20th Nov 2019 08:25
(Alliance News) - Moody's Investors Service on Wednesday chopped the long-term senior unsecured rating of Rolls-Royce Holdings PLC to Baa2 from Baa1, but kept the outlook stable.
The engineering stock was trading 1.3% lower in London in morning trade at 720.00 pence a share.
The ratings agency said the move reflects further increases in Trent 1000-related costs to GBP2.4 billion and delays until 2021 in rectifying problems relating to the Trent 1000 TEN jet engine.
It addition, Moody's warned on potential "material" reputational risks as a result of continued
airline customer disruption.
However, Moody's noted the strong to-date performance of the FTSE 100 company's other new engine programmes, which represent the majority of future orders and installed engine base.
Turning to outlook, Moody's said it assumes that Rolls-Royce will continue to grow free cash flow
on a sustainable basis. Furthermore the outlook assumes that the company will maintain a conservative financial policy and strong liquidity.
Looking ahead, Moody's said the rating could be upgraded if Rolls-Royce will achieve "solid" revenue growth accompanied by improved profitability, including operating profit margins increasing towards 10%.
For the six months to the end of June, Rolls-Royce reported underlying operating margin of 2.8%.
The ratings also have a potential to be upgraded if Trent 1000 issues are resolved in line with guidance, Moody's said.
Meanwhile, the ratings will be downgraded if there are signs of a weaker business profile, Moody's said, including a weakening in Rolls-Royce's market positions, or lower than expected aftermarket
profitability, including as a result of further challenges in Trent 1000 issues.
By Evelina Grecenko; [email protected]
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