Rolls-Royce reports £4.6bn full-year loss as a result of a major fine and tough market conditions

Shares in British engine maker Rolls-Royce tumbled on Tuesday after the group reported a £4.6bn pre-tax loss for 2016 – one of the largest losses in its corporate history – plagued by a bribery fine and tough market conditions on account of the tumbling pound in the wake of the UK’s EU referendum.

The company, whose customers include airlines, armed forces and navies in more than 150 countries, said that underlying revenue fell 2 per cent at constant exchange rates for the full-year and underlying profit before tax slumped by 49 per cent. Shares were more than 5 per cent lower shortly before midday in London.

Rolls-Royce, which has also struggled recently with a slowdown in high-margin aircraft engine servicing, has endured a turbulent few years, prompting chief executive Warren East to implement an ambitious turnaround programme and restructure the company. Last month Rolls-Royce said that it had agreed to pay £671m to British, US and Brazilian authorities to settle bribery and corruption claims.

“As I set out in November last year, it is now time to look further ahead,” Mr East said on Tuesday. “Over the next few months we will conclude our review of our strengths and investment opportunities and set out an appropriate vision for the business and the best way we can deliver sustainable shareholder value.”

He said that the company’s priority was now to focus on “key milestones” and ensure that a “wide-ranging business transformation programme delivers the full benefits expected, not only in terms of cost savings but also the cultural and behavioural changes necessary to ensure the transformation is sustained and high standards of business conduct are maintained”.

Mr Warren said that “these are essential if we are to become a more trusted, resilient company".

But Tuesday's results were not as bad as some had expected. Underlying profit beat the average forecast by analysts in a Reuters poll.

“The outlook for 2017 is for modest progress with cash flow guided to be a similar level to 2016,” said Andy Chambers, an analyst at Edison Investment Research.

“This is starting to feel a lot better than the depressing commentaries that surrounded the stock a year ago.”

Neil Wilson, a market analyst at ETX Capital, said that the company “chalked up one of the biggest losses in corporate history, but it’s not as bad as it looks”.

He said that if the effects of the slumping pound and bribery settlement were stripped out, then the earnings figures did not disappoint.

“There are lots of questions for the business about where it’s going, but this huge loss shouldn’t blind investors to some solid fundamentals.”