Rolls-Royce’s first revenue fall in decade

John Rishton, chief executive of Rolls Royce
John Rishton, chief executive of Rolls Royce
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DEFENCE spending cuts and falling oil prices have driven aero-engines giant Rolls-Royce to its first fall in revenues for a decade and a 6 per cent slide in 2014 profits.

Rolls also jolted the stock market with a profits warning for 2015, saying that trading would be against a backcloth of “increasing uncertainty” for its customers, including governments and energy companies.

The company, which employs about 2,100 in Scotland, has been hit by Western trade sanctions on Russia, which has led to a number of delayed or cancelled orders, particularly in its nuclear and energy and power systems businesses.

Rolls reported a 6 per cent slide in underlying revenues last year to £14.6 billion, while underlying pre-tax profits fell to £1.62bn from £1.76bn last time.

The group’s latest figures were in line with its downgraded forecasts late last year, but some share price volatility was sparked yesterday when Rolls lowered its profits guidance for 2015 for the second time in four months.It now expects profits this year to be in the range of £1.4bn to £1.55bn, between 4 and 14 per cent lower.

In Rolls’s most recent forecast it expected this year’s earnings would be unchanged at best, and 3 per cent lower at worst. On the stock market, shares initially fell before closing up 4.4 per cent, or 39.5p, at 944.5p.

John Rishton, group chief executive, right, said 2014 was “a mixed year when underlying revenue fell for the first time in a decade, reflecting reduced spending by our defence customers, macro-economic uncertainty and falling commodity prices”.

He added: “Although the short term is clearly challenging, reflecting the economic environment, the prospects for the group remain strong, driven by the global requirement for cleaner, better power.”

Rolls’s civil aerospace profits lifted 12 per cent to £942 million in 2014. But defence profits fell 16 per cent to £366m despite a 12 per cent rise in the order book – the first since 2010. In December, the company completed the first delivery of the Trent XWB to launch customer Qatar Airways for its Airbus A350.

Sara Tusa, engineering analyst at Edison Investment Research, said: “The company’s guidance for this year suggests that it remains stuck on the runway.”

The difficult trading conditions have already led Rolls to announce plans for 2,600 job losses, including a significant number in the UK. It has reorganised the company into two units – aerospace, and land and sea – to reduce management layers and cut costs.

Rolls announced in January 2014 that it would make 200 jobs redundant at its Inchinnan plant in Renfrewshire and close its factory at East Kilbride, with production transferring to Inchinnan. Shortly before Christmas the company confirmed that another 35 workers were losing their jobs at the Inchinnan. plant.

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