12th Nov 2015 07:18
LONDON (Alliance News) - Rolls-Royce Holdings PLC on Thursday affirmed its 2015 guidance but said profit will come in at the low end of expectations, while the FTSE 100 jet engine and power turbine maker also downgraded its expectations for 2016 thanks to revenue mix changes and weaker margins.
The aerospace and defence engineering group also said it will review its dividend policy in light of the weak expectations for 2016, with any changes to be announced in due course, and said it will undertake a wide-ranging restructuring of the business, with plans to save around GBP150 million to GBP200 million per year.
Rolls-Royce said its guidance for 2015 remains unchanged but said profit will come in at the lower end of its expectations.
For 2016, however, the picture is much bleaker, with Rolls-Royce expecting a sharp decline in demand, including in the wide-bodied jet engine aftermarket, along with weakness in corporate and regional aerospace markets and offshore marine operations, the latter unit its most exposed to the oil and gas industry, which is currently in a downturn.
Rolls-Royce expects its profit in 2016 to take a GBP650 million hit, as margins are hit by an adverse revenue mix in its TotalCare aftermarket services business, while further revenue declines will be exacerbated on the profit line by the group's high fixed cost base.
Cash flow is expected to be more consistent in 2016, the company said, but it will review its shareholder payments policy in light of the tough conditions.
This will lead to Rolls-Royce implementing a large restructuring action in 2016, more details of which it will publish on November 24. It will looks to save GBP150 million to GBP200 million a year, with the benefits to accrue in 2017, by simplifying its organisational model, streamlining its senior management teams, reducing fixed costs and by adding pace and accountability to decision-making across the business.
"While 2015 remains broadly as expected, the outlook for 2016 is very challenging. 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," said Rolls-Royce Chief Executive Warren East.
"The next few years are going to be important in laying the foundations for our long-term profitable growth. Therefore it is important to ensure we are financially stronger, more resilient to short-term shocks and more flexible to take advantage of growth opportunities," East added.
By Sam Unsted; [email protected]; @SamUAtAlliance
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