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Trent 1000 problems drag on Rolls Royce share price

Trent 1000 problems drag on Rolls Royce share price

The Rolls Royce share price has had a turbulent last few years, with management embarking on a turnaround plan after the company’s share price hit a low of 497p in 2016

Since then, new CEO Warren East has managed to execute a turnaround plan that has seen underperforming areas trimmed back and the business focus on key growth areas of civil aviation and maintenance. However, we’re yet to see the impact of this on the Rolls Royce share price that investors will be looking for.

Ongoing costs hamper half-year results

Earlier this year the company announced a surprise £2.9bn loss due to costs involved in fixing problems with its Trent 1000 engines, which power the 787 Dreamliner.

It was feared that these problems could continue to hamper profitability going forward, and that has been borne out by this morning’s numbers. They showed that the problems were likely to amount to £100m over the course of the next three years, as progress is made to deal with and resolve the various issues.   
 
The decision by Airbus to stop production of its A380 aircraft also saw the company take a charge of £186m earlier this year, and this has been followed up by a further £59m of exceptional charges, bringing the total to £245m.

Can underlying positives bolster Rolls Royce share price?

The underlying business numbers were more positive with first-half revenues rising by 7% to £7.35bn, and an operating profit of £203m, with operational losses in civil aerospace reduced to £21m. 

The biggest contributor to the top line was defence, which saw profits rise modestly to £173m, having just won a new £350m contract from the Ministry of Defence earlier this week to maintain and repair the engines of RAF Typhoon aircraft.    

Despite some ongoing problems, the company said it was on track to deliver on its full-year guidance and expected to see a significant improvement in cash generation to at least $1bn in 2020. Investors will be hoping that once it is able to put its problems with respect to the Trent 1000 engines behind it, we will see an improvement in the Rolls Royce share price.

However, it would appear that at the moment, these ongoing problems are still colouring investor perceptions of a brand that has more positives than negatives. The Rolls Royce share price has fallen modestly on the open, to be down 3% year to date. 

 


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