Rolls-Royce chief Warren East should ditch the embattled engineer’s dividend, abandon profit guidance and launch a £1bn fundraising in a bold move to head off constant questions about the company’s future, reports The Telegraph.
The claim comes from Panmure Gordon analyst Sanjay Jha, who says such a “bold step” would draw a line under Rolls’ troubles, which have seen it issue five profit warnings in the past two years.
Rolls’ share price has more than halved since it blindsided analysts in its full-year results two years ago when it said it would see no growth in revenue or profits because of defence spending cuts.
The shock announcement was followed by a series of warnings and downgrades as tough markets, the global slowdown and oil price crash caused turmoil in the company over the next 24 months. The troubles resulted in restructurings, cost-saving plans, more than 3,000 redundancies and claimed a host of executive scalps, including then-chief executive John Rishton.
With Rolls set to post annual results next Friday, which Mr Jha believes is likely to prompt further speculation over another profit warning, the analyst has called on Mr East to act to prevent what he described as “death by a thousand cuts”.
“The key question is whether the management can pre-empt continued speculation regarding further profit warnings and concern over its balance sheet by taking the bold step of abandoning profit guidance and shoring up the balance sheet from future shocks.”
At the moment, Rolls’ cash buffer is £2.2bn according to Panmure, against the company’s target of £3bn, but any further problems could see it drop, which Mr Jha said could result in a ratings downgrade, making it harder for the business to raise money in the future.
“A fundraising takes away the issue of money,” Mr Jha said. “Cash is cash and it would mean Rolls would have the money to withstand anything the market throws at it. When a company issue issues profit warning after profit warning investors start to ask if there is something seriously wrong with the business.
“It would also say to investors ‘Are you with us or not?’ and end speculation about how bad the situation could get for Rolls,” he added.
A spokesman for Rolls said: “We do not comment on the opinions of individual analysts or commentators.”
