Engine maker Rolls-Royce will report its results for 2015 at the end of this week, and shareholders are bracing themselves for a profit warning and cuts to the dividend.
Chief exec Warren East may announce the firm’s sixth profit warning in two years. Analysts are expecting profits to fall by around £320m to £1.3bn while profits for 2016 may be halved. The engineering group’s dividend could also be scrapped.
“Frankly, it is not hard to make a case for at least another profit warning given the further deterioration in commodity, credit and currency markets since November and first signs that airlines are not exactly queuing up to take delivery of wide-body aircraft,” said Panmure Gordon’s Sanjay Jha.
He added that Rolls-Royce could “provide a floor to the share price” by simultaneously suspending the dividend and raising £1bn of equity. “The alternative is to pray, like many oil companies, that oil price will recover to $60 per barrel and everything will be fine,” said Jha.
Rolls-Royce’s share price has plummeted over the past 12 months, and a number of big-name investors have given up their holdings in the engineering group.
Star fund manager Neil Woodford sold his stake - reported to be around 2.2 per cent of the company, worth around £232m - in December. In a blog post written at the time, Woodford said: “Over the last couple of years, Rolls-Royce has become a more challenged business and this has weighed significantly on its share price.”
Standard & Poor’s recently downgraded its outlook rating for Rolls-Royce from stable to negative, zoning in on near-term business challenges, particularly in the company's civil aerospace and marine divisions, as the reasoning behind the downgrade.
The ratings agency also said it expected profits to remain weak into 2017.