Rolls-Royce on track to achieve £200m savings

Rolls-Royce chief executive Warren East is expected to tell shareholders at the company’s AGM in Derby he expects the company to achieve its target of annual savings of £200m by the end of the year.

East will also confirm that expectations for the full year are unchanged after trading in the first few months of the financial year were in line with forecasts.

Rolls-Royce’s priorities for 2017 are fourfold: to strengthen the firm’s focus on engineering, operational and aftermarket excellence; to sustain its strong start to its transformation programme; to continue to rebuild trust and confidence in its long-term growth prospects; and, deliver an update on the company’s long-term goals.

East said: “In the first few months of the year we have sustained progress to deliver these priorities, including driving further benefits from our transformation programme. As a result, we remain on track to deliver the expected year-on-year incremental cost savings in 2017 of between £80-110m and achieve our target of £200m per annum by the end of 2017.

Rolls-Royce says that, as in 2016, profit before financing charges and tax is expected to be weighted towards the second half of the year, with the proportion of profit generated in the first six months of the year expected to be similar to that achieved in 2016.

“At this early stage in the year we see no reason to change our expectations for profit and importantly cash flow for the year as a whole,” he said. “We have some important transformation initiatives underway and, while we have made good progress in our cost cutting and efficiency programmes, more needs to be done to ensure we drive sustainable margin improvements within the business.”

Free cash flow is again expected to be significantly weighted towards the second half with first half cash flow forecast to be lower than in 2016, largely reflecting the higher volumes of large engines sold at a loss and a number of other one-off cash items.

East added: “The 2017 outlook also excludes the year-on-year effect of foreign exchange translation on our reported results. Our guidance at this stage of the year is unchanged from that provided in February. If rates remain unchanged from those seen recently, the impact of the average year-on-year movement on the translation of our overseas subsidiaries results would improve reported revenues by around £400m and improve reported profit before tax by around £50m.

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