Rolls-Royce shares plunge on second profit warning

Shares fell more than 8% to a 4-year low following second profit warning

(GETTY IMAGES)

Shares in Rolls-Royce took a battering after the engineering giant issued its second profit warning of the year, blaming trade sanctions against Russia and global economic uncertainty.

The group’s chief executive, John Rishton, warned there would be no growth for a second year, three months after he insisted that 2015 would see revenue and profit increases.

Admitting that the future was “bumpier than I had expected”, Rishton shocked the market by admitting deteriorating economic conditions and a tit-for-tat trade war between the EU and Russia over the Ukraine crisis had hit its nuclear & energy business as well as its power-systems unit.

In response, the company’s shares plunged by more than 8 per cent, diving 78.05p to 862.45p, their lowest since the end of 2012.

It means the stock has dropped by a third this year, after Rolls-Royce shocked markets in February with its first profit warning for a decade that sparked a share sell-off which wiped more than £3 billion from its value in a day.

Rishton then warned there would be no growth in sales or profit this year, largely due to defence spending cuts.

Today, the world’s second-biggest aircraft-engine maker admitted that revenue would fall by between 3.5 per cent and 4 per cent this year, when previous guidance was that it would be flat on £15.5 billion. This excludes a £500 million hit expected from currency rates.

In addition, Rolls-Royce — which is still engulfed in a Serious Fraud Inquiry investigation into allegations of possible bribery involving intermediaries in overseas markets, including China and Indonesia — said that profit was likely to fall by up to 3 per cent next year.

Rishton apologised to analysts after he reneged on a promise to give revenue guidance to 2018. He argued that the volatility of some of Rolls-Royce’s businesses meant that the range would be so large as to not be “helpful”.

“While the short term is clearly challenging, reflecting the economic environment, the prospects for the group remain strong, driven by the growing global requirement for cleaner, better power,” he said.

The company is preparing to make job cuts as part of an accelerated restructuring programme focused on “cost, including headcount, footprint and sourcing”.

Westhouse analyst Harry Breach said the news was “slightly disappointing” and Garry White at Charles Stanley said the “biggest shock” was a cut in free cash-flow guidance — money left after capital expenditure on buildings and equipment — from £780m to £350m.

Rolls-Royce again pledged a £1 billion share buyback will start once it has completed the sale of its gas-turbine and compressor business to Siemens by the end of the year.