28th Jul 2016 10:13
LONDON (Alliance News) - A dearth of any new negative news in its interim results and a stronger-than-expected civil aerospace performance pushed shares in Rolls-Royce Holdings PLC sharply higher on Thursday, despite the engine maker recording a dramatic swing to a loss and confirming a cut to its dividend.
Shares in Rolls-Royce were up 17% on Thursday morning to 858.65 pence, comfortably the best performer in the FTSE 100.
Rolls-Royce had acquired a reputation in the market over the past couple of years for issuing profit warnings. The group had suffered first from softness in government defence budgets, then by a downturn in the oil and gas industry, and finally by a painful transition in the civil aerospace industry over to new jet programmes.
On Thursday, Rolls-Royce posted a pretax loss of GBP2.15 billion for the first half to the end of June, swung from a GBP310.0 million profit a year prior. The loss was related to mark-to-market revaluations on derivatives contracts, Rolls-Royce said, which caused it to take a GBP2.2 billion charge.
Underlying pretax profit was down 80% to GBP104.0 million from GBP439.0 million in constant currencies, but this came in well ahead of consensus estimates of GBP16.0 million, thanks to a better-than-expected performance in the Civil Aerospace arm.
Rolls-Royce confirmed the cut to its interim dividend announced earlier in the year to 4.60 pence from 9.27p a year prior. The group also confirmed its trading outlook for 2016.
Group revenue edged up to GBP6.46 billion from GBP6.37 billion in the half but declined 5.0% in constant currencies. Underlying Civil Aerospace revenue was down 5.0% year-on-year, as increased deliveries of Trent engines was offset by lower Trent 700 and business aviation sales plus soft aftermarket revenue.
Rolls-Royce said Defence Aerospace underlying revenue declined 1.0%, with growth in original equipment revenue offset by a reduction in service sales. Power Systems underlying revenue was down 3.0%, led by weaker equipment sales, while Marine underlying revenue fell by a quarter due to continuing weakness in offshore oil and gas markets.
Rolls-Royce has undertaken a big restructuring to simplify its structure and improve its performance amid challenging conditions in aerospace, defence, and oil and gas end markets.
It said this remains on track, and good progress has been made so far. Rolls-Royce expects a GBP50.0 million benefit from its restructuring in 2016 and remains on track to cut GBP150 million to GBP200 million in annual costs out of the business by the end of 2017.
"In the first six months, we have made progress with our business transformation; introducing the greater pace and simplicity required to make Rolls-Royce a more resilient company," said Chief Executive Warren East.
By Sam Unsted; [email protected]; @SamUAtAlliance
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