Rolls Royce: High Flying or Free Falling?
9 July 2015 by Lucinda Stacey
For all the car fanatics interested, Rolls-Royce has now issued its third profit warning in just over a year. Accordingly, the last issued profit warning was in February, when it was previously announced that its 2015 profit would be between £1.4 billion and £1.55 billion. On 6 July 2015, the firm has lowered its profit outlook again, this time to between £1.325 billion and £1.475 billion.
There are two things which are causing problems for the well known British company; the low oil price and the development of its new jet engine. Rolls-Royce is well known for making much of its money in its marine division supporting oil exploration. However due to the oil giants pulling back on capital investment, the division has suffered considerably. The second problem is down to the company being caught out by its development of the new Trent 7000 jet engine which replaces the Trent 700. Orders for the older model have fallen faster than expected as customers wait for the new engine which will come into service in 2017. Rolls-Royce said that the lower demand and pricing for its Trent 700 engines and the reduced demand for its business jet engines would hit profits by £300 million. This has occurred despite the fact that Rolls- Royce announced in April that it had agreed its biggest ever order with the Dubai-based Emirates airline.
These problems have meant that Rolls-Royce have faced a fall in shares to 780p on the profit downgrade, a fall of nearly 9%. Understandably, many are disappointed with the announcement which will impact investors and employees. As a result of the current news, the company have said that it will be halting its £1 billion share buyback as a result of falling profits.
Mr Warren East, the new chief executive of Rolls- Royce will be working out where the company’s real growth areas are. Mr East has commented that: “Notwithstanding the market developments, it is our responsibility to build a business that is sustainable and resilient, no matter what is thrown at us, and this will be my fundamental priority for the next few years.”
Like the 131-year-old company, is your firm or business suffering from a loss of profits? If so, we here at Fisher Jones Greenwood LLP are here to assist. If your company requires advice as to its structure and alternative business structure models, corporate vehicles or any form of restructure, as well as how to potentially innovate business, protect innovative ideas with Intellectual Property Rights or any general advice, please contact our Corporate Commercial Department on 01245 584515 or [email protected].
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