Rolls Royce shares surge despite major dividend cut

Print

Rolls Royce’s share price has risen by 13%, despite a 50% cut to dividends and lower than forecast profits.

The engine manufacturer made £1.35bn (€1.74bn) before one-off costs.

This is the first dividend cut from the company in a quarter of a century. It was also far above predictions, with analysts predicting a 30% cut, The Guardian reports.

Although profits have halved in value in the past two years, there was relief that Rolls Royce did not issue another profit warning, resulting in a 13% share jump, to 602p.

There have been five profit warnings from Rolls Royce in those two years.

The BBC reports that the company has announced a further range of cost cuts, on top of £200m in cuts already scheduled.

Shareholders have welcomed predictions of more cost saving and a ruling out of issuing additional shares, meaning the current shares will retain their current profit share.

Rolls Royce cut 3,600 jobs in the UK last year, announcing that the highest levels of management had been shrunk by 20%. Further cuts were also announced.

The costs associated with those cuts were borne this year, some £75m-100m.

The BBC report that Russ Mould, investment director at AJ Bell, said in a note: "Investors breathed a sigh of relief that the group did not issue a further profit warning and that it only cut its dividend whereas many feared it might be scrapped."

Chief Executive Warren East said the company were aware of the need to provide a healthy dividend to shareholders.

“Subject to short-term cash needs, we intend to review the payment so that it will be rebuilt over time to an appropriate level,” he said, according ot The Guardian.

East said: “In the context of challenging trading conditions our overall performance for the year was in line with the expectations we set out in July 2015. It was a year of considerable change for Rolls-Royce: in our management, in some market conditions and in our near-term outlook.

“Our outlook for 2016 is unchanged; 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.”

Back to top