The Street

Rolls-Royce stock drops on biggest ever full-year loss

Drop comes as company is under investigation for corruption offences

PUBLISHED : Tuesday, 14 February, 2017, 5:03pm
UPDATED : Tuesday, 14 February, 2017, 5:08pm

By Lisa Botter

Rolls-Royce stock dropped in the first hour of trading on Tuesday after it confirmed its biggest even loss for the full year.

The airplane engine manufacturer recorded a pre-tax loss of £4.6 billion (US$5.7 billion) for 2016 after booking a £671 million (US$841 million) settlement for corruption claims.

Rolls-Royce shares were down 2.16 per cent to change hands at 725.50 pence at 8:15 am GMT, the stock lost more than 3 per cent on opening. Shares have lost 0.8 per cent in the past three months.

Underlying profit before tax was down 49 per cent to £813 million (US$1 billion), this was less than the £687 million (US$860 million)expected by analysts.

The engineering giant reported an unexpected 9 per cent increase in revenue to £15 billion (US18.8 billion). However, underlying revenue, which exclude benefits from foreign exchange, came in at £13.4 billion (US$16.8 billion), down about 2 per cent due in large part to declines in its marine business.

The company expects revenue in 2017 to be “marginally higher”, with “a modest performance improvement overall” and free cash flow to fall in this year’s £100 million (US$125 million) range.

“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,” CEO Warren East said in a statement.

“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,” he added.

The company is in the midst of an investigation by the U.K.’s Serious Fraud Office for corruption offences that took place over a 20-year period in Brazil.

The company admitted to the offences as part of a deferred prosecution agreement with the U.K., U.S. and Brazilian authorities. The company took the charge in the full year but the fine will be paid over a five-year period.

Rolls-Royce Stock Drops on Biggest Ever Full-Year Loss