Monday 20 August 2018

Rolls-Royce warns over cost cutting despite £4.9bn profit haul

Rolls swung out of the red last year with pre-tax profits of £4.9 billion thanks to a £2.6 billion accounting boost from the pound’s recent revival.

Rolls-Royce swung out of the red in 2017 with £4.9 billion profits (Paul Ellis/PA)
Rolls-Royce swung out of the red in 2017 with £4.9 billion profits (Paul Ellis/PA)

By Holly Williams, Press Association Deputy City Editor

Engine maker Rolls-Royce has signalled further job cuts amid plans to slash costs “significantly” as it bounced back from record losses with a £4.9 billion annual profit haul.

The group confirmed it had hired advisers Alvarez & Marsal to help it move to a “considerably” simplified staff structure as part of the wide-ranging restructure announced in January in what has sparked fears over fresh management job cuts.

Rolls made the comments as it revealed it swung out of the red last year with pre-tax profits of £4.9 billion, thanks to a £2.6 billion accounting boost from the pound’s recent bounce-back.

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Warren East is chief executive of Rolls-Royce

This marked a recovery from a dire 2016, when it fell into the red by £4.6 billion in what was its largest ever loss and one of the biggest in UK corporate history after being hit by the pound’s plunge and a corruption scandal.

On an underlying basis, Rolls saw annual pre-tax profits rise 25% to £1.1 billion in 2017.

Chief executive Warren East said Rolls had made “good progress in 2017”.

He said it was too early to say how many jobs will be affected under the restructure, but confirmed the shake-up will lead to a slimmed down corporate centre and will cut out duplication in its support and management functions.

It comes after around 600 managers have left the group since 2015 under a previous overhaul.

But Mr East stressed the revamp was not set to affect engineers, with plans to invest £1.4 billion in research and development and to hire engineers and technology experts.

He said: “The business unit simplification and restructuring programme that we announced this January will drive further rationalisation and is a fundamental step in the journey started two years ago to bring Rolls-Royce closer to its full potential both operationally and financially.”

Rolls plans to update on the overhaul in the middle of the year.

Rolls said 2018 results would be hit by costs relating to repairs on some of its engines.

It revealed a hit of around £340 million in 2018 for the cost of repairs on existing engines, following a £170 million charge in 2017, with around another £240 million due in 2019 to cover the issue.

Up to 500 Trent 1000 engines – used on Boeing 787 planes – and some Trent 900 engines are affected by the issues, which see components wear out earlier than expected.

It said underlying operating profits are expected at around £400 million for 2018, but could fall to £300 million at the lower end of forecasts, which would be a drop from £321 million reported for 2017.

Despite the warning, Rolls shares rose more than 8% after the results.

Press Association

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