7th Nov 2019 08:22
(Alliance News) - Aircraft engine maker Rolls-Royce Holdings PLC cautioned on annual profit on Thursday as it continues to grapple with problems in the Trent 1000 project.
This comes after the firm in September had said fixing the engine would take longer than expected.
Despite the warning, shares were 1.1% higher in early trade on Thursday in London at a price of 788.40 pence each.
Rolls-Royce said Thursday there is only one major design fix remaining on the engine. The aerospace firm had been forced to launch a major maintenance and repair programme after discovering the high-pressure turbine blades on the engine deteriorated faster than expected.
The engines are used to power passenger aircraft such as the Boeing 787 Dreamliner.
It has now, however, postponed the introduction of an improved high-pressure turbine blade until 2021. This, Rolls-Royce said, is the final part of the programme to be completed.
As a result, Rolls-Roycehas added GBP400 million of exceptional costs to the GBP1.6 billion already guided. This means the total cost of the Trent 1000 programme between 2017 to 2023 will be GBP2.4 billion, of which only GBP400 million is within "normal programme contingency".
Rolls-Royce will take an exceptional charge of GBP1.4 billion for 2019, which means operating profit and free cash flow for the year will be at the bottom end of guidance. In August, it had said both figures would be around GBP700 million, plus or minus GBP100 million.
Chief Executive Warren East commented: "My top priority is improving customer confidence in the Trent 1000. We are today announcing additional action to further expand our maintenance capacity and increase our stock of spare engines. We deeply regret the ongoing disruption caused to customers.
"These steps, which build upon progress made to date, will further reduce disruption to our airline customers and give them the certainty that they need.
"We have completed a detailed technical evaluation of our work on an improved high pressure turbine blade for Trent 1000 TEN, the last major redesign activity required for the issues which we have identified with the engine. Although we regret the blade will not be ready when we had originally planned, our understanding of the technical issues has significantly improved," East continued.
"As a result we are now able to reset our financial and operational expectations for the engine based on a blade design with a prudent durability estimate that we are confident we can deliver. This will give our customers and ourselves a higher degree of certainty as we plan for the servicing of the fleet over the coming years."
In a separate statement, Rolls-Royce said it has appointment former Lloyds Banking Group PLC Chief Financial Officer George Culmer as a non-executive director. Culmer will join the board on January 2. Culmer also had lead finance at RSA Insurance Group PLC.
By George Collard; [email protected]
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