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Rolls-Royce share price descends as demand declines

Rolls-Royce’s share price fell by more than 20% after the British engine maker issued its fourth profit warning in just over a year [1].

Rolls-Royce pointed to a sharp drop in the number of corporate jets powered by Rolls-Royce engines in the third quarter, while demand for other corporate jet services also fell [1].

The company’s shares plummeted 21% to 527p in early trading [1].

Rolls-Royce now expects profit “headwinds” of £650m next year, which is more than double the £300m cut to profit identified in July [1].

On Thursday, Rolls-Royce announced a major restructuring programme for the following year to reduce fixed costs, streamline senior management and enhance decision-making, all with the aim of saving up to £200m per annum [1].

Chief Executive Warren East said: “While 2015 remains broadly as expected, the outlook for 2016 is very challenging. The speed and magnitude of change in some of our markets, which have historically performed well, has been significant and shows how sensitive parts of our business are to market conditions in the short-term” [1].

Some analysts believe the downgrade and early findings of the strategy update – released almost two weeks ahead of full announcements – could be a “kitchen sinking” by Mr East, as he tries to get all the bad news out at once [2].

The Derby-based branch has already announced it is cutting 3,000+ jobs in its aerospace and marine departments. This includes closing factories in Warwickshire, England, and East Kilbride in South Lanarkshire, Scotland [1].

[1] The Guardian. ‘Rolls-Royce share price plunges after latest profit warning’. theguradian.com

[2] The Telegraph. ‘Rolls-Royce shares plunge 19pc on downgrade to profit forecasts’. telegraph.co.uk