By Robert Wall
LONDON-- Rolls-Royce Holdings PLC has scrapped its first ever
share buyback program and warned that weak demand in its airliner
and marine engine businesses would be a drag on earnings through
next year.
The profit warning, Rolls-Royce's second this year, comes as the
Europe's largest aircraft engine maker is under new management,
with a new chief executive and chief financial officer freshly
installed.
"I am clearly disappointed by today's announcement and the
impact this will have on our investors and employees," said new CEO
Warren East said. "This isn't exactly how I would have chosen to
spend our second day on the job," Mr. East told reporters.
The engineering group, one of the U.K.'s leading industrial
companies, said on Monday that underlying pretax profit, a measure
that excludes some costs, is now expected to be GBP1.33 billion
($2.06 billion) and GBP1.48 billion this year, down from its
previous guidance of GBP1.40 billion to GBP1.55
Rolls-Royce also said underlying pretax profit is expected to
have been GBP390 million and GBP430 million in the six months to
end June, or around 30% of the expected full-year amount, compared
with 40% in 2014.
Rolls-Royce said its cash outlook also has worsened. It could
range between a GBP150 million cash outflow and GBP150 million
inflow, having previously expected it may generate as much as
GBP350 million in cash.
The weak cash performance led Rolls-Royce to end its GBP1
billion share buyback, introduced a year ago, about halfway through
the program, though the company warned that cash flow should
improve from next year.
Having angered investors in the past two years by wrong-footing
them with a series of profit warnings, Mr. East signaled the
company would be more poractive in the future. "We are bringing
this news to the market now perhaps rather earlier than you might
have expected," he said.
In its first indication of how business will fare next year,
Rolls-Royce warned of a GBP300 million profit setback in its
civil-aerospace business--the unit generates most of Rolls-Royce's
earnings--amid weak demand and pricing for Trent 700 engines that
power Airbus Group SE A330 jets. The European plane maker is
introducing a new model from 2017, powered exclusively by
Rolls-Royce.
"The prices that we achieved for those engines has been lower
than we originally thought," Mr. East said.
Weak prices and demand for Trent 700 engines could last another
three years, said CFO David Smith.
Civil aerospace earnings also have been hit by softness in
business-jet sales in some markets and lower-than-anticipated
demand for parts for regional airliners, the London-based company
said.
Rolls-Royce plans further restructuring at its marine business
where contracts in the offshore segment that supplies oil and gas
companies have slumped because of low crude oil prices. Mr. Smith
said the measures wouldn't be "huge."
--Tapan Panchal contributed to this article
Write to Robert Wall at robert.wall@wsj.com
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