Sean Gallup, Getty Images
Rolls-Royce workers assemble an aircraft jet engine in a Berlin factory. The company cut its dividends Friday for the first time in almost a quarter of a century, but shares still rallied 16%.

Rolls-Royce Cuts Dividend for First Time Since 1992

Feb. 12, 2016
CEO Warren East: “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.”

LONDON — Engine maker Rolls-Royce cut its shareholder dividend for the first time in almost 25 years and said 2016 would be “challenging,” but its shares nevertheless soared.

The firm, which makes engine systems for aircraft and sea vessels, announced in its annual results statement that it has reduced its full-year dividend to 16.37 pence in 2015, from 23.1 pence for 2014. That was the first reduction in the group’s shareholder dividend since 1992.

However, Rolls’ share price rallied more than 16% as investors were relieved that the dividend had not been scrapped, and also welcomed news of a healthy order book.

Roll-Royce has issued six profit warnings over the last two years as slumping oil prices have hit demand for vessels, and embarked upon a radical restructuring last year.

Net profit, or earnings after tax, rose 20% to £83 million ($120.08 million) last year compared with 2014, the company said Friday. Rolls added that its order book swelled by 4% to £76.4 billion ($110.53 billion) last year.

However, underlying profit fell 12% at constant exchange rates to £1.4 billion ($2.03 billion), while sales dipped 1% to £13.4 billion ($19.39 billion).

“Our outlook for 2016 is unchanged,” CEO Warren East said. “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.”

In midday deals, Rolls-Royce shares soared 16.42% to 617 pence on London’s FTSE 100 index of top companies, which was 1.8% higher at 5,638.2 points.

“Aero-engine giant Rolls-Royce’s shares took off after it revealed a strong and growing order book,” noted Russ Mould, investment director at trading firm AJ Bell. “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.”

Late last year, Rolls-Royce announced changes to its top management structure, resulting in the departure of its head of aerospace.

The removal of a layer of senior management represented a first step in a company-wide restructuring launched by East after he took the helm in July. 

Rolls is looking to make cost savings of £150 million-£200 million ($217.01 million-$289.35 million) from 2017 under the restructuring plans unveiled in November.

Copyright Agence France-Presse, 2016

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