Revenue and profit down in "challenging year" for Rolls-Royce

AERO engine manufacturer Rolls-Royce culled 20% of its senior management after undergoing “a challenging year” which has seen revenue and profits take a hit.

In its 2015 full year results, the Midlands company reported a 1% reduction in revenue to £13.4bn (2014: £13.9bn), while pre-tax profits reversed 12% to £1.432bn (2014: £1.62bn).

It’s final payment to shareholders has consequently been reduced by 50% to 7.1p per share (2014: 14.1p).

Cost reduction programmes were put into effect in November when shares in the company nosedived by 18% to 547p had saved between £150m and £200m per annum, the firm said.

There has been a 20% reduction in the top two layers of senior management with further reductions planned.

About 50% of cost savings have already been identified and an initial exceptional restructuring charge of between £75m and £100m in 2016 is in the offing, with more action to generate additional savings in 2017 in the pipeline.

Chief executive Warren East said: “In the context of challenging trading conditions our overall performance for the year was in line with the expectations we set out in July 2015.

“It was a year of considerable change for Rolls-Royce: in our management, in some market conditions and in our near-term outlook.

“At the same time, there were some important constants: the underlying growth of our long-term markets, the quality of our mission critical technology and services, and strength of customer demand for these, which are reflected in our growing order book.”

Looking ahead, he said: “Our outlook for 2016 is unchanged; despite steady market conditions for most of our businesses it will be a challenging year as we start to transition products and sustain investment in Civil Aerospace and tackle weak offshore markets in Marine.
 
“The pace of investment required to transform the business creates near-term pressure on free cash flow.
 
“At the same time, we need to sustain a healthy balance sheet to ensure we have the financial flexibility to maintain a strong investment grade credit rating.

“As a result, the board is recommending that the payment to shareholders is halved in cash terms at the full year and the next half year.
 
“We recognise the importance of a healthy ‘dividend’ to our shareholders.

“Subject to short-term cash needs, we intend to review the payment so that it will be rebuilt over time to an appropriate level. This reflects the board’s long-standing confidence in the strong future cash generation of the business.”