Rolls-Royce (RR.) confirmed that it has withdrawn from a competition to power Boeing’s planned mid-market aircraft because it couldn’t be sure it would meet the proposed timetable. Management may have been reluctant to commit capital and resources, as the aerospace giant is still addressing technical issues on the Trent 1000 engine which Boeing employs on its Dreamliner 787 series. The additional inspections, repairs and redesigns meant the group increased the exceptional charge on the Trent 1000 to £790m, while another £186m covered issues connected with the Trent 900, ergo the closure of Airbus' A380 production line.
The adjustments meant the group tabled a reported loss for 2018, though the share price held up as underlying figures were ahead of market expectations. Underlying operating profit of £616m was double that of the prior year, partly a reflection of an improved showing in the civil aerospace business, achieved despite an increase in negative contract accounting adjustments. The group also noted a 17 per cent increase in the defence order backlog, while Power Systems recorded a 15 per cent hike in underlying revenue on the back of increased long-term service agreements.
Mid-way through last year, the group sold its L’Orange business, part of Power Systems, to Woodward Inc for €673m (£575m), effectively reducing the group’s net debt position to a £611m net cash surplus. Free cash flow came in at £568m against £259m at the end of 2017 – management is confident the group will be generating at least £1bn by 2020.
The accounting practices of Rolls-Royce have attracted comment down through the years, particularly regarding revenue recognition, so the introduction of IFRS 15 – a related accounting standard – hit accumulated losses to the tune of £4.44bn, sending shareholder funds into negative territory.
JPMorgan Cazenove gives adjusted EPS of 27.6p, rising to 39.9p in 2020.
| ROLLS-ROYCE (RR.) | ||||
| ORD PRICE: | 988p | MARKET VALUE: | £ 18.7bn | |
| TOUCH: | 985.6-988.4p | 12-MONTH HIGH: | 1,098p | LOW: 747p |
| DIVIDEND YIELD: | 1.2% | PE RATIO: | NA | |
| NET ASSET VALUE: | * | NET CASH: | £611m | |
| Year to 31 Dec | Turnover (£bn) | Pre-tax profit (£bn) | Earnings per share (p) | Dividend ** per share (p) |
| 2014 | 13.70 | 0.67 | -3.9 | 23.1 |
| 2015 | 13.70 | 0.16 | 4.5 | 16.4 |
| 2016 | 14.96 | -4.64 | -220 | 11.7 |
| 2017 (restated) | 14.75 | 3.90 | 184 | 11.7 |
| 2018 | 15.73 | -2.95 | -129 | 11.7 |
| % change | +7 | - | - | - |
| Ex-div: | 25 Apr | |||
| Payment: | 01 Jul | |||
| *Negative shareholders funds (intangible assets of £5.3bn, or 279p a share. **Distributions made via an issue of 'C' shares. | ||||
