Rolls-Royce making solid progress, chief executive tells AGM

Investors in Rolls-Royce Holdings were gathering in Derby on Thursday morning for the company’s annual general meeting, where chief executive Warren East was set to confirm that overall trading in the first few months of the year had been in line with expectations, and that the board’s outlook for the year as a whole was unchanged.

The FTSE 100 company said East was reconfirming his comments in February at the full year results, saying management saw “no reason” to change its expectations for profit and cash flow for the year as a whole at this early stage.

“We have some important transformation initiatives underway and, while we have made good progress in our cost cutting and efficiency programmes, more needs to be done to ensure we drive sustainable margin improvements within the business,” East said.

As in 2016, Rolls-Royce said profit before financing charges and tax was expected to be weighted towards the second half of the year, with the proportion of profit generated in the first six months of the year expected to be similar to that achieved in 2016.

Similarly, free cash flow was again expected to be significantly weighted towards the second half with first half cash flow forecast to be lower than in 2016, largely reflecting the higher volumes of large engines sold at a loss and a number of other one-off cash items.

The 2017 outlook also excluded the year-on-year effect of foreign exchange translation on the company’s reported results.

Rolls-Royce said its guidance at this stage of the year was unchanged from that provided in February.

“If rates remain unchanged from those seen recently, the impact of the average year-on-year movement on the translation of our overseas subsidiaries results would improve reported revenues by around £400m and improve reported profit before tax by around £50m,” the board confirmed.

On 19 April, it was announced that the European Commission had cleared the acquisition of the 53.1% shareholding in Industria de Turbo Propulsores currently owned by SENER Grupo de Ingeniería SA.

Rolls-Royce said completion of that deal remained subject to approval by relevant Spanish authorities, expected later in 2017.

“As set out in February the priorities for 2017 are fourfold - to strengthen our focus on engineering, operational and aftermarket excellence; to sustain our strong start to our transformation programme; to continue to rebuild trust and confidence in our long-term growth prospects; and [to] deliver an update on our long-term goals,” the board reiterated.

In the first few months of the year the company said it sustained progress to deliver those priorities, including driving further benefits from its transformation programme.

As a result, it remained on track to deliver the expected year-on-year incremental cost savings in 2017 of between £80-110m and achieve its target of £200m per annum by the end of 2017.