Granted, Rolls Royce cut its dividend by only 50%, but it remains the first such cut by the firm in almost a quarter of a century. It also announced a 12% decline in underlying profit to £1.4bn a 130 basis point decline in its operating margin to 11.2%. And, perhaps most importantly, a drop in free cash flow from £447m in 2014, to £179m in 2015.
What it didn’t do, however, was announce another profit warning for 2016. Which, after announcing five in two years, the market took as a positive. Instead it confirmed its outlook for 2016. The firm expects to see group revenue on a constant currency basis to be marginally lower than that achieved in 2015. Which it said, partially reflects the pricing and volume effects in civil aerospace and the continued weakness in offshore marine markets.
“Overall, the net profit trading headwinds discussed in previous announcements are unchanged at around £650m compared to our underlying profit before financing,” the firm said.
Rolls Royce CEO, Warren East, said: “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.”
East also committed to rebuilding the dividend payment over time “to an appropriate level”, pointing out that the reason behind the cut was the pressure on free cash flow from the “pace of investment required to transform the business”.
