Rolls-Royce posts £1.2bn loss after engine troubles, restructuring
Rolls-Royce made a loss at the bottom line due to sizeable one-off charges but ended 2018 with a pile of cash after axing around 1,300 jobs and selling off its fuel injection business.
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The engine maker, which also announced that it has decided to withdraw from the current competition to power Boeing's proposed new midsize aeroplane due to the short deadline, reported £15.7bn of revenue for 2018, up 7% on the previous year.
Underlying group revenue was up 8% and the core business up 10% to £14.3bn, with Civil Aerospace revenue up 12%, Power Systems up 15%, Defence flat and ITP Aero up 6%.
Underlying profits rose 71% to £633m, but a statutory £1.2bn loss was reported after exceptional charges that included £790m related to problems with the Trent 1000 engine, plus another £186m following Airbus' decision to close the A380 production line and £223m from restructuring.
At the bottom line was a loss per share of 129.2p, though if exceptional items are ignored, earnings per share jumped to 16.0p from 2.3p.
The underlying businesses saw significant improvement in Civil Aerospace to stabilise profits, Power Systems margins were squeezed by product mix despite the increased volumes, while Defence margins were weaker due to lower combat volumes and lower margins on submarine service revenues.
Chief executive Warren East said: "Despite the challenges we faced on Trent 1000 in-service issues, solid progress has been made realising our ambition to make 2018 a breakthrough year, both strategically and financially."
The restructuring East announced last June was "on track", with the staff headcount on course to be slashed by 4,600, with the group structure changed he said "we are starting to see the crucial behavioural changes needed to sustain our momentum".
Free cash flow surged to £641m, with management aiming to generate at least £1bn by 2020, which resulted in the prior net debt of £305m in 2017 moving to a net cash position of £611m, helped by the receipt of €673m proceeds from the disposal of L'Orange.
East said fixes were being implemented to improve the health of the Trent 1000 fleet and the overall Civil Aerospace large engine fleet performance "is getting stronger".
"After a decade of significant investment we remain committed to delivering improved returns while continuing to invest in the innovation needed to realise our long-term aspiration to be the world's leading industrial technology company."
For 2019, Rolls guided to underlying operating profit and free cash flow both of £600-800m.
Shares in the fell almost 3% to 955p on Thursday.
Analyst George Salmon at Hargreaves Lansdown said: “Many parts of the business are operating more efficiently than they have in the last few years, but Warren East hasn’t quite got Rolls-Royce firing on all cylinders. Large numbers of Trent 1000 powered aircraft have been grounded, generating a significant repair bill, and the group has dropped out of the bidding to supply engines for Boeing’s new midsize planes.
He said the free cash flow and net cash position were bright spots and critical for management's reputation.
"But there are asterisks attached to the progress. While Rolls deserves credit for freeing up cash by changing its supplier terms, much of the improvement is being driven by extra upfront payments and £70m of restructuring costs have been excluded.
"While these results look strong, the multitude of adjustments and mitigating factors mean we think the champagne will have to stay on ice for now.”