Rolls-Royce shares jump 15 per­cent de­spite div­i­dend cut

The Pak Banker - - COMPANIES/BOSS -

Rolls-Royce Hold­ings Plc shares surged the most in 14 years as in­vestors shrugged off cut­ting the div­i­dend in half and in­stead cheered re­struc­tur­ing ef­forts that ended a run of profit warn­ings.

The stock jumped as much as 16 per­cent, the big­gest intra-day gain since Septem­ber 2002, as cost cut­ting that started last year pro­vided wel­come con­sis­tency for the em­bat­tled en­gine maker. Af­ter five profit warn­ings in two years, Roll­sRoyce stuck to its Novem­ber fore­cast for a 650 mil­lion-pound ($943 mil­lion) hit to 2016 earn­ings from slug­gish sales of marine tur­bines and slump­ing de­mand for older wide-body jets.

The sta­ble fore­cast "should help stop the rot in sen­ti­ment," Sandy Mor­ris, an an­a­lyst with Jef­feries In­ter­na­tional Ltd. said in a note. Rolls-Royce plunged into cri­sis as the tum­bling oil price un­der­mines sales of en­gines it makes for spe­cial­ist off­shore ves­sels just as de­mand for cor­po­rate and re­gional jets slumps and some of the big­ger planes it pow­ers reach re­tire­ment age. Those is­sues have given new Chief Ex­ec­u­tive Of­fi­cer War­ren East a free hand to make sweep­ing changes.

"I do feel that we're on firmer ground than I did last year," said East, who as­sumed the top post at Rolls-Royce in July. "Fix­ing the is­sues is a long-term pro­gram. You get through most of it quite quickly, and yes, we're feel­ing more con­fi­dence in that, but no, the work is not com­plete by any means." The first cut to Roll­sRoyce's an­nual div­i­dend since 1992 helps Rolls-Royce pre­serve cash and pro­tect its credit rat­ing. Re­struc­tur­ing charges this year may reach 100 mil­lion pounds, Chief Ex­ec­u­tive Of­fi­cer War­ren East said, adding that "fur­ther re­duc­tions" will be nec­es­sary af­ter al­ready cut­ting about 50 of the top 200 man­agers.

He also said the com­pany is fo­cused on "ex­e­cu­tion and trans­for­ma­tion" rather seek­ing out part­ners, adding that the low­ered div­i­dend amounts to an ef­fec­tive "re­bas­ing" and the pay­out prob­a­bly won't re­bound im­me­di­ately to its for­mer level. The div­i­dend cut and other steps to bol­ster Rolls-Royce's cash po­si­tion means a rights is­sue isn't in the works at the mo­ment, Chief Fi­nan­cial Of­fi­cer David Smith said.

The fi­nal pay­out for 2015 will be re­duced to 7.1 pence per share from 14.1 pence and the in­terim pay­ment for this year will also be cut by 50 per­cent, the Lon­don-based man­u­fac­turer said Fri­day. The re­duced pay­out places the en­gi­neer along­side U.K. com­pa­nies in­clud­ing gro­cers Tesco Plc and J Sains­bury Plc and plat­inum-miner An­glo Amer­i­can Plc in low­er­ing div­i­dends.

Un­der­ly­ing profit for last year fell 12 per­cent at con­stant ex­change rates to 1.43 bil­lion pounds, while sales fell 1 per­cent to 13.4 bil­lion pounds. Rolls-Royce's pre­tax profit for 2015 was within a range of 1.325 bil­lion pounds to 1.475 bil­lion pounds fore­cast in Novem­ber. The com­pany's shares climbed as high as 614 pence and were up 14 per­cent to 602 pence at 9:23 a.m. in Lon­don. Prior to Fri­day's re­lease, Rolls's share price had fallen 7.8 per­cent this year and 39 per­cent since East took over in July.

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