Rolls-Royce reconfirms its financial guidance for 2018 profit and free cash flow. Specifically, the company expects both group and core profit and cash flow for 2018 to be in the upper half of our full year guidance range, with operating profit at £400 million for the group, and £450 million for core, which includes civil aerospace.
The engine manufacturer states that the strong large engine flying hour growth it reported in the first half has continued into the second half of the year. “As guided previously, we expect full year growth to be in the mid-teens range.”
Rolls-Royce expects to deliver around 500 large engines to customers in 2018, lower than the March 2018 engine projection of around 550 large engines. The company explains that this lower number reflects supply chain challenges that are affecting the whole civil aero engine sector and also early stage production ramp-up challenges on the new Trent 7000 engine. “As we move into 2019 we are confident that Trent 7000 production and delivery volumes will increase significantly to meet our customer commitments,” says the company in a trading update, adding that it has also “continued to make progress reducing large engine OE unit losses and will provide more details on this with our full year results in February 2019”.
Rolls-Royce confirmed that work with the regulatory authorities on the certification of the newly-designed intermediate pressure compressor blades for the Trent 1000 Package C engines is progressing well. “Once certified, this new design of blade can then be fitted to Package C engines as they come in for overhaul, helping to reduce the current customer disruption on this engine variant.”
However, the company admits that despite significantly increasing its Trent 1000 related maintenance, repair and overhaul capacity over the last twelve months, the number of aircraft on ground remains at a “high level”, which it says it “sincerely regrets the disruption … caused [to] customers”.
Rolls-Royce reports that the restructuring announced on 14 June 2018 remains on track. The focus in 2018 has been on establishing the new operating model and on delivering the targets previously communicated; specifically, a 4,600 headcount reduction over the next two years, with around a third of these taking place before the end of this year. “We are confident that the end result will be a simpler, leaner and more agile organisation that drives culture change through pace, simplicity, efficiency and empowerment,” it says.
Commenting on the decision by the UK Government to delay the vote on the proposed Withdrawal Agreement and political declaration that will effectively divorce the UK from the European Union, Rolls-Royce says that it will continue to implement our contingency plans until there is certainty that a deal and transition period has been agreed. Those plans include working with EASA to transfer design approval for large aero engines to Germany, where it already carries out this process for business jets. “This is a precautionary and reversible technical action which we do not anticipate will lead to the transfer of any jobs,” says the company. Rolls-Royce has also confirmed that it is building up inventory as a contingency measure, and is liaising with all suppliers and following a review of its logistics options, it states that the company has have the required capacity available. “At this point we have contingency plans in place and will update the market when we have clearer visibility.”