- Shares fall 11% as hopes for recovery rapidly melt away

- New CEO Erginbilgic facing huge challenge to arrest decline

- Posts first-half $188 million net loss versus $104 million profit a year ago

Aero-engineer Rolls-Royce (RR.) is in serious danger of damaging its previously gilt-edged reputation as the bad news continues to pile up.

Today’s (4 Aug) half-year results demonstrate the size of the task facing the newly appointed chief executive Tufan Erginbilgic. In truth, investors might well be wondering that if a well-regarded figure like Warren East (who will hand over to Erginbilgic at the beginning of next year) can’t fix the business then what hope is there for anyone else?

Despite seeing some recovery in the all-important civil aerospace business, Rolls-Royce is still left trailing behind expectations. The company reported underlying revenues of $5.31 billion, a little ahead of the forecast $5.23 billion but earnings were way below estimates, running up a net loss per share of $0.19 versus analysts’ $2.25 profit.

That equates to an underlying loss of £188 million compared with a profit of £104 million this time last year.

DECLINE PREDATES PANDEMIC

We all know that the pandemic has created a once in generation challenge for the whole aerospace industry, yet Rolls-Royce’s fall from grace started long before Covid, with the share price beginning its decline from 375p in 2018.

‘The business has been struggling to generate consistent cash flow for years,’ said AJ Bell’s Russ Mould.

The pandemic was always going to impact the lucrative spares and repairs revenue, derived from the company’s base of installed engines. These are directly linked to how long aircraft are in the air, so the fewer planes in the sky, the greater the damage to revenue.

Hopes for a second-half revival are rapidly draining away, with the stock plunging 11% in response to the figures to 81p.

‘Given the inflationary pressures and impact from conflict in Ukraine, the incoming CEO may need to find a more dramatic fix for a now rather broken business,’ said the AJ Bell investment director.

DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (Steven Frazer) and the editor (James Crux) own shares in AJ Bell.

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Issue Date: 04 Aug 2022