Rolls-Royce CEO East to step down after turbulent reign

[LONDON] Rolls-Royce Holdings chief executive officer Warren East will step down at the end of this year, after leading the engine maker through a punishing period capped by the Covid-19 pandemic.

The shares fell as much as 19 per cent, the most since the start of the health crisis. The board will conduct a search for a successor for East, a former technology executive who struggled to make Rolls a more efficient operation even before the virus hit in 2020.

The CEO's departure after more than 7 years at the helm comes as Rolls reported it turned a profit in 2021, spurred by cost cuts implemented by East and a restart of long-distance travel that had eaten into jet-engine revenue.

However, Rolls said it expects revenue growth of less than 10 per cent and little change in the profit margin this year, disappointing investors.

The news that the CEO is stepping down and the lack of earnings progression expected for this year are "draw-backs for the shares," said Jefferies analyst Chloe Lemarie in a research note.

Rolls shares were down 12 per cent at 8.26 am in London. They have lost 17 per cent of their value since the start of the year.

Underlying profit reached £414 million (S$753 million) for the year, the London-based company said in a statement on Thursday (Feb 24).

Cash burn was better than previously forecast. The company said it expects low-to-mid single digit revenue growth and a broadly unchanged operating profit margin in 2022.

Challenging Turnaround East said on a media call Thursday that turning the business around had been "challenging at times".

The company he inherited was riddled with waste and obscure procedures with the company's chief people officer telling investors back in 2018 that 3 employees once flew from the UK to the south of France to erect a company sign.

He battled to slim down the formerly bureaucratic company, with a restructuring which cut thousands of white collar jobs and reorganised back-office functions just about to bear fruit when the pandemic hit.

"I am proud of what we've done at Rolls-Royce," East said on a call on Thursday. "We are culturally and strategically dramatically different from the one I joined in 2015."

Engine Reliability He also struggled with reliability issues on the company's engines which saw high profile customers switch suppliers and cost Rolls billions of pounds.

The final fixes to a litany of glitches with the Trent 1000 turbine were due to be made last year and the 787 Dreamliners which the engine powers have since had their own manufacturing issues.

The challenges continued with the pandemic, which forced East to sell assets and eliminate jobs to stem cash outflows.

For the past 2 years, the pandemic has starved the company of maintenance revenue, as flying in the large planes its engines power has been slowest to recover.

Rolls said on Thursday that it had met its £1.3 billion savings target from restructuring a year ahead of schedule, and had eliminated more than 9,000 roles.

Free cash outflows totalled £1.5 billion, Rolls said. The company said in December that free cash outflows would be smaller than the £2 billion it had earlier forecast, citing the movement of £300 million of concessions into this year.

The developing tensions in Ukraine are the latest challenge, with the CEO saying on the call on Thursday that 20 per cent of the company's titanium supplies come from Russia. He said Rolls had been stockpiling for months in preparation. BLOOMBERG