Rolls-Royce halves shareholder payout but hints at future rebound

Chief executive Warren East promised to stop the rot and lift payouts next year

Britain’s engineering prestige was left in tatters on Friday after the crown jewel of the industry, Rolls-Royce, slashed shareholder payouts for the first time in 24 years.

However, the aircraft engine maker cheered bruised investors by promising to boost the payout pool in future. 

Rolls will pay 7.1p a share for 2015, compared with 14.1p last year, and is making another painful 50 per cent cut to half-year dividends this year because of flagging profits across its aerospace and marine businesses.

There was a chink of light after the chief executive, Warren East, promised to stop the rot and lift payouts next year. 

Investors’ worst fears about another profit warning – it has issued five in the past two years – and evaporating cashflow also eased as the results showed a surprise £180m of extra cash, which could propel the dividend next year. 

Mr East said he had fired 50 of his top 200 senior managers before Christmas as part of a bonfire of the bosses at the Derbyshire-based company. He plans more layoffs to cut costs by between £150m and £200m a year.

“We want to introduce pace and simplicity into the way we do things,” Mr East said yesterday. “I expect we will need fewer people.” 

The shares rose 14 per cent, or 76p to 606p, as investors breathed a sigh of relief about the better-than-expected outlook. “Rolls-Royce has been everybody’s whipping boy but this is not a company out of control,” Jefferies analyst Sandy Morris said. “Management have got this business under control and have it by the scruff of the neck. It makes you optimistic.”

Rolls, which makes engines for large passenger jets as well as ships and tractors, has failed to keep pace with a shift in the market, as aircraft makers seek out smaller and more fuel-efficient engines, wiping out a good part of its lucrative engine maintenance sales. 

In November it unveiled 2,500 job cuts in marine and aerospace after warning that profits would be £650m lower in 2016. Yesterday it said full-year profits for the year ending December 2015 were 12 per cent down at £1.4bn. 

Since the carnage started the California-based activist investor ValueAct has come on board as a major shareholder to shake up the direction of the business. Rumours have also swirled about a possible takeover by US rivals and the Government stepping in to ring-fence its politically sensitive nuclear parts business.