Rolls-Royce share price recovers in 2017 despite bribery scandal and past profit warnings

Warren East continues with efforts to revive British engine maker’s fortunes

Rolls-Royce share price recovers in 2017 despite bribery scandal and past profit warnings

Shares in Rolls-Royce Holdings (LON:RR) are on track to post a rise for the current year, despite the previous years’ several profit warnings, as well as a hefty bribery settlement. While this year’s upbeat performance in Rolls-Royce’s share price underscores the ongoing turnaround under chief executive Warren East, the British engine maker continues to face challenges ahead.

2017 kicks off with bribery settlement

January marked a major milestone for the British engine maker, which settled bribery claims on three continents. The £671-million settlement marked the end of a five-year probe by the Serious Fraud Office, and means that Rolls-Royce will avoid being prosecuted by anti-corruption investigators in the UK, US as well as Brazil.

The blue-chip engine maker subsequently posted a record loss of £4.6 billion for last year, with the bribery settlement and the fall in sterling in the wake of last year’s Brexit vote pressuring the group’s performance.

Turnaround takes hold

The turnaround efforts of the company’s chief executive Warren East, however, have started to yield results this year, notably in the engine maker’s interims over the summer, when Rolls-Royce delivered a near 150-percent rise in profits. In November, the company reiterated its trading outlook, staying on track to achieve targets at its Civil Aerospace division, and having seen satisfactory performance at its Defence Aerospace and Power Systems units.

The group’s Marine division, however, continued to struggle, impacted by weak demand for products and services for the off-shore oil and gas market.

Challenges ahead

British engine maker nevertheless continues to face challenges ahead, including the ongoing weakness in the Marine division, as well as timing changes to new export orders for Defence Aerospace. The company also recently lost Civil Aerospace President Eric Schulz to Airbus.

Analysts at Deutsche Bank meanwhile recently sounded an upbeat note on the engine maker, arguing that the shares were “appropriately priced” and that free cash flow in 2020 could exceed previous expectations.

“We expect Rolls to defend against rising R&D and capital expenditure within the business over the medium-term, so that there can finally be a period of harvesting the benefits of historic investments,” the broker wrote, as quoted by the Financial Times. 

As of 14:47 GMT, Friday, 22 December, Rolls-Royce Holding PLC share price is 859.50p.

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