Rolls-Royce sticks to outlook despite supply chain woes

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Rolls-Royce has stuck to its guidance for profit growth this year as a surge in international travel continues to drive demand for its aircraft engines despite persistent supply chain challenges.

Shares in the FTSE 100 group fell nearly 4 per cent in early trading in London on Thursday after hitting a new 52-week high of 572.8p on Wednesday.

The stock has nearly doubled since the start of the year as investors have bought into a sweeping turnaround plan under chief executive Tufan Erginbilgiç to improve profitability and cut costs. The company in August said it would resume dividend payments for the full year.

Rolls-Royce on Thursday reiterated its goal of delivering underlying operating profit of £2.1bn to £2.3bn and free cash flow of as much as £2.2bn for the full year.

The company said large engine flying hours — a key metric as Rolls-Royce makes most of its money from servicing and maintaining its engines when they are in operation — grew 18 per cent year on year to 102 per cent of 2019 levels for the 10 months to the end of October. It expects engine hours to reach 100 to 110 per cent of 2019 levels for the full year.

Erginbilgiç, however, cautioned that the supply chain environment “remains challenging”. A range of issues including labour shortages and a lack of parts have hampered the industry’s attempt to increase production. The company said it was focusing on 15 suppliers to improve performance.

The aerospace industry was among the hardest hit by the Covid-19 pandemic, but bounced back sharply amid resurgent demand from airlines for new aircraft amid a post-pandemic travel boom.

Rolls-Royce has said it will invest more than £1bn over the coming years to improve the durability and performance of its Trent family of engines which power long-haul passenger planes such as Boeing’s 787 and the Airbus A350. It said on Thursday it was also continuing to invest to increase its maintenance and overhaul capacity by 2030.

The group said demand across its other two main divisions, defence and power systems, had also remained strong.

Rolls-Royce has a medium-term goal of achieving up to £2.8bn in annual operating profit and up to £3.1bn free cash flow by 2027.