Rolls-Royce Auditor KPMG Probed by U.K. Over Bribery AccountsBy
U.K. watchdog investigates KPMG in wake of bribery settlements
Rolls seeks to show recovery progress at shareholders meeting
Rolls-Royce Holdings Plc’s bribery and corruption scandal has drawn in its departing auditor KPMG, which has become the target of a probe by the U.K.’s accounting regulator.
The Financial Reporting Council said it started an investigation into KPMG’s audits of Rolls-Royce’s earnings for 2010 through 2013, citing the engine maker’s deferred prosecution agreement over bribery and corruption allegations that was reached in January. KPMG said it will cooperate “fully” with the investigation, adding that it is “confident in the quality of all the audit work” performed for Rolls-Royce.
The probe stemming from allegations of bribes paid to win tenders comes at an awkward time for the British manufacturer. The company is hosting its annual shareholders meeting Thursday in Derby, England, as Chief Executive Officer Warren East seeks to show progress made in cutting costs and streamlining operations.
Rolls-Royce said Thursday that cash flow in the first half will be lower this year as it ramps up deliveries of its loss-making aircraft engines. The London-based company held onto an earnings outlook detailed in February but pleaded for patience, saying pretax profit before financing costs will be weighted to the second half similar to last year. Free cash flow in the first half will also be lower than in 2016 as the ramp up of engine deliveries and one-time charges eat into cash reserves.
“We have some important transformation initiatives underway and, while we have made good progress in our cost cutting and efficiency programs, more needs to be done,” East said in the statement.
Rolls said it is “on track” to deliver incremental savings in 2017 of between 80 million pounds ($103 million) and 110 million pounds. In addition, full-year sales will benefit by about 400 million pounds and pretax profit by 50 million pounds from current exchange rates.
Rolls-Royce in December appointed PricewaterhouseCoopers LLP to replace KPMG as the company’s auditors from 2018 as part of a transformation program to revive the engineering giant after a string of profit warnings. KPMG has acted as the engine-maker’s auditors for nearly three decades.
— With assistance by Tony Aarons