Rolls-Royce Posts 34% Rise In Underlying Profit, Pledges Steep Cost Cuts

      By Marietta Cauchi 

    LONDON--Rolls-Royce Holdings PLC (RR.LN) Thursday reported a 34% rise in first-half underlying profit boosted by its civil aerospace business and signaled modest growth across the group but said it had a lot more to do to bring costs and cash-outflow under control.

    "It is quite clear we have a lot more to do in terms of costs and the substantial outflow of cash in the first-half - nearly half a billion - is not acceptable," Chief Executive John Rishton said in a conference call.

    The U.K.'s flagship engineering group, whose Trent XWB engines power Airbus' new A350 planes, is implementing a wide-ranging cost-cutting program to match the productivity of its major competitors.

    The company's promise to impose strict costs discipline echoed comments made by Tony Wood, head of aerospace, at the Paris Air Show in June. Mr. Wood said that "nothing is off-limits" when it comes to tackling the company's GBP7.5 billion cost pile.

    Company executives Thursday wouldn't be drawn on how soon the cost-cutting program would bear fruit but reiterated its target of doubling revenue in the next ten years.

    Rolls-Royce has four main business lines with half its revenue coming from civil aerospace, 20% from defense, 18% from its marine division and 8% from energy.

    The company posted underlying profit for the six months to June 30 of 840 million pounds ($1.3 billion), slightly ahead of an GBP836 million analyst consensus. Underlying revenue was up 27% at GBP7.3 billion.

    Underlying profit excludes lumpy one-off items and the company's hedge book and is used widely by analysts to give an accurate picture of what's going on in the business.

    The company posted a net loss of GBP358 million, compared with a profit of GBP1.2 billion last year. This was largely due to the mark to market effect of the company's hedge book on the back of a strong dollar.

    Rolls-Royce' order book increased 15% and included new orders of GBP10.9 billion in its civil aerospace business.

    Like other large aircraft engine manufacturers Rolls-Royce continues to deal with heavy demand for older engines like the Trent 700 even as it ramps up production of new more fuel-efficient engines, the Trent XWB and Trent 1000 to power the latest jets which have already clocked up record order books.

    Analysts said that the key highlight in Roll-Royce is the improvement in profitability at Civil Aerospace where profit was up 59%. Rolls-Royce led the FTSE risers in early trading with shares up 4%. Since then, the shares have fallen back to 1,223 pence, a rise of 3.7%, at 0917 GMT.

    Write to Marietta Cauchi at

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