The reasons why Rolls-Royce (RR.) would suffer one of the biggest losses in UK corporate history were widely disseminated in the media prior to the release of its full-year figures. Whether this served to ameliorate any subsequent mark-down is hard to know, but you could certainly argue that the underlying figures provide an even greater source of discomfort for investors than any one-off charges. The question remains: does this set of figures represent the nadir for the beleaguered aerospace giant? With a succession of profit warnings behind it and a seemingly effective restructuring programme under way, the group is well positioned to capture any benefits from an anticipated step-up in the civil aviation market through to the end of 2018.
The bad news: the group plunged to a loss on the back of a £4.4bn write-down on the value of financial hedges taken out against currency fluctuations, together with a recently announced £671m settlement relating to bribery and corruption charges brought against the group by the Serious Fraud Office (SFO), the US Department of Justice, and Brazilian authorities.
Underlying profits across the business contracted through 2016, but it was the performance of the civil aerospace segment which provides cause for consternation. Revenues here, which account for roughly half the group total, were flat on the previous year, but there was an accompanying 60 per cent drop in underlying profits, with margins under pressure from lower Trent 700 engine sales and a fall-away in aftermarket sales for older large-engine fleets. Order intake of £14.1bn was £1.3bn higher year on year, although the overall backlog was just 3 per cent to the good when you disregard any benefits from the long-term planning foreign exchange rate.
Prior to these figures, JPMorgan Cazenove was forecasting adjusted profits of £929m and EPS of 34.1p for the Dec 2017 year-end.
| ROLLS-ROYCE (RR.) | ||||
|---|---|---|---|---|
| ORD PRICE: | 698p | MARKET VALUE: | £12.8bn | |
| TOUCH: | 697.5p-698p | 12-MONTH HIGH: | 870p | LOW: 584p |
| DIVIDEND YIELD: | 1.7% | PE RATIO: | na | |
| NET ASSET VALUE: | 101p* | NET DEBT: | 12% | |
| Year to 31 Dec | Turnover (£bn) | Pre-tax profit (£bn) | Earnings per share (p) | Dividend per share** (p) |
|---|---|---|---|---|
| 2012 | 12.2 | 2.77 | 125 | 19.5 |
| 2013 | 14.6 | 1.70 | 70.3 | 22.0 |
| 2014 | 13.7 | 0.67 | -3.9 | 23.1 |
| 2015 (restated) | 13.7 | 0.16 | 4.5 | 16.4 |
| 2016 | 15.0 | -4.64 | -220 | 11.7 |
| % change | +9 | - | - | -29 |
Ex-div: 27 Apr Payment: 3 Jul *Includes intangible assets of £5.1bn, or 276p a share. **Paid via an issue of C shares | ||||
