ROLLS-ROYCE HOLDINGS PLC – 2018 Half Year Results

Commenting on the results, Warren East, Chief Executive, said: “We continued to make good progress in the first half. Financial results were ahead of our expectations with strong growth from Civil Aerospace and Power Systems and we achieved a number of operational and technological milestones. Reflecting our progress to date and growing confidence for the full year, we now expect both underlying profit and cash flow for 2018 to be in the upper half of our guidance range. We continue to be impacted by the challenge of managing significant Trent 1000 in-service issues and have recognised an exceptional charge of £554m, representing the profit impact of that part of the total current and estimated costs out to 2022 that is considered to be abnormal in nature.”

Group financial highlights 

·        Underlying revenue of £7,040m up 14%; reported revenue of £7,487m up 12%. Civil Aerospace revenues up 26%, Power Systems up 13% and Defence remains flat

·        Underlying operating profit up £205m to £141m; strong growth in Civil Aerospace and Power Systems; reported operating loss of £775m

·        Group free cash flow improvement of £211m on prior year outflow of £339m driven by good cash flows in Defence and reduced outflow in Civil Aerospace

·        Exceptional charge in the income statement for Trent 1000 in-service issues of £554m representing that part of the total estimated cost for the period to 2022 that is considered to be abnormal in nature

·        Estimate of FY 2018 cash costs for Trent 1000 and Trent 900 in-service issues approximately £450m, in line with 15 June 2018 guidance, FY 2019 combined cash cost now expected to be at a similar level to 2018, before declining by at least £100m in 2020; despite this we expect to deliver improved 2019 underlying free cash flow compared to our guidance for 2018

·        Since the year end net funds have improved by £470m primarily driven by proceeds from the disposal of L'Orange (€673m) completed on 1 June 2018Commercial Marine sale (expected net proceeds £350m-£400m) announced on 6 July 2018

·        FY 2018 underlying profit and free cash flows; now expected to be in the upper half of our guidance range

 

Group operational highlights

·        Positive early progress on the restructuring plan. Target run-rate savings of £400m p.a. by end of 2020

·        Civil Aerospace widebody service revenues up 22% on an underlying basis; large engine production ramp-up continues; widebody deliveries up 24%; 259 engines sold in H1 2018; Trent 7000 certification; launch of Pearl engine for business jets, successful testing of Advance3

·        Continued strong growth at Power Systems; OE and Service growth across almost all end markets

Underlying1

Reported

Year to 30 June

H1 2018

H1 20172

Organic

change3

H1 2018

H1 20172

 

Change

Group

Revenue (£m)

7,040

6,041

+14%

7,487

6,656

+12%

Operating profit (£m)

141

(84)

205

(775)

(103)

(672)

Earnings per share

2.5p

(8.1)p

n/a

(52.0)p

63.9p

n/a

Core4

Revenue (£m)

6,680

5,611

+16%

 

Operating profit (£m)

146

(70)

183

 

Earnings per share

3.1p

(6.5)p

n/a

 

 

 

 

 

 

(Net debt) / Cash (£m)5

165

(305)

n/a

 

Group free cash flow (£m)6

(72)

(339)

211

 

Core free cash flow (£m)

10

(264)

214

 

Payment per share

4.6p

4.6p

 

 

2018 Outlook: Increasing confidence

At our 2017 Full Year Results in March, we provided a 2018 full year outlook for the Group excluding ITP Aero and under our prior reporting structure. Our guidance has been updated to reflect our revised reporting structure. We are now providing guidance on the basis of our core business (which includes ITP Aero and excludes non-core operations either already sold or held for sale). For our core business, we expect 2018 underlying operating profit of around £450m +/- £100m and underlying free cash flow of around £400m +/- £100m.

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