Rolls-Royce's operating margins have been squeezed in the first half of 2022 as inflationary pressures, supply chain constraints and the war in Ukraine continue to pose a challenge to the business.
The aerospace giant, which has UK bases in Derby and Filton, near Bristol, saw underlying operating profits more than halve to £125m for the first six months of 2022 - down from £307m a year ago. The company said profitability should improve over the final months of 2022, however.
The engine maker said it the expected issues, such as rising inflation and the war in Europe, to persist in 2023.
"[We] have been managing our business to address and minimise the impact," Rolls-Royce said.
The group said margins were set to improve over the second half of the year as it kept its full-year guidance unchanged, with a boost from the recovery in the airline sector and higher flight demand.
Engine flying hours – a key performance measure – have now reached 60% of pre-pandemic levels, helping the group sharply narrow cash outflows by £1.1bn and it said it is set to become cash flow positive over the year as a whole. Its half-year results showed revenues lifted to £5.6bn from £5.2bn a year earlier.
Rolls chief executive Warren East, who is stepping down from the business at the end of 2022, said the group had taken “lots of necessary actions” to manage soaring costs and wider challenges, including by keeping a tight rein on costs, increasing contract pricing where able and boosting inventory to overcome supply issues.
Mr East said: “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.”
The group said it also faced some staffing issues, particularly for experienced engineers, amid a tough global recruitment market, and is taking action to “attract, train and retain talent”.
The results showed that on a statutory basis, Rolls slumped to a loss of £1.6bn from profits of £394m a year ago as its bottom line was impacted by hefty net financing costs.
In July, the company announced former BP executive Tufan Erginbilgic as its new chief executive. Mr Erginbilgic will take over from Mr East on January 1.
It also confirmed it is the final stages of building the world's largest jet engine. The so-called UltraFan demonstrator is being constructed at the aerospace giant's facility in Derby before its first run – on 100% Sustainable Aviation Fuel (SAF) – later this year.
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