Rolls-Royce shares tumble on gloomy update

SHARES in engine manufacturer Rolls-Royce have nosedived by 18% to 547p after it warned that further market headwinds are likely to increase uncertainty for 2016.

In a trading update it also said that its guidance for the current year remained unchanged and profit was expected to be at lower end of the range. The company is one of the country’s biggest manufacturers. It employs more than 1,000 people at two sites in Barnoldswick in Lancashire.

It said the negative outlook reflected sharply weaker demand in 2016, including in the wide-bodied aftermarket, corporate and regional aerospace markets and offshore marine.

It has predicted that 2016 profit headwinds will increase to around £650m, although cash flow will be largely unchanged. Cutbacks of between £150m to £200m a year are likely to be made before any benefit is felt in 2017.

Changes to the TotalCare aftersales support services agreement will set the company back a further £250m and it said further revenue reductions on a high fixed cost base highlighted increased sensitivity to market-led revenue changes.

The dividend payments policy is being reviewed by the board and it said if any changes were forthcoming then they would be announced in due course.

It has been a tough year for the company, largely because of order cutbacks as airlines scale back on new fleet. The decline prompted it to implement a wide-ranging restructuring programme and this will begin in 2016.

The move is being made to simplify the organisation model, streamline senior management, reduce fixed costs and add greater pace and accountability to decision making.

It said the work would enhance plans already under way to improve the group’s management information, forecasting and business systems.

Rolls-Royce said more details on the plans would be announced on November 24.