Balfour Beatty shares were down 1.8% to 236.6p in early afternoon trading on Thursday, following a slight decline in the company’s order book in its trading update for the last four months to £15.6 billion compared to £16.1 billion year-on-year.
The order book included the firm’s recently awarded £530 million Fort Meade design and construct contract in Maryland by the US Army Corps of Engineers.
The company reported that it was trading in line with management expectations, with an estimated growth in FY 2022 profits, building on its £181 million delivered by its earnings-based businesses including construction services and support services.
The construction group confirmed an average monthly closing net cash balance rise to approximately £800 million against a FY 2021 average of £671 million.
The group noted that average monthly cash was expected to come in moderately lower than the first four months of 2022 after its share buyback and a level of anticipated working capital normalisation.
Balfour Beatty further said that construction services’ operational performance remained in line with management expectations, despite disruption in Hong Kong as a result of Covid-19 restrictions.
The company’s UK construction sector is set to deliver industry standard margins of 2%-3% over FY 2022, with US construction estimated to deliver a 1%-2% margin for the complete period.
The group highlighted a margin target of 6%-8% in power, road and rail maintenance, however the company added that the sectors were performing on a slightly lower revenue base due to Balfour Beatty’s withdrawal from the gas and water sector.
The firm mentioned that its outlook included several promising asset investment opportunities for infrastructure, alongside a slate of disposals projected to kick off towards the end of HY1 2022 and continue into HY2 2022.
Balfour Beatty confirmed that it had repurchased £19 million of shares as part of its share buyback programme, with the total £150 million in shares projected to close by the end of 2022.
“We remain confident that the Group is well positioned for 2022 and beyond,” said Balfour Beatty CEO Leo Quinn.
“Our business portfolio has been transformed to focus on the growing infrastructure markets of the UK, US, and Hong Kong – each underpinned by strong government investment programmes.”
“The strength of our balance sheet and the higher quality of our order book will enable us to maximise these opportunities for profitable growth while remaining resilient to the current macro-economic challenges .”
Vast Resources is a mining and development company listed on London’s Aim that mines copper, gold, polymetallic ores in Zimbabwe and Romania.
Vast Resources has projects in both Zimbabwe and Romania such as Chiadzwa Diamond Fields located in Marange, Baita Plai and Manaila-Carlibaba facility which we will discuss in-depth later in the article.
In late April, the group announced a fundraise of £420,000 at a premium to the previous closing price to buy mechanised equipment to help the increasing mining volumes planned at the Baita Plai Polymetallic Mine.
In its latest operational update, Vast Resources noted a 236% jump in total gross revenue to £2.29m from £970,000 in the first quarter of 2022, which also included contributions from Tajikistan despite working with limited financial resources.
However, potential pipeline revenue prospects are underway in the attempt to keep the business well-funded. The group generated £1.67m in total revenues from other projects between the fourth quarter of 2021 and the first quarter of 2022.
The business is also in the process of refinancing the Atlas bond facility, while it continues to arrange concentrate sales from Baita Plai to provide additional cash flow.
Vast has a level of debt that should not be ignored but may become insignificant should the company deliver on their plans to develop, and increase production from, its portfolio of assets.
Vast Resources is a high-risk junior miner and is not for the faint of heart. However, with a market cap of just £9.3m, the adventurous may want to pay the stock closer attention.
Projects
Romania
Baita Plai
Baita Plai is located in Transylvania’s Apuseni Mountains, which is home to Romania’s largest polymetallic and uranium mines.
The mine has a complete infrastructure, comprising underground, surface, and processing equipment, as well as a fully working EU-registered tailings facility.
Baita Plai Mine focused on copper output in Q1 2022, with a 24.2% increase in tonnes milled and a 16.8% increase in Dry Metric Tonne production from the fourth quarter to the first quarter of 2022.
Mining was mostly low-grade ore during the quarter as the ramp down to sub-level 3 under level 18, which has now just intersected the Antonio skarn, was being built.
The Baita Plai Polymetallic Mine has a $107m NPV at 10%, before any improvement to the project’s economics including a possible increase in the resource and capacity at the mine. Vast
Vast Resources has a 49% of the 50% stake in Central Asia Minerals and Metals Ore Trading (CAMM) which already holds a relationship with Takob, and Vast has an effective indirect interest in the Takob Project of 24.5%.
Tajikistan Open Joint Stock Company “TALCO” is the owner of Takob which owns the operating Takob fluoride and galena mine in Tajikistan and produces the fluoride concentrate which is sold to TALCO’s chemical division for the production of essential raw materials for primary aluminium production.
The mine reported in the past that it contains 30g/t silver and 1-2g/t gold in situ and according to the deal, the mine will have an output of 7,000 tonnes of ore per month with a minimum of 1.5-2% lead, 1.2-1.4% zinc, and 27% fluoride, along with a supply of two months worth of output on-site.
The terms of the deal also state that CAMM will manage and execute the project and supply the equipment, technology, and technical experience to update and optimise the mine’s processing facility for which CAMM has acquired funding. In return, CAMM will receive 50% of net revenue from the sale of non-ferrous concentrate and precious metals.
Vast Resources will also earn a 12.25% royalty on all sales of the non-ferrous concentrate and any other metals generated for its participation in the collective group, in addition to the fees payable under the services agreement with CAMM.
Manaila Carlibaba Project
The Manaila Carlibaba project is an important project for Vast Resources. The aim is to restart the project after Baita Plai and the Chiadzwa Community Concession enter peak production levels.
The 138.6-hectare Manaila-Carlibaba exploration licence has a JORC 2012 compliant Measured and Indicated Mineral Resource of 3.6Mt grading 0.93% copper, 0.29% lead, 0.63% zinc, 0.23g/t gold, and 24.9g/t silver, as well as Inferred Mineral Resources of 1.0Mt grading 1.10% copper, 0.40% lead, 0.84% zinc, 0.24g/t gold, and 29.2g/t silver.
Vast proposes to build a larger mining and processing facility at Manaila-Carlibaba, which will eliminate the need for expensive road transport of mined ore to the existing processing facility at Iacobeni, about 30 kilometres distant and its preliminary studies suggest the prospect of a new open-pit mine to explore mineral resources to a depth of around 125 metres below the surface.
Blueberry Gold Project
Blueberry Project, is a 7.285kmsq brownfield area located in the “Golden Quadrilateral” which is in the area of the Baia de Aries mine, where Vast Resources has 29.41% interest.
Vast’s stake in Blueberry Gold Project is held through EMA Resources, which is a subsidiary company of Vast, which is expected to become a sole entity eventually to qualify for an IPO.
Vast will be in charge of future mining operations at Blueberry, as well as the exploration programme and the IPO process, in exchange for a fee of 10% of pre-IPO costs.
The Golden Quadrilateral offers strong polymetallic prospects and is said to have generated almost 55m ounces of gold in the past with soil samplings supporting sample values of up to 22.4g/t gold.
A drilling and assaying campaign is now ongoing, and it is expected to yield enough data to support an Inferred JORC Mineral Resource for gold and other polymetallic minerals such as silver, copper, lead, and zinc in one or more separate breccia pipes.
Zagra Licenses
Piciorul Zimbrului and Magura Neagra are collectively known as Zagra.
The 10km2 Piciorul Zimbrului prospecting permit is located in the Zagra-Telciu area in Bistrita-Nasaud County of Romania and lies adjacent to Vast’s 21km2Magura Neagra prospecting permit.
After the initial exploratory work, Vast completed the drilling programme in the Piciorul Zimbrului licence, focusing on six previously detected veins with linked copper and gold mineralisation along an underground route constructed for 820m at a level of 835m above main sea level.
IPEG Cluj, the former state exploration corporation, has conducted 1,200m of underground development and diamond drilling, as well as 862m of surface diamond drilling and geological mapping over a 4km region.
Vast has also begun drilling in the Magura Neagra licence, to find polymetallic veins and regions of scattered sulphide deposit.
Zimbabwe
Vast Resources signed a partnership agreement with Chiadzwa Mineral Resources which is a company that represents the Chiadzwa Community interests which led to the creation of Katanga Mining. Katanga Mining and Zimbabwe Consolidated Diamond Company also aim to enter into a joint venture and will be announced at the same time as the details of the Chiadzwa JV.
The Chiadzwa Diamond Fields in Marange is one of the richest alluvial diamond deposits worldwide.
Vast Resources Shares
Vast Resources shares have given up 10% this year and trade at just a fraction of their 2018 levels. The company is producing revenue and has a number of assets under evaluation that may provide a catalyst for a re-rating. Their financial position will need careful consideration, but the need to raise capital and refinance is common place within the sector.
The FTSE 250 and AIM tracked global equites with sharp decline following a report from the Office of National Statistics that the UK economy shrank by 0.1% in March, shaking investor confidence.
Investors were also spooked as the prospect of surging US inflation heightened fears of an economic slowdown across international markets.
“The FTSE 100 tumbled after weak UK GDP numbers and higher than expected US inflation figures stoked fears about a global economic slowdown,” said AJ Bell investment director Russ Mould.
RHI Magnesita shares increased 6.5% to 2,388p after the refractory products supplier announced an EBITDA rise of 50% in Q1 2022 as a result of continued high demand for steel and industrial products.
Grainger shares were up 0.4% to 232.3p following a profits rise to £98.8 million in HY1 2022 from £44.5 million year-on-year.
“We are delivering on our growth plans which will see us double in size in the coming years, providing exceptional earnings growth and attractive high single digit total returns to shareholders,” said Grainger CEO Helen Gordon.
ConvaTec Group shares gained 0.7% to 206.6p after the group reported revenue for the four months to 30 April 2022 of 4.1% on a reported basis, with a 7.5% growth on a constant currency basis and a 6% rise on an organic basis.
Anglo-American is set to buy 70% ownership of the operation for an aggregate investment of up to $88.5 million, including cash consideration of up to $14.5 million.
“This agreement represents a major turning point for Arc and follows many months of negotiations. I am delighted to be signing this agreement with Anglo American which will, upon execution and completion of the definitive agreements, result in the potential for significant investment by a reputable major mining company in the tenements in north west Zambia and a very exciting time ahead for us,” said Arc Minerals executive chairman Nick von Schirnding.
Circassia Group shares increased 12.5% to 37.3p following a reported revenue ahead of market expectations for the initial four months of 2022, with clinical revenue rising 17% year-on-year and trading growth up 23% against the same period last year.
The company said it expects its EBITDA for FY2022 to come in “materially ahead of its expectations” based on strong growth in the year-to-date.
Verici Dx shares were up 11.3% to 29.5p following the successful results of its blinded, international, multi-centre validation study for blood test product Tuteva.
The product is reportedly a next-generation RNA sequencing assay, which demonstrated positive performance in detecting acute rejection after a kidney transplant.
Serabi Gold shares gained 9.7% to 39.5p in light of a production of 2,919 ounces of gold from its Palito Complex, its highest level so far this year.
“It is very pleasing and a testament to the hard work of the team at the Palito Complex that we have managed to produce 2,919 ounces in April,” said Serabi Gold CEO Mike Hodgson.
“As investors will recall we experienced production challenges in the first quarter on the Julia Vein at Sao Chico, and this resulted in us moving away from sublevel long-hole mining method, for the more selective, albeit slower shrink stoping method. So it is really pleasing to see this change bearing fruit coupled with continued excellent performance at Palito.”
GreenRoc Mining shares increase 6.3% to 6.7p following the firm’s revised resource estimate for its Amitsoq graphite deposit to 5-15 million tonnes (mt) at a grade range of 18%-22% graphitic carbon (cg) compared to its initial estimate of 1.7-4.5 mt at a grade range of 24%-36%.
Serinus Energy shares plummeted 21.6% to 1.4p following a 47% plunge in production in Q1 2022.
Titon Holdings shares dropped 16.6% to 75p after the Titon swung to a pre-tax loss in FY1 2022 of £250,000 from a profit of £550,000 year-on-year.
“We are disappointed with the trading performance of the Group over the six months period to 31 March 2022, which, despite good levels of sales in the UK has resulted in a loss for the period,” said Titon Holdings CEO Keith Ritchie.
“We continue to be impacted by the constraints in supply of raw materials and components but are hopeful that some of these supply chain pressures will reduce in H2.”
Concurrent Technologies shares dropped 11.4% to 77p on the back of company warnings over component shortages impacting ship product capabilities and a subsequent expected delay in recognised revenues.
Global stock markets were rocked on Thursday as the growing threat of inflation and slow growth sent equities deep into the red.
The FTSE 100 as sank over 2% as UK GDP fell by 0.1% in March, raising fears of a global recession after US GDP contracted 0.4% in the first quarter.
“The FTSE 100 tumbled after weak UK GDP numbers and higher than expected US inflation figures stoked fears about a global economic slowdown. Investors were quick to dump commodity producers on the grounds that demand could fall in the coming months,” says Russ Mould, Investment Director, AJ Bell.
The price of oil fell 2% to $105 barrel as fears of a recession lead to oil giants Shell and BP shares falling 3% to 2,246p and 4.2% to 402p, respectively.
BP shares remained down despite the oil company making a bid for two individual offshore wind leases in the Netherlands in line with its plans to generate €2bn worth of clean energy investments in the country.
FTSE 100 Risers
BT Group rose 0.3% to 177p after the telecommunication announced a 9% rise in pretax profit and its joint venture with Warner Bros Discovery to combine its sports broadcasting units.
JD Sports shares rallied 2.4% to 121p as the sports fashion company said it had combated supply chain pressures with a sales growth of 5% YoY in the first few weeks of its financial year, leading to the group raising its profit guidance.
“Sentiment towards JD has soured this year due to worries about consumer spending. JD’s latest trading update implies it is holding up well in a difficult market, but that wasn’t enough to win over investors, with the share price only nudging up 2% on the news,” stated Mould.
Coca-Cola HBC shares gained 1.4% to 1,620p after the company reported group revenue growth of 31% to €1.8bn with established markets up 20%, developing markets gaining 40% and emerging markets increasing 36%.
Compass Group shares were trading up 0.3% to 1,699p following its momentum gained on Wednesday when the group reported a 36% rise to £11.5bn in revenue and a 375% jump to £632m in pretax profit.
FTSE 100 Fallers
Engine maker Rolls Royce saw its shares fall 0.3% to 80.3p despite the company reiterating its guidance for the year with its YTD performance in line with management expectations.
Rolls Royce shares are “another stock struggling to get a break” even though the group reported a “reassuring trading update,” said Mould. He said “investor sentiment is poor” in a recovering aviation sector and an opportunistic defence sector, and would need a “barrage of good news to trigger a strong share price rise in the current environment.”
Mining shares tumbled on Thursday as investor confidence was shaken from commodity stocks dragging the FTSE 100. Glencore and Fresnillo shares fell 7% to 443p and 719p, Anglo American and Antofagasta shares dropped 6.5% to 3,189p and 1,325p and, Rio Tinto and Endeavour mining shares lost 5.5% to 5,067p and 1,827p.
Hargreaves Lansdown shares lost 6.7% to 834p after the group recorded a fall of 16% in group revenue in the first quarter, which was in line with management expectations. The group also stated that assets under administration for the quarter dropped by £600m due to adverse market movements.
Tech-heavy Scottish Mortgage Investment Trust shares sunk 6.7% to 729p as “investors feared portfolio company valuations would be worth less based on discounted cash flow models because of rising interest rates” according to Mould.
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BP’s bids complement BP’s vast and transformative goals for a range of additional integrated clean energy investments in the Netherlands, using the company’s diverse businesses and expertise to underpin the country’s decarbonization targets.
BP has entered bidding for the rights to build sites VI and VII of the Hollandse Kust Wind Farm Zone (HKW) which is located 53km off the west coast of the nation and has two wind farm sites totalling 176 kmsq.
The bid contains an “unprecedented level of innovation”, with nearly €75m committed to improving the marine environment, supporting advanced ecosystem data analysis, and establishing a new Netherlands North Sea Offshore Wind Ecological Innovation Hub to facilitate further studies and collaboration.
Bids for Site VII will be assessed on its ability to integrate systems, and BP’s offer emphasizes connecting offshore wind power supply with adaptable demand in the Rotterdam area.
If BP wins the bids, the group proposed the integration of wind farms with 500MW electrolysis which will create 50,000 tonnes of green hydrogen per year to fulfil BP’s Rotterdam refinery requirement and 10,000 barrels per day of sustainable aviation fuel generation.
BP’s Rotterdam refinery will get a new electric-powered boiler and superheater, as well as a utility-scale battery to help with asset integration.
BP said it will also equip the wind farms with demand shifting solutions, as well as newly designed flexible electric vehicle charging stations with integrated batteries and low-carbon multi-energy logistics hubs.
Additional advanced digital grid optimisation and stability technologies will be used to match demand for electricity to the HKW wind power production as part of these initiatives and BP will create a skills incubator to help workers obtain the skills they need to work in these new sectors.
BP expects to invest up to €2bn in the decarbonization of flexible demand apart from the additions to the wind farms.
Anja-Isabel Dotzenrath, BP’s Executive VP of gas and low carbon energy, said: “Delivering a net zero future demands more than just generating renewable power offshore – we need to create an integrated energy system with renewables at its centre. We plan on doing just that in the Netherlands.”
She said the group will apply its integrated energy company strategy to meet the green energy supply with the demand in the energy system through utilising offshore wind power to electrify industry and mobility and renewable power to produce green hydrogen, to help to decarbonize hard-to-electrify sectors.
“In addition, we will deploy innovative technology in support of an unprecedented scale and scope of monitoring and analysis to create a step change in collaborative marine ecology research in line with our aim to have a positive impact on the North Sea’s ecology,” added Dotzenrath.
The Amitsoq Graphite Project is one of the highest-grade graphite deposits in the world, and was updated to a tonnage range of 5-15 million tonnes (mt) at a grade range of 18-22% graphite carbon (cg), compared to its maiden resource estimate of 1.7-4.5 mt at a grade range of 24-36% gc.
The Greenland-focused company reported a Maiden Resource estimate for the deposit on 8 March 2022 of 8.2 mt of combined and inferred JORC Resource at an average grade of 19.7% cg, providing a complete graphite content of 1.6 mt.
GreenRoc said the deposit was open along strike, predominantly to the north, and down dip in the west, with testing scheduled in the upcoming phase two drilling programme later in 2022.
The firm added that there was considerable upside potential from the undrilled Kalaaq deposit to the south of the Amitsoq Island, with a revised exploration target calculation currently being undertaken for the operation.
The company highlighted the use of graphite in Electric Vehicle (EV) manufacturing, which it pointed out as a major driving factor behind rising graphite demand and prices.
GreenRoc commented that UBS estimated a natural graphite deficit of 3.7 mt by 2030, representing approximately 37% of the global market.
The mining group confirmed that the Amitsoq graphite has the potential to be upgraded to over 99.95% pure graphite product, a specific requirement in EV battery production, which would position GreenRoc to capitalise on the international transition to net zero carbon.
“Amitsoq is one of the highest-grade graphite deposits globally, and our graphite has been shown to be amenable to the production of the high purity graphite, which is the requirement for EV batteries,” said GreenRoc interim CEO Lars Brünner.
“Our focus now is on building our Resource tonnage to a level that will support a detailed feasibility study. The current Maiden Resource of 8.28Mt at an average grade of 19.75% Cg, giving a total graphite content of 1.63 Mt, is a fantastic result but we are confident we can improve this further and in so doing strengthen the commercial value of the Project.”
“More than half of the Exploration Target area for Amitsoq Island remains undrilled and the upcoming drill programme will focus on unlocking this Resource potential. We look forward to sharing further details in due course.”
BT Group addressed a sports broadcasting joint venture with Warner Bros Discovery and noted a 9% rise in annual pretax profit in its full-year results earlier today.
BT Group reported a 2% decline in revenue to £20.85bn from £21.33bn as revenue growth from its Openreach business was offset by a fall in Enterprise and Global, while Consumer, which is its biggest unit remained flat.
The group stated its Openreach broadband infrastructure arm “continues to build like fury”.
The telecommunication company said pretax profit rose 8.8% from £1.8bn to £1.96bn as larger finance expenses were offset by increased EBITDA.
Operating costs declined 4.2% to £18bn in 2022 and the group generated gross annualised cost savings of £1.5bn and rose the target to £2.5bn to be achieved by the end of FY25.
The group’s adjusted EBITDA rose 2.2% to £7.6bn which was in line with guidance of £7.5bn to £7.7bn.
The group noted a 25% rise in Capex to £5.3bn and a 14% rise in Capex excluding spectrum summing up to £4.8bn as BT spent more money on its fibre infrastructure and mobile networks.
BT reinstated dividend payout and added 5.4p as a final dividend resulting in 7.7p as the total dividend for the year. Yearly guidance remains despite difficult economic conditions said the group.
“By bringing together the sports content offering of both BT Sport and Eurosport UK, the JV will have one of the most extensive portfolios of premium sports rights,” said BT Group.
On completion of the deal, the production and operational assets of BT Sport will become a wholly-owned subsidiary of Warner Bros, where BT will receive £93m from Warner and around £540m as an earn-out.
The partnership will also enter into a new agreement with Sky extending beyond 2030 to look after the distribution of the joint venture’s sports content.
Partnership negotiations were first disclosed by BT in February. It hoped to wrap up talks by June 30. Discovery has completed its merger with WarnerMedia, an AT&T spin-off since the talks started. Discovery+ is a streaming service.
“Brave experiment or overly ambitious folly? BT’s participation in the sports rights battle has moved to a new phase as it completes its joint venture with Warner Bros. Discovery,” said Russ Mould, Investment Director, AJ Bell.
“BT entered the fray in 2012 by securing rights to Premier League matches and made a splash a year later by capturing Champions League and Europa League games from under the nose of Sky.
“The promise of top-level sports action was seen as a way of securing subscribers for its wider TV and broadband services.”
There were various positive indications for 2022 such as low Ofcom complaints and BT’s highest ever NPS results.
BT anticipates a 4.2% rise in adjusted revenue growth and adjusted EBITDA, amounting to £7.9bn in the next financial year.
Cash flow is expected to be normalised and within the range of £1.3bn to £1.5bn, where capital expenditure, excluding spectrum work, is forecasted to be £4.8bn.
Mould added, “The results which accompanied news of the tie-up were solid enough – crucially customers seem to be sticking with BT despite the cost-of-living crisis and the company has made decent progress on the roll-out of 5G. The dividend is also in line with what was promised, and free cash flow is, critically, better than expected.”
“BT still has plenty of issues to deal with, not least the complex and costly investment in broadband infrastructure and a big pension deficit, but at least it seems to be laying the platform to address these challenges.”
The ONS confirmed that GDP fell by 0.1% in March after no growth in February, revised down from 0.1% growth, however the economy grew by 0.8% overall in Q1 2022.
“The UK economy has now recovered to its pre-pandemic level, but momentum seems to be ebbing away, and recessionary forces are gathering. GDP came in at 0.8% for the first quarter of the year, a little below forecasts,” said AJ Bell head of investments analysis Laith Khalaf.
“What is more concerning is that almost all of the growth was registered in January, and March actually saw a 0.1% fall in GDP.”
The report also highlighted a 0.2% slide in production, which was slightly offset by a 1.7% growth in construction.
Consumer-facing services output fell by 1.8%, following a 0.5% growth in February, with a 0.2% growth in non-consumer facing services after a 0.1% fall month-on-month.
“Household expenditure was still positive in the first quarter, as consumers took advantage of new found freedoms to go out and spend money in shops, restaurants and hotels,” said Khalaf.
“But that was really the calm before the storm, as higher energy prices and taxes kicked in from April.”
“The retail and wholesale trade saw itself going backwards in the first quarter, with new car sales still struggling as a result of global supply issues.”
The ONS confirmed that monthly GDP was now 1.2% above its pre-Covid-19 level, while services was now 1.5% over its February 2020 level and construction had grown 3.7% since before the coronavirus.
Production declined 1.6% past its pre-Covid-19 rate, while consumer-facing services saw a 6.8% slide and all other services were 3.6% higher than their pre-February 2020 levels.
“On top of higher energy prices and taxes, the UK economy now also has to deal with rising interest rates, which will serve to further dampen activity. Recession risk is therefore elevated, and while growth is still expected this year, 2023 looks like it will be more challenging economically,” said Khalaf.
“The markets are already looking forward to next year with some trepidation, which explains why we have seen significant falls in the pound and the FTSE 250 since the start of the year.”
The Central Bank of England recently hiked interest rates 0.25% to 1%, with experts projecting a rise to 1.25% at the next Bank meeting this summer. However, it has proven a fine balancing act for the institution to relieve a certain degree of inflationary pressure in the economy without sending the UK into a full-blown recessionary tilt.
“The central bank is raising rates to try to take some of the steam out of the labour market, to prevent an inflationary wage spiral, but clearly there is a risk the rate setting committee pushes too hard,” said Khalaf.
“Controlling the economy through tightening monetary policy is a bit like trying to move a brick with a piece of elastic. It’s hard to apply precisely the right amount of force and avoid the brick hitting you square in the face.”
Rolls Royce (RR) stated that its trading has been in line with expectations since the start of 2022 and said there is no change in its guidance for the rest of the year, in a trading update on Thursday.
The group addressed supply chain disruptions and said it is under control as Rolls Royce has sourcing agreements and hedging policies in place to limit volatility in raw material inflation and allows for “near-term protection”. The group added that it upped its inventory to reduce the impact of the disruption.
In its Civil Aerospace segment, Rolls Royce noted a 42% increase in its large engine long term service agreement flying hours compared to Q1 2021.
Pandemic restrictions have eased allowing for travel to commence after an almost 2-year pause, however, flights to China have been operating at a lower rate as the pandemic led to another lockdown. Business Aviation’s flying hours for the group remained robust.
The group expects footfall in its shops and deliveries of original equipment associated with installed and spare engines to rise in 2022.
Rolls Royce announced a deal with Qantas for 12 Airbus A350-1000s to support Qantas’ long-haul Project Sunrise initiative which will be powered by RR’s Trent XWB-97 engines. The group added that Qantas also promised to ink a TotalCare service agreement for the engines that will operate the 12 planes.
Rolls Royce’s Defence segment reported a robust order backlog which will help in revenue growth which in turn will allow mitigation of risks associated with inflation and supply chain disruptions. However, it reiterated that its operating margins will be lower than 2021 owing to more investments toward contract wins in its Defence segment.
The group’s long term growth forecast for Defence is supported by the rise in defence budgets for governments.
Order intakes in Power Systems for the first quarter have been quite solid across the board, notably in the power generation and defence end sectors.
The first engines for power generating, construction, and industrial uses have been licenced for operation using sustainable fuels, and hydrogen engines are being developed said, Rolls Royce.
Rolls-Royce Electrical and Rolls-Royce SMR, it is New Market businesses, that keep making headway, backed by Rolls-Royce and third-party investments.
It conducted successful flight testing of a hybrid-electric demonstrator aircraft driven by a parallel-hybrid propulsion system at Rolls-Royce Electrical, in collaboration with aircraft producer Tecnam and engine maker Rotax.
Rolls Royce’s disposal programme is aimed to pay off debt and has a target of gaining £2bn, which they are confident they will gain from the total proceeds of the sale of ITP Aero. The sale of ITP Aero is expected to reach fruition in H1 2022 subject to regulatory approvals.
Tomorrow, May 13th, RR will hold a site visit at the Civil Aerospace facilities in Derby where visitors can have a tour and ask questions during its presentation.
The group will outline its main Civil Aerospace value drivers, showcase the operational side of the business, as well as provide a broader understanding of how the changes they have made have improved the adaptability of the business, positioning it to boost earnings and deliver long-term sustainable growth.
Rolls Royce’s medium-term forecast for Civil Aerospace will be presented, based on the decisions it has taken to strengthen cost efficiency and productivity, as well as the prevailing presumed recovery in demand, which is subject to risks given the current market and macroeconomic conditions.
Civil Aerospace’s underlying revenue is expected to expand at a low double-digit percentage compound annual growth rate starting in 2021, with an operating margin in the high single digits and trade cash flow comfortably exceeding operating profit, according to the group.
Rolls Royce will publish half-year results in August 2022.
Laura Hoy, Equity Analyst, Hargreaves Lansdown said, “Rolls Royce hasn’t been able to catch a break over the past few years, but we’re finally starting to see green shoots amid a budding recovery.”
“The Defense business continues to be a beacon of strength, and although it comes at the expense of near-term profits, it’s the right move to continue investing in future growth. Progress in New Business is also reassuring and the UK government’s commitment to nuclear energy should mean there are some new contracts up for grabs on the horizon.”
“The biggest thing on our minds is cash flow, which management still expects to be in the black by year-end. This is a key turning point for Rolls, which has seen its debt pile balloon as billions walk out the door to keep operations turning over.”
“The £2bn sale of ITP Aero will help get this under control, but ultimately we’ll need to see a business capable of standing on its own two legs before popping the champagne.”
Rolls Royce shares gained 1% to 81.35p after the group announced its positive outlook for 2022.
