Rolls-Royce Holdings PLC 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 of the jet engine maker.
As a result, the board will now launch a ‘thorough and extensive’ search for his successor.
Rolls-Royce shares were down 15% at 100.30 pence early Thursday in London. The stock also was being hit by a sell-off in travel-related stocks following Russia’s invasion of Ukraine. Shares in British Airways-owner and Rolls-Royce customer International Consolidated Airlines Group SA were down 6.1%.
The announcement came as the London-based firm 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. Civil Aerospace underlying revenue was £4.54 billion, down by £491 million. However, Defence recorded £3.69 billion by the same measure, up by £155 million, and Power Systems contributed £2.75 billion, up £89 million.
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.
Looking ahead, Rolls-Royce said it expects to generate modestly positive free cash flow in 2022, seasonally weighted towards the second half of the year.
‘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,’ the company said.
‘We have achieved the benefits of our restructuring programme a year ahead of schedule, positioning Civil Aerospace to capitalise on increasing international travel,’ CEO East said. ‘In Defence, we have seen growth driven by strong demand in all our markets and in Power Systems we achieved record order intake in the last quarter. The positive momentum we are generating gives us confidence both in our expectations for 2022 and our future growth.’
Commenting on the departure of East, Chair Anita Frew said: ‘Warren is an exceptional leader and has set a pioneering vision and strategic direction for Rolls-Royce to lead the transition to net zero across our markets. He has shown incredible tenacity, steering the Group through unprecedented times, and driven substantial cultural change throughout the organisation.’
Rolls-Royce also announced a series of other board changes. Lee Hsien Yang will step down by the end of 2022, as he completes a nine-year term. Irene Dorner will step down at the May 12 annual general meeting.
Meanwhile, the aerospace company has hired Jitesh Gadhia as a non-executive director. Gadhia has worked in banking and private equity and currently is a non-executive director of house builder Taylor Wimpey PLC. Rolls-Royce has refreshed its board over the past year, with Paul Adams, Mike Manley and Wendy Mars joining as non-executive directors.
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