RR. Rolls-royce Holdings Plc

By Robert Wall 

LONDON-- Rolls-Royce Holdings PLC on Tuesday said it swung to a full-year GBP4.03 billion ($5.05 billion) net loss, stung by a settlement over corruption charges, the fall in the British pound and setbacks on high-profile aircraft engine programs.

Rolls-Royce, best known for making aircraft engines for Boeing Co. and Airbus SE's long-range planes, reported a GBP83 million profit the year before. The loss in the latest year reflected a large, noncash accounting hit from the revaluation of U.S. currency hedges after the British pound slumped in the wake of the country's vote to leave the European Union. It included a GBP671 million one-time charge for bribery settlements with U.S., British and Brazilian authorities after the company admitted to illegal business practices spanning decades.

The company's closely watched underlying pretax profit, that strips out one-time items and currency fluctuations, fell for a third year to GBP813 million from GBP1.43 billion a year earlier, ahead of expectations. Underlying sales fell 2% to GBP13.4 billion.

Shares slumped 2.57% to GBP7.21.

Chief Executive Warren East said 2017 "remains a challenging year."

Earnings this year will only be modestly better, Rolls-Royce said. Underlying free cash flow, which was GBP100 million last year, should be similarly weak in 2017, the company said. The figure doesn't include a GBP293 million payment on its bribery fine. Mr. East said cash-flow should top GBP1 billion by the end of the decade.

Rolls-Royce, no longer affiliated with the luxury car maker, began the year warning that earnings would sag. Profit on its engines for Airbus A330 planes would retreat amid weaker demand and with the plane maker introducing an upgraded model with newer Rolls-Royce engines. Costs on its Trent 1000 engines used to power Boeing Dreamliners have also risen with turbine components degrading too quickly. Other problems include weakness in its business to provide engine for regional and business jets where Rolls-Royce has lost ground to rivals.

Chief Financial Officer David Smith said many of the earnings difficulties, including weakness in demand for business jet engines and services, would remain this year.

Rolls-Royce has embarked on companywide restructuring and overhauled management to boost returns. About 600 manager positions are being eliminated along with around 2,600 job losses in the aerospace unit that generates most Rolls-Royce sales. About 1,800 jobs are being eliminated in the ship-engine unit. Mr. East has promised annual savings starting at the end of this year of around GBP200 million.

He said the company would also work to define a long-term vision. The broad portfolio would remain unchanged, though some businesses could be repositioned or be sold. He promised an update this year.

The company also is bracing for the introduction of new accounting standards that will depress near-term profit. Rolls-Royce typically sells aircraft engines at a loss and makes up the money later on servicing them. Rolls-Royce masks the early losses by booking some of the assured services revenue early. Under new accounting rules those losses will need to be reflected immediately and services revenue can't be booked until the work takes place. Under the new accounting standard Rolls-Royce wouldn't have made an operating profit, Mr. Smith said.

Rolls-Royce a year ago announced its first dividend cut since 1992 to maintain balance sheet health amid falling profit. The company said it would pay a 7.1 pence final dividend or 11.7 pence for the full-year compared with 16.4 pence for 2015.

Write to Robert Wall at robert.wall@wsj.com

(END) Dow Jones Newswires

February 14, 2017 04:31 ET (09:31 GMT)

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