines, and offshore marine markets.
Mr East, who is carrying out a structural review of the business, added Rolls-Royce carried "too much fixed cost" and was "inflexible in managing this in response to changes in market conditions".Mr East, who is carrying out a structural review of the business, added Rolls-Royce carried "too much fixed cost" and was "inflexible in managing this in response to changes in market conditions".
He is looking for annual cost savings of between £150 and £200m of which £115m cost savings are expected to come from the company's aerospace and marine division in 2016. He is looking for annual cost savings of between £150 and £200m, of which £115m cost savings are expected to come from the company's aerospace and marine division in 2016.
'Major setback'
More details on the structural review of the company will be announced later in November, Rolls said.More details on the structural review of the company will be announced later in November, Rolls said.
Demand for corporate jets powered by Rolls-Royce engines is expected to be sharply lower in 2016, Rolls said.
In addition, it predicted weaker demand for corporate jet aftermarket services, and weaker demand for aftermarket services for its engines on 50-70 seat regional jets.
Rolls also said it would put its shareholder payments policy under review, signalling the possibility that dividend payments could be cut or even suspended.
Keith Bowman, equity analyst at Hargreaves Lansdown stockbrokers, said yet another profit warning from Rolls had "shocked investors", adding that the review of its shareholder payments policy was "a major negative".Keith Bowman, equity analyst at Hargreaves Lansdown stockbrokers, said yet another profit warning from Rolls had "shocked investors", adding that the review of its shareholder payments policy was "a major negative".
He said: "The company's prior push to reduce earnings volatility and surprises looks to have been completely unwound, with investors today suffering another major setback.He said: "The company's prior push to reduce earnings volatility and surprises looks to have been completely unwound, with investors today suffering another major setback.
"Rebuilding confidence in the company's outlook is now paramount for the relatively new chief executive.""Rebuilding confidence in the company's outlook is now paramount for the relatively new chief executive."