Roll­sRoyce heads for profit

The Star Early Edition - - INTERNATIONAL - Sarah Young

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.

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