Aug 1, 2017

Rolls-Royce First-Half Profit Doubles on Savings, Deliveries

Rolls-Royce Holdings Plc'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 287 million pounds ($379 million) from 104 million pounds a year earlier, London-based Rolls said in a statement Tuesday. Analysts had predicted a figure of 158 million pounds, 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," Chief Executive Officer 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 percent and were trading 4.2 percent higher at 925 pence as of 8:07 a.m. in London. The stock has advanced 39 percent this year, valuing the company at 17 billion pounds.

Cash Revision

The shares fell 4.4 percent Monday after Rolls said that it was guiding away from earlier suggestions that it could reach 1 billion pounds in free cash flow by the end of the decade, instead suggesting that it's aiming to beat a previous high of 781 million pounds 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 Co.'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 Pcl.

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 56 million pounds.


Bloomberg

by Benjamin D Katz