OREANDA-NEWS. Rolls-Royce today updating 2015 guidance, including a preview of our expected half-year results, and at the same time identifying a number of market developments in 2015 that are now expected to have a more significant impact in 2016. These primarily relate to Civil Aerospace markets, particularly for our Trent 700 engines during their transition to the new Trent 7000, business and regional jets, and in the offshore markets for our Marine business.

Significant market pressures in 2015 and 2016

  • 2015: Civil Aerospace guidance unchanged - Trent 700, business jet and regional aftermarket headwinds offset by higher-than-expected benefits from contract provision releases and widebody aftermarket growth
  • 2016: Civil Aerospace net headwinds of around £300m due to Trent 700, business jet and regional jet aftermarket weakness
  • 2015 and 2016: Offshore markets continue to weaken, reducing our Marine profit by around £85m in both years

Notwithstanding these expected headwinds we continue to believe that the Group can achieve significant improvements to returns and cash flow, albeit later than previously indicated.

2015 Full Year

Overall, performance for 2015 for the bulk of our business is expected to be broadly in line with previous guidance. However, further deterioration in the offshore market is now expected to impact full year profit for Marine.

Guidance for 2015 revenue is unchanged for the full year. Group underlying profit before tax is now expected to be between £1,325m to £1,475m, compared to previous guidance of £1,400m to £1,550m, reflecting the deterioration in offshore. Free cash flow for 2015 is now expected to be between £(150)m and £150m, compared to previous guidance of between £50m and £350m. Given the weaker near-term cash outlook, we will discontinue the current share buyback programme, having completed £500m of the planned £1bn programme in the first half of the year.

In Civil Aerospace, we continue to expect 2015 underlying revenue and profit within the guided range provided in February of £7,000m to £7,300m and £800m to £900m respectively. However, we now expect the impact of reduced Trent 700 deliveries to be greater than initial estimates, reflecting further adverse developments in the demand for OE and spare engines and related pricing. In addition, lower-than-expected demand for engines to power business jets and a softening regional aftermarket will also adversely impact profit. These market headwinds should be balanced by good growth in our widebody aftermarket and a larger-than-expected benefit from the reversal of a balance sheet provision on the Trent 1000 launch, as a result of an expected significant improvement in operating performance, and by improved retrospective TotalCare contract profitability. The value of the provision release and contract profitability are expected together to contribute around £200m, somewhat more than previously expected.

We now expect our Marine underlying profit to be between break even and £40m, compared to previous guidance of between £90m and £120m. We are reviewing further cost reduction and restructuring activities in Marine to improve performance which, including asset impairments, is expected to result in an exceptional charge of £70m to £100m which will be recognised outside underlying profit.

2015 Half Year

As outlined in May, we continue to expect 2015 underlying profit before tax to be phased more to the second half than in 2014, led principally by Civil Aerospace and Power Systems. As a result, first half underlying profit before tax is expected to be between £390m and £430m, or around 30% of the full year, compared with roughly 40% in 2014. Free cash flow is expected to be between £(570)m to £(620)m compared with £(347)m in the first half of 2014.

We will provide full details of our Interim results on 30 July.