Serious Fraud Office Investigates Rolls-Royce

Published in Company Comment on 6 December 2012

Rolls-Royce (LSE: RR.) identifies potential bribery and corruption within its Asian operations.

The shares of Rolls-Royce (LSE: RR) dived 42p, or 5%, to 871p in early London trade this morning after the engineer admitted it was being investigated by the Serious Fraud Office.

The FTSE 100 (UKX) member said it had passed information to the SFO "relating to concerns about bribery and corruption involving intermediaries in overseas markets".

Rolls-Royce said the investigation followed a request for information from the SFO about allegations of malpractice in Indonesia and China. The company added that its own internal investigations had identified "matters of concern" in Indonesia, China and other overseas markets.

Rolls-Royce said that it was too early to predict the consequences of its disclosures to the SFO, but acknowledged the outcome could include the prosecution of individuals and of the company.

The blue chip also mentioned this morning that it had "significantly strengthened its compliance procedures in recent years" and "will appoint an independent senior figure who will lead a review of current procedures".

John Rishton, Rolls-Royce's chief executive, said:

"I want to make it crystal clear that neither I nor the Board will tolerate improper business conduct of any sort and will take all necessary action to ensure compliance. This is a company with exceptional prospects and I will not accept any behaviour that undermines its future success".

Prior to today, City experts were expecting Rolls-Royce's current-year earnings to advance 17% to 57p per share and the dividend to climb 13% to 19.7p per share. The projections currently place the company on a P/E of 15.3 and yield of 2.2%.

Whether today's bribery revelations, share-price reaction and current valuation combine to make Rolls-Royce a 'buy' remains up to you.

However, the group could be one for your watch list, given underlying sales and profits both gained about 45% during the tricky economic period between 2007 and 2011.

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> Maynard does not own any share mentioned in this article.

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Comments

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Pimenton 06 Dec 2012 , 9:51am

It's now 09:40 and the drop as reported on MF is 19p or 2%.

It will be interesting to see how far the price does fall, my guess is not very far, but we shall see. Although a current holder of RR, I'm hoping for a large fall to present a further buying opportunity.

How detrimental to RR the offences are if proven remaims to be seen. Another is guess is: not very. Probably viewed by Western business standards the allegations are serious, but then from the indonesian/chinese viewpoint the practices may well be an acceptable way of doing business.
Talking of bribery and corruption in Indonesia, which I know quite well, is a bit like talking of vehicles exceeding speed limits at a grand prix - it''s the way it works.

my thoughts

Pim

benstubbens 06 Dec 2012 , 6:54pm

But as it's a uk based company, it is bound by the Anti Bribary & Corruption Law, even though different parts of the company may operate entirely outside the UK

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