Shares in Rolls-Royce plunged on Thursday after the UK engineering champion said that its chief executive is to step down later this year after a turbulent reign at the helm.
The timing of the announcement, coupled with muted guidance for the coming year sent shares tumbling 18 per cent to 96.60p by late morning in London trading.
The fall was despite the company revealing it had returned to the black in 2021 with expectations of a return to positive free cash flow later this year.
Rolls-Royce reported a profit of £124mn for 2021, a reversal from a loss of £3.1bn in 2020 when the aerospace industry was hammered by the eruption of the coronavirus pandemic. Its revenues slipped from £11.5bn in 2020 to £11.2bn last year.
Despite the return to profit, the company said it only expected low-to-mid single-digit revenue growth and its operating margin to be “broadly unchanged” this year, disappointing investors.
East also warned that the unfolding Ukraine-Russia conflict was producing “more uncertainty, which is fundamentally a bad thing”.
Nick Cunningham, analyst at Agency Partners, said: “It’s really about fixing what Rolls-Royce has got for the next few years, and apropos of that, it is disappointing to see Warren East leaving, as he has done a good job in extremely difficult circumstances.”
Rolls-Royce, which is paid by its customers according to the hours flown by aircraft that are fitted with its engines, took a big financial hit from the grounding of flights during the pandemic.
It was forced to shore up its balance sheet with £7.3bn of new equity and debt in 2020. At the time it promised investors it would raise £2bn from disposals and is on track to raise that amount after agreeing four disposals, including the sale of ITP Aero, its Spanish subsidiary.
The company said on Thursday it had achieved its target to save £1.3bn under a restructuring programme a year ahead of schedule. Under the programme, Rolls-Royce has shed 9,000 jobs — about a fifth of its workforce.
East said the company had improved its financial performance in 2021 and was now a better balanced business.
“We have achieved the benefits of our restructuring programme a year ahead of schedule, positioning civil aerospace to capitalise on increasing international travel,” he said.
Its free cash outflow of £1.44bn surpassed analysts’ expectations and was significantly ahead of the outflow of £4.18bn in 2020.
East said the company had “simplified the group, fundamentally improved our underlying operations and driven long-term change”.