Rolls-Royce share price: Chief executive looks for £1bn profitability boost

on Jul 13, 2016
Updated: Oct 21, 2019

Rolls-Royce Holdings (LON:RR) could boost its profitability by £1 billion, The Telegraph has reported, quoting the group’s chief executive. The comments come with the British engine maker currently undergoing a major restructuring in an effort to recover from a string of profit warnings.

Rolls-Royce’s share price has been subdued in London this morning, having shed 0.70 percent to 718.90p as of 08:23 BST. The shares are slightly underperforming the blue-chip FTSE 100 index which has slipped marginally into the red and currently stands 0.13 percent lower at 6,672.05 points. The engine maker’s shares have lost more than seven percent of their value over the past year, but have recovered nearly a quarter in the year-to-date.

The Telegraph quoted Rolls-Royce’s chief executive Warren East as saying yesterday that he was ‘pleased’ with the progress being made on his transformation plan for the engineering group, which was on track to take between £150 million and £200 million of costs out of the business by next year. Speaking at a briefing at Farnborough Airshow, he, however, noted that profitability could be boosted by five times as much if the company can match the margins rival engine makers deliver.
“An internal report mentioned [a £1bn figure] and those are the sorts of numbers you would come across if you did a sort of benchmarking exercise,” East told the newspaper. “I do not see any reason why we cannot achieve the sort of benchmark margin levels and that would imply that sort of number, but it is not a fixed target.”
He, however, did not outline a timeframe for the cost savings or exactly how they would be achieved.
“We need to rebuild investor confidence and trust and you don’t do that with hand-wavy targets,” East pointed out.
The comments come after Rolls-Royce recently updated investors on its performance, noting that trading between January and May had been in line with expectations and that the outlook for the year as a whole was unchanged. The engine maker further noted that the Brexit vote would have no immediate impact on the company’s day-to-day business.
As of 08:48 BST, Wednesday, 13 July, Rolls-Royce Holding PLC share price is 716.50p.