LONDON British aero-engine maker Rolls-Royce (RR.L) is set to report a full-year loss of around 4 billion pounds on Tuesday, the biggest in its history, reflecting a fine for bribery and the collapse in the pound.
Rolls-Royce has faced challenges across its business in recent years, weighing on its revenue and profit. That has prompting Chief Executive Warren East, who took the job in 2015, to restructure the company to respond to changes in civil aviation and other sectors.
Pretax profit at the closely watched underlying level, which excludes adjustments in its currency hedging position, is expected to halve to 687 million pounds, according to a company-supplied consensus.
The group has been hit by a slowdown in high-margin aircraft engine servicing, in part caused by reduced use of older aircraft, and lower sales of its Trent 700 engine that powers the Airbus A330, which is being superseded by the A330neo.
A need to replace turbine blades on some of its Trent 1000 engines has also increased costs, and it is battling tough markets for its shipping and energy customers.
While the wider pressures on the business will be laid bare by the drop in underlying profit, the toll taken by a fine for bribery and by the slump in the value of the pound will result in the record total loss.
Rolls-Royce agreed last month to pay 671 million pounds to settle lengthy bribery investigations in Britain, the United States and Brazil. The sum is payable over five years, but Rolls-Royce will book all of the charge on Tuesday.
The other major impact on the business will come from the fall in the pound since Britain voted to leave the European Union, with its reported results reflecting a mark-to-market adjustment in its $35 billion hedge book.
The hedge book is used to manage the impact of changes in exchange rates on future foreign currency income.
The depreciation in the pound against the dollar resulted in a 2.2 billion pound adjustment at the half year, and based on a further falls, the impact at the full year is expected to be 3.5-4.0 billion pounds.
The announcement of the fine last month, however, was accompanied by a glimmer of good news for investors when the company said a strong finish to the year would result in profit and cash flow coming in ahead of forecasts.
(Reporting by Paul Sandle; Editing by Keith Weir)