Rolls-Royce raises yearly outlook as cost-cutting pays off

British engine-maker Rolls-Royce has upped its annual earnings outlook after it posted better-than-expected half-year results. 

The company — which makes engines for large civil aircrafts, military planes, ships, and trains — reported that its underlying operating profit rose to £205mn ($265.3mn) in the first half of the year, up from £141mn ($182.5mn) during the same period last year.

The news comes as the company revealed that it is set to pay a one-off cost of over £554mn ($717mn) to address issues with its Trent 1000 engine, which powers the Boeing 787 aircraft. 

These problems have let to dozens of Boeing 787 Dreamliners being grounded while inspections and repaired are carried out where necessary.

Rolls-Royce said that the charge was a one-off exceptional expense that amounted to 40% of the estimated expense involved. 

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Despite this, the FTSE 100 engineer group — one of the UK’s biggest manufacturers — said that the underlying business was performing well.

Last month, the firm revealed plans to cut around 4,600 jobs as part of a restructure, which it says will lead to savings of approximately £400mn ($517mn) per year by 2020.  

The company added that it now expected 2018 free cash flow to come in between £450 ($582) and £550mn ($711.8).

Commenting on the results, Warren East, Chief Executive, said: “We continued to make good progress in the first half. 

“Financial results were ahead of our expectations with strong growth from Civil Aerospace and Power Systems and we achieved a number of operational and technological milestones.

"We continue to be impacted by the challenge of managing significant Trent 1000 in-service issues and have recognised an exceptional charge of £554m, representing the profit impact of that part of the total current and estimated costs out to 2022 that is considered to be abnormal in nature.” 
 
Rolls-Royce said that it expects its underlying profit for the full year to be approximately £450mn ($582.5mn).