Rolls-Royce Holdings Boosts Outlook Despite Mounting Engine Repair Bills -- Update
August 02 2018 - 4:22AM
Dow Jones News
By Robert Wall
Rolls-Royce Holdings PLC (RR.LN) on Thursday boosted its outlook
for the year even as it said costs to fix some engines powering
Boeing Co. (BA) 787 Dreamliners and Airbus SE (AIR.FR) A380
superjumbos rose and could top $1.6 billion as repair bills
mount.
The British aircraft engine maker said cash costs from
in-service issues, with components wearing out more quickly than
expected, would reach 450 million pounds ($589 million) this year
and again in 2019. They could reach close to GBP350 million in 2020
before falling sharply.
The company took a GBP554 million charge against first-half
results to help cover about 40% of the Dreamliner engine costs.
The engine problems have disrupted airline customers. They have
been forced to park planes to repair engines, scrap flights and
rent other airliners to complete their schedules. "We deeply regret
that," Rolls-Royce Chief Executive Warren East told reporters, but
added the company was making "solid progress" in repairing
engines.
Mr. East said most of the engines should be fixed through 2021,
though a few repairs may still be required after.
Despite the higher engine-repair costs, Rolls-Royce, no longer
affiliated with the luxury car maker, was able to boost underlying
profit and cash-flow guidance because of strong demand across its
programs. Airlines are flying more, boosting demand for engine
parts to keep the jetliners in the air. Business such as power
systems, where engines are used for energy production, also are
seeing strong demand.
Rolls-Royce expects underlying pretax profit and cash flow for
the full year to be in the upper half of its guided range.
Chief Financial Officer Stephen Daintith said that would put
profit at between GBP400 million to GBP500 million and cash flow at
GBP450 million to GBP500 million. Cash would rise again next year,
with Rolls-Royce sticking to a target of around GBP1 billion in
underlying free cash flow around 2020.
Rolls-Royce rose 6.2% in early trading in London.
The company on Thursday reported a pretax loss for the first six
months of the year of GBP1.26 billion pounds compared with a profit
of GBP1.44 billion in the year-earlier period. It also slipped to a
net loss of GBP962 million from a net profit of GBP1.17 billion a
year earlier, reflecting accounting adjustments on currency
hedges.
First-half revenue rose 12.5% at GBP7.49 billion from GBP6.66
billion a year earlier, the company said.
Rolls-Royce also booked a GBP179 million restructuring charge
linked to a previously announced plan to shed about 4,600 jobs to
boost long-term profitability.
Adria Calatayud contributed to this article
Write to Robert Wall at robert.wall@wsj.com
(END) Dow Jones Newswires
August 02, 2018 04:07 ET (08:07 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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