LONDON: The United Kingdom’s engine maker Rolls-Royce has decreased its earnings forecasts due to reducing oil prices in international market and predicted pre-tax profits for this year between £1.4 billion and £1.55 billion ($2.2 billion/ $2.4 billion).
As per a statement, the company’s earnings before tax meanwhile sank eight percent to £1.62 billion in 2014. Net profits however collapsed on sliding defence revenues, adverse foreign exchange moves and the sale of its energy business. Earnings after tax nosedived to £69 million in 2014, hit by the revaluation of currency hedging, from £1.367 billion a year earlier.
“The external environment has deteriorated in some of our major markets,” Rolls-Royce said in the earnings release. “In particular, oil prices have halved over this period, creating increased uncertainty for many of our markets and customers, particularly in marine offshore.”
World oil prices tumbled by 60 percent in value in the six months to January, rocked by plentiful crude supplies and the strong dollar.
Rolls-Royce also posted Friday the first drop in underlying revenues for the first time in a decade, sliding six percent to £14.588 billion.
The group’s performance was also hit by the sale of its energy production arm to Germany’s Siemens. Nearing midday trade, investors mostly shrugged off the collapse in net profits.
Shares slipped 0.61 percent to 899.50 pence on London’s rising FTSE 100 index. “Rolls Royce sells aero engines primarily in US dollars, but needs to present its results in pounds,” TrustNet analyst Tony Cross told AFP.
“To help manage this, it runs a hedge book – a raft of derivatives which help protect cashflow against currency market volatility. “The value of this hedge book has to be restated annually in a process known as marking-to-market – so the dollar strength, where the bulk of the hedges are, means that last year’s rate of $1.65 per pound is now $1.56 per pound.”
The hedge book stood at $25.6 billion in 2014, up four percent from $24.7 billion in 2013.
