Rolls-Royce (LON:RR.) reconfirmed its full-year guidance and said it still expected to deliver 10% fewer large aero engines to airline customers due to production issues.
The aerospace engineer said on Wednesday that it expects to deliver an operating profit of up to £450ml and free cash flow of up to £4o0mln for 2018.
READ: Rolls-Royce shares hit further turbulence on engine production delays
Rolls, which makes aero engines for aircraft makers Airbus and Boeing, said it expects to deliver around 500 large engines to customers in 2018, lower than its March 2018 engine projection of around 550 large engines.
“This reflects supply chain challenges that are affecting the whole civil aero engine sector and also early stage production ramp-up challenges on our new Trent 7000 engine. As we move into 2019 we are confident that Trent 7000 production and delivery volumes will increase significantly to meet our customer commitments,” Rolls said in a statement, adding that it had continued to make progress reducing large engine unit losses.
“Despite significantly increasing our Trent 1000 related maintenance, repair and overhaul capacity over the last twelve months, the number of aircraft on the ground remains at a high level. We sincerely regret the disruption that this has caused our customers. We are determined and confident that as we execute our plans we will see a significant improvement in aircraft on the ground as we progress through the first half of 2019,” Rolls added.
The company said its power systems unit had continued to deliver the strong growth seen in the first half of 2018 during the second half, driven by good growth in almost all end markets.
Trading at its defence business had been in line with its full-year guidance, with revenues expected to remain stable, while ITP Aero was trading as expected, Rolls added.
The aero and defence group said its restructuring plans remain on track.
“The focus in 2018 has been on establishing our new operating model and on delivering the targets previously communicated; specifically, a 4,600 headcount reduction over the next two years, with around a third of these taking place before the end of this year. We are confident that the end result will be a simpler, leaner and more agile organisation that drives culture change through pace, simplicity, efficiency and empowerment,” Rolls said.
Rolls said the disposal process of the commercial marine business was proceeding to plan and that completion was expected towards the end of the first quarter of 2019. It expects net proceeds of around £350m ln to £400mln dependent upon the final outturn working capital on completion.
In terms of Brexit, Rolls said it would continue to implement its contingency plans until it is certain that a deal and transition period has been agreed.
“Specifically, we are working with EASA to transfer design approval for large aero engines to Germany, where we already carry out this process for business jets. This is a precautionary and reversible technical action which we do not anticipate will lead to the transfer of any jobs,” the group said.
“We have begun to build inventory as a contingency measure, in line with the timetable that we gave in the summer. We have been liaising with all our suppliers and have reviewed our logistics options and have the required capacity available. At this point, we have contingency plans in place and will update the market when we have clearer visibility.”