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Rolls-Royce profit doubles on savings, deliveries

Aug 01 2017 09:26
Benjamin Katz, Bloomberg

London - Rolls-Royce’s first-half profit more than doubled, beating estimates, as restructuring measures cut costs, it delivered more large jetliner engines and the XWB turbine produced for Airbus SE’s A350 jet proved less of a drag on margins.

Adjusted pretax profit jumped to £287m from £104m a year earlier, London-based Rolls said in a statement on Tuesday. Analysts had predicted a figure of £158m, according to data compiled by Bloomberg.

“Looking to the balance of the year, execution and delivery of a number of important milestones across our businesses will be key to achieving our full year expectations,” CEO Warren East said in the release. He stuck with guidance for “modest” performance improvements for the 12 months and free cash flow similar to that achieved in 2016.

East has been leading a turnaround as Rolls-Royce ramps up production of the Trent XWB and works on a new turbine for Airbus’s revamped A330 jet.

The first-half figures benefited from deliveries of higher-margin engines, including Trent 900s that power the A380 superjumbo, while the low oil price helped extend the life of older planes that generate higher engine-repair revenues.

Rolls-Royce shares rose as much as 5.1% and were trading 4.2% higher at 925 pence as of 09:07. The stock has advanced 39% this year, valuing the company at £17bn.

Cash revision

The shares fell 4.4% on Monday after Rolls said that it was guiding away from earlier suggestions that it could reach £1bn in free cash flow by the end of the decade, instead suggesting that it’s aiming to beat a previous high of £781m set in 2013.

First-half figures were bolstered by further improvements in the ‘economics” of manufacturing the A350’s XWB engine, according to Rolls, something that Jefferies analyst Sandy Morris said is a vital development given the company’s reliance on the model, which has a production backlog stretching for six years.

Among the second-half challenges identified by East is the development of new engines to power the stretched A350-1000 and Boeing’s largest 787-10 Dreamliner, as well as the A330neo. Rolls-Royce is also contending with issues on the 787’s baseline Trent 1000 turbine, which has led to the grounding of planes at customers including Thai Airways International.

Losses at the marine division widened as the oil price continued to weigh demand for offshore vessels from the oil and gas industry.

The six-month numbers were also swelled by a higher than expected benefit from long-term contract accounting adjustments, which provided a net gain of £56m.

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rolls royce  |  companies  |  industrial
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