Jet engine maker Rolls-Royce sticks to 2022 guidance despite China hit

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Rolls-Royce sticks to 2022 guidance but China travel restrictions offset rebound in US and Europe

  • Engine hours flown under service contracts at 65% of pre-Covid levels
  • Sales of new and maintenance reactors below expectations
  • It paid off £2bn of debt through the sale of its ITP Aero business

Rolls-Royce maintained its guidance for 2022, although sales of new jet engines and maintenance came in at the bottom of its expectations.

The FTSE 100 company, which makes money not only selling but also servicing aircraft engines, said flying hours continued to recover but ongoing restrictions in China partially offset a stronger rebound. strong in the United States and Europe.

Hours flown for its large engines under long-term service agreements rose 36% from a year ago, but were still 65% of pre-pandemic levels in the four months before the end of October.

Rolls-Royce said sales of new engines and repairs fell short of expectations

Rolls-Royce’s business depends on that of airlines, which have seen a strong rebound in recent months as British Airways owner IAG returned to profit in the third quarter.

But Rolls, whose engines power the Airbus A350 and Boeing 787, said sales and repairs fell short of expectations.

“Year-to-date store visit volumes and original equipment (OE) shipments are higher year-over-year, but at the lower end of the expected range for this year “, he told investors.

“We expect a higher volume of aftermarket large engine sales in 2022 and beyond, compared to the typical range of 10-15% of total original equipment shipments, as we expand the pool of spare engines to support fleet health and improve resiliency.’

Rolls Royce shares fell 4.5% to 79.3p in morning trade on Thursday, making it one of the biggest losers on the FTSE 100.

The stock has lost more than 40% of its value over the past year due to rising inflation and high debt.

The group is still distressed by the rising cost of raw materials and energy, although it said it aimed to recoup cost inflation “through operational efficiencies as well as increased prices”.

“Supply chain pressures have led to higher inventory levels, but we don’t expect this to affect our ability to meet forecasts and stay focused on good cash conversion,” a- he added.

Outgoing chief executive Warren East said the group’s full-year guidance remained unchanged thanks to “the continued recovery in large engine flying hours, record order intake in electrical systems and a resilience in the defense sector”.

Rolls-Royce also managed to repay £2bn of debt through the sale of its ITP Aero business.

“This marks an important step in restoring the strength of our balance sheet and a clear step on our path to medium-term investment grade,” East added.

These are the latest results for East, who will be replaced by former BP executive Tufan Erginbilgic at the end of the year.

The new boss will have to deal with the problem of rising costs and supply chain blockages that are putting pressure on manufacturers around the world.

AJ Bell chief investment officer Russ Mold said: ‘As a parting gift, retired CEO Warren East has been successful in keeping Rolls-Royce on track to meet the expectations of the whole year, but, beyond that title, there are a lot of challenges piling up for his successor.

“The company hopes it can recoup any cost inflation impact from rising wages, raw materials and component costs by finding operational efficiencies, but the pressures are acute and any slippage could expose profits. “

Sophie Lund-Yates, senior equity analyst at Hargreaves Lansdown, added: “The news that the full year guidance is unchanged comes with a sigh of relief, but it is a sad situation as being on track is a cause for true celebration.”

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