Rolls-Royce jumps on bribery settlement, profit upgrade

(Reuters) — Rolls-Royce on Monday announced that it has settled a long-running bribery probe and said 2016 profit would beat expectations.

Shares in Rolls-Royce jumped as much as 7% Tuesday in the wake of the announcement by the British maker of engines for planes and ships.

The conclusion to the bribery investigations by British, U.S. and Brazilian authorities helped remove a cloud hanging over one of Britain’s biggest corporate names since 2013.

The settlement and the forecast for better-than-expected profit comes as a boost to CEO Warren East who, since joining in mid-2015, has led a drive to slash costs and restructure the group following a series of profit warnings.

Rolls apologized for its conduct in the bribery scandal after announcing on Monday that it would pay £671 million ($813 million) in total to settle the investigations.

News of the bigger-than-expected total settlement was “negative but benign,” as Rolls could spread payments out over five years, said Jefferies analyst Sandy Morris.

“This is by no means a great moment in Rolls-Royce’s history, but in terms of a healing process, getting the SFO (Britain’s Serious Fraud Office) settled and having trading, particularly on cash flow improving, well maybe, just maybe, Rolls is on the mend,” Mr. Morris said.

A British court said on Tuesday that it would approve the agreement between Britain’s SFO and Rolls in a written statement at 1600 GMT. Rolls said it would pay £497 million ($602.1 million) to the SFO plus interest and a payment in respect of costs.

The court heard that the case against Rolls-Royce involved bribery of senior foreign officials and senior staff, stretching across the globe and its businesses from 1989-2013, with over 100 key employees and 33 million documents examined, in what the SFO said was the biggest investigation in its history.

The conduct, lawyers said, was carefully planned and led to large contracts earning as much as £250 million ($302.9 million). Countries including Thailand, Indonesia, India, Russia, Nigeria, China and Malaysia were named as places where there was either conspiracy to corrupt or failure to prevent bribery.

The company’s lawyer David Perry told the court that the company had undergone a “fundamental change” since the investigations began, overhauling systems, training, governance and ethics strategies.

“Rolls-Royce apologizes unreservedly for the conduct that has been uncovered,” he said.

Victory for SFO

Rolls, which also makes engines for military jets, ships and nuclear-powered submarines, said the settlements agreed with the three authorities would involve the group paying about £293 million ($355 million) in the first year.

The SFO’s deferred prosecution agreement, or DPA, with Rolls is a notable victory for the agency, representing the largest penalty it has issued. Set up to deal with the most serious and complex fraud cases, the SFO has had a checkered record in securing convictions over its 28-year history.

“In scale, it (the DPA) rivals the sort of penalty we are used to seeing extracted by the U.S. authorities, so will be viewed as a success for the SFO in establishing itself as a global anti-corruption agency to be feared,” Neil Swift, Partner at law firm Peters and Peters, said.

The DPA covers the company but means individuals involved can still be prosecuted by the authorities, and the written judgement could reveal whether former Rolls-Royce executives would be prosecuted.