Rolls-Royce Says Cost Savings on Track, Trading Tough -- Update

By Robert Wall

LONDON--British engine maker Rolls-Royce Holdings PLC said it is on track for the top end of a cost-savings target though it warned demand for ship engines would remain weak next year.

The company, which repeatedly missed profit targets last year, is in the middle of restructuring its business, cutting staff, replacing much of its top management and streamlining operations to deliver GBP150 million ($187 million) to GBP200 million in savings from next year.

Rolls-Royce said on Wednesday that savings would be at the top end of that range.

The company, which builds aircraft engines for long-range jetliners made by Boeing Co. and Airbus Group SE, warned that market conditions remain volatile. Demand for business jet engines has weakened and sales of marine engines for vessels serving the oil and gas market would remain depressed next year.

The company left unchanged its guidance for a decline in revenue and profit this year.

Rolls-Royce, no longer affiliated with the luxury car maker, is preparing investors for new accounting rules that will take effect in 2018 and alter how the company reports earnings.

Rolls-Royce typically sells aircraft engines at a loss and makes up the money later on servicing them. Rolls-Royce masked the early losses by booking some of the assured services revenue early. Under new accounting rules those losses will need to be reflected immediately and services revenue can't be booked until the work takes place.

The company said sales for its new engines last year would have been GBP700 million lower than reported and revenue for services to maintain those engines would have been reduced by GBP200 million. The company reported 2015 underlying revenue for new engines of GBP3.3 billion and GBP3.7 billion for services.

With the initial phase of the restructuring plan implemented, Chief Executive Warren East said "it is now time to look further ahead."

"Together with my new team, our focus is turning towards the group's long-term goals," Mr. East said.

Write to Robert Wall at robert.wall@wsj.com

(END) Dow Jones Newswires

November 16, 2016 03:14 ET (08:14 GMT)

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