by: Alistair Osborne
The Serious Fraud Office’s probe into alleged bribery at engine-maker Rolls-Royce extends to contracts signed less than three years ago, it can be disclosed.
Britain’s fraud-busting agency, which on Wednesday arrested Liberal Democrat donor Sudhir Choudhrie and his son Bhanu in connection with its investigation, is understood to be examining some Rolls contracts won after the UK’s new Bribery Act came into force in July 2011.
That would imply concerns at the agency over recent contracts, with its probe extending well beyond the specific claims raised by two whistleblowers – former employee Dick Taylor and a blogger using the name Soaring Dragon.
Mr Taylor’s allegations largely concern contracts won in Indonesia in the 1990s, while Soaring Dragon claimed that Rolls paid bribes to an official working for two Chinese airlines to help win engine orders worth $2bn (£1.2bn) in 2005 and 2010.
But the SFO is also examining contracts, and particularly Rolls’ use of middle-men to win them, since chief executive John Rishton took the helm in March 2011, succeeding predecessor Sir John Rose.
Mr Rishton has always stressed that he would not “tolerate improper business conduct of any sort”.
The new Bribery Act also gives the SFO wider powers than the previous legislation.
Both the SFO and Rolls declined to comment.
A spokesman for the Choudries said: “The allegations made against Bhanu and Sudhir Choudhrie are strongly denied. Full co-operation is being given to the authorities.”
The pair had been arrested in dawn raids, also involving officers from the City of London Police and the National Crime Agency, and taken to Snow Hill police station in London for questioning. They were later released, with no restrictions on travel.
The step-up in the SFO’s bribery probe came in a difficult week for Rolls, which stunned the market on Thursday with a profits alert – the first in a decade – that took more than £3bn off the group’s market value.
Rolls shares fell another 2pc yesterday, dropping 20p to £10.25, as analysts continued to fret over the warning and its likely fall-out. Rolls management also had a series of testy meetings with investors.
Rob Stallard, an analyst at RBC Capital Markets, highlighted a “litany of other negatives”, aside from the warning of flat profits and revenues this year, including “deterioration in unit costs” in Rolls’ civil aerospace wing and the 20pc sales decline for RB-211 engines.
Given the range of issues, he said investors were likely to have “questioned whether Rolls really is the quality growth company many believed”.
He added: “We think Rolls has had ample opportunity to flag a number of the issues that are behind the 2014 growth pause, and investors are clearly unimpressed. We expect Rolls to be ‘on probation’ for a while.”
Benjamin Fidler, an analyst at Deutsche Bank, said the results also raised “deeper concerns over M&A risk” at a time when management had flagged interest in acquisitions via abortive talks with Finland’s ship engine maker Wartsila over a mooted £8bn deal.
He said that, “although discussions with Wartsila are no longer ongoing, management was very clear on their ambition to grow capability and presence in medium speed diesel engines”.
Noting that “doing so organically is unlikely to be a viable option”, he suggested two acquisition targets – Wartsila and MAN Diesel & Turbo – both of which would be “sizeable transactions”.
“Wartsila specifically would entail a material rights issue”, he said, pointing out that the new shares issued would limit the enhancement to earnings per share from the deal.
On Wartsila, Mr Rishton said on Thursday: “We are certain the talks are off.”
Other analysts were less gloomy. Ben Bourne, at Liberum, said: “To warn on defence now is exasperating but the share reaction looks overdone.”
He added that following Thursday’s wrong-footing of the City, “management appear increasingly aware of the need to be more transparent” on guidance beyond the financial year in which the group is operating.
Source: telegraph
