Rolls Royce’s record $8b loss
Rolls-Royce has reported a record annual loss of £4.6 billion (NZ$8b) after the engineering giant was hit by a combination of sterling weakening, huge fines for bribery charges, and tough conditions in some of its key markets.
The FTSE 100 giant has taken a £4.4b write-down on the value of US$38b of investments intended to protect it against currency fluctuations, thanks to the plunge in the pound against the dollar since the vote for Brexit.
The £671 million of fines Rolls agreed to pay after admitting decades of corrupt practices also dragged down its performance.
Further issues included the previously signalled lower demand for its best-selling Trent 700 engine, charges for repairs to large engines such as those used on the 787 Dreamliner jet, and weakness in the corporate jet and marine markets.
On an underlying basis — which strips out one-off hits to performance — the performance was better with pre-tax profit on this measure of £813m.
Underlying revenue in the year to December 31 was £13.7b compared with expectations of £13.5b.
Warren East, chief executive, described the year as “an important one” for the company during which he “accelerated” his plans to reshape Rolls with new products coming on line and trim costs.
The better-than-expected performance was driven partly by the cost savings East has introduced since he was installed as chief executive in the summer of 2015.
These have included slashing 700 top managers and East said that his shake-up was “off to a good start, delivering savings of £60m in the first year, higher than £30m to £50m targeted”.
By 2017 the programme is set to deliver savings at the top end of the £150m to £200m that is being aimed for.
The huge loss at the headline level caused by writing down the value of Rolls’ US$38b of foreign exchange investments — known as a hedge book — was played down by East.
“This has no impact on what is really going on inside the business,” he said, pointing out that the £4.4b write-down was a non-cash — or paper — charge.