Rather than a bang, Rolls-Royce (RR.) chief Warren East has started his new job with a splutter. On his second day in the pilot's seat, the former Arm Holdings boss issued the engine maker's third profit warning in 18 months. The news follows the recent departure of John Rishton, the first decline in underlying group sales in a decade last financial year and allegations of bribery and corruption in China, Indonesia and Brazil.
Management slashed its underlying pre-tax profit forecast for this financial year from £1.4bn at the low end to between £1.33bn and £1.48bn. It also warned of a free cash outflow of up to £150m in the year to December; down from the previously expected inflow of £50m to £350m. Accordingly, it scrapped plans to buy back £1bn in shares - it has already shelled out £500m.
The sunken oil price has dragged down Rolls-Royce's marine division. Worsening conditions in the offshore market led management to lower their full-year guidance for divisional underlying profit from up to £120m to between nil and £40m. It's also looking to cut costs and restructure further, which could mean a one-off charge of up to £100m.
Management stuck by full-year forecasts for the civil aerospace division of between £800m and £900m in underlying profits. But it warned that tepid interest in Trent 700 and business jet engines, along with lukewarm trading in the regional jet after-market, would likely translate into a £300m net profit headwind next financial year.
Rolls-Royce's directors are optimistic that a raft of new engines - including the Trent 7000 - and mounting demand in the large engine after-market will fuel significant revenue growth over the next decade. They continue to aim for a 50 per cent share of engines installed in long-range passenger aircraft.
Broker UBS has put its forecasts under review. It previously expected sales to slide 3 per cent to £14.1bn this financial year, giving EPS of 62.4p (FY 2014: £14.6bn and 66.1p).
