Authorization

Jet engine blow to drag on Rolls as turnaround hits turbulence

Reliability problems with Rolls-Royce’s flagship jet engine are expected to cause more turbulence for its turnaround this week.
The engineering giant has already warned the total bill for fixing Trent 1000 engines, which power Boeing 787 Dreamliners, is likely to exceed ?1bn.
The engines have required a massive programme of emergency inspections and maintenance after cracks in fan blades were detected.
Rolls Royce shares March 2017
It means Rolls’ half-year results on Thursday are expected to show negative free cash flow of ?400m. The figure would represent a deterioration on the first half of last year when it spent ?339m more than it was making.
The continuing costs are a blow to Warren East, the chief executive, who has appealed to investors to judge Rolls on its cash flow. He says the way the engineer sells engines at a loss in order to make profits later on long-term servicing deals means traditional financial measures do not give a true picture of how it is performing.
The Trent 1000 failures mean hitting a full-year target of ?500m positive free cash flow is more challenging.
Jet engine blow to drag on Rolls as turnaround hits turbulence

Rolls-Royce chief executive Warren East

Credit:
Reuters
Mr East is stripping out other costs in a bid to soften the impact. In June, he revealed a “fundamental” restructuring which will cut 4,600 jobs, or about a tenth of staff, over the next two years. All non-essential spending including travel and IT upgrades has been curtailed. Rolls is also looking for cheaper offices for its London headquarters.
City doubts over Mr East’s ability to hit his medium-term target of ?1bn positive cash flow by 2020 have been fuelled by the company’s inability to provide forecasts for next year.
Analysts at Exane BNP Paribas are predicting first-half revenue of about ?3.1bn. That would be ?500m down on last year and deliver a small underlying pre-tax loss, compared with a ?287m profit.
Jet engine blow to drag on Rolls as turnaround hits turbulence

Rolls-Trent 1000 engines have needed emergency inspections programmes to identify problems 
But Sandy Morris, analyst at Jefferies, said: “Despite reporting numbers that are dreadful on traditional measures, Rolls is somehow a ?10 a share company, when by normal valuations it should be ?2. It just shows the belief investors have in its future.”
Britain’s other engineering giant, defence company BAE Systems, will also be reporting interim numbers this week. It is reporting under new accounting standards and is expected to post revenues of about ?8.6bn, down ?1bn, with pre-tax profit falling about ?100m to around ?700m.
Markets Hub - BAE Systems
Some analysts expect it to announce that its Applied Intelligence cyber division has failed to break even, despite it taking a ?384m impairment write-down at the annual results.
However, the key area of focus will be the order pipeline after BAE won a ?20bn contract for warships for Australia, a deal with the US to supply new amphibious vehicles for the marines, and the sale of more of its Typhoon fighter jets.
See also:
Leave a comment
News
  • Latest
  • Read
  • Commented
Calendar Content
«    Октябрь 2018    »
ПнВтСрЧтПтСбВс
1234567
891011121314
15161718192021
22232425262728
293031