Rolls-Royce results beat forecasts

Rolls-Royce smashes yearly forecast

The company has published its full-year results for 2017, which show that the manufacturer made a reported pre-tax profit of £4.9 billion.

This is in stark contrast to last year when the firm, which employs around 14,000 staff in the UK, reported its worst-ever performance in its history.

In terms of sales, the company saw a 9% rise in revenues to £16.3 billion, despite the firm’s order book dropping by 3% to £78.5 billion.

Chief executive Warren East said: “Rolls-Royce made good progress in 2017. Financial results were ahead of our expectations and we achieved a number of important operational and technological milestones but were impacted by the increasing cost and challenge of managing significant in-service engine issues.

“We are encouraged by the improving financial performance in 2017 with growing revenues contributing to improved profitability and cash generation.

“Looking forward, sustaining this improvement and delivering increasing cash flow generation will strengthen our position as one of the world’s leading industrial technology companies.”

Rolls-Royce is made up of a number of businesses across areas of engineering such as civil aerospace, defence, marine, nuclear, and power systems.

Since taking over as chief executive in 2015, Mr East has been reviewing parts of the business and cutting a number of management roles.

He has said that the restructuring of the business would continue.

Mr East said: “The business unit simplification and restructuring programme that we announced in January will drive further rationalisation and is a fundamental step in the journey started two years ago to bring Rolls-Royce closer to its full potential both operationally and financially.

“The restructuring will focus on the operation of management, support and engineering and technology functions across the corporate centre and also in our three divisions, driving simplicity, agility and pace into our business.

“We are proposing to move to a considerably simplified staff structure, with fewer layers and greater spans of control across the group.

“We expect this programme to deliver a significant reduction in costs and assist us in improving performance across the group as a whole. We will provide clarity of these benefits later in the year.”

Shares in the British stalwart rose 12% and the final dividend was held at 7.1p per share, giving a full-year payment of 11.7p.

George Salmon, equity analyst at Hargreaves Lansdown, said: “When Warren East took over at Rolls-Royce, the group was in pretty serious trouble.

“While his work so far has steadied the ship, heading into these results there were plenty out there unconvinced by his turnaround strategy. With opinion divided, that made these numbers crucial.

“Beating market expectations in every division is a major coup for the former ARM boss, and brings more credibility to his ambition of improving the group’s free cash flow from just £100m last year to £1bn by 2020.

“Cash flows were the main issue during the dark times of 2014/15, so it’s great to see things moving in the right direction on that front.

“The only black mark against the group is the £170m soaked up by “durability issues” in the Trent 1000 and 900 engines. There’s more costs coming in the next year or so too.

“Testing on the next generation UltraFan engines is going well, cost savings have come in at the top end of guidance and there’s extra efficiencies on offer from simplifying the business too.

“Add in the £500m or so likely to come in from the sale of the L’Orange fuel injection business, and it’s no longer panic stations on the dividend.

“Indeed, the chances of Rolls-Royce meaningfully increasing its returns to shareholders in the years to come look much better now.”

Published: 07 March 2018

Article by Chris Middleton
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