Rolls-Royce shares were on the slide today as the British engineering giant warned that it will barely make a profit in the first half of this year.
The unexpected warning that all Rolls-Royce profits for the full year – which are likely to more than halve to about £670 million – will come in the final six months of 2016, came at the annual meeting of the company at which there was a small revolt over the appointment of US activist investor Brad Singer to the board.
Mr Singer’s ValueAct group last year spent more than £1 billion taking a 10 per cent stake in Rolls and in March he was given a directorship on the board. Corporate governance misgivings raised by the appointment of a US-style representative director — shareholders such as Standard Life and M&G are known to be uncomfortable about Mr Singer’s position — are understood to be behind a 6 per cent vote against his appointment.
The company shrugged off the uprising and Mr Singer said he would be “working very hard” to win over the dissenters.
In a statement at the AGM, Ian Davis, Rolls-Royce’s chairman said: “The lower level of overall performance . . . [means profit] will be significantly weighted towards the second half with the first six months of the year expected to be close to breakeven.”
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Speaking after the meeting, Warren East, Rolls-Royce’s chief executive, indicated the first-half performance had weakened since the last time the company had updated shareholders at its 2015 full-year results in February.
“In February we said it would be very skewed toward the second half and now it is very skewed,” Mr East said.
Investors were taken back enough to mark down Rolls shares by as much as 6.5 per cent at one stage before the stock staged a minor rally later to close down 15p — or 2.3 per cent — at 625p. That puts the share price back to where it was in February.
The share slide came despite the company insisting its guidance unchanged for the full year. It has signalled that it will lose about £550 million — or about two thirds — of profits in its main civil aerospace business because of Airbus’s decision to end its current production of the Airbus A330, which is powered by the Trent 700, the most profitable engine in Rolls’ history.
It has also said its marine business will dive into the red with the loss of £100 million because of stalled investment in oil and gas equipment in the North Sea. With other costs, the analysts are now expecting 2015’s £1.43 billion of underlying pre-tax profits to slump to £670 million in 2016.
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“Rolls normally has a heavy weighting to the second half in its results, though the scale of the 2016 skew is particularly stark,” said Robert Stallard, analyst at RBC Capital Markets.
“Nothing in the first half. Everything in the second half. Rolls is putting a lot of faith in improved aftermarket results in the second half, despite recent trends that have seen older Rolls-powered planes flying less than expected.”
At the meeting of shareholders at the East Midlands Conference Centre at Nottingham University, Mr Davis admitted Rolls’ woes had made life uncomfortable for the company — the former chief executive John Rishton left the company under a cloud a year ago — and for shareholders who have seen their dividend payments halved.
“The current performance is not satisfactory,” he said.