Rolls Royce shares slid 4.7% to 86.4p in early morning trading on Thursday after the group swung to a statutory loss of £1.6 billion in HY1 from a profit of £394 million the last year.
The aerospace manufacturer reported a revenue growth to £5.6 billion against £814 million as a result of record Power Systems order intake, continued recovery in its Civil Aerospace flying hours and high revenue visibility in Defence due to a strong order book.
Rolls Royce confirmed a gross profit rise to £1 billion compared to £814 million in HY1 2021, along with an operating profit of £223 million from £38 million year-on-year.
Meanwhile, the company highlighted an operating margin increase to 4% compared to 0.7% the year before.
The engineering group reported a free cash outflow from continuing operations improvement of £1.1 billion to £68 million in the financial period, on the back of rising flying hours in Civil Aerospace.
The company added working capital was a £296 million outflow, with higher inventory resulting from the knock-on effect of supply chain disruption, which was partially offset by improved payables performance.
Rolls Royce said it expected inflationary and supply chain challenges to persist into 2023, and confirmed it was managing the issues through higher product pricing and a lower inventory in HY2 2022.
The firm also mentioned challenges in attracting sufficient talent to its staff, particularly in its engineering division for employees with certain skills.
The manufacturer confirmed an expected low-to-mid-single digit underlying revenue growth in FY 2022, alongside a relatively stable underlying profit margin against 3.8% in FY 2021 and a moderately positive cash flow.
Rolls Royce tied its expectations to anticipated improvements in Civil Aerospace and planned higher space large engine sales and large engine shop visits.
“We have progressed well in the first half of the year, with more than a £1bn improvement in free cash flow, strong order intake in Power Systems, increased engine flying hours and commercial discipline in Civil Aerospace, and targeted investment to support longer-term growth in Defence and New Markets,” said Rolls Royce CEO Warren East.
“We are actively managing the impacts of a number of challenges, including rising inflation and ongoing supply chain disruption, with a sharper focus on pricing, productivity and costs. As a result of the actions we have taken over the last few years, our Civil Aerospace business is becoming leaner and more agile, and we are executing on the levers of value creation we shared at our investor event in May.”
“This is setting us up to deliver on our commitments this year and in the future. We are making choices to manage the current challenges, deliver better returns, reduce debt, and generate long-term sustainable value.”