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Rolls-Royce profits cut in half as jet engine demand plummets Rolls-Royce profits cut in half as jet engine demand plummets
(about 5 hours later)
Rolls-Royce profits have slumped by more than half as the British defence and aerospace group suffers falling demand for its jet engines. The new boss of Rolls-Royce has pledged to make the defence and aerospace group simpler and faster after it reported that profits have slumped by more than half.
The FTSE 100 engineer said that pre-tax profits fell by 57% to £310m in the six months to 30 June. The FTSE 100 engineer said that pre-tax profits fell by 57% to £310m in the six months to 30 June as it suffered from falling demand for its jet engines.
The results highlight the challenge facing Rolls’ new chief executive, Warren East, who took charge after former boss John Rishton said he was retiring in April for a “change in lifestyle”. The results highlight the challenge facing Rolls’ new chief executive, Warren East, who took charge after John Rishton said he was retiring in April for a “change in lifestyle”.
Rishton oversaw a tumultuous period for Rolls which included a string of profit warnings, the first fall in sales for a decade, and the Serious Fraud Office launching an investigation into corruption allegations. East said he would unveil the findings of his operational review of Rolls by the end of 2015 but that it will focus on adding “pace and simplicity” to the business.
“I am doing what any new CEO would do and getting my head around the operations, . I am looking at whether what we are doing is necessary, and could we do it faster and better.
He added: “I am not ruling anything in or anything out at this stage. But Rolls is a sound business.”
Rishton oversaw a tumultuous period for Rolls that included a string of profit warnings, the first fall in sales for a decade, and the Serious Fraud Office launching an investigation into corruption allegations.
Earlier this month, East, who previously ran Arm Holdings – which designs microprocessors for Apple – was forced to issue another profit warning , the fourth in 18 months, on just his second day in the job.Earlier this month, East, who previously ran Arm Holdings – which designs microprocessors for Apple – was forced to issue another profit warning , the fourth in 18 months, on just his second day in the job.
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East said Rolls was facing a period of “significant transition” as the business moves from a reliance on engines such as the Trent 700, which it produces for the Airbus A330, towards new, more fuel-efficient engines such as the Trent XWB. East said the profits warning showed Rolls “isn’t as resilient as everyone thought” and is facing a period of significant transition as the business moves from a reliance on profitable engines such as the Trent 700, which it produces for the Airbus A330, towards new, more fuel-efficient engines such as the Trent 7000.
However, he pointed to a £2.8bn rise in the company’s order book to £76.5bn as evidence that Rolls remains well-placed for the future.However, he pointed to a £2.8bn rise in the company’s order book to £76.5bn as evidence that Rolls remains well-placed for the future.
East said: “The continued growth in our order book demonstrates the long-term demand for our innovative products and services and underpins my confidence in the fundamental strength of our business. “The continued growth in our order book demonstrates the long-term demand for our innovative products and services and underpins my confidence in the fundamental strength of our business,” East explained.
“In the near term, we are managing a significant transition from mature engines to newer, more fuel-efficient ones, such as the Trent XWB, Trent 7,000 and Trent 1,000. At the same time, we are taking appropriate actions to mitigate the effects of weakness in our offshore marine markets. Shares in Rolls rose 18p, or 2.5%, to 748.5p with analysts welcoming the lack of further bad news and a 3% increase in the interim dividend to 9.27p per share
“While these create a profit headwind in the near term, it is critical we successfully deliver our product launches, complete our supply chain transformation and sustain investment in our businesses to strengthen their competitive positions.” Sandy Morris, analyst at Jefferies, said: “We believe the results are unremarkable – unless one chooses to find fault – but the 3% higher dividend is an important signal, in our view.
Rolls is cutting more than 3,000 jobs in its aerospace and marine arm as it adapts to the slowdown in demand. As well as the pressure in civil aerospace, Rolls has suffered from falling demand for business jet engines, the impact of Russian sanctions, and a hit to its marine business from the decline in the price of oil. “What the results do contain is further and clearer guidance and commentary. We regard that as an important first step towards returning attention to how Rolls-Royce is best valued.”
Sales in the first half of 2015 fell by 3% on a comparable basis to £6.3bn. However, Rolls increased its interim dividend payment by 3% to 9.27p per share. Rolls is cutting more than 3,000 jobs in its aerospace and marine arms as it adapts to the slowdown in demand. This includes closing factories in Ansty in Warwickshire and East Kilbride in South Lanarkshire.
As well as the pressure in civil aerospace, Rolls has suffered from falling demand for business jet engines and the impact of Russian sanctions.
The decline in the price of oil has pushed profits in Rolls’ marine arm down from £40m to just £4m. However, East said that Rolls had also “maybe underspent a bit in research and development” and now planned to step-up investment to “make sure we are competitive”.
He added: “The tide is out and the rocks are a bit exposed.”
In civil aerospace, the company’s biggest division, profits fell by almost half from £405m to £248m. This was caused by demand waning for the Trent 700 engine as Airbus prepares to launch a new version of the A330. This has led to sales falling and Rolls cutting the price of the engine as it battles with rivals Pratt & Whitney and General Electric to attract any remaining customers.
Overall, sales in the first half of 2015 fell by 3% on a comparable basis to £6.3bn.
East also said there was “no particular update” on the Serious Fraud Office’s investigation into corruption allegations against Rolls.
“Of course it is an uncertainty hanging over us, but the reality is there are few levers that I can pull on that,” he added.
Alongside Rolls’s results, BAE Systems, Britain’s biggest defence manufacturer, reported a 6% fall in pre-tax profits to £508m, although sales rose 12% to £8.5bn.Alongside Rolls’s results, BAE Systems, Britain’s biggest defence manufacturer, reported a 6% fall in pre-tax profits to £508m, although sales rose 12% to £8.5bn.
BAE produces the Typhoon fighter jet, the Astute-class submarines, and Britain’s new Queen Elizabeth-class aircraft carriers. It also makes parts for the F-35 Lightning jet.BAE produces the Typhoon fighter jet, the Astute-class submarines, and Britain’s new Queen Elizabeth-class aircraft carriers. It also makes parts for the F-35 Lightning jet.