Rolls-Royce has posted pre-tax losses of £1.3bn in the six months to June 30th, from a profit of £1.4bn in the same period a year before. Revenue, however, was up 12% to £7.5bn.

Warren East, Chief Executive, Rolls Royce said the financial results exceeded management’s expectations, and investors appeared to agree, sending shares in the FTSE 100 company up 3.6% in midday trading

In reflection of the improved outlook, Rolls-Royce raised its forecast for underlying operating profit for this year to between £400m and £500m, compared with earlier guidance of £300m-£500m. Free cash flow, a measure keenly watched by investors, is expected to be £450m to £550m, against a previous range of £350m-£550m.

During the half year, Rolls-Royce’s division that supplies engines for civil aircraft saw a strong increase in underlying revenues on an organic basis as operating losses narrowed. Sales and profits increased at its power systems unit that makes diesel engines for mining trucks, trains and warships, while profit was down marginally in its defence division.

Commenting on the results, Warren East said: “We continued to make good progress in the first half. Financial results were ahead of our expectations with strong growth from Civil Aerospace and Power Systems and we achieved a number of operational and technological milestones. 

"Reflecting our progress to date and growing confidence for the full year, we now expect both underlying profit and cash flow for 2018 to be in the upper half of our guidance range. We continue to be impacted by the challenge of managing significant Trent 1000 in-service issues and have recognised an exceptional charge of £554m, representing the profit impact of that part of the total current and estimated costs out to 2022 that is considered to be abnormal in nature.”