Rolls-Royce shares tumble as defence cuts hit profits

Rolls-Royce Trent 1000 aero engine Rolls-Royce's Trent 1000 engine powers Boeing's 787 Dreamliner

Shares in Rolls-Royce fell 13.6% after the aerospace and marine manufacturer warned profits at its defence-aerospace division would fall 15%-20%.

Cuts in European and US defence spending are to blame for the expected fall in revenues.

Rolls said growth for the whole group would "pause" in 2014 after 11 years of unbroken profit growth.

Most analysts had pencilled in 8% growth in 2014 profits.

Rolls-Royce Holdings

Last Updated at 27 Jan 2015, 11:30 ET *Chart shows local time Rolls-Royce Holdings intraday chart
price change %
879.00 p -

Rolls-Royce saw almost £4bn wiped off its value on the stock exchange.

Shares in other European defence firms BAE Systems, Finmeccanica and Airbus Group fell by between 2% and 3%.

Chief Executive John Rishton said: "We've defied gravity for a couple of years compared to many other companies and now we're having the impact come together in one year."

Mr Rishton said: "This is a pause, not a change in direction, and growth will resume in 2015.

"Cash flow is expected to be broadly similar to 2013. Our record order book underpins our confidence in the long-term growth of our business."

Start Quote

"This is a pause, not a change in direction, and growth will resume in 2015”

End Quote John Rishton Chief executive, Rolls Royce

Part of the problem was that profits had been unsustainably inflated by big export orders over the last two years - the Eurojet EJ200 engine to the Middle East and the Adour engine to India.

Mr Rishton said the group also faced possible cuts by the US on the size of its Lockheed Martin-built C-130 transport fleet. US and European governments have made big cuts in defence budgets.

However, demand for civil aircraft engines to fly Boeing and Airbus airliners remains strong. Rolls-Royce said it saw a 23% rise in underlying pre-tax profits at its civil aerospace unit. The group expects a "modest" increase in profits in 2013 in its marine and civil aviation divisions.

The group has restructured by cutting 11% of its "indirect headcount" in 2013, and has been moving production away from high-cost countries.

News of the worsening trading outlook came a day after UK fraud investigators arrested two men as part of inquiries into Rolls' activities in Asia.

The Serious Fraud Office said at the end of last year that it had opened a formal investigation into the engine maker about bribery and corruption.

More on This Story

Related Stories

The BBC is not responsible for the content of external Internet sites

More Business stories


Business Live

    06:31: GDP growth Radio 5 live

    Anne Richards, chief investment officer of Aberdeen Asset Management is the markets guest on Wake Up to Money. "You have to be a wee bit careful with quarterly numbers as they are subject to a lot of revision," she says. "The overall picture for the year was reasonably positive." Low construction growth was "a bit worrying." Strong sterling is a drag on GDP growth. Reliance on services rather than making things is also a challenge, she says. More engineers are needed.

    06:20: Apple profit Radio 5 live
    The Apple logo

    The biggest quarterly profit ever for a company: $18bn, has been posted by phone pedlars Apple. Daniel Eran Dilger who writes for AppleInsider tells Wake Up to Money. Apple makes a load of margin from its high-end phones. They also make a lot when you break your power cable and have to splurge £65 on a new one, as presenter Adam Parsons learned earlier this week.

    06:12: Services growth Radio 5 live

    More from Greg Madigan, the boss Subway UK and Ireland on Wake Up to Money. Hospitals, service stations and forecourts, or "non-traditional locations" are a big area of growth for the firm, he says. He used to be an air traffic controller, he adds.

    06:01: Services growth Radio 5 live

    Services is what's propping up GDP growth, we learned yesterday. Greg Madigan, the boss Subway UK and Ireland is on Wake Up to Money. "The price of oil has come down putting more money in peoples pocket... one of the things that benefit from more discretionary spending is food retail," he says. They have 2,000 stores in the UK and Ireland now.

    06:00: Howard Mustoe Business reporter

    Good morning. Keep your thoughts on today's news rolling in via email and on twitter @BBCBusiness

    06:00: Matthew West Business Reporter

    Morning everyone. In case you missed it EDF became the last of the "Big Six" energy suppliers to cut its gas prices last night. And US tech giant Apple reported the largest quarterly profit in corporate history. Today sees trading updates come from Brewin Dolphin, Johnson Matthey, Sage and Anglo American. We'll bring you those numbers and more as we get them.



From BBC Capital


  • A computer generated model of a lift shaftClick Watch

    The future of elevator technology - lifts that can climb up to 1km in the air and even travel sideways

Copyright © 2015 BBC. The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.