Cross check

6 July 2015 By Olaf Storbeck

The aero-engine maker’s brand new chief has halted a share buyback programme. The stock slid 9 pct. The decison flags growing cashflow woes but safeguards a crucial investment grade rating. Rolls-Royce’s Warren East is acting with the kind of boldness the company requires.

This content is for Subscribers only

To access full Breakingviews.com content you must be a subscriber. Please use the following link to request a trial.

Context News

British engineering company Rolls-Royce cut its profit and cashflow forecasts for this year and next on July 6. It said it was encountering continued weakness in oil and gas markets plus lower demand among customers for some of its aero-engines. The group has also decided to end a share buyback programme that was outlined last December. Rolls-Royce has spent only half of the initially planned 1 billion pound outlay.

Rolls-Royce now expects free cashflow for 2015 to be between minus 150 million pounds and plus 150 million pounds, compared to its previous guidance of between 50 million pounds and 350 million pounds. Rolls-Royce said 2015 profit would come in between 1.325 billion pounds and 1.475 billion pounds, as much as 5 percent lower than it had previously guided.

For 2016, lower demand and pricing for its Trent 700 engines, reduced demand for its business jet engines, and some weakness in its after-sales business will cut profit by 300 million pounds.

The downgrades, the latest in a series by the company, came four days after new Chief Executive Warren East took the helm. The CEO said he was disappointed but his fundamental confidence in the business was not shaken.”We are bringing this news to the market now perhaps rather earlier than you might have expected or you might have seen from Rolls-Royce in the past,” he said. “I hope that is part of the tone for the style of communication that we are going to expect now I’ve joined the business.”

Shares had lost 9.6 percent to trade at 774 pence by 1033 BST.

Email a friend

Please complete the form below.

Required fields *