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Rolls-Royce Holdings PLC on Thursday backed its annual guidance as it saw a £1.1 billion free cash flow improvement with growth in order intake, despite swinging to a dramatic interim loss as net financing costs mounted.
For the six months that ended on June 30, the engineering group said revenue rose 8.5% to £5.60 billion from £5.15 billion a year earlier.
Rolls-Royce said demand for its products is growing with ‘another period of record order intake in Power Systems, continued recovery in Civil Aerospace engine flying hours and high visibility of future revenues in Defence with a strong order book’.
Despite the growth in revenue, it swung to a hefty pretax loss of £1.75 billion from a profit of £114 million a year before.
Shares in Rolls-Royce were down 10% at 81.62 pence each on Thursday morning in London.
The company said the loss was due to £2.1 billion of net financing costs, of which mark-to-market on derivative contracts and in-year foreign exchange losses amounted to £1.8 billion, with £200 million net interest payable.
This was partially offset by a £76 million gain on the disposal of AirTanker Holdings, the firm said.
Commercial and administrative costs increased by 16% to £499 million from £444 million a year earlier, reflecting ‘the absence of furlough assistance received in 2021, increased activity as markets recover in Power Systems and Civil Aerospace and the ramp-up of activity in New Markets,’ the company explained.
Chief Executive Officer Warren East said: ‘We have progressed well in the first half of the year, with more than a £1 billion improvement in free cash flow, strong order intake in Power Systems, increased engine flying hours and commercial discipline in Civil Aerospace, and targeted investment to support longer-term growth in Defence and New Markets.’
Rolls-Royce said net cash inflow amounted to £597 million, compared to outflow of £659 million a year earlier, led mostly by ‘increased flying hour receipts in Civil Aerospace,’ it noted.
Looking ahead, Rolls-Royce said guidance for 2022 remains unchanged. It expects low-to-mid-single digit underlying revenue growth, and to be ‘modestly’ free cash flow positive in 2022.
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