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Third profit warning in a year for Rolls Royce

Article By: ,  Financial Analyst
July 6, 2015 5:36 PM

Rolls-Royce has issued its third profit warning in just over a year.

The company, which is best known for its luxury cars and aircraft engines, last issued a profit warning in February. At that time, it claimed that a steep drop in the cost of oil had "increased uncertainty for many of our markets and customers."

The firm said demand for some of its aircraft engines was weak. Falling commodity prices also hurt the company's marine division, which makes engines for merchant vessels as well as systems for oil rigs.

New profit outlook

Previously, Rolls-Royce had predicted its 2015 profit to be between £1.4 billion and £1.55 billion. However, on Monday (July 6th), the company lowered those numbers to between £1.33 billion and £1.47 billion. The marine division is expected to see underlying profit between break even and £40 million.

The company's aviation division could also take a £300 million hit has it goes through the process of phasing out its Trent 700 engine. This piece of engineering is being replaced by the next-generation Trent 7000 – but the company as reported demand for business jet engines has been lower than expected.

Commenting on the revised profit predictions, Rolls-Royce chief executive Warren East said: "I am clearly disappointed by today's announcement and the impact this will have on our investors and employees."

Mr East, who was installed as boss of the company last week, added: "Notwithstanding the market developments, it is our responsibility to build a business that is sustainable and resilient no matter what is thrown at us and this will be my fundamental priority for the next few years."

Rolls-Royce said that revenue for 2015 would be unchanged, but that continuing weakness in offshore markets would lower profit in the marine division by around £85 million in 2015 and 2016. In addition, plans to cut costs and restructure the division would also result in a charge of £70 million to £100 million.

On Friday, Rolls-Royce shares closed at 856.50 but on Monday morning were down 9.05 per cent to 779.00.

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