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Abu Dhabi, UAETuesday 18 September 2018

Jet engine maker Rolls-Royce earnings rocket

Beat first-half profit forecasts after delivering 27 per cent more aircraft power plants

Rolls-Royce Trent XWB engines at the Rolls Royce factory in Derby, UKI Rolls-Royce has seen its profits soar. Paul Ellis / Reuters
Rolls-Royce Trent XWB engines at the Rolls Royce factory in Derby, UKI Rolls-Royce has seen its profits soar. Paul Ellis / Reuters

Rolls-Royce beat first-half profit forecasts on Tuesday after delivering 27 per cent more aircraft engines and higher maintenance revenue.

The British maker of engines for aircraft and ships reported an underlying pretax profit of £287 million (Dh1.39 billion), up 148 per cent from a year earlier and beating market forecasts of £193m.

Rolls shares rose by as much as 8 percent to a two-year high of 957.5 pence after its earnings report.

The chief executive Warren East is rebuilding Rolls-Royce after a record annual loss last year, hurt by a bribery fine, a weaker British pound and falling revenue from older engine programmes.

He is cutting costs, shortening manufacturing times and investing in new engines that will increase the size of its fleet and associated servicing revenue in the next decade.

Mr East said the company had beaten expectations in profit and cash in the first half.

"That was due to a good performance from civil aerospace, there was an increase there in revenue, particularly from our in-service fleet," he told reporters.

"We've made good progress but there's still a lot to do and I'm telling people this is no time for complacency."

The company is doubling production of its large civil aircraft engines, led by the Trent XWB for the long-range Airbus A350. It aims to capture half of the market by 2020.

It said it had an order book of more 2,700 large civil aircraft engines, which reflects an average five years of production including six years of cover for the Trent XWB family.

The profit, however, comes from long-term service contracts with airlines.

Mr East said the company had reduced the loss it is making producing the engine as early launch pricing came to an end and it improved manufacturing efficiency.

Analysts at Jefferies said a better-than-expected cash performance of negative £339m against their expectation of negative £585m was reason enough for "a moment of exuberance".

Mr East, however, said the company needed to continue to ramp up of civil engine production and new product launches.

Its marine engines business, which accounts for 8 per cent of revenue, was still loss-making, and revenue in defence aerospace fell 4 per cent, although lower overheads improved profit.

Mr East said the company was sticking to its full-year outlook calling for a modest performance improvement overall and similar free cash flow to the £100m achieved in 2016.

He said adjustments in long-term contract accounting and a better performance in it power systems unit had come through quicker than expected, but it was also producing a lot more of the engines on which it books a loss.

"Put all those together, we are pretty comfortable keeping the outlook as its stands," he said.

* Reuters

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