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Rolls-Royce has confirmed the largest headline loss in its history, as a weak pound which affected its hedge book and a £671m settlement for historic corruption claims drove it to a pre-tax loss of £4.6bn.
However, the drop in profit did not affect the company’s dividend, and underlying profits before tax declined by much less than earlier analyst forecasts, down by 49 per cent to £813m, compared to expectations of £687m.
Rolls chief executive Warren East previously softened the blow of the settlement announcement by simultaneously reporting that profits and particularly cash would be ahead of earlier expectations.
Profits were boosted by an unexpected 9 per cent increase in revenues, to £15bn. Analysts had predicted a fall from last year’s £13.7bn. Underlying revenues – which exclude benefits from foreign exchange movements – did decline as expected, however, off 2 per cent to £13.4bn thanks mainly to declines in its marine business.
Rolls said the difficulties in its marine business are expected to continue this year, but said it expects to nonetheless report “marginally higher” revenues in 2017, with “a modest performance improvement overall” and free cash flow “similar” to this year’s £100m.
Last month the company admitted to a series of corruption offences committed over a more than 20-year period as part as a deferred prosecution agreement with UK, US and Brazilian authorities. The company took a charge for the whole figure in its results, though the fine will be paid over a five-year period.
Mr East has been working to simplify the group since taking over in July 2015, and today the company said its efforts to cut costs were bearing fruit faster than expected, with £60m of annual savings made already and the company on track to deliver £200m of annual cost savings by the end of 2017
Last year Rolls was forced to slash its dividend for the first time in almost 25 years. The company kept its final dividend for 2016 unchanged from last year’s lower level at 7.1p per share, stressing the high need for investment in the company and balance sheet flexibility. The company said it aims to “progressively rebuild our payment” in the “long term”.
The company gave no indication of how new accounting rules, due to come into force in 2018, would have affected the results. Last autumn the group revealed that the new rules would have reduced 2015 operating profit by £900m, though it has stressed that the rules will not affect cash flow, only the timing of when revenues are recognised on its balance sheet.
Mr East said today:
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.