Warren East, CEO, Rolls-Royce said: “In spite of improved trading since the Half Year, we now expect Full Year operating profit and free cash flow to be towards the lower end of our guidance ranges. In Civil Aerospace, while the Trent 1000 costs remain a headwind, the vast majority of our installed fleet of widebody engines is performing well, with the Trent XWB surpassing our expectations. We have seen growth in ITP and steady sales in Defence. In Power Systems, while trading remains healthy, a small number of larger projects have been deferred and as a result we now expect sales growth for the Full Year in the low- to mid-single-digit range.
“My top priority is improving customer confidence in the Trent 1000. We are today announcing additional action to further expand our maintenance capacity and increase our stock of spare engines. We deeply regret the ongoing disruption caused to customers. These steps, which build upon progress made to date, will further reduce disruption to our airline customers and give them the certainty that they need.
“We have completed a detailed technical evaluation of our work on an improved high-pressure turbine blade for Trent 1000 TEN, the last major redesign activity required for the issues which we have identified with the engine. Although we regret that the blade will not be ready when we had originally planned, our understanding of the technical issues has significantly improved.
“As a result, we are now able to reset our financial and operational expectations for the engine based on a blade design with a prudent durability estimate that we are confident we can deliver. This will give our customers and ourselves a higher degree of certainty as we plan for the servicing of the fleet over the coming years.
“With this increased understanding we have been able to carry out a full financial review of the Trent 1000. The result is a revised assessment of cost and future profitability of the programme to provide greater clarity for investors.
Greater clarity on financial impact of Trent 1000
We have conducted a thorough review of the Trent 1000 programme. Building on our increased understanding of the Trent 1000 TEN HPT issue, Management and the Board now have a clearer view of the costs associated with resolving the in-service issues.
We now expect total in-service cash costs of around £2.4bn across 2017-2023.
This includes £1.6bn as previously guided at the Half Year and a £400m increase in estimated costs across all Trent 1000 variants. It also now includes the £400m of Trent 1000 TEN costs previously included within normal annual programme contingency.
In 2017-18 we incurred £550m of cost on the Trent 1000. We now expect the overall cash impact of dealing with the in-service issues on all variants of the Trent 1000 to be c.£550m in 2019. We expect costs of £450-550m in 2020 and a similar level in 2021, before declining significantly thereafter.
Separately, as a result of this review, we expect to take an exceptional charge on the Trent 1000 of c.£1.4bn in 2019. This charge will primarily comprise:
-- Those additional cash costs associated with customer disruption and remediation shop visits.
-- The recognition of future contract losses from a small number of customer contracts. The cash impact occurs over the 10-15 year life of the contracts.
We continue to work through the full accounting treatment and will provide further detail at our Full Year results. (end of excerpt)
Click here for the full statement, on the Rolls-Royce website.