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Rolls-Royce ups earnings outlook amid job cuts and cost savings

The group now expects to post underlying earnings of around £450 million for 2018, despite revealing a £554 million hit from engine issues.

Engine-maker Rolls-Royce has upped its annual earnings outlook amid better-than-expected half-year results less than two months after announcing plans to slash around 4,600 jobs.

The group reported underlying pre-tax profits of £81 million for the first half of 2018 against losses of £126 million a year earlier.

It swung to a £141 million underlying operating profit, from operating losses of £84 million a year ago.

It said it now expects to post an underlying operating profit of around £450 million for 2018, plus or minus £100 million.

This comes despite the group revealing a £554 million hit due to problems with its Trent 1000 engine, which powers the Boeing 787.

Its full-year profit upgrade comes after the group dealt the latest major blow to its workforce in June, when it said around 4,600 jobs would be cut under plans to save another £400 million a year.

Most of these job cuts will affect the UK workforce and will be made over the next two years, with around a third expected by the end of 2018.

It is the largest reduction in the company’s headcount since 2001, when it announced plans to shed 5,000 jobs, plus 1,000 contractors, which at the time was around 12% of the workforce.

Reflecting our progress to date and growing confidence for the full year, we now expect both underlying profit and cashflow for 2018 to be in the upper half of our guidance range Rolls-Royce chief executive Warren East

Chief executive Warren East said: “Financial results were ahead of our expectations, with strong growth from civil aerospace and power systems, and we achieved a number of operational and technological milestones.

“Reflecting our progress to date and growing confidence for the full year, we now expect both underlying profit and cashflow for 2018 to be in the upper half of our guidance range.”

But he added that the group continues to be “impacted by the challenge of managing significant Trent 1000 in-service issues”.

The £554 million writedown follows a raft of technical issues with its engines, having uncovered durability problems with hundreds of its Package C Trent 1000 engines and in June revealing further issues with a small number of its Package B Trent 1000 engines.

It said: “The Trent 1000 in-service engine issues have caused significant disruption for a number of our customers, which we sincerely regret.

“We continue to work hard to remedy this situation and have made further good progress on the implementation of long-term solutions in the first half of the year.”

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