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Rolls-Royce slumps as new CEO warns of 'last chance' to change

ROLLS-ROYCE-HLDG-CEO:Rolls-Royce slumps as new CEO warns of 'last chance' to change
ROLLS-ROYCE-HLDG-CEO:Rolls-Royce slumps as new CEO warns of 'last chance' to change Copyright Thomson Reuters 2023
Copyright Thomson Reuters 2023
By Reuters
Published on Updated
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By Sarah Young

LONDON - Shares in Rolls-Royce fell as much as 4% on Friday after its new CEO warned staff the aerospace company, Britain's premier blue-chip engineering group, was a "burning platform".

According to the Financial Times, Tufan Erginbilgic told staff at Rolls-Royce's main British site in Derby, central England, that the company's performance was "unsustainable" and it faced a "last chance" to change.

Rolls-Royce, whose engines and systems are used on the Airbus A350 and Boeing 787 as well as ships, submarines and in power generation, said the CEO had spoken to staff about "the need to significantly improve the performance of Rolls-Royce".

"He was honest about our financial underperformance compared with our peers," a Rolls-Royce spokesperson said in an emailed statement on Friday.

Shares in Rolls-Royce, which before the Financial Times report were at their highest for about a year, lost 4% in morning trading. Their current level of 109 pence compares with a 2014 high of 398 pence.

Rolls-Royce was plunged into crisis when most air travel stopped for months during the pandemic, and then recovered only slowly. It earns revenue on a per hour basis when planes fly using its engines.

Analysts also say its main competitor in the widebody aircraft sector, U.S. company GE, has historically been more profitable in aero-engines.

The comments from former BP executive Erginbilgic, who took the reins on Jan. 1 after Warren East retired, conveyed a sense of urgency and suggested there would be more restructuring, Bernstein analyst George Zhao said.

"The challenge is that there may not be easy solutions. Many rounds of restructuring and asset sales were already undertaken under prior CEO Warren East, putting to question just how much more can be implemented," Zhao said.

East, who spent seven years as CEO and was himself brought in to turn around the company, carried out two major revamps, one in 2018 and another in 2020, the second prompted by the pandemic.

In 2020, East announced plans to cut 9,000 jobs or a sixth of the workforce, and also started an asset sale programme which by September 2021 had raised 2 billion pounds ($2.5 billion).

Over the last three months, shares in Rolls have jumped 43%, buoyed by strong travel demand and the reopening of China.

Erginbilgic's comments set back the stock.

"People might start to think what have you seen that we don't know," said one analyst, who was not authorised to speak to the media.

Britain owns a golden share in Rolls-Royce, meaning the government can block a takeover. The arrangement reflects the importance of the company to the UK's military capability.

($1 = 0.8087 pounds)

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