Rolls-Royce Holdings, the U.K. engineering company, has announced a first-half pretax profit driven by strong performance in its civil aerospace division. With the aviation sector continuing to recover, the division saw a significant increase in revenue and margins.
Margin Growth and Transformation Program
The margin for the civil aerospace division rose to 12.4% from 3.4%. This growth can be attributed to the ongoing recovery of the large-engine market and the expansion of business aviation. Additionally, the implementation of Rolls-Royce’s transformation program has proven beneficial, resulting in a 38% rise in revenue for the division, reaching £3.3 billion ($4.19 billion).
Power-Systems Division Outlook
Although the power-systems division experienced lower margins, the company anticipates improvements in the second half through pricing actions. Margin enhancements were primarily led by the civil aerospace and defense segments, driven by increased volumes, commercial advancements, and cost efficiencies.
Global Travel Recovery and Large-Engine Flying Hours
Rolls-Royce reported that global travel restrictions being lifted in China positively impacted the civil aerospace division. As a result, large-engine flying hours increased by 36% to 6.2 million, representing 83% of pre-pandemic levels in 2019. The company expects large-engine flying hours to continue at around 80% to 90% of 2019 figures for the remainder of the year.
Strong Order Book Growth
During the period, large engine orders rose from 96 to 240. Furthermore, the order book as of June 30 stood at 1,405 engines, showing growth for the first time since 2018.
In the first six months, Rolls-Royce achieved a pretax profit of £1.42 billion, a significant turnaround from the £1.75 billion pretax loss incurred in the previous year. Underlying operating profit, a key metric that excludes exceptional and one-off items, reached £673 million, up from £125 million. Revenue also experienced a substantial increase, rising to £7.52 billion compared to £5.60 billion in the previous year.
Guidance and Future Outlook
Rolls-Royce maintains its guidance for 2023, forecasting an underlying operating profit range of £1.2 billion to £1.4 billion. This exceeds market consensus estimates of £934 million. The company expects to deliver between 400 and 500 total engines for the year.
Despite the positive news, Rolls-Royce shares were down 2% at 180.15 pence as of 0746 GMT.