- Title: Britain's Rolls-Royce tumbles to record $5.8 bln loss
- Date: 14th February 2017
- Summary: LONDON, ENGLAND, UK (FEBRUARY 14, 2017) (REUTERS) (SOUNDBITE) (English) KEN ODELUGA, MARKET ANALYST, CITY INDEX, SAYING: "The main news here is not that they have made their biggest net loss ever, it is the fact that on an underlying basis the net profit has actually beaten expectations."
- Embargoed: 28th February 2017 12:20
- Keywords: loss record dividend engines aero results Rolls-Royce Holdings
- Location: LONDON, ENGLAND, UK / DERBY, ENGLAND, UK + VARIOUS, ENGLAND, UK
- City: LONDON, ENGLAND, UK / DERBY, ENGLAND, UK + VARIOUS, ENGLAND, UK
- Country: United Kingdom
- Topics: Company News Markets,Economic Events
- Reuters ID: LVA00263HSJT3
- Aspect Ratio: 16:9
- Story Text: Rolls-Royce suffered a record headline loss of 4.6 billion pounds ($5.8 billion) on Tuesday (February 14) as a fine to settle bribery charges and the collapse in the pound from Brexit capped a difficult few years for the British aero engine maker.
Already reshaping its business after a series of profit warnings, Rolls said it needed to cut more costs after its underlying profit halved to 813 million pounds last year.
"The main news here is not that they have made their biggest net loss ever, it is the fact that on an underlying basis the net profit has actually beaten expectations," said City Index Market Analyst Ken Odeluga.
Chief Executive Warren East, brought in to restructure the group in 2015, said the business portfolio was "broadly correct", but he needed to review 20 percent of its operations, and would decide on further actions in the coming months.
Rolls-Royce, which makes engines for wide-body civil jets, and defence and marine customers, said it expected "modest performance improvements" this year and would aim to keep its free cash flow at a similar level to 2016.
Last year, the group halved its dividend to shore up its finances, the first cut in the payout for 24 years.
It kept the dividend at the same level this time, a move it said would allow it to maintain a degree of flexibility in its balance sheet.
The drop in the pound against the dollar resulted in a 4.4 billion pound non-cash charge on its hedging book, which increased to $38 billion. Most aircraft deals are priced in dollars, forcing Rolls-Royce to hedge future income.
The headline loss also included the 671 million pounds it agreed to pay to settle bribery investigations in Britain, the United States and Brazil last month. The sum is payable over five years, but Rolls-Royce has taken the full charge now.
Shares in the company, which have risen 50 percent from the five-year-lows hit in early February 2016, reversed early gains to trade down 2.6 percent at 721 pence at 0855 GMT.
"Rolls-Royce's order book has continued to grow during the quarter, it has got the overhang of the conduct issues largely behind it now. The cost savings programme is on track, the present value of that should actually enable it to beat its very, very conservative outlook for the year. Yes, we needed to see a bit of punishment for this year - it's not a minor thing, a $5.8 billion loss - but nevertheless I think the outlook is a lot better now," added Odeluga.
Rolls said it was well under way with its transformation programme, achieving 60 million pounds in savings in 2016, and was on track for its 2017 targets too.
In its troubled marine division, which has been hit by weak demand from shipping and energy customers, it took a 200 million pound goodwill impairment to reflect a more cautious outlook.
The group has also been hit by a slowdown in high-margin aircraft engine servicing, in part caused by reduced use of older aircraft, and lower sales of its Trent 700 engine that powers the Airbus A330, which is being superseded by the A330neo.
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