Rolls-Royce Backs FY Guidance Despite Inflation Pressures

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Rolls-Royce Backs FY Guidance Despite Inflation Pressures
Credit: © Reuters.

By Scott Kanowsky -- Engine maker Rolls-Royce Holdings PLC (LON: RR ) has backed its full-year performance guidance despite pressures from higher expenses for raw materials and energy.

In a trading update, the U.K.-based aerospace company added that a recent spike in interest rates and volatility in foreign exchange rates have not impacted underlying cash flows.

Meanwhile, a move to include clauses in contracts that link prices with inflation in energy, materials, and wages has helped to "mitigate" costs.

"We continue to manage the current energy and raw material inflation risks through supplier agreements and hedging policies," Rolls-Royce said.

It also paid off £2 billion in debt, mostly through the sale of Spanish aircraft engine maker ITP Aero. Outgoing chief executive officer Warren East hailed this move as a "milestone" for the group's balance sheet and a "clear step" on the path back to investment grade status in the medium term.

Rolls-Royce said it now has about £4 billion of drawn debt outstanding, of which approximately £0.5 billion matures in 2024, £0.7 billion in 2025, £2.8 billion due across 2026 to 2028.

Analysts at Hargreaves Lansdown (LON: HRGV ) wrote in a note to clients that while the unchanged financial outlook was a "sigh of relief," external headwinds remain an issue for Rolls-Royce.

They added that engine flying hours - a gauge of how often engines are serviced - will "never take off completely" if strict COVID-19 restrictions continue in China. The metric has been recovering from a pandemic-induced slump and came in at 65% of 2019 levels in the four months to October 31.

Shares in Rolls-Royce fell in early European trading on Thursday and are down by more than 37% over the past one-year period.

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