New Rolls-Royce boss begins his reign with profit warning

Just days into the job, Warren East warns of weak demand for jet and marine engines

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The Independent Online

Warren East’s reign as chief executive of Rolls-Royce got off to an eventful start as he unveiled the company’s third profit warning in less than 18 months.

The former head of Arm Holdings, who only replaced John Rishton on Friday, blamed weak oil prices and lower demand for its engines for the latest downgrade, in which it cut forecasts for 2015 and warned of further headwinds in 2016. The latest warning centres on the company’s marine and jet engine units, and means 2015 pre-tax profits are now expected to be between £1.32bn and £1.47bn, compared with £1.4bn to £1.55bn previously. Rolls warned that its marine business was likely to suffer next year as well.

The news saw shares in the FTSE 100 giant tumble 6 per cent, or 54p, to 802.5p, wiping £992m off its value.

The decision to make the announcement so swiftly was made at a board meeting at Rolls-Royce’s Buckingham Gate headquarters on Sunday and followed a review by its new finance director, David Smith, which uncovered another round of bad news for long-suffering shareholders.

Mr Smith’s analysis uncovered a host of cash problems stemming largely from Airbus’s decision in February to cut production of its long-haul A330 workhorses from nine a month to six.

The profits warning rounds off an eventful 18-month period for the group, which has seen it hit by a series of setbacks, including jobs cuts – 2,600 of which were announced last November. Analysts have described it as an “annus horribilis”.

Mr East said he was “disappointed” by the announcement and “the impact this will have on our investors and employees”. He plans to undertake his own review of the company over the coming weeks and would not rule out further job cuts or a dividend cut.

He added: “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. I hope that is part of the tone for the style of communication that we are going to expect now I’ve joined.”

Rolls is also being investigated by the Serious Fraud Office over allegations of corruption in Indonesia and China, and in February was dragged into a bribery scandal involving Brazil’s state oil producer Petrobras amid allegations that it had used backhanders to win a $100m (£64m) contract.

Mike van Dulken, the head of research at Accendo Markets, said: “Rolls-Royce shareholders are delivering a No vote of their own. The bad news is... a blow for new chief executive Warren East – poor guy, only his second day on the job – who could do little wrong in the top job at the microchip architect Arm Holdings.”

He speculated that  Mr East was “kitchen sinking it” or “cleaning the slate” to lower market expectations

The company said it planned to scrap a £1bn share buyback, despite being half-way through the programme.

Brenda Kelly, the head analyst at London Capital Group, said: “A new chief executive may be in place but it is the same story of investor disappointment as profit forecasts misfire for Rolls-Royce. The halting of a proposed £1m share buyback is not sitting well with investors.”

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