Rolls-Royce CEO Warren East has warned that things could get even worse for the stricken engineering firm, with the company’s diesel engine business at risk of a downgrade.
In an interview with the Financial Times, East warned that Rolls’ diesel engine business could be in trouble if it follows the performance of similar businesses in the aerospace engineering sector.
“If you look at our competitors in our reciprocating engines part of the business, there have been some fairly serious downgrades on next year,” he said. “When I look at that, I do have a feeling of a little bit of disquiet . . . I’ve got to say, that’s a risk area.”
Rolls-Royce has been hit by five profit warnings in the last 18 months, and, so far, the diesel engine business is the only arm to escape a downgrade, but East’s comments could signal further trouble.
While worried about the diesel engine arm of Rolls-Royce, East also suggested that one of Rolls’ big problems may be on its way to getting solved, following a restructuring of the company’s management.
Last week Rolls effectively stripped out an entire layer of senior management, as well as splitting the company into five separate arms. The changes were designed to improve transparency in the firm, and to ensure that changes in the company’s market can be addressed quicker.
“The root of the profit warnings are because information about things that are going on in the market don’t get translated into implications for the company quickly enough,” East told the FT, suggesting that he thinks one of the big causes of so many profit warnings may have been sorted out.
Last week’s management changes came as Rolls comes under pressure from investors to adjust the business following the company’s five profit warnings in the past year and a half. American hedge fund and angel investor ValueAct, already the company’s biggest investor, increased its stake in Rolls to 10% last month, and reportedly demanded a seat on the company’s board
Last Monday it was reported that the government has drawn up plans to nationalise Rolls-Royce’s nuclear submarine business if things get any worse for the company.
On top of the profit warnings, shares in the firm have lost half their value from May this year. This is how things look on Monday morning: