Losses at aeroplane engine maker Rolls-Royce were worse than thought in 2016, with a loss of £4.6bn.
Analysts had mooted a pre-tax loss of £4bn - but in the event, the company racked up a pre-tax loss of £4.6bn in the year to the end of December, it said today, pushed down by a £671m settlement over historic bribery claims and weak sterling, which it said caused it to readjust the valuation of its currency hedge book to the tune of £4.4bn.
However, on an underlying basis, pre-tax profits fell to £813m, better than expected.
Underlying revenues fell two per cent to £13.8bn, while underlying earnings per share fell 54 per cent to 30.1p.
While civil aerospace, defence aerospace and power systems, which between them make up 86 per cent of revenues, were largely flat, underlying revenues at its marine arm fell 24 per cent to £1.1bn. Meanwhile, nuclear rose 11 per cent to £777m.
The company said it had made £60m of savings over the course of 2016 and expected another £80m-£100m this year.
But it cut its dividend to 11.7p, from 16.4p the year before (and a princely 23.1p in 2015...).
Why it's interesting
What with bribery scandals and the weak pound, 2016 was not an easy year for Rolls-Royce: it's been hit particularly hard by currency fluctuations because although it reports in sterling, it does the majority of its deals in dollars.
After a series of profit warnings, we knew this was coming: back in September, the company admitted it was axing 200 jobs as part of major restructuring plans set out by new chief executive Warren East in November 2015, under which he said he expected to make savings worth as much as £200m from this year (nb. today the company said those savings were on track).
Is that a glimmer of light at the end of the tunnel? Rolls-Royce's order book increased by £3.3bn to £79.8bn during the year, led by its civil aerospace arm - and on an underlying basis, pre-tax profits were actually ahead of expectations.
That wasn't enough for investors, though, with shares falling 2.6 per cent to 722p in the first minutes of trading.
What Rolls-Royce said
2016 has been an important year as we accelerated the transformation of Rolls-Royce. Despite the significant market and aerospace product transition challenges identified in 2015, 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 within the business.
What analysts said
Andy Chambers, analyst at Edison Investment Research, said:
This is starting to feel a lot better than the depressing commentaries that surrounded the stock a year ago. As the civil model starts to move from investment in engines for the A350 and A330neo into the aftermarket delivery phase over the remainder of the decade, we think cash flow is likely to improve further particularly if supported by a recovery in marine and support from the other activities.
Ken Odeluga, market analyst at City Index, added:
Roll’s-Royce’s statutory loss looks £500-£600m more than was widely expected, though it is unlikely to be a source of significant shareholder discontent on Tuesday.
The disparity seems to reflect further deterioration of RR’s hedge book after earlier assessments placed the hit around £3bn.
Some investors may also have a restive reaction to the rather dry and narrow outlook comments, projecting only “modest performance improvements” and similar free cash flow generation as in 2016. We look through this to an extent.
Life continues to be tough for one of the UK's great engineering firms - but there are signs of optimism.