Rolls-Royce's Half-Year Profit Slumps

July 30, 2015

Rolls-Royce reported a 32 percent drop in half-year profits, due to a higher research and development charge and a change in the mix of commercial aircraft engines it produces.

Rolls shocked investors earlier this month when it warned profits at its main aero engines business would falter next year, adding to declines seen in its marine division, where a lower oil price has caused a slowdown in orders from energy customers.

That warning turned up the heat for new chief executive Warren East, coming days after he took up the role on July 2.

Reassuring investors that there was not another downgrade to come, the company reported an underlying pretax profit of GBP£439 million (USD$684 million) for the first six months of the year, a drop of 32 percent.

The company said the lower first-half profits were due to the slowdown in its marine business, a slightly higher research and development charge and the shift in mix of airliner engines it sells as sales of newer types of engine are less profitable initially but more so over the course of their service life.

East said that for the second half the outlook was positive and that beyond that he was working to ensure the company would be able to deliver on its targets.

Having announced an operational review earlier in July, he said on Thursday that he would report his "early priorities" before the end of 2015.

East joined as shake-up plans were already underway in Rolls-Royce's marine and aerospace divisions, with plans to cut 3,200 jobs to improve profit margins.

"I am going to be working with the team to add pace and simplicity into what we're doing," he said of the restructuring.

The downgrade to its forecasts announced in July was primarily driven by the civil aerospace division, which accounted for almost half of 2014 revenues.

That knocked confidence in a part of the business which had for years been riding a surge in demand for fuel-efficient engines for Airbus and Boeing aircraft.

Asked about a possible new project to provide an engine for a new version of the Airbus A380, East said Rolls-Royce hoped to provide if it could make the business case.

(Reuters)