The chief executive of Rolls-Royce has been forced to defend his description of Britain’s flagship engineer as a “burning platform” at its annual meeting, telling shareholders that he had been trying to press home the fact that this was an “underperforming company”.
Tufan Erginbilgic said his bleak assessment of Rolls-Royce in an internal employee meeting shortly after taking the helm in January had been based on facts and on previous experiences of managing transformations. In his remarks, which were leaked to the Financial Times, Erginbilgic also warned that Rolls-Royce’s performance was unsustainable and that it underperformed all its key competitors.
“Why did the CEO issue the extremely destabilising burning platform threat to the world,” asked one individual shareholder, who said he had been “astounded” by the remarks and also questioned whether the board knew in advance what he planned to say.
Erginbilgic replied that his description, which had been intended for employees only, had been a part of a 90-minute-long presentation and that he had gone on to talk about how he intended to improve performance.
“The first bit of it was about putting the mirror up . . . there is a reason the share price is [where it is]. This is definitely an underperforming company,” he told the meeting in Bristol which was attended by around 30 shareholders.
Shares in Rolls-Royce have been among the top risers in the FTSE 100 index since the start of the year but remain far below the 337p-level they were trading at before the coronavirus pandemic brought air travel to a halt.
The crisis severely dented the company’s civil aerospace business, which still generates 40 per cent of the group’s underlying revenues. Rolls-Royce builds and maintains large engines for widebody aircraft including Airbus A350 jets and Boeing’s 787. The crisis forced Rolls-Royce to launch a sweeping restructuring programme, including the loss of 9,000 jobs, to save £1.3bn in costs.
Rolls-Royce shares were down 6.4 per cent to 146p on Thursday even though the company confirmed that its full-year guidance on underlying profit was unchanged at between £800mn and £1bn. Free cash flow is expected to be in the range of £600mn to £800mn, albeit seasonally weighted in the second half of the year.
It said its civil aerospace division had reported a continued recovery in flying hours, reaching 83 per cent of pre-pandemic levels in the first four months and on track to hit the 80 per cent to 90 per cent range for the full year.
Erginbilgic said that the transformation programme was “moving at pace” and that early efforts to identify cost savings were beginning to bear fruit, highlighting the recent decision to close its R2 Factory, an artificial intelligence start-up, as an example.
The company is now allocating capital centrally to ensure more effective spending. A key focus is on sustainable earnings growth and cash generation.
Erginbilgic said Rolls-Royce had the potential to be a “much higher quality and more competitive company”.
It will communicate the findings of its strategic review and medium-term targets in the second half.
One private shareholder said after the meeting about the review: “It’s always been a ‘jam tomorrow’ company. The jury is still out”.
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