Rolls shares gain amid signs that revival plan is working

ROLLS-ROYCE’S turnaround is beginning to take hold at the company with a forecast-beating set of results that sent the shares soaring.

Chief executive Warren East’s costcutting plan, which also aims to simplify the FTSE 100 group’s bureaucratic structure, helped Rolls to report an underlying pre-tax profit – its preferred measure – of £104m, against analysts’ forecasts of a £16m loss.

Underlying revenue was £6.1bn, 5pc lower than a year ago, and in line with expectations, as was the interim dividend, which was halved to 4.6p. Rolls shares rose 13.5pc to 831p, adding almost £2bn to its market value.

Mr East said: “These results are broadly in line with what we said and the guidance is unchanged. This is what we said we would do back in February and we have done it.”

However, on a statutory basis the results were painful. While revenue performed better, down just 1pc at £6.4bn, pre-tax profit crashed deep into the red, with a £2.15bn loss. This reflected a non-cash write-down of £2.2bn as the company revalued its currency hedge book, with sterling’s recent plunge against the dollar taking its toll.

Mr East’s review has cut swathes of top management and the chief executive confirmed about 400 senior management jobs would go – about 20pc of the total. This is twice the number the company has said publicly before.

He also suggested the time Rolls takes to make an engine could be cut by 35pc by reducing the paperwork that goes with it and boosting production, and said Rolls’s ability to react to changes in demand would also be improved, something which contributed to the previous profit warnings.

Rolls will supply the reactors for the Successor nuclear missile submarine project and Mr East said he was “confident the company will be able to deliver these on time and on budget”, adding that the Government had made it clear “there is not much room for error” on the £41bn project.