Saturday, May 30, 2020

Rolls-Royce engine issues lead to £1.4bn operating profit hit

While progress has been made in resolving ongoing Trent 1000 issues, “with only one major design fix remaining,” Rolls-Royce has revealed that the engine’s maintenance issues will create a £1.4bn operating profit hit on its 2019 results.

While the company has highlighted improved trading since the Half Year, it now expects Full Year operating profit to be “towards the lower end of guidance ranges.”

Warren East, CEO, Rolls-Royce said: “In spite of improved trading since the Half Year, we now expect Full Year operating profit and free cash flow to be towards the lower end of our guidance ranges. In Civil Aerospace, while the Trent 1000 costs remain a headwind, the vast majority of our installed fleet of widebody engines is performing well, with the Trent XWB surpassing our expectations.

“We have seen growth in ITP and steady sales in Defence. In Power Systems, while trading remains healthy, a small number of larger projects have been deferred and as a result we now expect sales growth for the Full Year in the low- to mid-single-digit range.

“My top priority is improving customer confidence in the Trent 1000. We are today announcing additional action to further expand our maintenance capacity and increase our stock of spare engines. We deeply regret the ongoing disruption caused to customers. These steps, which build upon progress made to date, will further reduce disruption to our airline customers and give them the certainty that they need.

“We have completed a detailed technical evaluation of our work on an improved high pressure turbine blade for Trent 1000 TEN, the last major redesign activity required for the issues which we have identified with the engine. Although we regret that the blade will not be ready when we had originally planned, our understanding of the technical issues has significantly improved. As a result we are now able to reset our financial and operational expectations for the engine based on a blade design with a prudent durability estimate that we are confident we can deliver. This will give our customers and ourselves a higher degree of certainty as we plan for the servicing of the fleet over the coming years.

“With this increased understanding we have been able to carry out a full financial review of the Trent 1000. The result is a revised assessment of cost and future profitability of the programme to provide greater clarity for investors.

“We expect to deliver at least £1bn of FCF in 2020, underpinned by the benefits of our restructuring programme, operating efficiency improvements, further efforts to reduce inventory and disciplined capital allocation. Longer term as the Trent 1000 costs subside, we remain confident in our mid-term ambition of at least £1 of FCF per share.”

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