Engine maker Rolls-Royce has reported its largest ever loss and one of the biggest in UK corporate history after being hit by the pound’s plunge and a corruption scandal.
The blue chip giant slumped into the red with a pre-tax loss of £4.64billion (€5.5bn) for 2016 after a £4.4billion (€5.2bn) writedown caused by the collapse of the pound since the Brexit vote, as well as a £671million (€791m) penalty to settle bribery allegations.
On an underlying basis, it reported pre-tax profits of £813million (€958m) – nearly half the £1.4billion (€1.7bn) recorded in 2015.
Rolls said it was on track with efforts to slash costs and is expecting a “modest” performance improvement in 2017. But chief executive Warren East warned there was still much to do in turning the business around.
He said: “2017 remains a challenging year and we have lots of operational improvements to do.”
Shares in the FTSE 100 heavyweight fell 3% after the scale of its losses was revealed, although its underlying performance was better than most analysts had expected.
The huge annual loss follows a tough past two years for Rolls after a string of profit warnings and last month’s corruption fine to settle a case brought by the Serious Fraud Office and authorities in the US and Brazil.
Sir Brian Leveson said on handing down his written judgment in January that the long-running probe revealed ”the most serious breaches of the criminal law in the areas of bribery and corruption”.
Rolls will pay the £671 million fine over five years, with a £293 million payment this year, but has taken the full cost as an impairment charge against 2016 profits.
The pound’s recent hefty falls in value have added to its woes, forcing the group to write down the value its currency hedges.
Sterling has fallen by almost a fifth against the dollar since the Brexit vote.
This helped push it deep into the red against a bottom-line profit of £160 million in 2015.
Rolls chief executive Warren East, who has been leading an overhaul since taking the helm in 2015, said it was “now time to look further ahead”.
He added: “With my new team in place, our focus is turning towards the group’s long-term goals.”
The group is on track to make annual savings of around £200 million by the end of the year.
Mr East has been slashing jobs and axing layers of management, confirming that 700 management positions were cut in 2016.
The group said in December that it was slashing another 800 jobs worldwide across its embattled marine business.
Results showed the marine division tumbled to a £27 million loss in 2016.
Underlying profits were lower across all its other divisions, with group-wide underlying revenues dropping 2% to £13.8 billion.
Rolls announced its first dividend cut since 1992 a year ago to maintain balance sheet health amid plunging profits.
In its latest set of results, it confirmed it would pay a 7.1p-a-share final dividend or 11.7p a share for the full year, down from 16.4p for 2015.
George Salmon, equity analyst at Hargreaves Lansdown, said aside from the record Rolls loss, its underlying result showed “things are not as bad as they could have been”.
He said the overhaul will start to bear fruit, while the weak pound will begin acting as a headwind on overseas earnings, but warned “a recovery is unlikely to happen overnight”.