Markets turbulence likely to make 2016 a bumpy year for Rolls-Royce
AERO engine manufacturer Rolls-Royce has failed to provide shareholders with much festive cheer, warning 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.
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 £150 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 the company 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.
The company said more details on the plans would be announced on November 24, 2015.
On a more positive note, the group said its financial liquidity was strong, supported by a healthy balance sheet.
Warren East, chief executive said: “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.
“At the same time I remain very confident about the opportunities before us and convinced that our long-term outlook is positive. Our industrial transformation is proceeding well and our core large engine business remains on track to gain significant market share and build a strong, cash generative platform for the future.
“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. My operating review has already highlighted a number of areas where I believe Rolls-Royce can make fundamental changes to its structure and ways of working that can generate material improvements to the business. Rolls-Royce is already undergoing significant change, but I am convinced these new actions are vital if we are to invest sensibly and grow, well into the next decade and beyond.”
