The departure of Warren East as chief executive of Rolls-Royce (RR.) leaves the aero-engines maker at a crossroads. Despite a return to profit in 2021 and a sharp reduction in cash burn, investors will get no dividends for last year while the revenue growth outlook for 2022 of less than 10% will leave many unimpressed.
Underlying operating profit margins of 3.8% last year are expected to be ‘broadly unchanged,’ the company said today.
Underlying operating profit of £414 million reflects good growth from the loss of more than £2 billion in 2020, yet air travel has been slow to pick up following the pandemic. Rolls’ civil aerospace revenue was still 44% below 2019 levels while underlying total revenue fell from £11.4 billion to £10.9 billion.
‘The group will face sustained macroeconomic challenges throughout 2022, including rising inflationary pressure and continued issues with the supply chain,’ said Edison’s Neil Shah.
A TURBULENT TIME FOR EAST
Life hasn’t been easy for East. During his near eight years as CEO Rolls has faced a corruption scandal and multiple profit warnings, nearly seeing the company fold, according to East’s own assessment. Then came the pandemic, turning the entire airline industry on its head.
Against such still headwinds there have been successes. Rolls hit its restructuring run-rate savings of over £1.3 billion a year ahead of schedule as the CEO slashed waste and inefficiency and sharpened the company’s go-to-market execution. The workforce was cut by more than 9,000 roles and three business units were sold in the last year.
But the bleak reality is that the firm’s share price is now at its lowest in almost 15 years, barring a sudden slump towards the end of 2021. Investors are falling over themselves to get out in trading today, the stock crashing more than 17% to 97.11p. The share price was around 300p on 2 July 2015, the day Warren East officially took the top job.
‘We are now running an open and transparent process to find his successor and ensure a smooth transition,’ said a separate Rolls-Royce statement on Thursday (24 Feb).
This is a pivotal moment for the firm as it strives to continue its recovery and investors will keep a close eye on whether recovery can continue under new leadership.
