Rolls-Royce issues second profit warning; share prices fall
Engineering giant Rolls-Royce has issued its second profit warning this year, following that its share prices fell sharply. The statement from the company quotes the global economic gloom and trade sanctions against Russia to be the principal reason for fall in profits.
Rolls-Royce chief executive John Rishton has warned that the company might not have any growth to report this year which is the second time in a row and notably, he has said that profits will start to rise beginning next year.
He also said that the future looked “bumpier” than he expected and he also shocked the market by revealing the deteriorating economic conditions and the status of trade relations between European Union and Russia. He also mentioned that the Ukraine crisis has affected the nuclear, energy and power businesses.
Shortly after the revelation, the share prices of the company dipped by almost 12 percent, standing at 832p which is the lowest price since the end of 2012 and the third biggest fall of this year. Earlier this year, the first profit warning was issued in February by Rolls and investors sold off their shares quickly, damaging the company’s worth by £3bn. Rishton also warned that there would not be any growth or profits this year mainly because of the government cuts in defence spending.
The second warning says that profits will fall by 3.5 percent or 4 percent this year and it would result in a loss of £15.5bn. The calculation excludes loss of £500m as a result of currency movements. Rolls is still engaged in a serious fraud office investigation for reported bribery involving intermediaries in markets overseas such as China and Indonesia which could result in a fall of profit by up to 3 percent in 2015. Rishton said, “While the short term is clearly challenging, reflecting the economic environment, the prospects for the group remain strong, driven by the growing global requirement for cleaner, better power.”