Rolls-Royce logs net loss on slumping pound

The group posted a loss after taxation of 1.77 billion ($2.32 billion, 2.11 billion euros) in the six months to the end of June.

London: British engine maker Rolls-Royce said Thursday it plunged into a first-half net loss on a vast accounting charge sparked by a post-Brexit collapse in the pound.

The group posted a loss after taxation of 1.77 billion ($2.32 billion, 2.11 billion euros) in the six months to the end of June, which contrasted with a net profit of ?360 million last year.

Rolls-Royce added in a results statement that it took a vast 2.3-billion hit from the value of its US dollar hedgebook after the shock June 23 EU exit referendum, but the group stressed it made an underlying profit.

The company's hedgebook, which stood at $35 billion in late June, is aimed at smoothing out the impact of currency fluctuations in the long term.

Adjusted pre-tax profit meanwhile stood at 104 million for the reporting period, down almost 80 percent from a year earlier.

That beat forecasts for a loss of 19 million and helped send the group's share price 17 per cent higher in late morning deals. Underlying sales meanwhile declined five per cent to 6.14 billion.

In recent years, Rolls-Royce has issued a series of gloomy profit warnings on the back of weak demand in its aerospace and marine markets.

Chief executive Warren East, who has overseen a drastic restructuring after taking charge in July 2015, declared Thursday that the group was on course to deliver a stronger second half.

He added that the engine maker's 2016 outlook was unchanged.

"Our reported profits are affected by the fact that we have to value our currency hedge book on the last day of the period, and that mark-to-market valuation creates a charge," East told reporters on a conference call.

"And because of the events shortly before the end of June, then as we all know, the pound versus dollar and other currencies move fairly significantly, and so in this case, the affect is just over 2.0 billion, and that obviously has a big impact on our reported profit.

"But it has no impact on what's going on in the business, or on cash. It's accounting."

The group's transformation programme is meanwhile set to deliver 50 million of annualised savings this year, out of 200 million targeted by end-2017.

"We have taken some positive first steps on the journey that will lead Rolls-Royce to profitable and highly cash generative growth," added East.

"In the first six months, we have made progress with our business transformation; introducing the greater pace and simplicity required to make Rolls-Royce a more resilient company."

The company has in recent years suffered from weak maritime engine sales due to the recent oil price slump, while poor demand for long-haul air travel has hit maintenance revenues.

( Source : PTI )
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