Rolls-Royce reconfirms 2018 financial guidance, restructuring on track

Rolls-Royce reconfirmed (12-Dec-2018) its financial guidance for 2018 profit and free cash flow to be in the upper half of its full year guidance range. The company forecast operating profit of GBP400 million (plus or minus GBP100 million) and free cash flow of GBP450 million (plus or minus GBP100 million). 2018 full year results will be announced on 28-Feb-2019. The company provided details for the following business areas:

• Civil aerospace:
  • The strong growth in large engine flying hours reported in 1H2018 continued into 2H2018. The company expects 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 its Mar-2018 projection of around 550 large engines. This 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. The company is confident that Trent 7000 production and delivery volumes will increase significantly to meet customer commitments;
  • The company continues to make progress reducing large engine OE unit losses and will provide more details in Feb-2019;
  • The company reported progress with regulatory authorities on certification of the newly designed intermediate pressure compressor blades for the Trent 1000 Package C engines. Once certified, the new blade design can be fitted to Package C engines as they come in for overhaul, helping to reduce the current customer disruption on this engine variant;
  • Despite significantly increasing Trent 1000 related MRO capacity over the last 12 months, the company reported the number of aircraft on ground remains at a high level. Rolls-Royce said: "We are determined and confident that as we execute our plans we will see a significant improvement in aircraft on ground as we progress through the first half of 2019";
• ITP Aero: Continues to trade in line with expectations. The company announced the groundbreaking ceremony for the new ITP Aero facilities in Bizkaia, Spain, which will focus on the design and manufacturing of components used in aircraft engine dressing, such as fluid systems and structures;
• Restructuring: Remains on track. The focus in 2018 was on establishing a new operating model and delivering the targets previously communicated, specifically a 4600 headcount reduction over the next two years, with around a third taking place before the end of 2018. The company is confident that the end result will be "a simpler, leaner and more agile organisation that drives culture change through pace, simplicity, efficiency and empowerment".
• Brexit: Rolls-Royce will continue to implement contingency plans until it is certain that a deal and transition period has been agreed The company is working with EASA to transfer design approval for large aero engines to Germany, where it already carries out this process for business jets. Rolls-Royce said: "This is a precautionary and reversible technical action which we do not anticipate will lead to the transfer of any jobs". The company has also begun to build inventory as a contingency measure. [more - original PR]