Rolls Royce reveals £652m profit but engineering giant continues to 'burn through cash'

Rolls Royce reveals £652m profit but engineering giant continues to ‘burn through cash’

Thursday, February 23, 2023 7:26 a.m.

Rolls Royce

Rolls Royce, the British aero-engine maker, unveiled profits of £652m in 2022, up £238m from the previous year.

The increase, which was driven by its civil aerospace and electrical systems divisions, also brought in free cash flow of £505m compared to an outflow of £1.5bn the previous year.

Charlie Huggins, head of equities at Wealth Club, said: “It’s not uncommon for a new CEO to have a kitchen wreck. But when the new leader describes the existing business as a “hot platform,” you know you’ve got serious problems.

“Every investment we make destroys value,” says new CEO Tufan Erginbilgic. Based on Rolls Royce’s performance over the past decade, it’s hard to disagree.

“A company like Rolls has to incur significant expense to secure long-term maintenance contracts. This means that he has to wait many years for the money to arrive. And if something disrupts those cash flows — like a global pandemic — you can easily spend more than you take in, especially if you invest recklessly in the first place.

“Rolls Royce has been burning cash at a knot rate over the past decade. Clearly this is not sustainable. Significantly improving Rolls Royce’s cash generation must be the new CEO’s number one priority. .

Transforming Rolls Royce will be far from easy. The capital intensity of the company is not going away. And while tackling extreme complexity and inefficiency is a start, it probably won’t be enough. A cultural transformation is also necessary, and this always takes time.

“The good news for the new CEO is that nobody really expects miracles. Investors have endured years of severe turbulence – and many have already headed for the emergency exits. If the new pilot can at least avoid a crash landing, that would be a good start.

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