Rolls-Royce nears return to profit after ‘torrid’ recent years as departing CEO points to ‘significant progress’ since its Covid lockdown hammering
- Warren East said the firm should achieve a profit and positive cash flow this year
- Rolls Royce’s civil aerospace division is heavily reliant on planes regularly flying
- Airline Qantas recently bought 12 Airbus planes fitted with Rolls-Royce engines
Rolls-Royce has maintained its full-year financial outlook as a healthy rise in air passenger travel bolstered its pandemic recovery.
Ahead of an annual general meeting on Thursday, the engineering giant’s outgoing chief executive Warren East said the group should achieve a positive profit and cash flow this year thanks to strong performances by multiple divisions.
Within its civil aerospace division, which is heavily reliant on how often aeroplanes with Rolls-Royce engines fly, the company benefited from looser international travel restrictions in markets like Europe and the Americas.
Departing: Ahead of an annual general meeting today, Rolls Royce’s chief executive Warren East (pictured) said the group should achieve a profit and positive cash flow this year
It also noted flying hours ‘remained strong’ in business aviation, although the level of air travel was low in China, where much of the country is currently subject to stringent Covid-related restrictions.
Yet large engine long term service agreement (LTSA) flying hours still increased 42 per cent from the same period last year when much of the airline industry was virtually grounded.
Rolls-Royce said the improvement in trade remained somewhat uncertain given the current economic environment.
However, Warren East believes the firm has ‘made significant progress on the path to recovery from the impact of Covid-19.’
He added that the business was ’emerging as a better balanced and more resilient business with a sustainable future, focused on the long-term business opportunities presented by the global energy transition’.
Its medium-term forecast for civil aerospace shows trading cashflow ‘comfortably’ surpassing operating profit while operating margin is set to expand in the high single-digit percentage terms.
By comparison, the operating margin within its defence division is anticipated to be lower this year, due in part to the increased investment going towards supporting the gaining of recent contracts.
New order: Qantas recently agreed to purchase 12 Airbus A350-1000s, which are powered by Rolls-Royce’s Trent XWB-97 engine and will be able to fly non-stop from London to Sydney
Rolls’ long-term growth outlook nonetheless remains strong, given the recent announcements by governments across the world to hike military expenditure in response to Russia’s full-scale invasion of Ukraine.
Just two days ago, the Ministry of Defence announced contracts worth more than £2billion with BAE Systems and Rolls-Royce to power the Royal Navy’s new Dreadnought nuclear submarines.
This comes on top of Rolls-Royce winning a £105million deal in March to support the Royal Air Force’s Hawk jet trainer aircraft and a $2.6billion contract to provide replacement engines for the US Air Force’s B-52 bombers.
Outside the defence sector, the group recently received a major boost from Australian flag carrier Qantas agreeing to purchase 12 Airbus A350-1000s, which are powered by Rolls-Royce’s Trent XWB-97 engine and will be able to fly non-stop from London to Sydney.
After falling in early trading, Rolls-Royce Holdings shares rebounded to close 1.1 per cent up at 81.4p, although its share price has declined considerably in value since the Covid-19 pandemic began.
Victoria Scholar, Head of Investment at Interactive Investor, said: ‘The stock has had a torrid time lately, slumping in April after JPMorgan cut it from neutral to sell, accelerating recent losses with shares down by nearly 50 per cent since the peak in September last year.
‘This is a company that was hit hard during the pandemic but now Rolls-Royce faces fresh challenges from its leadership uncertainty after CEO Warren East announced plans to leave combined with the slow recovery of civil aerospace flying hours which are both weighing on the business.’