Rolls Royce hit with £350m forex blow

Billy Ehrenberg
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The low cost of oil means that Rolls Royce’s land and sea division has started the year slower than it did in 2014 (Source: Getty)

Rolls-Royce expects to see its restructuring efforts bear fruit in the second half of the financial year, but expects a massive forex hit of £350m.

The £350m is a translation effect: from translating revenues back into pounds to report results. This creates a year on year differences, depending on the behaviour of currencies during that period.

The company, famed for its engine manufacturing, has actually landed a couple of notable deals this financial year, including its largest ever order: Emirates chose Rolls-Royce’s Trent 900 engines to power 50 Airbus A380s.

Why it’s interesting

The low cost of oil means that Rolls-Royce’s land and sea division has started the year slower than it did in 2014, while in Aerospace it says deliveries of its Trent XWB engines will ramp up.

The restructuring meant the loss of 2,600 jobs, 1,300 of which have already been cut.

The effects of the pound’s performance can also be seen: compared with 2014 the pound is stronger against the euro but weaker against the US dollar, which it expects to be “broadly offsetting for earnings”.

Rolls announced in March that chief executive John Rishton had decided to retire from the role, to be replaced by Warren East from 3 July.

What Rolls-Royce said

Our 2015 guidance excluded the effects of foreign exchange translation. Compared with 2014, average rates for Sterling have weakened against the US dollar but strengthened against the Euro and the Norwegian Kroner.

If rates remain at the average levels seen so far in 2015, these movements would be broadly offsetting for earnings. However for revenue, we would expect a roughly £350 million reduction from translation.

In short

Turbulent times for forex and turbulent times for Rolls-Royce. Investors will wait for 30 July’s full-year results with interest.

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