Rolls-Royce chief vows to 'strengthen' ethics in wake of manufacturing probe

Rolls-Royce chief executive John Rishton has vowed to ensure the “progressive strengthening” of the aerospace engine manufacturer’s ethics in the light of a corruption probe.

Last year Rolls-Royce passed a file to the Serious Fraud Office over concerns of practices involving their middle-men in China and Indonesia, including suggestions of possible bribery.

International companies use intermediaries when they do not have enough people on the ground to win, and sometimes carry out, work. 

The SFO has launched a formal investigation. 

Addressing investors at their annual meeting in Westminster’s QEII conference centre today, Rishton said: “I have repeatedly made explicit that neither I nor the board will tolerate business misconduct of any sort and will take all necessary action to ensure compliance.” 

Rishton added that the company has reduced the number of intermediaries used in foreign countries. Those that remain have seen their terms and conditions revised.  

Answering shareholder questions, Rishton also committed himself to an annual update on how ethics and compliance procedures are being implemented. 

The company is introducing a series of internal controls after Lord Gold reviewed Rolls-Royce’s processes last year.

The recommendations included publishing a new code of conduct - and employees are required to certify that they have received a copy, read and abide by it. 

The meeting, which saw a small protest outside the QEII against the group’s nuclear work, came after Rolls-Royce warned the market today of a £70 million hit on profit this year.

This is due to an increasingly strong pound and a problem with a product in its ship design-to-anchor manufacturing maritime division. 

The news comes on top of Rolls-Royce’s admission in February that a decade of growth would come to a sudden end this year.

The group said that it now also expected the marine division would suffer a 10% - £30 million – decrease in profit this year, with revenues down by a similar proportion due to less demand for its work.

A spokesman said that Rolls-Royce was “working closely” with the client that has received the product with a “quality issue”. 

Shares in the company fell 3.4 per cent to 1014p.

On Wednesday, Rolls-Royce confirmed that it is in talks with Germany’s Siemens over a potential £1 billion sale of a part of its energy business that works for the oil & gas and power sectors.

Today’s management statement added that talks have not yet concluded, but that there be “a further announcement in due course”.  

Rolls-Royce is also in talks with the Financial Reporting Council over the way it accounts for the sale of equipment and services in an engine division known as TotalCare.

Nearly £40 million was wiped-off last year’s profit after the accounting regulator demanded a restatement of the 2013 figures, but Rolls-Royce said that discussions were now “substantially concluded” and no further adjustment was likely to be necessary.

“We have agreed to enhance the descriptions of our business model and accounting policies,” said Rolls-Royce. 

Edison Investment Research analyst Roger Johnston said the marine news was a surprise, but added: “Encouragingly from the statement, discussions with the FRC regarding the group’s accounting treatment of TotalCare agreements have concluded with no change and we see this as removing one potential concern for investors.”

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