Rolls-Royce says 2016 earnings will suffer a €920m hit

Rolls-Royce said next year’s earnings will suffer a £650 million-pound (€920 million) hit from declining demand for business-jet engines and lucrative maintenance services on bigger turbines, sending the stock down the most in 15 years.

Pretax profit for 2015 will also be at the “lower end” of a forecast range of £1.3 billion to £1.47 billion, and the London-based company plans to review its policy on shareholder payments, it said in a statement today.

Rolls shares tumbled as much as 22 per cent. Chief executive officer Warren East, who has been reviewing Rolls’s businesses since taking over in July, said he’ll introduce a restructuring program aimed at delivering savings as high as 200 million pounds a year from 2017.

Details of plans to simplify organisation and management will be announced on November 24.

“The outlook for 2016 is very challenging,” Mr East said in the release.

“The speed and magnitude of change in some of our markets, which have historically performed well, has been significant and shows how sensitive parts of our business are to market conditions in the short-term.”

The earnings “headwind” for 2016 predicted today compares with a figure of 385 million pounds estimated on July 6, days after East took over.

Earnings next year will be affected by “sharply lower” sales of corporate jets powered by Rolls engines, together with a more sluggish maintenance market for those aircraft and bigger regional jets, it said, accounting for £100 million of the higher headwind.

Reduced utilisation of older wide-body engines will wipe out £150 million beyond prior projections and a further deterioration of marine-engine market linked to the oil industry will weaken profit by an extra 100 million pounds.

The stock traded 18 per cent lower at 544.50 pence as of 8:09 am in London.

Bloomberg