Rolls-Royce dives after new warning

ROLLS-Royce’s shares closed at a five-year low on Friday after Britain’s biggest engineer issued its fifth profit warning in less than two years, provoking speculation that it might become a bid target.

The firm’s recently installed chief executive, Warren East, said on Thursday that it had increasingly suffered from weakness in the business and regional jet market, its marine operations and a slowdown in its operations servicing engines on wide-bodied jets.

He warned of a £650million hit to previous profits expectations for 2016, which would take expected earnings to just £800million.

The shares plunged almost 20 per cent as a result of Thursday’s warning to close at 513p on Friday, valuing the company at £9.4billion.

This latest warning is likely to strengthen the hand of ValueAct, the US-based activist investor that has a 5.4 per cent stake and has demanded a seat on the board.

It also revived speculation that the firm might become a takeover target, with US rivals heading the list of potential buyers, including UTC, which owns aero-engine firm Pratt & Whitney, and Honeywell, which makes everything from flight management systems to helicopter engines.

The company is protected by the Government’s ‘golden share’, set up at privatisation in 1987 to safeguard it from foreign takeover by giving the Government a right of veto.