Rolls fights back in call for sale of £3bn power arm

ENGINEERING giant Rolls-Royce has issued a robust defence of its Power Systems business amid suggestions from its biggest shareholder that the division should be sold off.

Causeway Capital Management, which owns just under 9 per cent, last week launched an attack on the board and mooted the sale. The intervention came as Anita Frew is poised to become chair next month.

Power Systems, headquartered in southern Germany and previously called MTU, makes engines to power ships and trains and is estimated to be worth more than £3.5 billion.

Causeway portfolio manager Jonathan Eng said he was undecided on whether the division should be offloaded, but added: ‘With a stroke they can become an aerospace and defence company and they can fix their balance sheet.’

However, Rolls-Royce strategy director Ben Story told The Mail on Sunday last night: ‘There has been a quiet revolution in the Power Systems business. It was historically a German business which largely exported.

‘Now we have a joint venture in China which is running seven days a week and is going gangbusters. And a joint venture in India with local suppliers and distributors. We have really globalised that business and we’ve made it the heart and soul of the group.’

He added that Rolls-Royce was benefiting from close links between the Power Systems arm and teams developing products for electric planes and flying taxis.

Chief executive Warren East has been meeting shareholders over the last month. It is understood that Frew will meet investors soon.

Causeway has also called on Frew to ‘refresh’ the board when she takes over from Sir Ian Davis.

Rolls-Royce has been pummelled by the pandemic, which devastated its main market in civil aerospace. In response, the company cut 9,000 jobs and secured £7.3billion of new equity and debt last year.

The group includes a significant defence arm and a burgeoning nuclear reactor programme.

Story declined to directly address Causeway’s suggestions, but said: ‘We listen to all of our shareholders. We need to communicate the broader story.’

He praised East – who has faced a series of woes in his efforts to turn around Rolls since 2015. A Serious Fraud Office probe was dropped in 2019. Story said: ‘With the SFO, Trent 1000 [engine problems] and Covid the poor guy has been buffeted by one tsunami after another, but despite that we’ve got new exciting businesses in electrical systems and small nuclear reactors.’