A good day to bury bad news? You’d certainly think so, given the focus on the aftermath of Greece’s No to Europe’s latest bailout terms. The problem for Rolls-Royce is that it’s just too big and important a company for the third profit warning in less than a year to go unnoticed.
And make no mistake, it was a nasty profit warning. Another £75m off the top of this year’s profit forecast, the potential of the company’s free cash levels going negative, and the suspension of its share buyback programme as a result.
That was the part that really upset the market, and there won’t be a resumption soon because next year will be worse. Given all that, the 7 per cent or so decline in the share price was really rather modest on a day when most of Europe’s stock markets were in the red.
The new chief executive, Warren East, said the company was giving the market the bad news a little earlier than Rolls-Royce had been wont to do in the past, which can be read as a reference to the perceived foot dragging of his predecessor, John Rishton.
Compared with him, Mr East, who has been in the job only a few days, now looks like a corporate Usain Bolt. He’s proposing to act similarly quickly to review the business, which has suffered from a fall in new orders for its engines and the impact of the low oil price on its marine business, among other things.
The review and subsequent update may provide him with the opportunity to throw out some more bad news alongside the kitchen sink he’s just put out there, which most investors had been quietly expecting.
But the hard work is just beginning. Mr East made his name at the chip designer Arm Holdings, which ran like clockwork on his watch, a technology star that made a habit of meeting or more commonly beating expectations.
So he’s rather a prize catch. However, Rolls-Royce is a very different beast, a rare British industrial titan that gives every impression of needing to be hauled back to its feet by the scruff of its neck.
To do so, Mr East may have to get his hands dirtier than he he’s used to. He may also have to land a few low blows.
Even if he proves willing and able to do that, his success might ultimately rest on his investors’ willingness to give him the time he’s asking for in a statement that is promising jam in a tomorrow that may be some time in coming.Reuse content