There’s more bad news to come, warns Rolls-Royce

There’s more bad news to come, warns Rolls-Royce

Hundreds more jobs are to go, businesses will be sold off and there could yet be further profit falls.

The new boss of Rolls-Royce has admitted after going to the City to apologise for the foul-up of five profit warnings in twenty months that have wiped more than £12 billion off the value of the engineering giant.

While lacking detail on job losses as part of a £200 million cost-cutting drive, or on which businesses will be for the chop, an extensive admission from Warren East, chief executive of the past five months, that Rolls “is not in a good place” appeared to placate investors, with the shares closing 19p higher yesterday at 588p, reports The Times.

In a long-awaited operating review, Mr East, a former chief executive of ARM Holdings, the IT chipmaker, ruled out any big demerger or divestments, but he said that investors would have to bear with the group in the course of a “wide-ranging transformation”.

Rolls has been hobbled by successive profit warnings from lower jet engine sales to Airbus wide-body aircraft, Embraer regional jets and Gulfstream business jets and in engines for vessels in the oil and gas industry. This month the most catastrophic in that string of profit alerts indicated that profits for next year were likely to halve to £700 million.

In a series of promises to provide better and clearer accounting information to investors, Mr East acknowledged that he could not rule out further profit warning because Rolls-Royce’s internal reporting systems were so cumbersome that he was not party to all the information about the group’s present trading.

“There is a lot of mud in the system,” he said. “There is information we do not know. The ground is not as solid as we would like.”

He appeared to blame that on his predecessors, John Rishton, who quit in the summer, and, before that, Sir John Rose. “People added a lot of complexity. The cumulative effect of that is additional processes and procedures. The organisational software has got very bloated. We are overmanaged. We are doing too much. There are too many committees and approval procedures.”

He signalled that, in addition to the 3,600 job cuts already under way across the business, a swathe of the company’s 2,000-strong senior management caste would be leaving, too.

However, he said that he did not foresee losing more frontline engineering staff. “The last thing we need is fewer engineers,” he said. “We want to make it easier for those engineers to do their job.”

Of the expected sale of operations in the marine business and among the group’s more marginal, less high-tech mining and agricultural engines, Mr East said that he was looking at “portfolio optimisation”, clarifying that by saying: “We are leaving open that some of the things we currently do, we might not be doing in 2020.”

He said that he would have a clearer idea of the extent of cuts across the business by the end of the year and that he would report at the full-year results next February on his detailed plans, which will include a shake-up in financial accounting and the controversial issue of when it books profits on its engine maintenance contracts.