British aero-engineer Rolls-Royce said on Thursday it was managing rising inflation and supply chain disruption, and an improvement in its squeezed profit margin in the second half would keep it on track to meet its targets.

The engine maker reported underlying operating profit of 125 million pounds ($152 million) in the first half of the year, compared with 307 million pounds a year earlier, on underlying revenue of 5.31 billion pounds.

Rolls-Royce Chief Executive Warren East, who will be succeeded by ex-BP executive Tufan Erginbilgic at the end of the year, said the company had “progressed well” in the half, with an improvement in free cash flow of more than 1 billion pounds and strong order intake in its power systems business.

“We are actively managing the impacts of a number of challenges, including rising inflation and ongoing supply chain disruption, with a sharper focus on pricing, productivity and costs,” he said in a statement.

The company said its large engines under long-term service agreements flew 4.5 million hours in the period, up 43% year-over-year, but still only about 60% of pre-pandemic levels in 2019.

($1 = 0.8231 pounds)

(Reporting by Paul Sandle; Editing by Kate Holton)

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