Rolls-Royce swings to operating profit but cash outflows increase
Rolls-Royce on Tuesday reported interim results in line with analysts' expectations as it swung to an operating profit after improved trading in both its power systems and civil aerospace divisions.
Aerospace and Defence
10,849.11
16:59 26/04/24
FTSE 100
8,139.83
17:09 26/04/24
FTSE 350
4,470.09
16:59 26/04/24
FTSE All-Share
4,423.59
17:14 26/04/24
Rolls-Royce Holdings
421.10p
16:40 26/04/24
The power and propulsion systems manufacturer scored an operating profit of £83m for the six month period ended 30 June, an improvement from the loss of £747m it registered in the same period of 2018, with overall revenue growing by 5% to £7.9bn.
Core revenues, which excludes those from the company's marine unit, grew by roughly 7.0% (UBS: 6.0%) and large engine flying hours were up by 8.0% (UBS: 6.0%).
Increased sales came after the power systems and civil aerospace divisions saw improved trading, with respective underlying organic revenue growth of 11% and 6% as the company delivered 257 large engines and enjoyed strong order coverage.
As a result, the FTSE 100-listed company's interim loss before tax improved from £1.2bn to £791m, as the engineering giant dealt with exceptional costs relating to restructuring charges and fixing blade problems in its Trent 1000 engines.
Warren East, chief executive of Rolls-Royce, said: "We have made good progress on resolving the Trent 1000 compressor issue, though regretfully, customer disruption remains. Progress on our restructuring programme is in line with the plan we outlined a year ago. We took significant strides in accelerating our electrification ambitions through the announced acquisition of Siemens' eAircraft business in our drive to create cleaner, more sustainable and scalable power for the future."
Looking ahead, the manufacturer said it remained on track for full-year core underlying operating profits and free cash flow of £700.0m plus or minus £100.0m
Management also stuck by a prior forecast for FCF of "at least" £1.0bn by financial year 2020.
That was despìte saying that group free cash outflow deteriorated to £429m from £72.0m, due in part to higher Trent 1000 in-service cash costs.
Analysts at Jefferies labelled the company's results "satisfactory" and stood by their 'buy' recommendation and 815.0p target price for the shares following the manufacturer's latest quarterly results.
"In our view, the 1H19 results – the numbers – are satisfactory. As is often the case, one could pick over the components of working capital, but in terms of what happened in the business, the Trent 1000 remains irritating, but EFHs and OE loss reduction were encouraging. The order intakes in Defence and Power Systems were positive," they said in a research note sent to clients.
"FY19 guidance is reiterated, along with the target for FY20 FCF to exceed £1bn. We find the investment case compelling."
Rolls-Royce's shares were down 1.04% at 806.52p at 0803 BST.