Friday preview: Rolls Royce's full year results may reveal dividend cut

Rolls Royce is expected to announce a cut or suspension of its dividend on Friday as it reports its 2015 full year results.

Following a string of five profit warnings since February 2014, many analysts see the group's dividend taking the hit until the company’s balance sheet recovers.

Deutsche Bank said it doesn’t see Rolls-Royce generating free cash until 2018. “There is no cash flow to cover the dividend until 2019 and hence cutting the dividend entirely for a short period of time may be a more prudent move to preserve balance sheet strength across this... trough,” said Ben Fidler, aerospace analyst, in a note to clients.

A further deterioration in the offshore marine market has weighed heavily on Rolls Royce’s profits.

Consensus expectations are for annual pre-tax profit to fall to just over £1.3bn from £1.6bn in 2014, at the lower range of the company’s guidance.

UBS analyst Charles Armitage, who has forecast pre-tax profit of £1.35bn, said: "We expect investor focus to be on: 1) 2016 outlook ; 2) trading expectations in Power Systems & Marine with the market concerned regarding a deterioration of the business in 2016e, 3) a decision regarding the dividend policy - we expect the dividend to be cut, 4) more details on the wide ranging restructuring programme announced at Q3 IMS; 5) the first details associated with the enhanced financial disclosure.”

New chief executive Warren East will also be in the spotlight with the market wanting to hear what he has to say about the outlook for 2016 and the costs of restructuring.

Fears that he will announce a sixth profit warning saw the group’s shares plunge to a four-year low last Wednesday.

“It’s been a baptism of fire for Rolls Royce new CEO Warren East since taking over in the summer,” said Michael Hewson, chief market analyst at CMC Markets.

“It appears that markets are already pricing in the prospect of another profit warning as well as a possible dividend reduction with the shares back near one year lows.”

Friday 12 February

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