LONDON-Rolls-Royce Holdings PLC on Friday slashed its proposed full-year dividend 39%, the first cut in more than 20 years, as it reported a decline in 2015 full-year profit.
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Underlying profit for past year fell 12 per cent at constant exchange rates to 1.43 billion pounds, while sales fell one per cent to 13.4 billion pounds.
Revenue from continuing operations was 13.72 billion pounds compared to 13.74 billion pounds, a year ago. But the higher costs also present a significant opportunity; to simplify what we do and sustainably reduce the cost of management, creating a more streamlined, resilient and sustainable business. This is the first dividend cut since 1992.
For 2016, Rolls-Royce said it continued to expected a profit headwind of 650 million pounds. US activist investor ValueAct Capital Management LP has become Rolls-Royce’s largest shareholder and is seeking a board seat, adding pressure on management to turn around the company’s prospects. The company, which issued three profit warnings a year ago, halved its dividend, but investors cheered the move to strengthen its finances. East has said that the company has not been nimble enough to respond to the changing situation-though measures he has put in place mean that’s beginning to change.
Overall group underlying profit before tax was down 11% at GBP1.49bn.
Rolls-Royce also reiterated its plan to cut costs by around £150m to £200m per year, which includes the loss of a number of management jobs, and told us it has already identified around 50% of its targeted savings.
Rolls-Royce’s pretax profit for 2015 was within a range of 1.325 billion pounds to 1.475 billion pounds forecast in November. He acknowledged the need for a “healthy” dividend and pledged to “review the payment so that it will be rebuilt over time to an appropriate level”. Next year’s interim and final dividends are planned to be similarly cut, so for 2016 we should be seeing a total dividend of around 11.5p.
“Despite steady market conditions for most of our businesses it will be a challenging year as we start to transition products and sustain investment in civil aerospace and tackle weak offshore markets in marine”, chief executive Warren East said.
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In the insane world of the stock market it can be how you fared against expectation rather than how you actually fare that dictates share price, and Rolls-Royce is the latest example of this.
