The Wraith Inspired by Film.  Picture: ROLLS-ROYCE SA
The Wraith Inspired by Film. Picture: ROLLS-ROYCE SA

LONDON — Rolls-Royce Holdings reduced shareholder payments for the first time in almost 25 years and said it will need to deepen cuts in a restructuring effort sparked by sluggish sales of marine turbines and slumping demand for older wide-body jets.

The cost-cutting that started last year is already providing welcome consistency. After six profit warnings in two years, Rolls-Royce stuck to its November forecast for a £650million hit to 2016 earnings from slowing sales of business jets and a slump in revenue from maintaining regional aircraft. Rolls-Royce shares surged the most in 12 years.

The stable forecast "should help stop the rot in sentiment" Jefferies International analyst Sandy Morris said in a note.

The first cut to Rolls-Royce’s annual dividend since 1992 helps Rolls-Royce preserve cash and protect its credit rating. Restructuring charges this year could reach £100m pounds, CEO Warren East said, adding that "further reductions" would be necessary after already lopping 20% off the top two tiers of management.

‘Firmer ground’

"I do feel that we’re on firmer ground than I did last year," Mr East said. "Fixing the issues is a long-term programme. You get through most of it quite quickly, and yes, we’re feeling more confidence in that, but no, the work is not complete by any means."

Rolls-Royce has been plunged into crisis as the tumbling oil price undermines sales of the engines it makes for specialist offshore vessels just as demand for corporate and regional jets slumps and some of the bigger planes it powers reach retirement age. Those issues have given Mr East a free hand to make sweeping changes, cutting about 50 of the top 200 managers at the company.

The full-year dividend would fall to 16.4p from 23.1p for 2014, the London-based engine maker said on Friday. The reduced payout places the engineer alongside UK companies including grocers Tesco and J Sainsbury in lowering dividends.

Underlying profit for last year fell 12% at constant exchange rates to £1.43bn, while sales fell 1% to £13.4bn. Rolls-Royce’s pretax profit for 2015 was within a range of £1.325bn-£1.475bn forecast in November. Analysts had predicted earnings of £1.27bn, according to the average of 25 estimates compiled by Bloomberg.

The company’s shares surged 14% to 605.5p at 9:07am in London. Before Friday’s release, Rolls’s share price had fallen 7.8% this year and 39% since Mr East took over in July.

Bloomberg