Rolls-Royce PLC

Well-established market position as a leading engine manufacturer for wide-body aircraft, with a market share of about 35%. Quite sizable order book of 2,416 wide-body engines (at June 30, 2018), being about 5.0 years of production at 2017 rates. Aftermarket servicing business provides long-term revenues. Weak and volatile profitability, including substantial cash costs of about £1.5 billion being incurred due to underperformance of its Trent 1000 and 900 engines. Also losses are incurred on new engine sales. Further increase in such costs could delay a material upturn in EBITDA and reported free operating cash flow (FOCF), which we forecast for 2019 and 2020 and upon which the current ratings depend. Forecast 2018 S&P Global Ratings-adjusted EBITDA near zero in 2018,

...Business Risk: Satisfactory Financial Risk: Modest + Well-established market position as a leading engine manufacturer for wide-body aircraft, with a market share of about 35%. + Quite sizable order book of 2,416 wide-body engines (at June 30, 2018), being about 5.0 years of production at 2017 rates. + Aftermarket servicing business provides long-term revenues. + Weak and volatile profitability, including substantial cash costs of about ú1.5 billion being incurred due to underperformance of its Trent 1000 and 900 engines. Also losses are incurred on new engine sales. + Further increase in such costs could delay a material upturn in EBITDA and reported free operating cash flow (FOCF), which we forecast for 2019 and 2020 and upon which the current ratings depend. + Forecast 2018 S&P Global Ratings-adjusted EBITDA near zero in 2018, after exceptional charges of ú554 million on Trent 1000 engines. + Very weak leverage metrics expected in 2018, well below 45% FFO to adjusted debt and above 2.0x...

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