In an inauspicious start to his reign, new Rolls-Royce CEO Warren East has informed the London Stock Exchange that the British engineering group’s projected 2014 bottom line will be in the GBP1.325-1.47 (USD2.05-2.28) billion range – down from EUR1.4-1.55 billion (USD2.17-2.40).
“I am clearly disappointed by today’s announcement and the impact this will have on our investors and employees,” East said as Rolls-Royce’s share price tumbled 4.6% today – even more than the market overall, which was having jitters over Greece.
Although in its February warning, Rolls-Royce attributed it to the low oil price and difficulties in its marine and aircraft engine divisions. The company said the offshore oil and gas sector was paring back investment and thus that division’s net profit projection had decreased too from GBP90-120 million to possibly zero in the worst case scenario – and just GBP40 million at best.
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There will be consequences. East’s reference to Rolls-Royce’s employees may be a subliminal message that job cuts are in the pipeline. One concrete cut is that the company’s GBP1 billion share buyback has been stopped halfway through, which the market took even worse than the warning. One possible result is the resurrection of the merger with Finnish marine and power station engine power business Wärtsilä, which was discussed by the boards.
Then it was mooted as a takeover by the British company of its Finnish counterpart. Now the roles could be reversed.