Rolls-Royce holds guidance, pays down debt despite weaker engine sales

The company, which gets paid when its engines are airborne, said hours flown by its customers were now at 65% of 2019 pre-Covid levels. However, it also said that year-to-date shop visits volumes and original equipment (OE) deliveries were at the lower end of guidance, leading to a 5% fall in the share price.

"We are planning a higher volume of large spare engine sales in 2022 and for the next few years, versus the typical range of 10-15 per cent of total OE deliveries, as we grow the pool of spare engines to underpin fleet health and improve resilience," the company said.

Rolls said the 36% growth in year-to-date engine hours compared to 2021 reflected the uneven global recovery in travel, with the US and Europe rebounding well, but China and Asia lagging due to ongoing Covid measures.

“The recent volatility in interest rates and foreign exchange rates have not had a material impact on our underlying cash flows or full-year 2022 group guidance, which is unchanged,” said outgoing chief executive Warren Easr on Thursday, adding that the firm had also paid off £2bn in debt with proceeds from the sale of its ITP Aero unit.

“Many of our long-term contracts contain inflation-linked pricing clauses based on standard indices for energy, materials and wages that help to mitigate cost increases,” he added.

Rolls added that it it was managing energy and raw material inflation risks through supplier agreements and hedging policies.

“In October we agreed a 6.5% wage increase and additional £1,500 payment with UK represented staff, reflecting the substantial cost of living increases our people are experiencing. We aim to recover cost inflation though operational efficiencies as well as increased pricing.”

“Supply chain pressures have led to higher levels of inventory, but we do not expect this to affect our ability to meet guidance and remain focused on delivering good cash conversion.”

Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, added: 'The news that full year guidance is unchanged with a sigh of relief, but it’s a sorry state of affairs when being on-track is a cause for genuine celebration.'

Reporting by Frank Prenesti for Sharecast.com