15th Jun 2018 08:22
LONDON (Alliance News) - Rolls-Royce Holdings PLC, which is cutting 4,600 jobs, on Friday outlined its mid-term financial targets of improving its free cash flow generation and return on investments.
The jet engine and power turbine maker is targeting to exceed GBP1 per share of free cash flow generation and a cash flow return on invested capital of 15% in the medium term. In 2017, free cash flow generation stood at 15 pence, while return on invested capital was 9%.
The company also said that it is well-placed to now exceed free cash flow of GBP1 billion by 2020.
Shares in the company were trading 13% higher at 998.60 pence each at start of trading on Friday, the best performer in the FTSE 100 stock index.
Power Systems, the company's engine manufacturing unit, is predicted to achieve revenue growth of 3 to 5 percentage points above underlying GDP and an operating profit margin in the mid-teens versus 11.3% in 2017.
The London-headquartered company also said that it will incur additional GBP100 million cost relating to in-service issues with its Trent 1000 Package C and B engines, due increased level of inspection and intervention. It has implemented a number of short-term cost savings actions separate to the new restructuring plan announced on Thursday to offset the increased costs.
Rolls-Royce has retained its 2018 free cash flow guidance of around GBP450 million, up or down GBP100 million.
"We are coming out of a significant investment cycle and are poised to deliver much improved returns. To achieve this we must focus on reducing further the original equipment cash deficit per engine, increasing our aftermarket cash margins and 'bending the fixed cost curve' by focusing on research and development, capital expenditure and commercial and administration costs. The restructuring programme is a key enabler to delivering reductions in our fixed costs while allowing our businesses to be more accountable for their own costs," said Chief Financial Officer Stephen Daintith.
Rolls-Royce, which in January announced a plan to separate the business into three units, on Thursday had announced a new restructuring plan aimed to save GBP400 million per annum by end of 2020. Under the plan, the company aims to remove corporate management layers, complexity and duplication and replace a centralised decision structure with empowered business units having decision-making powers.
The total cash cost of the restructuring programme is expected to be around GBP500 million, which will be incurred across 2018, 2019 and 2020. The 4,600 job cuts will be predominantly made in the UK and mainly corporate and support roles.
Rolls-Royce is hosting a capital markets day on Friday to provide details of its restructuring plan and mid-term targets
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