Rolls-Royce announced a loss for the first half of the financial year as it manages rising inflation and supply chain disruption for its engineering and aircraft engine business.
The loss of £1.6 billion ($1.94bn) came as the management said the squeezed operating profit margin would improve in the second half, keeping it on track to meet its targets in tough conditions.
“The external environment remains challenging, with the war in Ukraine, inflationary pressures and supply chain constraints all impacting our business,” the company said.
“We expect these issues will persist into 2023 and have been managing our business to address and minimise the impact.”
The engine maker reported lower underlying operating profit of £125 million in the first half of the year on underlying revenue of £5.3bn, compared with £307m a year ago.
The Covid-19 pandemic hit the engineering company's core business, which revolves around engine flying hours. No flying hours means no revenue.
The company lost £4bn in 2020. Flying hours for wide-body turbines, a key metric for highly profitable overhaul activity, have reached 60 per cent of pre-coronavirus levels, helping to trim cash outflows by £1.1bn.
“We have progressed well in the first half of the year,” chief executive Warren East said. “We are actively managing the impacts of a number of challenges, including rising inflation and ongoing supply chain disruption, with a sharper focus on pricing, productivity and costs.”
Rolls-Royce repeated its full-year financial targets of low to mid-single digit underlying revenue growth, an unchanged operating margin and modestly positive free cash flow this year, weighted towards the second half.
The British manufacturer is the sole engine supplier for the Airbus A350 and has a sizeable market share on other flagship models such as the A380 and the Boeing 787.
As part of its slimming down process, it turned three assembly lines into one and moved production in Singapore back to Derby, where six or seven engines a week are prepared for passenger aircraft.
The company makes about a quarter of its materials in-house, such as ultra-strong turbine blades ready to withstand 12,000 revolutions a minute, and made in an increasingly automated process with robots doing the heavy lifting.
For the parts it cannot make itself, Rolls-Royce has narrowed down its suppliers to a small group of what it regards as high-quality providers and signed long-term deals for the next decade.
Shares of the London-based firm fell as much as 6.8 per cent in early trading, extending their decline this year to 30 per cent.
'Spirit of Innovation' – in pictures
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Rolls-Royce's 'Spirit of Innovation' took to the air last week powered by a 400kw battery and easily slipped past 200mph (321kpm), marginally short of the current world speed record of 213mph (342kmh). All Photos: Mark Chilvers / The National -
Phill O’Dell, chief test pilot (L) and Matheu Parr, Rolls-Royce’s project leader for Accelerating the Electrification of Flight, pose with the 'Spirit of Innovation'. -
The aircraft can fly 200 nautical miles – 370km or from London to Paris – on a single charge that takes only 30 minutes for the lithium-ion batteries to power fully. -
'She is monstrously powerful,' said Mr O’Dell. -
The £6 million ($8.2m) project is 50 per cent funded by the British government, which very much has its eye on innovating air travel. -
'This proves electrification is here to stay and we would very much like our children to see electrification,' said Matheu Parr. -
The plane’s sleek lines and heavy nose suggest power and Rolls-Royce admits its sole purpose is to be “built for speed”, capable as it is of 500 horsepower. -
In a few weeks Phill O’Dell hopes to become the first person to fly a battery-powered aircraft at more than 300mph (482kph).
