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Rolls-Royce's turnaround delivers fivefold increase in profit

Published 08/03/2023, 02:18 AM
Updated 08/03/2023, 05:16 AM
© Reuters. FILE PHOTO: A BR700-725 jet engine is seen at the assembly line of the Rolls-Royce Germany plant in Dahlewitz near Berlin, Germany, February 28, 2023.   REUTERS/Nadja Wohlleben/File Photo

By Paul Sandle

LONDON (Reuters) -Aero-engineer Rolls-Royce (OTC:RYCEY) on Thursday reported a strong recovery in profit as its new CEO's turnaround plan gathers pace, helped by better pricing for maintaining the engines that power long-haul aircraft like the Airbus A350 and Boeing (NYSE:BA) 787.

The British company reported first-half underlying operating profit of 673 million pounds ($854 million), more than five times the level of a year ago.

It said last week its profit would be more than twice market expectations, and its full-year outcome would be 1.2-1.4 billion pounds, up from previous guidance of 800 million-1 billion pounds.

Chief Executive Tufan Erginbilgic, who joined the company in January, said the jump in profit and cash generation reflected "greater productivity, efficiency, and improved commercial outcomes.

"We have tightly managed our cost base to offset inflationary cost pressures," he said on Thursday.

Erginbilgic said the 16 point improvement in civil aerospace margin to 12.4% - the highest for at least 15 years - had been achieved despite engine flying hours recovering to 83% of pre-pandemic levels and supply chain challenges persisting.

The company had increased the price of shop visits - when engines are removed from aircraft for maintenance - by 12%, he told reporters, which along with commercial optimisation had flowed through to the bottom line.

Operating profit in its defence unit, which provides the engines that power Britain's nuclear submarines, grew by a third, driven by strong revenue growth and higher margin.

Power systems - its third major business unit - reported broadly flat profit at a lower margin. Erginbilgic said price increases would deliver a significant improvement in the second half.

© Reuters. FILE PHOTO: A BR700-725 jet engine is seen at the assembly line of the Rolls-Royce Germany plant in Dahlewitz near Berlin, Germany, February 28, 2023.   REUTERS/Nadja Wohlleben/File Photo

Shares in Rolls rose to the highest level since March 2020 after it updated its forecasts last week. They were broadly flat in morning deals on Thursday.

($1 = 0.7878 pounds)

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