4th Aug 2022 18:04
(Alliance News) - The incoming chief executive of Rolls-Royce Holdings PLC has a tough task facing him after the jet engine maker swung to a dramatic interim loss as net financing costs mounted.
The stock closed down 7.5% at 83.96 pence on Thursday, the worst performer in the FTSE 100.
Rolls-Royce said Thusrday demand for its products is growing with "another period of record order intake in Power Systems, continued recovery in Civil Aerospace engine flying hours and high visibility of future revenues in Defence with a strong order book".
For the six months that ended on June 30, the engineering group said revenue rose 8.5% to GBP5.60 billion from GBP5.15 billion a year earlier.
Despite the growth in revenue, it swung to a hefty pretax loss of GBP1.75 billion from a profit of GBP114 million a year before.
Looking ahead, Rolls-Royce said guidance for 2022 remains unchanged. It expects low-to-mid-single digit underlying revenue growth, and to be "modestly" free cash flow positive in 2022.
The results come after Rolls-Royce named former BP PLC Executive Tufan Erginbilgic as its new chief executive officer last month.
Erginbilgic will take up his new role on January 1, succeeding Warren East who had previously announced his intention to step down at the end of this year. East has spent nine years on the board and almost eight years as CEO of the jet engine maker.
Erginbilgic is currently a partner at Global Infrastructure Partners, a private equity firm which focuses on large-scale investments in infrastructure businesses.
Mark Crouch, analyst at social investing network eToro, commented that East has done much to steady the ship at Rolls-Royce during a turbulent time in the company's history. However, Crouch said incoming CEO Erginbilgic will have "a full in-tray" when he takes up his position in January.
"The firm's share price is down more than 70% over the past five years. While a company's share price sometimes overstates its problems, it's probably fair to say that is not the case with Rolls-Royce. It is facing numerous headwinds in the shape of rising costs, a shortage of engineers and supply chain constraints. The success of its aviation business is also highly dependent on the health of the airline industry, which is still finding its feet after the pandemic and is not expected to recover fully until 2024 at the earliest," Crouch said.
"Looking at its half-year results, there are some positives: higher revenue, improving cash flow and an expectation of fatter margins in the second half of its fiscal year. But given the challenges facing the business, this is a stock for investors with a fairly long time horizon only," he added.
By Arvind Bhunjun; [email protected]
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