Rolls-Royce profits slump 32% but new boss says there'll be no more bad news on earnings
Rolls-Royce saw profits slump by more than 30 per cent in the first half of the year, but shares rose by more than 2 per cent this morning as the fall was slightly better than previously expected.
The slump in profit comes after the Derby-based aerospace engine maker issued three profit warnings in a year, the latest of which came earlier this month as it reported poor performance in the key civil aerospace division.
New chief executive Warren East said there would not be another downgrade to profit forecast for the year and that the group remained on track to meet its full year guidance. Shares were 1.1 per cent higher, or 8.25p, at 738.75 in mid-morning trading.
Profit slump: But Rolls-Royce said there would be no more profit downgrades for the year
Underlying pre-tax profit fell 32 per cent to £439million in the six months to the end of June, down from £646million a year earlier. This, however, was slightly better than guidance of between £395million and £437million.
Revenues also fell 3 per cent from £6.5billion to £6.3billion.
‘Despite the disappointment of our recent update, our second half outlook remains positive and full-year guidance for revenue, profit and cash issued on July 6 remains unchanged,’ he said.
And added: ‘In the near term, we are managing a significant transition from mature engines to newer, more fuel efficient ones, such as the Trent XWB, Trent 7000 and Trent 1000. At the same time, we are taking appropriate actions to mitigate the effects of weakness in our offshore marine markets.’
East, the former boss of software group ARM Holdings who joined the company on 2 July, has been billed as the saviour of Rolls-Royce.
Analysts at Liberum said that while the half year results did not present any surprises, the focus would be on East’s preliminary recovery plans, which are already underway in the group’s marine and aerospace divisions.
‘The shares have bounced after the prior three warnings but the way ahead appears long. Satisfactory cash conversion is not expected until at least 2019.
‘However, we believe Warren East is a positive addition to the story and his preliminary recovery plans will be the focus of today’s presentation,’ Liberum said.
Rolls-Royce said it would raise the interim dividend by 3 per cent to 9.27 pence per share.
Civil aerospace is the main revenue engine at Rolls-Royce, but earlier this month the group said deliveries of its Trent 700 engines for Airbus 330 jets were lower than hoped.
New boss: Warren East said there would not be another downgrade to profit forecast for the year
It also saw declines in its marine division, where lower oil price caused a slowdown in orders from energy customers.
Less than two weeks ago it announced it received two major orders worth a combined £1.4billion. It will sell Trent 700 engines for 20 Airbus A330 regional aircraft operated by SAUDIA, Saudi Arabia’s national airline.
And leasing company International Air Finance Corporation, which owns the aeroplanes, is buying the engines for £600million. Rolls-Royce said it had also signed a long-term servicing contract worth £840million directly with SAUDIA.
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