Rolls-Royce on Thursday said Chief Executive Officer Warren East has decided to step down at the end of 2022, after nine years on the board and almost eight years as CEO.
As a result, the board will now launch a ‘thorough and extensive’ search for his successor.
The announcement came as the London-based jet engine maker reported an improved financial performance in 2021, driven by cost reduction as the Civil Aerospace market continued to suffer from the virus pandemic.
Pretax loss narrowed sharply to £294 million in 2021 from a £2.80 billion loss in 2020. This was on revenue of £11.22 billion, down 2.3% from £11.49 billion. The decline in revenue was due to lower Civil Aerospace sales, while the Defence and Power Systems arms saw growth.
In 2021, Rolls-Royce said it powered 7.4 million large engine flying hours, up 11% on 2020 with gradual recovery in international flying activity, which continued to be hit by Covid-19 travel restrictions.
‘We expect low-to-mid-single digit revenue growth, and we expect our operating profit margin to be broadly unchanged as underlying operational improvement is balanced with increased engineering spend to develop sustainable growth opportunities. We expect to generate modestly positive free cash flow in 2022, seasonally weighted towards the second half of the year,’ the company said looking ahead.
‘From a competitive perspective, as long-haul travel returns, Rolls-Royce is likely to see recovery faster than GE due to a younger installed engine base and increasing usage of the A350,’ commented Allegra Dawes, senior analyst at Third Bridge.
‘Third Bridge experts highlighted Rolls Royce‘s increasing focus on low carbon solutions as a key strength for the group. They have looked to expand their Power Systems segment, notably leading the development of mini reactors in the UK. Within aerospace, Rolls Royce is looking at both hydrogen and electric solutions for low carbon flight.’
Rolls-Royce shares were down 12% early Thursday.
Here is what you need to know at the London market open:
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MARKETS
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FTSE 100: down 2.5% at 7,313.35
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Hang Seng: down 3.2% at 22,892.63
Nikkei 225: closed down 1.8% at 25,970.82
S&P/ASX 200: closed down 3.0% at 6,990.60
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DJIA: closed down 464.85 points, or 1.4%, at 33,131.76
S&P 500: closed down 1.8% at 4,225.50
Nasdaq Composite: closed down 2.6% at 13,037.49
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EUR: down at $1.1240 ($1.1313)
GBP: down at $1.3470 ($1.3554)
USD: down at JP¥114.50 (JP¥115.06)
Gold: up at $1,940.34 per ounce ($1,906.84)
Oil (Brent): up at $103.60 a barrel ($97.90)
(changes since previous London equities close)
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ECONOMICS AND GENERAL
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Thursday’s key economic events still to come
0830 EST US 4th quarter gross domestic product
0830 EST US jobless claims
1000 EST US new residential sales
1030 EST US EIA weekly natural gas storage report
1100 EST US EIA weekly petroleum status report
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Russia’s ground forces on Thursday crossed into Ukraine from several directions, Ukraine’s border guard service said, hours after President Vladimir Putin announced the launch of a major offensive. Russian tanks and other heavy equipment crossed the frontier in several northern regions, as well as from the Kremlin-annexed peninsula of Crimea in the south, the agency said. It said one of its servicemen died in a shelling attack along the Crimean border, the first officially confirmed military death of the Russian invasion. Ukraine has suffered heavy casualties in its eight-year conflict with Russian-backed rebels in the separatist east, but has reported no fatalities along its southern border with Crimea for some years. Russian tanks have crossed into Ukrainian territory, entering the Luhansk region, according to reports from Ukraine’s border authority.
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Proposed new EU sanctions will block Russian banks’ access from European financial markets, among other things, European Commission President Ursula von der Leyen said. The measures also include freezing Russian assets in the European Union and banning important Russian economic sectors from accessing key technologies and markets. The EU is Russia’s biggest trading partner, according to the commission. EU leaders could approve the measures at an emergency summit later on Thursday. The bloc imposed a first set of sanctions on Wednesday, following Putin’s recognition of independence for the breakaway provinces of Luhansk and Donetsk. Earlier on Thursday, von der Leyen and European Council President Charles Michel vowed to impose ‘massive and severe’ sanctions on Russia, in a joint statement.
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China said it is monitoring the situation in Ukraine and called for ‘restraint’ on all sides. ‘China is closely watching the latest situation, and we call on all parties to maintain restraint and prevent the situation from getting out of control,’ foreign ministry spokeswoman Hua Chunying said at a regular press briefing.
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BROKER RATING CHANGES
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Berenberg cuts Hargreaves Lansdown to ’hold’ (buy) - price target 1,250 (1,700) pence
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Morgan Stanley raises Synthomer to ’equal-weight’ (underweight) - price target 335 (400) pence
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JPMorgan cuts Made.com price target to 194 (213) pence - ’neutral’
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COMPANIES - FTSE 100
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Lloyds Banking said 2021 was a year of solid financial performance with continued business momentum embodied by strategic execution, ongoing investment and continued franchise growth. Lloyds generated net income of £15.76 billion in 2021, up 9% from £14.40 billion in 2020, though net interest income was down 9% to £9.37 billion from £10.75 billion. Even so, pretax profit was almost seven times higher at £6.9 billion from £1.2 billion, benefiting from higher income and a net impairment credit. Common equity tier 1 ratio - a key measure of a bank’s financial strength - increased over the year to 17.3% from 16.2% in 2020. The bank declared a 2021 total dividend 2.0 pence, up sharply from 0.57p in 2020. Lloyds also announced its intention to implement an share buyback programme of up to £2.0 billion, given the strong capital position. ‘I am confident that the group’s purpose, customer focus, unique business model and significant competitive strengths, embodied in our ambitious strategy will ensure the group is able to deliver higher, more sustainable long-term returns and capital generation for our shareholders, whilst meeting the needs of broader stakeholders,’ said Chief Executive Officer Charlie Nunn. It was Nunn’s first annual results, having taken over as Lloyds boss back in August.
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Hikma Pharmaceuticals reported strong results for 2021 in what the generic drugmaker said was a year of solid growth and continued strategic momentum. Hikma posted revenue of $2.55 billion, up 9.0% from $2.34 billion in 2020, though pretax profit edged down 2.5% to $544 million from $558 million. Hikma declared a full-year dividend 54 US cents, up from 50 cents. It also launched a share buyback of up to $300 million, saying this reflects its strong cash generation, balance sheet strength, and confidence in future growth prospects. Looking ahead, Hikma expects Injectables division revenue growth in the low to mid-single digits, with core operating margin in the range of 35% to 37%. Generics revenue growth is forecast in the range of 8% to 10% and core operating margin in the range of 24% to 25%.
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COMPANIES - FTSE 250
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British Gas’s retail unit has reported a big increase in profits despite a squeeze on the energy sector which has put many of its rivals out of business. Parent company Centrica said British Gas Energy has seen a 44% jump in adjusted operating profit, which reached £118 million in 2021. The business said it was helped by households using more gas in the first six months of the year due to unusually cold weather. The unseasonably warm weather in the last three months of the year also allowed it to sell gas and electricity it had bought in advance, cashing in on high energy costs. Centrica said it plans to pay back the £27 million that it claimed from the Government to furlough its staff. Chief Executive Chris O’Shea has also agreed to waive his £1.1 million bonus. His regular salary is £775,000.
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COMPANIES - MAIN MARKET AND AIM
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The stripping of the London Southeastern rail franchise from Go-Ahead is to cost the business around £81.3 million, the company said. Bosses revealed they expect to pay the UK government £51.3 million over its failures in running the service, which it lost last year, and has put aside £30 million for a possible fine. Around £49.2 million has already been paid. The chief executive apologised for the problems, as the company identified ‘serious errors’ in the way the franchise was run and over the way it dealt with the Department for Transport. New boss Christian Schreyer, who joined in November not long after the franchise was lost, said he was ‘optimistic’ the issues over the franchise could be resolved soon.
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COMPANIES - GLOBAL
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Hong Kong’s stock exchange operator posted profit of HK$12.5 billion, about $1.6 billion, for 2021 but also registered its worst quarterly earnings in two years as China’s crackdown on a host of business sectors hit trading and company debuts. Hong Kong Exchanges & Clearing said its 2021 profit rose by 9% from the year before, thanks to a record first quarter. ‘HKEX had a strong year in 2021, despite a turbulent macro backdrop and the ongoing pandemic,’ said Chief Executive Nicolas Aguzin. Aguzin said HKEX also broke records in cash market turnover and in its ‘stock connect’ and ‘bond connect’ programmes, which allow international investors to access Shenzhen and Shanghai markets. Buoyed by listings of major Chinese companies, Hong Kong’s stock exchange started strong in 2021 but later underperformed, with profits dropping in the three subsequent quarters. HKEX saw net income of HK$2.67 billion in the last three months of 2021, representing an 8.6% drop year-on-year.
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German auto manufacturer Mercedes-Benz more than doubled its operating profit despite widespread supply bottlenecks, the group said in its first set of annual results since splitting with its truck subsidiary. Mercedes, which changed its name from Daimler at the beginning of the month, saw the key measure rise €19.2 billion from €8.6 billion euros in the previous year. The adjusted figure did not include the one-off bump of €9.2 billion to Mercedes’s results from the spin-off of its subsidiary Daimler Trucks, which rolled onto the Frankfurt Stock Exchange at the end of last year. Including the windfall, the group’s net profit increased almost six-fold to €23.4 billion from €4 billion in 2020, when the industry was battered by the outbreak of the coronavirus pandemic.
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Thursday’s shareholder meetings
Bankers Investment Trust PLC - AGM
IntegraFin Holdings PLC - AGM
Victorian Plumbing Group PLC - AGM
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