Rolls-Royce is taking a dramatic step to protect its profits
Although the company hasn't confirmed that it will definitely be cutting its dividend when it releases its annual results on Friday, it is widely reported that this will be the case. Rolls said in November that it was considering its position regarding the dividend.
Rolls is in the midst of a real struggle right now. The company has issued five profit warnings in just under two years, and has seen its share price fall off a cliff.
Warren East took over as CEO in July 2015, tasked with turning the company around, but since his appointment shares have fallen by more than 30%, and investors are no more keen on the firm since he took over. Shares have now fallen 58% since late 2013. Here's how that looks:
Neil Woodford, probably the best known money manager in Britain, dumped his stake in Rolls in December after losing "long-term confidence in the business model."
East has started to make major changes since appointed, including launching a major review of operations, and jettisoning a whole level of senior management, but so far, nothing has stopped the rot.
Last Monday, Norwegian Airlines confirmed that it is buying $2.7 billion worth of engines from Rolls-Royce, but even that huge deal didn't really buoy investors, and shares were flat on the day of the announcement.
One of the biggest questions surrounding Rolls-Royce right now is whether or not the company will give American hedge fund ValueAct a seat on the board. ValueAct, a renowned activist investor, owns around 10% of the engineering firm, and has been demanding a seat on the board since late last year.
No one from Rolls has officially commented on whether or not this might happen, but according to a Financial Times report, chairman Ian Davis has been asking investors if they think doing so is a good idea in recent weeks. One shareholder told the FT: "In the short to medium term it is a good thing because they are agents of change and that is something the board seems to need."
While a dividend cut would generally be seen as a bad thing, some investors are welcoming the possible cut, and even receiving no dividend at all. One unnamed "top shareholder" told the FT: " In principle we would probably be happy if they scrapped it." "There's a lot for them to invest in," the shareholder added.
Speculation about the dividend cut has sent shares in Rolls diving on Monday morning, and as of 10:15 a.m. GMT (5:00 a.m ET) the company's stock is down 3.7% to £5.09 per share.
Shares may be on their way downwards on Monday, but Mike van Dulken the Head of Research at Accendo Markets points out that investors aren't currently too worried about a sixth profit warning, and that's stopping a huge fall today (emphasis ours):