RYCEY Rolls Royce Holdings PLC (PK)

By Robert Wall 

One of Britain's best know long-term investors has exited his holding in Rolls-Royce Holdings PLC citing a lack of confidence in the prospects of the British engine maker.

The move is a further blow to Rolls-Royce, which has suffered a series of profit warnings and last month warned investors it may cut its dividend. The disclosure prompted the worst selloff in 15 years.

Neil Woodford, a highly regarded British investment fund manager, who has held Rolls-Royce stock for almost a decade, said his CF Woodford Equity Income Fund and the Woodford Patient Capital Trust fund have sold their Rolls-Royce shares.

"The problems, which initially had affected the military aerospace and marine businesses, now appear to have spread to the core civil aerospace business. This has resulted in material downgrades to profit and cash expectations, and to such an extent that it is now likely that the dividend will be cut in 2016," Mr. Woodford said on his company's website. "This has shaken my confidence in the investment case and so the position has been sold across all mandates," he added.

Mr. Woodford was Rolls-Royce's 12th largest investor with 1.6% of the stock, according to FactSet. It held almost 35 million shares at one point this year.

Rolls-Royce Chief Executive Warren East last month announced plans for sweeping a restructuring at the company, including cutting layers of management to become more responsive to changing market conditions.

London-based Rolls-Royce, which makes aircraft engines for Boeing Co.and Airbus Group SE widebody jets, on Wednesday said it would not comment on the actions of individual investors, However, it added in a statement that "we are strongly positioned in attractive markets, with a record order book and are on course to increase our share of the global installed base of widebody aircraft to over 50%."

Mr. Woodford's decision to sell comes as U.S. activist investor ValueAct Capital Management LP has become Rolls-Royce's largest shareholder and is seeking a board seat. ValueAct's holding in Rolls-Royce tops 10% of the company's stock.

Rolls-Royce has struggled to deliver on previous cost-cutting efforts and been hit by weakening demand for some civil aircraft engines, including aftermarket support. It also has lost market share in the business jet engine market. Its marine engine business has suffered from falling demand.

The company, which decades ago shed ties to the luxury car maker, on Wednesday acknowledged it was undertaking business transformation and said "while we are suffering the impact of short-term headwinds in several of our markets, action is being taken to make the business more resilient and sustainable through our ongoing wide-ranging restructuring."

Shares in Rolls-Royce have slumped 32% this year.

Mr. Woodford said in the past he used share price dips as an opportunity to add to his holdings in Rolls-Royce, betting the huge order book would deliver profits and cash flows beyond 2017. However, the latest profit warning last month "has changed this view," he said.

Mr. East, who issued his first profit warning during the summer on his second day in the chief executive job, last month indicated that restructuring Rolls-Royce would take time.

The company suspended its medium-term earnings outlook introduced only a year ago to give investors greater clarity and said it would not be restored for at least a year. Mr. East said the company first needed to fix excessively complex internal accounting systems to improve its ability to judge Rolls-Royce's likely fortunes. Still, he promised the company should generate cash "comfortably" before 2020.

Mr., Woodford said he'd consider reinvesting in Rolls-Royce if it turned out the caution in the business was misplaced.

Write to Robert Wall at robert.wall@wsj.com

(END) Dow Jones Newswires

December 09, 2015 16:54 ET (21:54 GMT)

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