Rolls-Royce trade limited by China restrictions

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  • Engine hours under service contracts at 65% of dock level
  • New jet engine sales and maintenance at the lowest level of expectations
  • The company paid off a £2bn debt through the sale of its business to ITP Aero.

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Rolls-Royce maintained its 2022 guidance even as new jet engine sales and maintenance fell short of expectations.

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FTSE 100, which makes money not only selling but also servicing aircraft engines, said flying hours continue to recover, but current restrictions in China partially offset a stronger recovery in the US and Europe.

Its large engine flight hours under long-term service agreements were up 36% year-over-year but were still at 65% pre-pandemic levels in the four months to the end of October.

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Rolls-Royce said sales of new engines and refurbishments were below expectations.

Rolls-Royce’s business is dependent on airline business, which has seen a strong recovery in recent months, with British Airways owner IAG returning to profit in the third quarter.

But Rolls, whose engines power the Airbus A350 and Boeing 787, said sales and repairs were below expectations.

“Ytd, store visits and original equipment (OE) shipments are higher year-on-year but are at the lower end of the expected range for this year,” investors were told.

“We plan to increase sales of large replacement engines in 2022 and over the next few years, from a typical range of 10-15 percent of total OE shipments, as we expand our replacement engine pool to maintain and improve the fleet. sustainability.’

Rolls-Royce promotions fell 4.5% to 79.3 pence in Thursday morning trading, making it one of the top losers on the FTSE 100.

Shares have lost over 40% of their value over the past year due to rising inflation and high debt.

The group continues to suffer from rising costs of raw materials and energy, although it said it aims to offset cost inflation “through operational efficiencies as well as higher prices.”

“Supply chain pressure has resulted in an increase in inventory levels, but we do not expect this to affect our ability to implement recommendations and continue to focus on delivering good cash conversions,” the company added.

Outgoing CEO Warren East said the group’s outlook for the full year remains unchanged thanks to “an ongoing recovery of high engine flight hours, a record number of orders in the power grids and the resilience of the defense business.”

Rolls-Royce also managed to pay off a £2bn debt through the sale of its ITP Aero business.

“This marks a stage in the restoration of the strength of our balance sheet and a clear step towards returning to investment grade in the medium term,” East added.

This is the latest set of results for East, who will be replaced by former BP chief executive Tufan Erginbilgic at the end of the year.

The new boss will have to deal with rising costs and supply chain delays that are putting pressure on manufacturers around the world.

AJ Bell Chief Investment Officer Russ Mould said: “As a parting gift to retiring CEO Warren East, he has managed to keep Rolls-Royce on track to meet expectations for the full year, but beyond that headline, there are a huge number of issues to be addressed. his successor.

“The company hopes to be able to offset any impact of cost inflation due to rising wages, raw material and component costs by improving operating efficiency, but the pressure is acute and any decline could result in a loss of profits.”

Sophie Lund-Yates, lead equities analyst at Hargreaves Lansdown, added: “The news that the outlook for the full year has not changed is a sigh of relief, but it is a sad state of affairs that everything is going according to plan is an occasion for sincere celebration.

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