Why Rolls could be flying into more stormy skies
AS the rest of England lazed around in their gardens yesterday, the directors of Rolls-Royce were filing into the aero engine maker’s Buckingham Gate HQ.
The atmosphere was as chilly as the air conditioning. New finance boss David Smith’s review of the information being filed up to head office from its various divisions had uncovered another round of bad news for long-suffering shareholders.
Chairman Ian Davis, stung by the City’s anger last January at the company’s apparent tardiness in updating the market with bad news about its defence arm, knew they had to act quicker this time. But investors this morning were still left feeling badly let down at a third profit warning in 18 months.
Smith’s deep dig into the numbers uncovered a host of cash problems stemming largely from Airbus’s decision in February to cut production of its long-haul A330 workhorses from nine a month to six.
That it took so long for the implications of this to dawn on Rolls-Royce, given that everybody knew the A330 uses its Trent 700 engines, is a grim reflection on the company’s management information systems.
Worse still, it appears the company failed adequately to grasp the implications of another Airbus decision — to upgrade the A330 in 2017. Long term, RollsRoyce will benefit by being the exclusive provider of engines to the new version. But what only just seems to have occurred to them is the extent to which airlines are demanding deep discounts for the old generation A330s now coming off the production lines.
Again, this points to weak management controls, just as Rolls-Royce’s corruption scandal highlighted its dangerously lax attitude to bribery.
Chief executive Warren East only started in the job last Friday. Given that, this may not be the kitchen sink job that it first appears to be.
We have to hope his finance man has done a decent detective job on this former pearl of British business. But with Rolls-Royce’s track record of disappointment, other nasties may emerge as East delves further into the business.
Euclid must shape up
THE swaggering arrogance of Yanis Varoufakis’s resignation letter this morning is one of the few positives to emerge from Greece’s dismal weekend.
His statement: “I wear the creditors’ loathing with pride” exposed for all to see just how impossible Syriza’s finance frontman must have been for the eurogroup to deal with.
We, Greece, and Europe, can only hope his likely successor, the Oxford-educated, English public schoolboy Euclid Tsakalotos, will negotiate like an adult.