Rolls-Royce has said annual cost cuts will be at the top of its target range and it is increasingly looking to the future after a string of profit warnings.
The UK engine maker said the short-term outlook in some markets was tough but that it was on track to meet forecasts for annual profit. Cost savings for the year will be about £200m, the high end of its guidance, it said in a trading update.
The Derby-based engineering company is one year into an overhaul under its chief executive, Warren East, after a slowdown in some of its biggest markets prompted repeated warnings about financial performance.
East, who took over in July 2015 and previously ran ARM Holdings, has cut layers of management and reorganised the business after finding what he said was a lumbering company too slow to react to market demands.
East said: “We have made significant progress over the last 12 months implementing the findings of our operating review, including key changes to the management and structure of our company.
“At the same time, we are taking actions that are adding pace and simplicity to our processes. It is now time to look further ahead. Together with my new team, our focus is turning towards the group’s long-term goals.”
For more than two decades Rolls was a symbol of British manufacturing excellence as one of the world’s top makers of engines for aircraft, ships and industrial use. But it published five profit warnings in 18 months from early 2014, including two under East as he got to grips with the business.
The company’s problems included falling oil prices, which cut sales at its marine division, and weaker demand for some aircraft engines, including for corporate jets. East concluded the company had become bureaucratic and bloated, making it vulnerable to slowing sales and too slow to pick up on customers’ demands.
In the trading update, East said Rolls-Royce’s long-term order book was close to record levels but that markets in the short run were mixed, with difficult trading persisting in some.
Demand for engines for extra-wide-body civil aircraft was strong, but there was further weakening in business aviation and no sign of recovery in offshore oil and gas markets for marine, where orders were “very weak”.
East said: “We have an outstanding portfolio of businesses with highly differentiated products and services that, with appropriate investment, are well positioned to create significant value long into the future, despite some near-term market-led challenges.”
East has promised to rid Rolls-Royce of the “accounting fog” that made the company impenetrable to analysts and investors by making recording of TotalCare servicing contracts and research and development costs clearer.
Rolls-Royce said applying a new accounting standard to its 2015 results would have knocked £700m off operating profit and revenue at its civil aerospace division. The adjustments included recording payments for after-sales servicing of engines when the work was done instead of upfront.
Rolls-Royce shares, which have gained 28% this year, fell 2.6% to 735p in late morning trading on Wednesday.
