Rolls Royce warns of potential job cuts as climate worsens for its customers
AERO engine manufacturer Rolls Royce has warned it will have to make cost cutbacks – including jobs – in the short term as it looks to sustain its business in a more challenging environment.
In an outlook statement ahead of its Marine Capital Markets Day in Norway the company said the worsening conditions were likely impact revenue and it warned 2014 compared with 2013 was likely to be 3.5% to 4% lower (previously guided as flat), excluding adverse foreign exchange translation estimated at £500m (which is the same as previously announced).
It said that in the last few months economic conditions had deteriorated and Russian trade sanctions had tightened, leading a number of its key customers to delay or cancel orders particularly in our Nuclear & Energy and Power Systems businesses.
Across the business, underlying revenue for Civil Aerospace revenue is expected to be maintained at +2% to +5%, while Defence Aerospace revenue is maintained at -15% to -20%. Guidance for Marine revenue is maintained at around -10%, with Power Systems steady at +/-2% and Nuclear & Energy revenue reduced to 0% to +5% as against a previously stated +5% to +10%. It said the latter reflected market conditions and the impact of the impending sale of its Energy gas turbine and compressor business.
Reflecting improved cost performance, it is maintaining predictions for underlying profit as flat in 2014, excluding adverse foreign exchange translation now estimated at £60m (previously £70m) and the one-off £30m charge in Marine.
It said it was trying to determine what more could be achieved through further restructuring and rationalisation and would update the market when this review was complete.
In terms of underlying profit, guidance for Civil Aerospace profit is given as improving to +15% to +20% (previously +8% to +12%) mainly as a result of improvements to lifecycle costs. Defence Aerospace profit is improved to -12% to -15% (previously -15% to -20%), with Marine profit coming in around -15% to -25%. Power Systems profit is reduced to -5% to -10% (previously +5% to +10%) reflecting the impact of trade sanctions against Russia and weaker market conditions. Nuclear & Energy profit is reduced to 0% to +10% (previously +30% to +40%).
The sale of the Energy gas turbine and compressor business to Siemens is likely to conclude by the year end, it added.
Looking ahead to 2015, it said the environment was now likely to be worse than previously expected.
“The economic outlook for 2015 has become more challenging. In response to these external factors we will increase our focus on areas we can control and we will accelerate progress on the 4Cs, particularly on cost, including headcount, footprint and sourcing,” it said.
“The worsening market conditions are clearly being felt by a number of our customers and may affect the timing of their investment decisions, particularly in Power Systems and Marine. In Civil Aerospace, Trent 700 sales will be affected by the successful launch of the new Trent 7000.
“We previously said that we expected a resumption of growth in 2015. In the light of these uncertainties, our current best estimate for 2015 is that group underlying revenue will be in the range of +/-3% and profit in the range of 0% to -3% compared with our expected outcome for 2014 at constant exchange rates.”
