The British engine maker reported on Tuesday that it had made an annual loss of £4.6 billion, which has been estimated as one of the largest losses in corporate history. This figure reflects the difficult year the company has had. Tough market conditions following Brexit, the fall in the value of sterling and a £671 million settlement for corruption and bribery claims, have taken their toll on the group’s bottom line. On an underlying basis, profits fell 49% to £813 million, though this was better than expected. Shares were 4% lower in morning trading.
Warren East, chief executive of Rolls, explained that the loss did not reflect the underlying health of the business. “This has no impact on what is really going on in the business and cash, it is just an accounting measure,” he said of the biggest loss thee company has ever made since its establishment in 1884. Despite this, he referred to the operational progress and great performance of the company in 2016. “At the same time we have delivered major changes to our management and processes and, while we have made good progress in our cost cutting and efficiency programmes, more needs to be done to ensure we drive sustainable margin improvements within the business,” he said.
He also commented on the company’s free cash flow figure which he suggested provides better evidence of the company’s performance than its profit figure. Rolls-Royce returned free cash flow of £100 million against its forecast for next year which is estimated to be £500 million, and is set to rise to a record £1 billion the year after. East gave a hint that he is coming to some conclusions on the future of the company; he said he expected to set out a ‘vision’ in the next few months.