Shares rise for Rolls-Royce and BP

Shares in Rolls-Royce and BP rose as the jet engines maker said earnings were on the up and the oil giant reassured over its debt pile.

Rolls-Royce beat first-half profit forecasts after delivering 27% more aircraft engines and higher maintenance revenue.

The maker of engines for aircraft and ships reported an underlying pretax profit of £287m (€321m), up 148% from a year earlier and beating market forecasts of £193m.

Rolls shares rose by as much as 8% to a two-year high after its earnings report.

Chief executive Warren East is rebuilding Rolls-Royce after a record annual loss last year, hurt by a bribery fine, weaker sterling, and falling revenue from older engine programmes.

He is cutting costs, shortening manufacturing times, and investing in new engines that will increase the size of its fleet and associated servicing revenue in the next decade.

Mr East said the company had beaten expectations in profit and cash in the first half. “That was due to a good performance from civil aerospace, there was an increase there in revenue, particularly from our in-service fleet,” he told reporters.

The company is doubling production of its large civil aircraft engines, led by the Trent XWB for the long-range Airbus A350. It aims to capture half of the market by 2020.

It said it had an order book of more 2,700 large civil aircraft engines, which reflects an average five years of production including six years of cover for the Trent XWB family.

The profit, however, comes from long-term service contracts with airlines. Mr East said the company had reduced the loss it is making producing the engine as early launch pricing came to an end and it improved manufacturing efficiency. Analysts at Jefferies said a better-than-expected cash performance of negative £339m against their expectation of negative £585m was reason enough for “a moment of exuberance”.

Meanwhile, BP moved to calm investor concerns after debt rose to a record, saying lower oil-spill payments for the rest of the year and funds from asset sales will ease the burden. Net borrowings totalled $39.8bn (€33.8bn) at the end of June, up almost $9bn in a year because of continuing payments for the 2010 Gulf of Mexico disaster. While BP managed to cover dividend and spending commitments with cash flow, it’ll need stable oil prices to do so over the remainder of the year. Its shares rose 3.8% at one stage, paring its decline this year to 9.2%.

Reuters and Bloomberg