Rolls-Royce on track, forecasts cash improvement

Britain’s Rolls Royce said it expected a significant improvement in cash generation in its second half. — Reuters pic

The company, which is being restructured by Chief Executive Warren East, has forecast core underlying profit and free cash flow of 700 million pounds, plus or minus 100 million pounds, for the year, and at least 1 billion pounds in free cash flow in 2020.

East has been restructuring Rolls-Royce to ramp up civil aerospace production and cut losses on the sale of its engines, which it later aims to make up through maintenance programmes.

Rolls-Royce financial results noted its £433 million inventory included a £100 million contingency for a no-deal Brexit.

Underlying operating profit rose 32% to £203m, as revenue rose 7% to £7.35bn. Sales rose as the firm's civil aerospace business, the biggest revenue grosser, saw turnover increase in double digits with 257 large engines delivered amid improved pricing.

British engineer Rolls-Royce said a build-up of inventory such as the Trent 7000 engine that powers the Airbus A330neo would unwind in the second half and drive a "significant improvement" in cash flow. It assessed the total impact at £245 million of exceptional costs.

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The CEO of engine maker Rolls-Royce (RR.L) on Tuesday said the company spent around £100 million preparing for Brexit and would be ready if no deal Brexit happens.

"We have made good progress on resolving the Trent 1000 compressor issue, though regretfully, customer disruption remains", East said.

Air New Zealand's five 787-9 aircraft with the Trent 1000 Package C engines were knocked out of service by the blade issues, then eight with replacement 1000 TEN engines required inspections sooner than expected this year. The cost of these defective engines, including compensations, will be around £1.6 billion.

However the group's total net loss still hit £909 million in the six months to June.

He said: We delivered further progress across the group in the first half in line with our full year expectations.

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