Rolls-Royce profits fall 12% to £1.4bn

Engine maker Rolls-Royce said annual profits tumbled 12% to £1.4 billion as the business was hit by civil aerospace cuts and falling commodity prices that have impacted output at its marine division, which supplies the oil industry. Rolls’ trading outlook for 2016 was unchanged.

Placing his 440p target price under review, Myerson agrees: “Our view remains that the premium valuation does not reflect a series of medium and long term challenges to profits and cash”.

The final payout for 2015 will be reduced to 7.1 pence per share from 14.1 pence and the interim payment for this year will also be cut by 50 per cent, the London-based manufacturer said on Friday.

As well as its world-famous plane engines, the company also makes engines for the United Kingdom nuclear submarine fleet.

In November, shares in the company plummeted by a fifth following news that the firm’s dividend would be reduced, so today’s announcement is unlikely to supervise investors. Analysts had been forecasting this to come in at about negative £50m, from £447m a year ago.

In the announcement, Rolls-Royce revealed last year’s revenue had dropped 1% to £13.4bn yet in a turbulent market, profit had slipped 12% from the previous year to £1.4bn.

The highlight for investors was that Rolls left guidance for its performance in 2016 unchanged, managing to avoid announcing a further profit warning, with the beleaguered engineering group having put out five alerts about its performance to in two years. This will add pace and simplify our business, making us a more resilient company.

Analysts had feared annual losses would be deeper, and that the firm would signal a rights issue to raise cash.

Possibly not. Although Rolls avoided another profits warning, earnings per share (EPS) might be hit by higher tax and interest charges.

As well as cutting management roles, Rolls-Royce previously announced plans to made around 3,600 redundancies.

Warren East, arrived last July at the head of the company, launched late 2015 a large discount to the company’s flat, starting with the simplification of the management structure in order to achieve savings.

Rolls-Royce is bracing for its toughest challenges as earnings are expected to plunge this year amid declining markets for offshore oil vessels, regional jets and business aircraft forcing it to trim engine production costs and wait for sales to revive. “The 50pc cut in the final dividend is a painful step, but Rolls makes a fairly clear commitment to a progressive dividend policy”.