Rolls takes ‘necessary action’ to offset inflation and supply chain woes

Engine maker Rolls-Royce has said pressures from soaring inflation amid the Ukraine war and supply chain woes are set to continue throughout next year, but said profitability should improve over the final months of 2022.

The group saw underlying operating profits more than halve to £125 million for the first six months of 2022, down from £307 million a year ago.

Shares in the group tumbled 9% on Thursday as it said operating margins had been squeezed in the first half, with the “war in Ukraine, inflationary pressures, and supply-chain constraints all impacting our business”.

It added: “We expect these issues will persist into 2023 and have been managing our business to address and minimise the impact.”

But the group said margins are set to improve over the second half of the year as it kept its full-year guidance unchanged, with a boost from the recovery in the airline sector and higher flight demand.

Engine flying hours – a key performance measure – have now reached 60% of pre-pandemic levels, helping the group sharply narrow cash outflows by £1.1 billion and it said it is set to become cash flow positive over the year as a whole.

The half-year results showed revenues lifted to £5.6 billion from £5.2 billion a year earlier.

Rolls chief executive Warren East said the group had taken “lots of necessary actions” to manage soaring costs and wider challenges, including by keeping a tight rein on costs, increasing contract pricing where able and boosting inventory to overcome supply issues.

Mr East, who is due to leave the firm at the end of year, said: “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.”

The group said it also faced some staffing issues, particularly for experienced engineers, amid a tough global recruitment market, and is taking action to “attract, train and retain talent”.

The results showed that on a statutory basis, Rolls slumped to a loss of £1.6 billion from profits of £394 million a year ago as its bottom line was impacted by hefty net financing costs.

Rolls recently announced that former BP executive Tufan Erginbilgic will succeed Mr East at the helm.

He will take on the role on January 1 next year.

The group also earlier this week got the green light from the Spanish government to sell its ITP Aero business for 1.8 billion euros (£1.5 billion), the engineering firm announced.

The engineering giant will hand over the Spanish business, which builds aircraft engines and turbines, to a consortium of investors led by private equity firm Bain Capital.