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Rolls-Royce on course for financial forecasts despite engine woes

Rolls-Royce has shrugged off the estimated ?1bn cost of fixing problems with its latest generation of jet engines and maintained its profit and cash generation forecasts.
In an update ahead of the blue-chip engineer’s annual meeting at its Derby base on Thursday, Rolls said it was making good progress in dealing with troubles related to its Trent 1000 engines which power Boeing’s 787 Dreamliner jets.
Turbines blades are wearing at much faster than expected in the Trent 1000 engines, of which Rolls has about 500 of in service.
The problem was first identified almost two years ago but the full scale of it only became clear last month when Rolls warned that it was having to launch an emergency inspection programme to identify affected engines and make repairs if necessary.
The problem can lead to engines shutting down in flight. In response aviation regulators placed restrictions on flight of aircraft powered by the engines, meaning they cannot make long flights over remote areas where no emergency landing facilities are available.
Rolls-Royce on course for financial forecasts despite engine woes

The Trent 1000 powers Boeing's Dreamliner jet
This has led to some airlines grounding their 787s and recalling older aircraft into service to replace them, with the bill potentially going to Rolls.
In its annual results in March Rolls put a ?300m price-tag on sorting out the problem in this year's accounts on top of ?170m last time round, but the extra inspections pushed up the cost. Analysts think that by the time all the problems have been ironed out in the coming years, the bill - including compensation for airlines - could be ?1bn.
Warren East, chief executive, said that the company was “reprioritising” spending to account for the higher costs, allowing Rolls to maintain its financial forecasts.
Updating on the repairs ahead of the annual meeting,  Mr East said: “Roughly two-thirds of the initial programme of accelerated inspections has now been completed, with the remainder of initial inspections scheduled to take place within the next six weeks.
“We sincerely regret any disruption these inspections may cause. We continue to work closely with Boeing, our customers and the regulatory authorities to minimise this.”
Rolls-Royce on course for financial forecasts despite engine woes

Rolls-Royce chief executive said discretionary spending is being cut to make up for the Trent 1000 costs
He added the company was making “significant progress” developing new maintenance plans for the engines and replacement parts to counter the problem.
Looking across the business, the chief executive said trading was in line with expectations, and likely to repeat the pattern of previous years with heavy spending in the first half and profit weighted towards the end of the year.
Rolls is targeting ?450m of free cashflow - the cash a company generates after essential spending to keep the business running - this year, with a target of ?1bn by 2020.
Mr East believes free cash flow is a much better measure of the company’s performance than profit. This is because of Rolls’s high expenses such as R&D and the company’s multi-billion “hedge book” of foreign currency to insulate it from changes in foreign exchange rates. The hedge book led to the company reporting a paper loss of ?4.6bn for 2016, largely due to changes in currency hitting its hedge book.
Rolls-Royce on course for financial forecasts despite engine woes

Rolls-Royce is selling its marine business
Mr East also said that his efforts to simplify Rolls and cut costs are going well, with the business being reduced down from five units to three. The company is also selling in the civil part of its poorly-performing marine business, but holding on to the military side of it.
The chief executive hinted that Rolls could be closing in on a sale of the marine division, saying on the sidelines of the meeting that he expected to be able to give an update on progress at the company's investor day in June.
Analysts at UBS said the simplification programme should “ultimately drive a general and administrative costs reduction”.
The broker, which rates Rolls as a “buy”, said the progress made on the Trent 1000 issues means more detail about the scale of the problem should be given at the company’s investor day.
Rolls shares dipped almost 1pc in early trading. 
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