Top marks for ambition, but new Rolls boss still has to set hard targets

theguardian.com:

A fter the new chief executive Tufan Erginbilgic’s dramatic description of Rolls-Royce as “a burning platform”, the actual numbers for 2022 were almost encouraging – or, at least, better than forecast. In place of the previously promised “modest” positive cashflow, Derby’s finest engine-maker produced £505m, which is not small change even in the context of a group of this size.

Meanwhile, commercial aircraft are flying again, especially in China, which is critical for Rolls-Royce. And it is obviously a good moment to own a business in the defence sector. With the share price surging by a fifth on Thursday, one can reasonably ask why Erginbilgic felt the need to ramp up the rhetoric. Shouldn’t he have spent more time giving thanks for the efforts of his predecessor, Warren East, who genuinely had to reach for the fire hoses when the pandemic savaged Rolls’ revenues from servicing engines?

Erginbilgic’s answer on that point was twofold. First, he was trying to gee up the workforce. Fair enough – that’s the prerogative of a new boss. Second, and more pertinently, Rolls’ financial performance is still a shocker if you take the long view. On that score, he is undoubtedly correct. Nobody had a good time in the pandemic but not every rival produced a five-year shareholder return of minus 67%. And an average annual return on capital of 4%-ish is a road to ruin if, like Rolls, you are borrowing in debt that still isn’t ranked as investment grade.

So, yes, a full toot on the transformation trumpet was in order. The aim is “materially higher profit, cashflows and returns”.

The tricky bit is making it happen. The insight that Rolls is “capable of much more” is hardly novel. Go back to East’s opening pitch on arrival in 2015, a period