Jason Butler of NW Brown: Do latest results show Rolls-Royce is ready to roar again?
PUBLISHED: 10:44 13 March 2018 | UPDATED: 11:07 13 March 2018
Rolls-Royce’s annual results have come as more good news for investors, following its decision in January to restructure its five divisions into three core operating units.
Its results show the cost-cutting drive that included the restructure have helped the company to return to profit, following its largest ever pre-tax loss in 2016.
The results came in ahead of expectations, with the company making £4.9bn in pre-tax profits in 2017. Some £2.6bn of this came from non-cash gains on its foreign exchange hedging strategy, thanks to a strengthening sterling.
The operating performance was also positive, with underlying revenues up 6% to £15.1bn.
Despite the encouraging results, the year has not been without difficulties. Technical problems were found with its Trent 1000 jet engines, used to power Boeing’s 787 Dreamliner, and some of its Trent 900 engines, resulting in them wearing out more quickly than expected.
The issues cost the company £170m in 2017, with management forecasting an increase in cost to a peak of £340m in the coming year.
But chief executive Warren East has reassured investors that the problems will be fully resolved by 2021-22.
Although the engine fault issues will continue to be costly for the company over the next five years, Mr East is looking to cut costs in other areas.
Two years after making initial cuts to management, a further restructure is under way that should result in significant cost savings.
Mr East has also reassured investors that the ambitious promise of £1bn free cash flow by 2020 is still possible, which will be impressive if achieved.
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