Rolls-Royce takes a dive
RECORD: £4-BILLION LOSS FOLLOWS BREXIT REFERENDUM, CORRUPTION FINE
Company made ‘major changes to management and progress in cost cutting’.
British engine maker Rolls-Royce slumped into a record £4-billion (R64.5-billion) annual net loss last year, ravaged by a Brexit-fuelled collapse in the pound and a corruption fine.
The loss after tax, equivalent to £5 billion, contrasted with a slender profit of £84 million in 2015, the company said in a results statement.
Rolls took a vast £4.4-billion hit from the drop in the value of the pound in the wake of Britain’s shock EU exit referendum, alongside a £671-million penalty to settle bribery allegations.
The London-listed company, whose engines are used in Airbus and Boeing aircraft, said underlying pre-tax profits almost halved to £813 million.
Rolls-Royce, which also makes power systems for use on land and at sea, stated it was on track with efforts to slash costs and expected a “modest” performance improvement this year.
“Last year has been an important year as we accelerated the transformation of Rolls-Royce,” said chief executive Warren East, who has overseen a radical restructuring.
“We have made operational progress and performed ahead of our expectations for the year as a whole.
“At the same time, we have delivered major changes to our management and processes and, while we have made good progress in our cost cutting and efficiency programmes, more needs to be done to ensure we drive sustainable margin improvements.”
The huge annual loss also follows a tough past few years for Rolls, which faced a string of profit warnings on the back of weak demand in its aerospace and marine markets.
The company was fined £671 million in January to settle bribery and corruption claims probed by Britain’s Serious Fraud Office and authorities in Brazil and the United States.
Rolls will pay the penalty over five years but has taken the full cost as an impairment charge against its 2016 profits.
POUND SLUMP
The pound has meanwhile fallen by almost a fifth against the dollar since the Brexit referendum that was held last June.
The slide is pushing up the costs of imported goods, sending British annual inflation to the highest levels in more than two years.
Official data showed 12-month consumer price inflation rising to 1.8% in January – the highest since June 2014.
“Surging inflation, in particularly food and fuel prices, are eating into disposable incomes and in turn that is starting to hit spending,” said ING bank economist James Smith.
Looking ahead for Rolls, East told reporters that 2017 would be “challenging” for the embattled group.
“We have to look after the short term or there won’t be a long term.”
In morning deals, Rolls-Royce shares slid but analysts described the move as a “kneejerk” reaction.
About 10am yesterday, the stock was down 4.9% at 704.50 pence, topping the losers’ board on London’s benchmark FTSE 100 index.
Analysts remained bullish over the firm’s performance.
“The company chalked up one of the biggest losses in corporate history – but it’s not as bad as it looks and that is perhaps why we’re seeing the stock coming back a tad after the initial kneejerk,” said Neil Wilson at trading firm ETX Capital.
“Rolls took a £4.4-billion hit from the weak pound, following the EU referendum last June and it was fined £671 million to settle bribery charges.
“Strip those out and the results do not look half as bad.” –