TIDMRR.
RNS Number : 2064S
Rolls-Royce Holdings plc
06 July 2015
6 July, 2015
ROLLS-ROYCE UPDATES 2015 GUIDANCE AND IMPLICATIONS FOR 2016
We are today updating our 2015 guidance, including a preview of
our expected half-year results, and at the same time identifying a
number of market developments in 2015 that are now expected to have
a more significant impact in 2016. These primarily relate to Civil
Aerospace markets, particularly for our Trent 700 engines during
their transition to the new Trent 7000, business and regional jets,
and in the offshore markets for our Marine business.
Significant market pressures in 2015 and 2016
-- 2015: Civil Aerospace guidance unchanged - Trent 700,
business jet and regional aftermarket headwinds offset by
higher-than-expected benefits from contract provision releases and
widebody aftermarket growth
-- 2016: Civil Aerospace net headwinds of around GBP300m due to
Trent 700, business jet and regional jet aftermarket weakness
-- 2015 and 2016: Offshore markets continue to weaken, reducing
our Marine profit by around GBP85m in both years
Notwithstanding these expected headwinds we continue to believe
that the Group can achieve significant improvements to returns and
cash flow, albeit later than previously indicated.
2015 Full Year
Overall, performance for 2015 for the bulk of our business is
expected to be broadly in line with previous guidance. However,
further deterioration in the offshore market is now expected to
impact full year profit for Marine.
Guidance for 2015 revenue is unchanged for the full year. Group
underlying profit before tax is now expected to be between
GBP1,325m to GBP1,475m, compared to previous guidance of GBP1,400m
to GBP1,550m, reflecting the deterioration in offshore. Free cash
flow for 2015 is now expected to be between GBP(150)m and GBP150m,
compared to previous guidance of between GBP50m and GBP350m. Given
the weaker near-term cash outlook, we will discontinue the current
share buyback programme, having completed GBP500m of the planned
GBP1bn programme in the first half of the year.
In Civil Aerospace, we continue to expect 2015 underlying
revenue and profit within the guided range provided in February of
GBP7,000m to GBP7,300m and GBP800m to GBP900m respectively.
However, we now expect the impact of reduced Trent 700 deliveries
to be greater than initial estimates, reflecting further adverse
developments in the demand for OE and spare engines and related
pricing. In addition, lower-than-expected demand for engines to
power business jets and a softening regional aftermarket will also
adversely impact profit. These market headwinds should be balanced
by good growth in our widebody aftermarket and a
larger-than-expected benefit from the reversal of a balance sheet
provision on the Trent 1000 launch, as a result of an expected
significant improvement in operating performance, and by improved
retrospective TotalCare contract profitability. The value of the
provision release and contract profitability are expected together
to contribute around GBP200m, somewhat more than previously
expected.
We now expect our Marine underlying profit to be between break
even and GBP40m, compared to previous guidance of between GBP90m
and GBP120m. We are reviewing further cost reduction and
restructuring activities in Marine to improve performance which,
including asset impairments, is expected to result in an
exceptional charge of GBP70m to GBP100m which will be recognised
outside underlying profit.
2015 Half Year
As outlined in May, we continue to expect 2015 underlying profit
before tax to be phased more to the second half than in 2014, led
principally by Civil Aerospace and Power Systems. As a result,
first half underlying profit before tax is expected to be between
GBP390m and GBP430m, or around 30% of the full year, compared with
roughly 40% in 2014. Free cash flow is expected to be between
GBP(570)m to GBP(620)m compared with GBP(347)m in the first half of
2014.
We will provide full details of our Interim results on 30
July.
Implications for 2016
Taken together, the recent changes in demand and pricing for our
Trent 700 programme, which is transitioning to Trent 7000, combined
with the reduced demand for our business jet engines and a softer
regional aftermarket, are expected to create a GBP300m net Civil
Aerospace profit headwind into 2016. An improving large engine
aftermarket, led by our higher installed base, and the net GBP90m
benefit of restructuring should largely offset the likely lower
level of TotalCare and other adjustments in 2016. Many of the
changes will not impact cash flows and as a result cash conversion
is expected to improve.
Looking Further Ahead
The successful roll-out of new engines, led in particular by the
Trent XWB, 1000 and 7000, together with a growing aftermarket, is
expected to drive significant revenue growth over the next ten
years as we build toward a 50% share of the installed wide-bodied
passenger market. While the impact of the transition to the Trent
7000 has reduced Trent 700 deliveries, and held back Civil
Aerospace profit in the near term, we are confident that the
important investments we are making to transition our production
will create a strong platform to drive customer service, improved
margins and strong cash flows. In addition, initiatives to reduce
cost and increase focus within the Marine and Power Systems
businesses should help drive good performance improvements and
support a growing profit contribution from our Land & Sea
division as the company continues to reinforce its role as a
leading provider of Better Power for a Changing World.
Warren East, Chief Executive, said:
"I have joined Rolls-Royce because I recognise the fundamental
strength of the business and the scale of the opportunities
available to it. This is a company with exceptional technology and
outstanding long-term prospects. However, I am clearly disappointed
by today's announcement and the impact this will have on our
investors and employees. Notwithstanding the market developments,
it is our responsibility to build a business that is sustainable
and resilient no matter what is thrown at us and this will be my
fundamental priority for the next few years."
"In the near term we have to manage the important transition
from the Trent 700 to the new Trent 7000 and build our capacity to
service the Trent 1000 and XWB programmes. In addition, our Marine
business needs to overcome its offshore market headwinds and
rebuild a consistent trend of improving revenues and margins. Our
immediate priority is to find the performance improvements needed
to deliver these goals and ensure that this world-class business
continues to meet the needs of its customers and shareholders
alike."
Investor Briefing and Conference Call: 8:30 (UK) 6 July
Warren East, CEO, and David Smith, CFO, will host a conference
call and Q&A from 8:30 to 9:30am UK. Please find details of our
conference call below:
Participant dial in details
UK Standard: +44 (0)20 3364 5937
UK Toll free: 0808 2389714
Participant PIN: 694230#
Please access the WebEx via the following link using the event
password: 368540
https://arkadin-event.webex.com/arkadin-event/onstage/g.php?d=708568114&t=a
Interim Results
We will issue our 2015 Interim results on 30 July, with an
investor briefing and live webcast beginning at 8:30am UK.
For further information, please contact:
Investors: Media:
John Dawson Richard Wray
Director - Investor Relations Director of External Communications
Rolls-Royce plc Rolls-Royce plc
Tel: +44 (0)20 7227 9237 Tel: +44 (0)7974 918416
jcdawson@rolls-royce.com richard.wray@rolls-royce.com
Further information about today's call:
Prior to the call, you may test the link for WebEx as
follows:
Test My System Now
Please note that you will need to join the WebEx and dial in to
the call in order to simultaneously see the slides being used and
hear the speakers. Anyone wishing to ask a question will be given
instructions on how to do this once dialled in.
For those who cannot join the call live, a replay is available
via:
Audio Playback Numbers: UK Toll Number: +44 (0)207 075 6589
UK Toll-Free Number: 0800 376 5689
Audio Playback Reference: 368540#
About Rolls-Royce Holdings plc:
1. Rolls-Royce's vision is to create better power for a changing
world via two main business divisions, Aerospace and Land &
Sea. These business divisions address markets with two strong
technology platforms, gas turbines and reciprocating engines.
Aerospace comprises Civil Aerospace and Defence Aerospace. Land
& Sea comprises Marine, Nuclear and Power Systems.
2. Rolls-Royce has customers in more than 120 countries,
comprising more than 380 airlines and leasing customers, 160 armed
forces, 4,000 marine customers including 70 navies, and more than
5,000 power and nuclear customers.
3. Our business is focused on the 4Cs:
-- Customer - placing the customer at the heart of our business
-- Concentration - deciding where to grow and where not to
-- Cost - continually looking to increase efficiency
-- Cash - improving financial performance.
4. Annual underlying revenue was GBP14.6 billion in 2014, around
half of which came from the provision of aftermarket services. The
firm and announced order book stood at GBP73.7 billion at the end
of 2014.
5. In 2014, Rolls-Royce invested GBP1.2 billion on research and
development. We also support a global network of 31 University
Technology Centres, which position Rolls-Royce engineers at the
forefront of scientific research.
6. Rolls-Royce employs over 54,000 people in more than 50
countries. Over 15,500 of these are engineers.
7. The Group has a strong commitment to apprentice and graduate
recruitment and to further developing employee skills. In 2014 we
employed 354 graduates and 357 apprentices through our worldwide
training programmes. Globally we have over 1,000 Rolls-Royce STEM
ambassadors who are actively involved in education programmes and
activities; we have set ourselves a target to reach 6 million
people through our STEM outreach activities by 2020.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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