Rolls-Royce to implement cost-cut strategies in order to diminish losses

Rolls-Royce said it intends to intensify its efforts to cut costs as the UK jet engine manufacturer declined to a 491 million pounds pre-tax loss in the first half of 2013. The group’s operating profit rose 32% in the six months to June 30, but it recorded a pre-tax loss partly because of losses on derivatives used for hedging currency movements. Rolls-Royce recorded revenue of 7.3 billion pounds for the six months to June 30, up 28% compared with a year ago.

Rolls-Royce’s aerospace unit, its flagship operating division, recorded improved profitability, but it was boosted by a payment from a former joint venture, and the group’s new power systems business had weak figures.

John Rishton, chief executive, said for Financial Times that the group’s first-half results showed “good progress against some of our priorities, as well as highlighting the need for further action in others . . . it is clear we have a lot more to do on cost (and cash). Fortunately we have significant opportunities to improve both, but this will take time and firm resolve to deliver.” He declined to give a timescale.

The pace of hiring should be moderated, and more engineers have been deployed to examine how products can be made more cheaply while retaining quality, Chief Executive Officer John Rishton explained. Supplier relations also are being reviewed. Inventory needs to be controlled more tightly after levels increased by 261 million pounds in the first six months, which Rishton said “was disappointing”.

Rolls-Royce has focused its commercial-aircraft engine business on powering long-range planes. Sales have gained as Toulouse, France-based Airbus SAS has brought output of A330 wide-body airliners to a record and Boeing Co. boosts production of the 787 Dreamliner, a market the engine producer shares with General Electric.

Results in the first half reflected the inclusion of the Tognum diesel-engine joint venture with Daimler AG, where revenue and profit are expected to remain flat, according to Rolls-Royce.

The company maintained its forecast for the year for “modest” revenue growth, excluding the Tognum figures, and a “good” increase in profit on an underlying basis, which excludes currency effects and some one-time items.

Rolls-Royce warned last December that it faced the possibility of prosecution after the UK Serious Fraud Office and an internal investigation raised concerns about corruption and bribery in Asia, especially in China, Indonesia and other markets.

Rolls-Royce stated today it was “continuing its investigations into its use of intermediaries across its business and is engaged with relevant government agencies in the UK and elsewhere regarding its findings”, adding it was unclear when these issues would be resolved.

Rolls-Royces shares are down 0.82% today and gaining 3.6% since the beginning of the year.