Rolls-Royce shares down after profit warning

Rolls-Royce shares fell 9 percent to 779 pence today, following the company’s updated guidance for 2015, where it, among other things, said that further deterioration in the offshore market is now expected to impact full year profit for Marine side of its business. Guidance for 2015 revenue is unchanged for the full year.

According to the company, group underlying profit before tax for the full year 2015 is now expected to be between £1,325m to £1,475m, compared to previous guidance of £1,400m to £1,550m, reflecting the deterioration in offshore oil and gas market.

Free cash flow for 2015 is now expected to be between £(150)m and £150m, compared to previous guidance of between £50m and £350m.

The company also said that for the full year it expects its Marine underlying profit to be between break even and £40m, compared to previous guidance of between £90m and £120m.

“We are reviewing further cost reduction and restructuring activities in Marine to improve performance which, including asset impairments, is expected to result in an exceptional charge of £70m to £100m which will be recognised outside underlying profit,” the company said in a statement.

Rolls Royce did not say if these cost reductions within the Marine business also mean workforce reduction. To remind, in May this year, Rolls-Royce said it would let go 600 workers from its Marine business branch, citing deteriorating market conditions. Offshore Energy Today has reached out to Rolls-Royce, asking if there are further workforce reductions expected. W̶e̶ ̶w̶i̶l̶l̶ ̶u̶p̶d̶a̶t̶e̶ ̶t̶h̶e̶ ̶a̶r̶t̶i̶c̶l̶e̶ ̶s̶h̶o̶u̶l̶d̶ ̶w̶e̶ ̶g̶e̶t̶ ̶a̶ ̶r̶e̶p̶l̶y̶.̶

In an e-mail response to Offshore Energy Today, the company’s spokesperson said: “Firstly, it is crucial to remember the long-term fundamentals of this business remain strong and we must deliver on our record order book. We have already made substantial investments in the transformation of the business to do this. We must also complete the restructuring work that we have already announced. We must examine any opportunities that we may have for further efficiencies but we have nothing further to announce at this time.”

Buyback cancelled

In its announcement today, the UK-based firm also said that it will discontinue the current share buyback programme, due to the weaker near-term cash outlook. It said it had completed £500m of the planned £1bn programme in the first half of the year.

Updating its guidance, the company has identified a number of market developments in 2015 that are now expected to have a more significant impact in 2016. These are related to Civil Aerospace markets, particularly for its Trent 700 engines during their transition to the new Trent 7000, business and regional jets, and in the offshore markets for its Marine business.

Significant market pressures in 2015 and 2016 as identified by Rolls-Royce:

• 2015: Civil Aerospace guidance unchanged – Trent 700, business jet and regional aftermarket headwinds offset by higher-than-expected benefits from contract provision releases and widebody aftermarket growth
• 2016: Civil Aerospace net headwinds of around £300m due to Trent 700, business jet and regional jet aftermarket weakness
• 2015 and 2016: Offshore markets continue to weaken, reducing the company’s Marine profit by around £85m in both years

“Notwithstanding these expected headwinds we continue to believe that the Group can achieve significant improvements to returns and cash flow, albeit later than previously indicated,” Rolls-Royce said in a statement.

Offshore Energy Today Staff