- Engine deliveries and maintenance visits at lower end of range
- Rolls sticks to full year guidance
- Record order intake in Power Systems
The last trading update from Rolls-Royce (RR.) under current chief executive Warren East may have seen it stick to full-year guidance but there are still plenty of challenges piling up for his successor Tufan Erginbilgic.
Shares in the company fell 4.4% to 79.4p as engine deliveries and maintenance visits in its key Civil Aerospace arm came in at the lower end of the expected range.
Engine flying hours, a key metric for Rolls-Royce as it feeds through to what are highly lucrative spares and repairs revenues on its installed base of engines, are back at 65% of pre-pandemic levels.
Elsewhere the company pointed to ‘robust’ demand in its Defence business, with two five-year aftermarket contracts renewed worth $1.8 billion, and record order intake in the Power Systems division year-to-date.
The company used the £2 billion proceeds from its ITP Aero disposal to repay debt, having accrued significant borrowings during the pandemic. It still has £4 billion of drawn debt outstanding with £2 billion of cash and £0.5 billion in undrawn lending facilities. All of the currently-drawn debt is on fixed interest rates.
‘NO BIG NEWS IS GOOD NEWS’
Jefferies analyst Chloe Lemarie commented: ‘No big news will likely be good news today.
‘With the trading update, Rolls-Royce puts out, what we see as, reassuring messages on the impact of inflation and interest rates volatility on its businesses,’ added Lemarie.
‘Notably with a 6.5% pay increase and £1,500 payment to UK represented staff agreed in October, the group still expects to recover inflation and through operational efficiencies and pricing.
‘On interest rates, with all of its drawn debt on fixed rate, the volatility has had no material impact on free cash flow or 2022 guidance. The group also states it does not anticipate raising drawn debt for near-term loan refinancing.’
