Rolls-Royce to trim costs as profits lose momentum

AERO-ENGINE maker Rolls-Royce has dashed hopes for a return to growth next year and sparked job fears after seeing customers delay or cancel orders due to worsening economic conditions.

The engineering group has plants at East Kilbride and Inchinnan, near Glasgow. Picture: PA
The engineering group has plants at East Kilbride and Inchinnan, near Glasgow. Picture: PA

The engineering group, which has plants at East Kilbride and Inchinnan, near Glasgow, as well as major operations in Bristol and Derby, warned the tough climate would increase its focus on costs, including headcount.

It previously ruled out growth this year due to defence cuts but now expects profits in 2015 will be up to 3 per cent lower.

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The company said: “In the last few months economic conditions have deteriorated and Russian trade sanctions have tightened, leading a number of customers to delay or cancel orders particularly in our nuclear and energy and power systems businesses.”

Rolls-Royce shares plunged 11.5 per cent to close at 832p after the update, issued less than three months after news of a 20 per cent drop in half-year profits.

Revenues this year are now expected to be between 3.5-4 per cent lower than a previous forecast for no change, but control of costs means it will continue to meet its previous target for flat profits.

The firm, which employs some 55,000 people in 45 countries, remains hopeful civil aerospace markets will strengthen over the medium term due to increasing demand for travel in emerging economies and the need to replace older aircraft with new fuel efficient models supplied by Boeing and Airbus.

Chief executive John Rishton said: “While the short term is clearly challenging, the prospects remain strong, driven by the growing global requirement for cleaner, better power.

“The operational efficiencies already achieved and the cost programmes we will now accelerate will put us in a better position to benefit from these growth drivers.”

Analysts at Royal Bank of Canada noted the new guidance for 2015 was worse than the company had previously forecast.

Analysts expect the firm to report pre-tax profits of about £1.65 billion for 2014, down from £1.76bn last year.

Rolls disappointed the City in February when it said US and European defence spending cuts would lead to flat profits in 2014, ending more than a decade of profit growth.