A close-up of the Rolls Royce emblem, showcasing its intricate design and luxurious craftsmanship.

Rolls-Royce profits more than double amid continuing shake-up

By Peak Editorial Team on February 26, 2024 - 5 Minute Read

Rolls-Royce achieved £1.6 billion in operating profit and 22 percent revenue growth in 2023 under CEO Tufan Erginbilgiç's leadership.

  • Rolls-Royce sees significant financial gains in 2023: £1.6B operating profit, £1.3B net debt reduction
  • Erginbilgiç’s strategic vision drives transformation, despite continuing macroeconomic challenges
  • Group forecasts further profit increases, maintains confidence in facing future headwinds

Rolls-Royce reported an underlying operating profit of £1.6 billion in 2023, a 143 percent increase from £652 million in 2022. Meanwhile, the company’s revenue increased by 21 percent to £15.4 billion.

The company announced a record-breaking free cash flow of £1.3 billion, fueled by robust operating profit and the sustained expansion of its long-term service agreement (LTSA) portfolio.

The group’s return on capital more than doubled, reaching 11.3 percent, while net debt decreased to £2 billion, down from £3.3 billion at the close of 2022.

Shares of Rolls-Royce have surged by over 200 percent in the past year, making it a top performer on the UK’s blue-chip index, with company shares up 8.79 percent since the results were announced.

“A burning platform”

These results come under the leadership of Tufan Erginbilgiç who became the CEO of Rolls-Royce in 2023. In a press release on Thursday, Erginbilgiç commented on the results. He said:

“Our transformation has delivered a record performance in 2023, driven by commercial optimisation, cost efficiencies and progress on our strategic initiatives. This step-change has been achieved across all our divisions, despite a volatile environment with geopolitical uncertainty, supply chain challenges and inflationary pressures.

We are managing the business differently and our significant performance improvement in the year reflects the hard work and focused actions of all our teams. We are also continuing to invest to drive future sustainable growth.

Our strong delivery in 2023 gives us confidence in our 2024 guidance and is a significant step towards our mid-term targets. We are unlocking our full potential as a high-performing, competitive, resilient, and growing Rolls-Royce.”

Erginbilgiç assumed his role in January 2023, having inherited a company grappling with significant challenges, particularly in the aviation sector due to the fallout of pandemic-induced travel restrictions.

Shortly after joining the company, Erginbilgiç delivered a sobering assessment of the company’s performance during an address at its UK manufacturing site in Derby, “We do have a burning platform,” he said.

Erginbilgiç’s language evoked a stark analogy famously used by former Nokia CEO Stephen Elop in 2011. Following Nokia’s dramatic loss of market share against Apple and Samsung, Elop likened Nokia’s predicament to that of a worker on a burning oil platform in the North Sea, faced with the prospect of jumping into freezing waters to survive.

Short-term pain for long-term gains

In response to the Rolls-Royce’s challenges, Erginbilgiç implemented a comprehensive restructuring and cost-cutting program aimed at enhancing efficiency and profitability.

One of the most significant changes he introduced was a firm stance on price, even if it meant missing out on opportunities.

In a December 2023 interview with Bloomberg, Erginbilgiç commented on the strategy. He said, “I’m not actually interested in short-term gains, I would run this very differently if it was about a couple of years.”

“I’m very interested in Rolls-Royce being remunerated for the investments we make and the risks we take, and that needs to be fair.” He further commented.

I’m not actually interested in short-term gains, I would run this very differently if it was about a couple of years.

Tufan Erginbilgiç

CEO, Rolls-Royce

While Erginbilgiç’s tough stance garnered praise from investors, his resolve for this new strategy did not go untested. Rolls-Royce missed out on an order for 80 Airbus A350 planes (which it exclusively manufactures engines for) after Thai Airways’ CEO criticized Erginbilgiç’s stance on pricegiving the business to a competitor instead.

However, in light of Rolls-Royce’s results, it would seem Erginbilgiç’s tough stance paid off.

A cautious optimism

Rolls-Royce is actively pursuing its transformational agenda, having already made significant progress towards its cost-saving targets.

The company’s ongoing cost-cutting initiatives, which include reducing its workforce of up to 2,500 jobs by the end of next year, are reportedly progressing as planned. These initiatives are paired with plans to streamline procurement processes, optimize back-office operations and drive sustainability through significant data and technology investments.

Rolls-Royce remains cautious though, with the group warning supply chain challenges are likely to continue for up to two years, on top of evolving geopolitical uncertainty and inflation.

However, Erginbilgiç remains confident in the manufacturer’s ability to facedown continuing headwinds, forecasting a further increase in underlying operating profit by at least 6 percent to between £1.7 billion and £2 billion for the current year.

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