Rolls-Royce Posts Big First-Half Loss -- Second Update
July 28 2016 - 5:57AM
Dow Jones News
By Robert Wall
LONDON-- Rolls-Royce Holdings PLC said a plan to boost its
profitability was starting to show results even as the British
aircraft engine maker on Thursday posted a big first-half loss
because of an accounting hit from the weakness of the pound.
The London-based company posted a 1.8 billion pound ($2.37
billion) net loss following the revaluation of U.S. currency
hedges. The noncash GBP2.2 million mark-to-market adjustment came
midyear just days after Britain's vote to exit the European Union
caused the British currency to plunge. Net profit the year-prior
was GBP360 million.
Rolls-Royce, which makes engines for Boeing Co. and Airbus Group
SE's long-range jetliners said underlying profit was GBP77 million
ahead of analysts' expectations. Sales retreated 1% to GBP6.5
billion. The currency weakness was a slight tailwind at the
operational level as dollar-deals translated into more pounds.
Rolls-Royce shares surged 14.48% in midmorning London
trading.
The company left its full-year earnings outlook unchanged, with
expectations of a decline in sales and profit. Rolls-Royce in May
said its profit would mostly be made in the second half of the
year.
Rolls-Royce, no longer affiliated with the luxury car maker, is
recovering from several profit warnings that led it to cut its
dividend for the first time since 1992 after profit slumped. The
company has suffered lower demand for some of its most profitable
products and struggled with the impact on demand from low crude
prices on its marine and power-systems operations.
"Order intake has been good and, although known headwinds
constrained revenue and profit in the first half, the business
remains well positioned to deliver a solid second-half
performance," said Chief Executive Warren East, who has just
completed his first year in the job.
Mr. East has been trying to trim costs and cut management
layers. Mr. East said 270 manager of 400 expected to leave the
business this year had already departed.
The focus now is shifting to simplifying business process to
boost efficiency, he said.
Mr. East, now in his second year as CEO, has been trying to
streamline Rolls-Royce operations to close a productivity gap
against its chief aircraft engine rival General Electric Co.
Rolls-Royce has managed to slash by almost 25% the time it takes
to build engines for Boeing 787 Dreamliner jets, Mr. East said, and
could make further progress. Time to build engines for the Airbus
A350 plane, Rolls-Royce's biggest program, could come down as much
as 50%, he said.
Mr. East said the turnaround program put in place last year was
starting to deliver results. Savings generated this year should
come in at the top-end of the GBP30 million to GBP50 million
projection, he said. The company still targets up to GBP200 million
in savings at the end of next year. Costs for the program are
unchanged, he said.
Mr. East said the Brexit vote shouldn't have a major impact on
the company.
The interim dividend payment was cut to 4.6 pence from 9.27
pence in the year-prior.
Write to Robert Wall at robert.wall@wsj.com
(END) Dow Jones Newswires
July 28, 2016 05:42 ET (09:42 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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