Tuesday 21 November 2017

Rolls-Royce sticks to 2016 guidance after rocky 2015

Matt LeBlanc driving a new Rolls-Royce Dawn around Ireland's Ring of Kerry (BBC/PA)
Matt LeBlanc driving a new Rolls-Royce Dawn around Ireland's Ring of Kerry (BBC/PA)

Sarah Young

British engineering company Rolls-Royce reiterated its outlook for 2016 in a sign of stability after warning on profit three times last year due to changes in the aero-engine market and weak demand from energy customers.

Rolls-Royce, which makes engines used to power aeroplanes and ships, said ahead of its annual general meeting on Thursday that profit would be weighted towards the second half of the year and that the first six months would be close to breakeven.

Analysts expect Rolls-Royce's 2016 pretax profit to halve to £642m (€811m) according to Thomson Reuters data, down from £1.36bn in 2015.

The company had already warned that 2016 would be challenging, setting out a restructuring plan last year with the aim of saving between 150 million pounds and 200 million pounds a year by 2017 by cutting staff and improving decision making.

The cost saving plan was on track, Rolls-Royce said on Thursday, adding that it would provide more details on its progress in July, when Chief Executive Warren East will have been in the job for a year.

Rolls-Royce has over the last two years been hit by cancelled orders for power systems after a plunge in the oil price and a slowdown in Asia for demand for the high-margin servicing it provides for older aircraft engines.

The company added that its 2016 expectations excluded the impact of foreign exchange rates which if they were to stay at current levels would boost reported pretax profit by about £50m.

"We do not see today's update changing anything fundamental," Jefferies analyst Sandy Morris said.

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