Rolls-Royce confident about emerging power systems

Rolls-Royce’s CEO Tufan Erginbilgic expects that price increases will deliver a significant improvement in the second half for its Power Systems business unit.

His comments came as the division reported a broadly flat profit at a lower margin in its first half results.

Indeed, Rolls-Royce is in a “good position” to develop technology for a new generation of small nuclear power plants in the UK, according to Britain’s energy secretary. Speaking recently to the Financial Times, Grant Shapps said that small modular reactors would help hit the UK’s target of producing 25% of its electricity from nuclear by 2050, up from about 15% currently.

Overall, Rolls-Royce reported a strong recovery in profit, helped by better pricing for maintaining the engines that power long-haul aircraft like the Airbus A350 and Boeing 787.

The British company reported first-half underlying operating profit of £673 million ($854 million), more than five times the level of a year ago.

It had flagged last week that its profit would be more than twice market expectations, and its full-year outcome would be £1.2-1.4 billion, up from previous guidance of £800 million-£1 billion.

Erginbilgic, who joined the company in January, said the jump in profit and cash generation reflected “greater productivity, efficiency, and improved commercial outcomes”.

He added that the 16 point improvement in civil aerospace margin to 12.4% – the highest for at least 15 years – had been achieved despite engine flying hours recovering to 83% of pre-pandemic levels and supply chain challenges persisting.

Operating profit in its defence unit, which provides the engines that power Britain’s nuclear submarines, grew by a third, driven by strong revenue growth and higher margin.