RollsRoyce heads for profit
SHARES in Rolls-Royce jumped 6 percent yesterday after the British maker of engines for planes and ships settled a long-running bribery probe and said 2016 profit would beat expectations.
Rolls-Royce has undergone 18 months of cost-cutting and restructuring under chief executive Warren East, who was brought in to stabilise the company in mid-2015 after a series of profit warnings.
Rolls-Royce’s settlement of bribery investigations with British, US and Brazilian authorities also helped to remove a cloud which has hung over the company since 2013, even though the penalty was bigger than analysts had expected.
The company said on Monday that it would pay £671 million (R11 billion) to settle the investigations.
Shares in Rolls-Royce jumped 6.1 percent to 706p at 9.51am, hitting their highest level for two months.
News of the bigger-than-expected settlement was “negative, but benign” as the authorities had agreed to allow Rolls-Royce to spread payments out over five years, said Jefferies analyst Sandy Morris.
“This is by no means a great moment in Rolls-Royce’s history, but in terms of a healing process, getting the Serious Fraud Office settled and having trading, particularly on cash flow, improving, well maybe, just maybe, Rolls is on the mend,” Morris said.
Rolls-Royce said on Monday it had finished the year strongly, meaning that profit and cash flow would be ahead of expectations.
The company is due to report 2016 results on February 14, with the consensus forecast for annual pretax profit to halve to £686m.
East’s self-help measures, which include making savings of up to £200m a year from this year, plus a positive market backdrop for aircraft engines and a helpful post-Brexit slump in the pound could all have boosted profits, said Jefferies’ Morris.
Analysts are positive on the turnaround plan East has led at the company, which has included shedding hundreds of managers, speeding up decision-making. “I think East’s doing a really good job. He’s doing all the right things,” said Agency Partners analyst Nick Cunningham.
East himself, however, acknowledges that the company still faces a huge challenge as it tries to execute its restructuring at the same time as almost doubling its output of widebody-plane engines by 2019 to meet orders while avoiding cost overruns and technical problems.
A Rolls-Royce Trent XWB aircraft engine at the company’s booth at the ILA Berlin Air Show in Schönefeld, Germany, last year. The company has now settled a long-running bribery probe and said 2016 profit would beat expectations.