Rolls-Royce reduces cash burn as inflation and supply chain concerns loom

Rolls-Royce reduced its cash outflow by more than £1bn in the first half of the year but cautioned that the external trading environment remained challenging, citing rising inflation and supply chain disruption as key factors.

The FTSE 100 group said free cash outflow, a closely watched figure by analysts, had improved by £1.1bn to £68mn on the prior period, led mostly by increased flying hours of its aero engines that power the world’s large widebody aircraft.

Flying hours had reached 60 per cent of pre-pandemic levels, according to Rolls-Royce, which stuck to its previous guidance that it would generate “modestly positive free cash flow” by the end of 2022.

The company reported underlying operating profit of £125mn to the end of June, compared with £307mn a year ago. Underlying revenues were up 4 per cent to £5.31bn led by a market recovery in its power systems business and an improvement in civil aerospace.

Underlying profit margins, however, were lower in the first half. Rolls-Royce said it expected these to improve in the next six months.

The FTSE 100 group, which derives a large part of its income from manufacturing and servicing engines for Boeing and Airbus’s large widebody aircraft, has emerged slowly from the pandemic as international restrictions on travel have remained in place in some regions.

The company on Thursday said it expected engine flying hours to return to pre-pandemic levels in 2024 as global travel restrictions were lifted.

Chief executive Warren East said the company had “progressed well” in the first half of the year. “We are actively managing the impacts of a number of challenges, including rising inflation and ongoing supply chain disruption, with a sharper focus on pricing, productivity and costs,” he said.

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