By Bjorn Fehrm

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Introduction

Feb. 18, 2016, ©. Leeham Co: Rolls-Royce reported earnings for the full year results for 2015 Friday. The share price took a hike after more than one and a half years of being pressed down by bad news.

There was nothing really new that was presented last Friday, with revenue of £13.4bn and profits before tax of £1.4bn. Both results were within the market’s expectations. It was rather the lack of more bad news that made the stock soar to a new high.

We now go behind the scenes to analyze why the stock is depressed and if this is a long term state for Rolls-Royce.

Summary:

• Rolls-Royce has delivered one bad news after the other since May 2014.
• The causes behind the bad news have varied between challenges in its Marine business to more competition and lower deliveries for its best-selling Civil Aerospace engine, the Trent 700.
• Rolls-Royce has also been criticized for boxing in of customers with its after-market TotalCare maintenance program. We describe what has changed and how this affects the situation.
• The company is also facing some accounting standard changes with the introduction of IFRS 15 for 2018. We discuss what consequences this might have.