The newly appointed chief executive of Rolls-Royce says the company has been “grossly mismanaged”, describing financials the engineering group faced in 2019 as the “worst I have seen in my career”.
In an interview with the Financial Times, Tufan Erginbilgic also defended his recent hires at Rolls-Royce of oil executives – with no aerospace experience – who hailed from his previous employer, BP.
Erginbilgic took up the reins at the FTSE 100-listed business in January. His appointment followed a 20-year career at BP where he rose to become CEO of the oil giant’s downstream division focused on fuels, lubricants, and petrochemicals.
Rolls-Royce, principally a defence and aerospace company, has developed strong arms in marine propulsion and energy sectors.
Erginbilgic has since appointed former BP executives Helen McCabe and Nicola Grady-Smith to his new team at Rolls-Royce, as chief financial officer and transformation programme lead, respectively.
The senior management shakeup has also seen the heads of Rolls-Royce’s civil and defence businesses replaced. Speaking to the Financial Times, Erginbilgic said that despite a “deep engineering capability” within Rolls-Royce, employees “have not been led the right way”.
Earlier this year, Erginbilgic made headlines and spooked investors by labelling Rolls-Royce a “burning platform”, with particular censure for the company’s power systems division. The subsidiary, specialising in engines for ships and trains, delivered over a quarter of the company’s 2022 underlying revenues. Margins have decreased despite revenue growth, which Erginbilgic attributes to spiralling costs within the division.
After years of underperformance, the company’s early 2023 profit announcements exceeded expectations, with a boost from an uptick in international travel. This, Erginbilgic says, is a far cry from 2019, when even pre-pandemic financials showed the company’s operative leverage – or “how much of your gross margin is absorbed by cash costs” — was the “worst I have seen in my career”.
To continue improvements, Erginbilgic says he will be targeting cuts to spending on non-core projects and renegotiations of existing sales and maintenance contracts. There will be a renewed focus on paying down debt and generating cash, to drive a global engineering leader that is “high performing, competitive, resilient and growing”.