Rolls-Royce to reveal cost-cutting progress

Aero engine supplier Rolls-Royce will update investors on progress with its huge cost-cutting programme when it reports third quarter results this week.

Aero-engine maker Rolls-Royce has previously said it is making good progress on reducing overheads to help it cope with the impact of the pandemic.

In a bid to weather the challenges posed by the pandemic the group has been cutting headcount and reducing overheads, and in its latest update back in August said it was on course to achieve £1.3 billion of annualised cost savings.

Investors will also be keen for an update on civil aviation engine flying hours (EFH) which account for a significant proportion of its group revenues.

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Michael Hewson, chief market analyst at CMC Markets UK, said while the EFH figures has been improving with the return of transatlantic travel, it still looks like it could fall short of its full year target of 55 per cent of 2019 levels.

“International travel still looks like a headwind particularly as we head into the winter months, and governments reintroduce restrictions because of new variants,” said Hewson.

Hewson said Rolls-Royce had surprised the markets with an unexpected first half profit of £393 million, beating consensus expectations of a small loss.

“Since then, the share price has managed to make some fairly decent gains, although the recent concerns over rising Delta infections and latterly Omicron have seen the shares slip back from their November peaks above 150p,” he said.

However, Hewson believes investors will have to temper their expectations for the group’s third quarter results.

“International travel still looks like a headwind particularly as we head into the winter months, and governments reintroduce restrictions because of new variants,” he pointed out.

Last month Rolls-Royce announced it had secured backing totalling more than £400m from the UK government and a consortium of private investors to develop small nuclear reactors.

The investment will be used to carry out detailed design work on the mini-power stations which could each be capable of powering a million homes - equivalent to a city the size of Leeds.

The reactors have the potential to be less expensive to build than traditional nuclear power plants because of their smaller size. The modular nature of the components also offers the potential for parts to be produced in dedicated factories and shipped by road to site, reducing construction time and cost.

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