Rolls-Royce share price: Group mulls plans to boost profits

Rolls-Royce Holdings (LON:RR) boss Warren East has challenged senior management to identify broader cost cuts, the Financial Times has revealed. The move came after an internal study revealed that the troubled engine maker could be generating £1 billion more in profits if it matched the margins of its US rival GE.

Rolls-Royce’s share price closed 0.6 percent higher at 665.90p yesterday, largely in line gains in the broader London market. The blue-chip group’s shares have lost 36 percent of their value over the past year.
Two sources with knowledge of the matter told the FT yesterday that senior managers at Rolls-Royce, which has issued a string of profit warnings in the past two years, were being told that the company should be capable of cutting costs by as much as £1 billion over time. While the UK engine maker looks to save £150 million this year, the team charged with conducting a root-and-branch review of the business has reportedly told some Rolls-Royce managers that savings could be pushed significantly higher, to as much as £400 million.

The Telegraph noted in its coverage of the news that consultants from Bain & Company were understood to have delivered a study to top executives at Rolls-Royce, saying that it could boost profits match the profitability of GE. Insiders, however, told the FT that they were sceptical that the FTSE 100 company will be able to catch up with GE in the near future, given the US group’s greater economies of scale and the composition of its business.
“If we achieved best-in-class margins our profits would be £1 billion higher and we are focused on closing that gap, including through cost reduction,” a spokesman for the British engine maker said, as quoted by The Telegraph, adding that the company had cost reduction targets in the order of £150 million in the current year, which represented “early progress with a lot more to do”.
As of 08:08 BST, Thursday, 28 April, Rolls-Royce Holding PLC share price is 673.00p.