ALBAWABA — Shares in Rolls-Royce Holdings Plc jumped more than 20 percent on Thursday on the back of its earnings report and its management pledging that there was “much more” to come.
Traders looked past a hefty almost 1.3 billion British pound sterling net loss for last year on an accounting charge linked to foreign exchange valuations, while recording profit after tax of 120 million GBP in 2021.
Rolls’ shares closed 20.54 percent higher at 129.73 GBP, well ahead on London's top tier FTSE 100 index, which closed down 0.29 percent overall.
Shares rose as its new Chief Executive Officer Tufan Erginbilgic embarked on a strategic review, saying the United Kingdom engineering firm had underperformed financially for years, promising greater efficiency with higher profit, cashflows and returns in the years ahead.
Erginbilgic added that the company would announce the outcome of its strategic review in the second half of 2023.
"Our transformation program will improve our efficiency and commercial outcomes, and deliver a sustainable reduction in working capital," Erginbilgic said in the earnings statement.
"Our success will enable us to reward investors for their support and invest in future growth," added Erginbilgic, who replaced long-serving Rolls CEO Warren East at the start of the year.
Erginbilgic added that his “first priority” was to raise the company’s credit rating to investment grade, which would allow it to borrow from a wider range of investors.
Its CEO said the company was in the process of reworking long-term contracts on its civil aerospace business, along with finding ways to reduce costs in a bid to improve margins.
Rolls-Royce reported earnings that beat estimates with adjusted operating income jumping 57 percent to 652 million GBP last year, causing the company to forecast adjusted operating profit of 800 million GBP to 1 billion GBP this year, with free cash flow of as much as 800 million GBP.
The company also generated 505 million GBP in cash and reported revenues rose 16 percent to 12.7 billion GBP in 2022, well above analysts’ expectations.
"For years Rolls-Royce has disappointed on cash flow and it's no surprise to see this as an area of priority alongside the standard recovery mantra of improving efficiency, reducing debt and improved performance management," Russ Mould, investment director at AJ Bell told Agence France-Presse.
"What should give Erginbilgic a fair wind is the improved prospects for the aviation sector," Mould added, as the aerospace sector recovers from COVID-19 pandemic related pressures.
Travel demand is recovering sharply after the lifting of lockdowns, leaving Rolls-Royce to forecast "a steady and ongoing recovery of trading towards pre-pandemic levels" ahead.
