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ROLLS-ROYCE HOLDINGS PLC - INTERIM MANAGEMENT STATEMENT
Excluding adverse foreign exchange translation effects (estimated at £40m on profit and £300m on revenue, at current exchange rates), and a one-off charge in Marine (estimated at £30m) to rectify a product quality issue, the Group continues to expect revenue and profit to be flat for the full year, with free cash flow similar to 2013.
At a business level, we maintain guidance except in Marine, where we now expect a reduction of around 10% in profit and revenue compared to 2013, caused by the one-off charge and lower services volume.
The Group's financial performance in 2014 is expected to be weighted to the second half of the year, with around two thirds of the full year 2014 profit being generated in the second half. This phasing reflects, in the first half, the one-off charge in Marine and higher restructuring and in the second half, phasing of cost reduction improvements and trading. As a result, free cash flow during the first half is expected to be between £200m and £400m lower than during the first half of 2013.
We remain confident that the Group will resume growth in 2015.
We have had discussions with the Financial Reporting Council (FRC) regarding accounting for the sale of new equipment and services TotalCare agreements in our Civil Aerospace business. These discussions are now substantially concluded. On the basis of those discussions, we do not expect any adjustments or restatements to be required in addition to those already reflected in the 2013 accounts. We have agreed to enhance the descriptions of our business model and accounting policies. We have no other ongoing enquiries with the FRC.
Since the start of the year, we have made a number of important announcements.
On April 29 2014, we announced that we are in talks with Siemens regarding the sale of our Energy gas turbine and compressor business. This supplies aero-derivative gas turbines compressor systems and related services to customers in the Oil and Gas and Power Generation sectors. These talks have not concluded and we will make a further announcement in due course.
In Marine & Industrial Power Systems, Daimler exercised their put option for their 50% equity interest in our joint venture Rolls-Royce Power Systems (RRPS). We welcomed this decision and have agreed the fair market value of Daimler's shares with them to be €2.43 billion. The transaction is expected to complete in the second half and is subject to the usual regulatory approvals.
In Aerospace, we welcomed the decision by All Nippon Airlines (ANA) to order Trent 1000 engines to power 25 Boeing 787 Dreamliner aircraft. We started assembly of the first higher-thrust version of the Trent XWB, that will power the Airbus A350-1000 aircraft. We signed a long-term agreement with Lockheed Martin worth up to US$1 billion to deliver approximately 600 engines to power future C-130J Super Hercules aircraft, and agreed multiple contracts worth over $450 million with various US government departments to provide and service military engines.
Investor briefing 19 June
We will be holding a briefing for institutional shareholders and research analysts on Thursday 19 June in London. John Rishton, Mark Morris and other members of our senior management team will discuss the Group's strategy, how we think about capital allocation and M&A, our future communication around guidance and TotalCare accounting.
Half year 2014 results
We will report the Group's results for the six month period ending 30 June 2014 on 31 July 2014.
For further information, please contact:
Director of External Communications
Tel: +44 (0)7974 918416
Director - Investor Relations
Tel: +44 (0)20 7227 9241
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