Rolls-Royce's (LON:RR) statutory loss looks £500-£600m than was widely expected, though it is unlikely to be a source of significant shareholder discontent on Tuesday. The disparity seems to reflect further deterioration of RR’s hedge book after earlier assessments placed the hit around £3bn.
Some investors may also have a restive reaction to the rather dry and narrow outlook comments, projecting only “modest performance improvements” and similar free cash flow generation as in 2016. We look through this to an extent. After all, a £200m annualised run rate in savings by year end suggests a net present value somewhat above the £80m-110m in-year benefits. And the £0.671m charge for misconduct is obviously in-line.
Continuing relief from the removal of the SFO’s case which has hung over sentiment for years, and the fact that underlying profit is well within projections will also go a long way towards setting the group, and its stock, off on the right foot for the year ahead. Overall, Rolls probably has more room to overshoot its own cautious expectations despite risks to the outlook which clearly underlie that conservatism.
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