Rolls-Royce sticks to 2018 guidance despite rise in Trent 1000 costs

Rolls on Friday announced new ambitious mid-term financial targets, but in the short term the engineering company remains under pressure due to ongoing issues with parts not lasting as long as expected on the Trent 1000 which powers the Boeing 787.

The issue has grounded planes as they have to wait for checks to be carried out, angering airline clients. Image source: Reuters

Britain`s Rolls-Royce said that problems with its Trent 1000 engine which has grounded some planes could cost it an extra 100 million pounds this year, but it was sticking to guidance as it had plans to offset those costs.

Rolls on Friday announced new ambitious mid-term financial targets, but in the short term the engineering company remains under pressure due to ongoing issues with parts not lasting as long as expected on the Trent 1000 which powers the Boeing 787.

The issue has grounded planes as they have to wait for checks to be carried out, angering airline clients.

Rolls said that the issue could lead to additional cash costs of 100 million pounds in 2018, but that it was sticking to guidance for this year`s free cash flow to come in at about 450 million pounds ($643 million), give or take 100 million pounds.

"We have, however, successfully enacted a number of short-term discretionary cost mitigation actions separate to, and outside of, the proposed restructuring plan, which we expect to offset these incremental costs," Rolls said in a statement, referring to a restructuring announced on Thursday which included 4,600 job cuts.

Rolls, which makes engines for civil planes, military jets and ships, also on Friday set out plans to improve its returns. The company has long faced criticism that its margins are below that of rivals such as GE.

Moreover, in 2016, it slashed returns to shareholders by halving its dividend. Since then it has said any improved shareholder returns will be linked to its free cash flow performance.

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Rolls said it was aiming for free cash flow per share to exceed 1 pound in the mid-term.

That compares to the current 15 pence per share of free cash flow it made in 2017, and will be helped by the restructuring plan, which it says will save 400 million pounds a year by 2020.

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