H1 profits fall 20% at Rolls-Royce as firm hit by weak trading and exchange rates
A REDUCTION in defence spending, weaker trading in its Marine division and adverse foreign exchange rates have combined to produce a disappointing set of interims for aero engine manufacturer Rolls-Royce.
The company said its first half order was down 2% at £70.4bn and underlying revenue was down 7% at £6.8bn. Underlying pre-tax profit fell 20% to £644m and underlying earnings per share dropped 20%.
It has predicted things will improve in the second half.
The company has endured a difficult six months, crowned by the decision by Emirates Airline in June to pull out of a major supply contract with Airbus. The airline cancelled an order for 70 Airbus A350 wide-body aircraft following a review of its fleet requirements.
The scrapping of the order is set to leave Rolls-Royce with a £2.6bn black hole in its order book – equivalent to around 3.5% of its total pipeline.
Earlier this week it suffered a further setback when Japanese airline Skymark announced it was pulling out of a decision to purchase six Rolls-Royce powered Airbus A380 aircraft, leaving a £350m hole in the engine company’s order book.
Rolls-Royce chief executive John Rishton tried to put a brave face on things.
He said: “Results for the first six months of 2014 are consistent with our guidance, reflecting the expected reduction in our Defence business and weaker trading in Marine, as well as adverse foreign exchange. We expect significant improvement in profit for the second half driven by higher revenue and cost reduction. While there are challenges, we maintain our full-year guidance for the group.”
He said the prospects for long-term growth remained outstanding across the group and in particular in civil large engines where its market share of engines on order is over 50%.
“However, we will experience growing pains. For example, we are investing in new capacity ahead of delivering our order book and restructuring existing facilities to improve efficiency,” he added.
