Rolls-Royce braced for record £4bn loss as it counts cost of the plummeting pound and bribery fine
Rolls-Royce is braced to report a record annual loss tomorrow as the aero-engine firm absorbs the effect of its £671m settlement with regulators for past bribery and corruption. It is also battling a weaker pound.
City analysts have forecast that Rolls-Royce, which makes engines for Boeing’s 787 Dreamliners, could report a pre-tax loss topping £4bn, after sterling’s plummet against the dollar and the £671m fine.
The fall of sterling since Britain’s vote to leave the European Union in June last year has meant Rolls-Royce will have to write down the value of its $35bn hedge book by more than £3bn. It's a non-cash writedown.
Read more: Shares in Rolls-Royce have surged after bribery deal and profit boost
The fall in underlying profit will also have been affected by the swap from Rolls-Royce's Trent 700 engine to the Trent 7000, as Airbus winds down production of the A330 plane (which the Trent 700 engine was most often used on).
But the picture should be one of improvement, after the company has reeled off a string of profit warnings in recent years. Consensus is that underlying profits for 2016 were £687m, a drop from £1.4bn in 2015, but they are expecting this to bounce back this year, up to £861m.
Analyst consensus is for underlying revenue to be £13.5bn.
Last month, the firm said that “early indications are that the Group has had a good finish to the year with both profit and, in particular, cash expected to be ahead of expectations”.
In January, Rolls-Royce agreed a £671m penalty with authorities in the UK, US and Brazil to settle corruption charges, with the UK share – £497m – the largest imposed on a firm for criminal behaviour. While it will pay the fines over five years, the firm will book the total in this week's accounts.
Warren East has been trying to bolster the engine-maker since replacing John Rishton as chief executive in 2015, at a time when revenues dropped for the first time in 10 years. He cut the dividend pay-out for shareholders for the first time in 24 years last year.
Read more: Rolls-Royce to pay £671m to settle corruption probes
Investors will also be expecting an update on the firm’s transformation programme launched by East in November 2015. At the time, Rolls-Royce said it expected savings of £150m-£200m by 2017 through reducing management as well as cutting internal processes and bureaucracy. More recently it has said the cost savings will be at the top end of the target range and savings for 2016 should be around £50m.
Rolls-Royce declined to comment ahead of its results.