Share

Rolls-Royce to deepen restructuring following earnings surge

London - Rolls-Royce pledged to deepen restructuring efforts after chief executive officer Warren East’s initial cost cuts helped the aero-engine giant snap years of earnings declines.

Shares of Rolls-Royce jumped 10% after 2017 profit beat estimates and East said the company has hired consultants Alvarez & Marsal to help develop a “considerably simplified staff structure.” A review of the marine division, the only unit to suffer a significant profit decline, is also progressing, the London-based company said in a statement on Wednesday.

“We are embarking on a more fundamental restructuring program with a refreshed leadership team and an improved market environment,” East, CEO since 2015, said in the release. Underlying pretax profit surged 25% to £1.07bn in 2017, easily beating the 889 million-pound average prediction of 11 analysts, while free cash flow more than doubled.

East has eliminated around 600 senior managers in an earlier slimming down of Rolls’s unwieldy structure, as well as more than 4 000 at the marine unit, which may be sold. While the measures are helping to tap the potential of a record order backlog, much of the profit gain came from the power-systems division and some key engines models are experiencing performance issues.

In particular, the Trent 1000 that powers Boeing’s 787 Dreamliner and the Trent 900, which is used on the Airbus SE A380 superjumbo, have experienced “durability issues” with a small number of parts. In some cases the problems have required turbines to be removed for repairs, leading to disruption for customers and a £170m hit on cash flow.

The cash impact could double this year as maintenance activity peaks, though some parts are having to be redesigned and work won’t be completed until 2022. Those costs are including in the current outlook and Rolls still expects to achieve a target of posting £1bn in free cash flow by 2020.

East said the latest restructuring effort will aim to eliminate remaining duplication within management. He declined to say how many jobs will be affected, though the focus will be on white-collar staff rather than engineers and technicians.

“The reality is that there is more simplification that we need to do to make ourselves truly competitive,” East said on a conference call.

Rolls-Royce shares rose the most since August 1 last year and were trading 8% higher at 897.20 pence as of 09:11, valuing the company at £16.6bn.

* Sign up to Fin24's top news in your inbox: SUBSCRIBE TO FIN24 NEWSLETTER

We live in a world where facts and fiction get blurred
Who we choose to trust can have a profound impact on our lives. Join thousands of devoted South Africans who look to News24 to bring them news they can trust every day. As we celebrate 25 years, become a News24 subscriber as we strive to keep you informed, inspired and empowered.
Join News24 today
heading
description
username
Show Comments ()
Rand - Dollar
18.93
-0.1%
Rand - Pound
23.90
-0.0%
Rand - Euro
20.44
+0.1%
Rand - Aus dollar
12.34
+0.1%
Rand - Yen
0.13
-0.1%
Platinum
904.58
+0.9%
Palladium
1,012.82
+1.1%
Gold
2,218.03
+1.1%
Silver
24.80
+0.7%
Brent-ruolie
86.09
-0.2%
Top 40
68,346
+1.0%
All Share
74,536
+0.9%
Resource 10
57,251
+2.9%
Industrial 25
103,936
+0.6%
Financial 15
16,502
-0.1%
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot
Editorial feedback and complaints

Contact the public editor with feedback for our journalists, complaints, queries or suggestions about articles on News24.

LEARN MORE
Government tenders

Find public sector tender opportunities in South Africa here.

Government tenders
This portal provides access to information on all tenders made by all public sector organisations in all spheres of government.
Browse tenders