The latest Investing Matters Podcast with Jean Roche, Co-Manager of Schroder UK Mid Cap Investment Trust has just been released. Listen here.
My understanding is (thought I stand to be corrected) there are two FX matters, Transactional and Translational (page 6).
Transactional is where the hedges are. The RR hedges are, I believe, contracts to exchange $ for £ at an average rate of $1.53 for £1, at set dates in the future. They have $21B of these contracts (some are $:€) coming due over the next 4/5 years. In simple terms, at todays rates that is a £5.88B potential hit over the next 4/5 years!! New accounting rules require them to publish a figure at the end of an accounting period as if they had to close all contracts at that date. ie mark to market. This figure has no impact on cashflow until the contracts actually expire. At the 30th June they list, on page 5 the cashflow impact of these contracts closing over the next 4/5 years. For 2022 based on the FX rate then, it is expected to cost them £326M. 2023 £389M, 2024 £321M etc. The total they give is £1.674B. A sum that could effectively wipe out the total cash from the IPT sale.
All this is based on the FX rate for H1 2022 but the FX rate has got significantly worst since then (10%?). (That's 10% of £21B!!) So you can see why some analyists are very negative and some hedge funds are shorting the shares. Some commentators say the dollar still has more strength to go from here (against a basket of currencies), while STG is expected to weaken.
Strike123
RR website link I posted before. As I said earlier all the sh** in hidden in the appendices!!
Go to pdf - 2022 Half year results - Appendices - page 5
Also gives the impact of closing the hedges over the next 4 years based on the exchange rate on the 30 June ... cable has got a lot worse since then!!
PSK
I find it confusing too and I think it is intensional. Everybody is talking about new military sales, SMRs, new maintenance contracts, flying hours etc while the real action on whether this company is profitable or not, revolves around their disastrous hedges and the 'smoke & mirrors" in their accounts. I'd love to get the opinion of some accountants on here?
Lots of people on here would do well to actually read the results and accounts on the rolls royce website than listen to Motley Fools, Mike / RR b/s. Seriously, no point debating what supposed analysists say if you haven't read the company's own accounts first ESPECIALLY the notes & appendices (that's where they hide all the sh**)
https://www.rolls-royce.com/investors/results-and-events.aspx
sundezena
DYOR??? Have you done your research?
Do you know that RR hedged $21 billion GBP:USD at an average rate is £/$1.53
Each 1$ cent change in the £/US$ hedge rate impacts u/lop profit and cash by £25-30m?
So making statements like yours makes you look foolish!!
MC866
RE: Don't buy yet or AVG down yet? This is just beginning.Today 10:55
Is there an option to get someone banned for giving flagrantly wrong, awful, dangerous advice again and again.
"Keep buying"?? You're literally off your rocker.
MC866, well done for consistently calling out that nutter, RR / Mike!! Many other deluded****** on here have being recommending his posts or thinking he/she adds welcomed positivity?!?! (though there is the possibility he/she is just using his/her other usernames to do so).
You are certainly doing good work warning inexperienced investors new to this board, though imo you are wasting you time engaging directly with this poster or reporting to him/her. If banned, he/she will just pop up with another new username.
Would be interesting to know though if he/she is a troll, mentally unwell, bored, in denial about his losses on this share, or just looking for mischief as others expense.
Anyway keep up the good work.
Suggest you re-read my original post. City traders, in the same way they have rolled down the sp of RR. over the last 9 months, are always looking for an excuse to inflict volatility on the markets. Tree shake. It will be mostly forgotten in a week or two. Do you honestly believe that little olde Britain’s tax cuts/energy cap has caused a worldwide sell off? Are we that important, … hold that much sway on world markets? Also bear in mind that September/autumn are the most common times for a correction.
I’m 60% invested atm. This is my 4th recession but also the first time I’m very nervous of going all in. Russia is backed into a corner and could easily launch a small nuke on Kiev. I don’t believe that would cause a world war but if you think todays sp in bad, guesses welcome how low the markets would go. Equally we have to stand firm on Russia as it will be much worse in the future, if he gets his way blackmailing us with using nukes.
Lastly the forthcoming recession, while sharp, will be over relatively quickly. Did anyone really believe there would be a happy ending to all the money printing and zero interest rates going on around the world over the last 14 years?
Of course we’ll get our money back (assuming a reasonable buyin price) and a decent profit too. But I don’t loose the plot shouting about conspiracies within the government, when the sp tanks.
All shares are a gamble … even the ft100 ones. Are you new to investing?
Re IMF - please read my previous post
Re Moodys - were you around for the GFC? And you put faith is what Moodys say? Golly … and you called me naive.
Strike, your conspiracy theories are laughable. Are you anti vax too?
I know lifetime record paper losses must be very stressful for you and ppl under severe pressure can become irrational, poor decision makers and unpredictable but you really do need to take personal responsibility for you our decisions. When you gamble in the casino that is the British stock market, you are happy to be a capitalist when you’re making money but woe betide when you are taking losses … tax the rich … there’s a conspiracy to steal my money … it’s the government’s fault. You sound like a champagne socialist.
Lastly when you get over using plagiarised sound bites like trickle down economics don’t work, you might be surprised by the fact that since corporation tax was first reduced in the mid 2000s (by a labour gov incidentally), and on subsequent occasions, CT tax receipts have corresponding gone up. Stick to facts mate, and stop with your populist whinging!! Be glad you have the money to gamble with on the stock markets and thankfully to Blair/Brown and the Tories.
Completely agree Red. You have always be straight and consistant about your views and your own holding / buy-in price.
Time and time again you have called it right yet received derision and abuse on here from multiple posters.
Well done mate especially not bowing to the haters!!
Pokerchips
I enjoy your posts on here, PFC and WG. Always sensible.
Bigger mortgage payments are due to higher interest rates, which is worldwide. Would you have preferred higher mortgage payments coupled with higher electricity bills and no tax reduction instead?
And we were warned time and time again interest rates were artificially low and would go back up. So the sensible ones payed down their mortgages and saved while profligate ones bought new cars and went on expensive holidays.
We need to restore some balance to the left wing drivel propagated on this board.
I'm not a fan of Liz Truss or the Tories but will give credit where credit is due.
1. It's only a few weeks ago that our national papers were stirring the sh*t with headlines trying to out do each other ... average electricity bills will be £4k next year, no £5k, no £6k ... the mini budget has introduced a cap of £2.5k. Is that a good thing or not? Its massive help to the average person.
2. The mini budget will reduced the average person's tax bill. The 20% to 19% tax rate, the reversal of the NI increase (including on our dividend income) and lastly abandoning the corporation tax rise. That's a big help to us and many others.
3. But oh no, that's all irrelevent to the left wing wingers. They drown all that good news out because they are obsessed with 'distribution of wealth' and their poisonous politics. So what if the rich are getting richer. What should concern us is, can we pay our bills, put food on our table, have a roof over our heads, set some money aside for our retirement and whether we are happy and content, and then, are people starving in this country and is there peace in the world. I am not interested is comparing how much money I have to a multi millionaire, or how big their house is, or how many exotic holidays they have. They already pay vastly more tax than we do, both quantitively and in % terms. And if the tax rate is reduced from 45% to 40% to attract bankers from New York, Scotland, Europe and the reduction brings in more tax overall, as a result, I think that's a good idea. I am not going to be enviously. I'm not going to rant and rave how unfair it is.
All that said, the execution of the chancellor's plan has been very poor. Still we should give it time to see what the impact is.
A lot of ppl getting carried away this morning and panicking.
First, the drop in RR. is a worldwide market issue not a RR. issue
2nd, £ $ cable has recovered from the ~1.03 on Monday to ~1.06 now.
3rd, a lot of the UK markets over-reaction is traders using it as an excuse trying to cause huge volatility to make money
4th, IMF is straying into politics, disgraceful. They did the same thing in 2013 with George Osborne and a few years later had to admit they got it totally wrong. Then GO did the opposite of what most other countries were doing and was proved right
5th, Liz Truss now wants to do the opposite of what other countries are doing. It's a huge gamble but needs time. She could well be right and we could see other countries following suits in 6 months time. The main c**kup for me was not having the OBR costing the plans at the time of the announcement.
6th, a weaker £ is good for a lot of FT100 companies as a big chunk of their sales are in $ (except for RR. who have massively over hedged at 1.53!!)
Zimboman, it’s complicated. First these possible FX losses are set against their profits from u/l operations so could still show a small profit. And RR. have provided limited detail on the hedging. (and some smoke and mirrors like ‘transactional -v- translational exposure to fx, ie one they took a loss on and the other, they took a profit on, at different times, when it suited them). Also its not clear how much of the addition possible loss could impact cash flow (which is the important thing) and how much can be rolled forward in the hope STG will strengthen. Anyway it’s a massive c**kup, nobody was sacked, and they claimed most hedges were opened before Brexit, so not their fault!
You are absolutely correct saying we must be close to the time to start hedging at the current exchange rate but the implications of that are all to complicated for me to understand or work out. We just have to grin and bear it until they work their way through the £21b of hedges
Mike, please stop your lies.
From RR. 2022 half year results presentation.
$21 billion GBP:USD hedge book
Hedge book average rate is £/$1.53
Each 1$ cent change in the £/US$ hedge rate impacts u/lop profit and cash by £25-30m
Back of envelope
On the 4th August (results day) cable FX was 1.2115, its now 1.0820 so approx 13¢ cents lower. If my guesstimate is correct and the rate is at this level by year end, then additional losses/provisions on FX are £325m to £390m.
Here's the link. Look at page 5
https://www.rolls-royce.com/~/media/Files/R/Rolls-Royce/documents/investors/2022-hy-results-appendices.pdf
Great post Conger2.
Roll on the new CEO
Tufan is looking to make a name for himself after being passed over for the top job a BP a few years back. He’s old for a new CEO though so guessing he will only be there 2/3 years but he has a track record for getting results fast.