Flying recovery proves a tailwind for new Rolls-Royce boss's turnaround

TUFAN ERGINBILGIC's mission to reverse Rolls-Royce's years of underperformance got off to a strong start when a recovery in flying helped it soundly beat forecasts for profit and cash in 2022 and raise its expectations for this year.

The new chief executive, who has called Rolls a "burning platform", said the results showed improvement but a lot more was needed to secure the future of the British company, which makes engines for Airbus A350 and Boeing 787 planes.

Its shares jumped 20 per cent to a 13-month high of 129.5 pence.

"Our cash generation is improving but remains too low and our debt is too high," he told reporters on Thursday (23).

"Our weak balance sheet and sub investment credit rating limits our ability to invest in growth for the future."

The market responded positively to his announcement of a strategic review and the signs of recovery, as the company eclipsed its own forecast of "modestly positive" 2022 cash flow with a result of £505 million ($607m).

Erginbilgic, a former BP executive, said his review would be completed in the second half of the year.

It will look at Rolls-Royce's footprint, and simplify and optimise commercial operations, he said.

Rolls-Royce's underperformance versus peers such as engine-maker GE has been a long-standing problem.

Warren East, Erginbilgic's predecessor, launched a turnaround in 2018, before the pandemic two years later forced another restructuring when grounded aircraft caused a collapse in revenue linked to engine flying hours.

Erginbilgic said he'd toured major sites in Britain, the US and Germany, and his impression was they "all have a great potential to create value for Rolls-Royce".

"There is good performance improvement opportunity in this business in all the divisions, especially in civil aerospace and power systems," he told reporters. "And that is ongoing and then strategic review will create the clarity."

He said he would focus on reducing its debt, which stood at £3.25 billion at year-end, to obtain an investment grade, before resuming payouts to shareholders.

Rolls, which also has defence and power systems divisions, posted operating profit of £652m  for 2022, up 57 per cent and beating an analyst forecast of £478m.

It guided to underlying operating profit of £0.8-1.0bn and free cash flow of £0.6-0.8bn this year, based on a forecast for its engines to fly 80-90 per cent of 2019's level.

(Reuters)