Rolls-Royce trading in line with expectations following aviation recovery
Rolls-Royce’s trading in the first four months of the year has remained in line with expectations following the aviation sector’s gradual recovery and investments into defence.
Despite market volatility and other macroeconomic and geopolitical headwinds, the group said today it was expecting “positive momentum in our financial performance in 2022” and maintained its financial guidance for 2022 unchanged.
Analysts forecast the group’s guidance, which was released in February as part of Rolls-Royce’s full-year results, to be around £11.7bn worth of revenues, with an underlying £156m of pre-tax profits and a free cash flow of £50m.
Rolls-Royce, whose shares today increased 0.6 per cent in pre-trading but later settled down at 80.21p per share, said the civil aerospace sector was the main driver behind its sustained growth.
Following the easing of travel restrictions and the consequent boom in travel demand, flying hours in the group’s long-term service agreement have gone up 42 per cent on 2021 levels, bringing with them profit.
The aerospace giant suffered significant losses during the pandemic, its aerospace revenue was based on the amount of hours airlines flew its engines.
As aviation in on the pathway to recovery, the company is expecting aerospace’s underlying revenue to grow at a low double-digit rata from 2021, with operating profit margins in the high single digits.
“We are confident that we have positioned the business to achieve positive profit and cash this year, driven by the benefits of our cost reductions and increased engine flying hours in Civil Aerospace together with a strong performance in Defence and Power Systems,” said chief executive Warren, who will step down at the end of 2022 after almost eight years at the group’s helm.
Rolls-Royce’s defence business was not touched by Ukraine war-induced headwinds as its products were delivered and maintained over decades, while order backlogs will give Rolls-Royce the confidence it needs to navigate inflation and supply chain issues.
Commenting on the results, Hargreaves Lansdown’s equity analyst Laura Hoy said that while China’s current Zero Covid policy won’t allow Rolls-Royce to get back to pre-pandemic levels, “the resumption of air travel is a net positive for the new, leaner business.”
According to interactive investor’s head of investment Victoria Scholar, the company is still set to face new challenges.
“This is a company that was hit hard during the pandemic but now Rolls-Royce faces fresh challenges from its leadership uncertainty after chief executive Warren East announced plans to leave combined with the slow recovery of civil aerospace flying hours which are both weighing on the business,” she added.