Rolls-Royce Holdings PLC (LON:RR.) swung to a pre-tax loss in the first half after taking a £554mln to cover costs related to problems with its latest jet engine.
The company posted a pre-tax loss of £1.3bn for the six months to June 30, compared to a profit of £1.4bn last year.
Chief executive Warren East said the exceptional charge for fixing problems with the company’s Trent 1000 engine was “abnormal in nature”.
Excluding one-off costs, the group generated an underlying operating profit of £141mln, up from a £84mln loss a year ago.
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Revenue rose 12% to £7.5bn, driven by growth in civil aerospace and power systems.
Rolls-Royce ended the period with net cash of £165mln, compared to net debt of £305mln last year. Free cash outflows improved to £72mln from £339mln last year.
For the 2018 financial year, the company expects underlying profit and free cash flows to reach the upper half of its guidance range.
The group estimates costs for Trent 1000 and Trent 900 in-service issues of £450mln in 2018. In the following year, costs are expected to be at a similar level to 2018 before falling to at least £100mln in 2020.
However, the company still expects to deliver improved 2019 underlying free cash flow compared to 2018.
Shares rose 2.9% to 1,016p in late morning trading.
"While the issues with the Trent engines persist, and are clearly costly, the civil aerospace and power systems businesses are performing well and the increase in full-year guidance is welcome," said Ian Forrest investment research analyst at The Share Centre.
“With the extensive restructuring well underway the shares have recovered well in recent months and we believe that there is more to come. We continue with our ‘buy’ recommendation for investors seeking a balanced return and willing to accept a medium level of risk.”