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Rolls Royce Sees FY Operating Profit, FCF Towards Low End Of Outlook Range

Rolls Royce Holdings plc (RYCEF.PK,RR.L,RYCEY.PK) said Thursday that despite improved trading since the first half of the year, it now expects full year operating profit and free cash flow or FCF outcome towards the lower end of its guidance ranges.

The company also expects to incur a charge of about 1.4 billion pounds in fiscal 2019, related to the Trent 1000 program.

Warren East, CEO, Rolls-Royce said, "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."

The company expects to deliver FCF of at least 1 billion pounds in 2020, underpinned by the benefits of its restructuring program, operating efficiency improvements, further efforts to reduce inventory and disciplined capital allocation.

In the longer term as the Trent 1000 costs subside, the company remains confident in its mid-term ambition of at least 1 pound of FCF per share.

Rolls Royce said part of its restructuring plan announced earlier, it is focused on delivering the targeted 4,600 headcount reduction by the end of 2020. In August 2019, the company said it delivered one third of these reductions. It expects to deliver more than half of the total program reductions by the end of this year.

The company added that returning the Trent 1000 fleet to the level of service expected by its customers is the top priority of senior management and the Board.

The company said it has been dealing with three significant technical issues that have affected each of the three variants of the Trent 1000 (Package B, Package C and TEN). Of the nine fixes required, it has so far designed eight and certified seven which are now being incorporated into the fleet.

As a result of the review of the Trent 1000 program, Rolls Royce expects to take an exceptional charge of about 1.4 billion pounds to operating profit in fiscal 2019.

This represents the additional near term costs of customer disruption and remediation shop visits as well as provisions against future losses on a small number of contracts due to the company's new estimate of HPT durability.

The company does not anticipate material cash or profit effect on the Trent 7000 following impact assessment.

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