Engine maker Rolls-Royce powers back into profit

Rolls-Royce roared back into net profit in 2017, largely as the sterling recovered, the company announced on 7 March.

Profit after tax struck £4.2 billion in 2017 following a net loss of £4 billion in 2016, Rolls said in an earnings statement.

While the plunge in the value of the pound in the wake of Britain’s 2016 vote in favour of Brexit helped many exporters, Rolls-Royce was forced to book a charge of £4.4 billion that year as it had not hedged against such a move.

The firm’s hedge book showed a gain of £2.6 billion in 2017.

Stripping out exceptional gains and losses for Rolls during the past two years on foreign exchange factors, the company on 7 March added that underlying pre-tax profit jumped by a quarter to almost £1.1 billion in 2017.

Connor Campbell, analyst at Spreadex trading group, said: ‘Investors cheered a 25% increase in full year underlying pre-tax profit... and a 6% jump in reported revenue.

‘CEO Warren East’s commitment to a “more fundamental restructuring programme” set to deliver ‘a significant reduction in costs’ also helped.’

Pointing to the underlying performance, Rolls chief executive East said the group was ‘encouraged by the improving financial performance in 2017 with growing revenues contributing to improved profitability and cash generation.’

East is steering a vast restructuring programme at the group, slashing thousands of jobs since his appointment in 2015.

In January 2018, the company announced plans fora possible sale of its commercial marine business.

East said: ‘The business unit simplification and restructuring programme that we announced this January will drive further rationalisation and is a fundamental step in the journey started two years ago to bring Rolls-Royce closer to its full potential both operationally and financially.’

Looking ahead, Rolls said it would take a hit of around £340 million during 2018 on repairs to Trent engines used by the Boeing 787 Dreamliner and Airbus A380 superjumbos.

Rolls has experienced issues with some engine parts not lasting as long as expected, requiring the company to remove turbines for repairs, in turn causing disruption for customers.

East said that Rolls would continue ‘to address the in-service engine issues... the estimated costs of which are significant.’