By Robert Wall
LONDON-- Rolls-Royce Holdings PLC has again cut its profit
forecast for the year as the British engineering group struggles to
get to grips with turbulent trading conditions that contributed to
a sharp drop in profit for 2014.
The engine maker said on Friday that it barely broke even last
year, reporting full-year net profit of GBP69 million ($106.1
million) compared with GBP1.37 billion in the previous year on a
6.1% fall in revenue to GBP13.74 billion.
Rolls-Royce had "a mixed year during which underlying revenue
fell for the first time in a decade, reflecting reduced spending by
our defense customers, macroeconomic uncertainty, and falling
commodity prices," said Chief Executive John Rishton.
The sharp drop in net profit reflects the revaluation of its
currency hedging, Chief Financial Officer David Smith said. The
more closely watched underlying pretax profit figure, which
excludes changes in the value of currency hedges, was GBP1.62
billion, down 8% from the previous year.
Rolls-Royce said underlying pretax profit this year could fall
as much as 14% to between GBP1.4 billion and GBP1.55 billion, worse
than it had forecast as recently as last October.
Management blamed the sharp fall in oil prices, down around 50%
from last summer, for the downgraded outlook. "In October we
started to see oil prices coming down but not half as much as we've
seen since then," Mr. Rishton said.
Falling crude prices have proved a particularly headache for
Rolls-Royce's marine engine business, dependent on custom from ship
builders supplying the oil and gas sector. Profit at the ship
engine division could fall to GBP90 million from GBP138 million
last year, excluding currency fluctuations, the company said.
Rolls-Royce's civil aerospace activities, the group's largest
profit contributor, are also under pressure, with the unit expected
to return GBP800 million to GBP900 million in pretax profit, down
from GBP942 million last year. The decline partly reflects a rise
in new engine deliveries which are less profitable than the
division's repair and maintenance business.
Though oil prices are weighing on near-term earnings, Mr.
Rishton said they should be good for the company over a longer
period by aiding global growth.
Mr. Rishton also said the company is pressing ahead with efforts
to boost profitability after the group's operating-profit margin
slipped to 11.5% last year.
Rolls-Royce has struggled to meet earnings targets--a year ago
it forecast sales and earnings growth for 2015--as cost cutting at
its aerospace unit, the company's largest division, fell short.
The company has announced it would cut 2,600 jobs. Mr. Rishton
said 545 employees had left last year on a voluntary basis with
most of the rest of the departures expected this year. Reductions
are being made in the land and sea activities through a series of
smaller measures, he said.
The possible rise in sales this year is linked to increased
output of long-range jetliners at Boeing Co. and Airbus Group NV.
Rolls-Royce builds engines for Boeing's 787 Dreamliner and has
makes the only turbine for the rival Airbus A350 that entered
service last month at Qatar Airways. Sales in civil aerospace
should rise to at least GBP7 billion from GBP6.8 billion.
Mr. Smith said costs to build the engine for the A350 are coming
down as planned. Rolls-Royce also said earnings this year won't be
affected by any further Airbus productions cuts for its A330
jetliner. Airbus in December said it may curtail production amid
weak demand for the current version. Rolls-Royce builds one of the
types of engines used on the widebody jet.
Write to Robert Wall at robert.wall@wsj.com
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