Rolls-Royce shares jump as it swings back into profit but more job cuts loom as cost cutting drive continues

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Shares in Rolls-Royce jumped by more than 14 per cent today after it swung back into profit and signalled it would cut more jobs as it pushes ahead with a turnaround plan.

The engine maker said it is looking 'to move to a considerably simplified staff structure, with fewer layers and greater spans of control across the group'.

This was announced along a 25 per cent increase in pre-tax profits to £1.07billion in 2017, on the back of a 6 per cent increase in organic revenues to £15.09billion. 

Back to profit: Rolls-Royce posted a 25% increase in pre-tax profits last year

It follows an 'annus horribilis' for Rolls-Royce, which posted one of the biggest company losses in UK corporate history in 2016, slumping to a loss of £4.64billion.

The news sent shares in the FTSE 100 group soaring by 14 per cent to 939p in morning trading.

Chief executive Warren East said it is too early to say how many jobs will be affected under the restructure, but confirmed the shake-up will lead to a slimmed down corporate centre and will cut out duplication in its support and management functions.

He also said that no engineering jobs will be affected - an area the company wants to keep investing in instead. The group plans to invest £1.4billion in research and development and to hire engineers and technology experts.

The signalled job cuts are part of a turnaround plan announced in January which has seen the Derby-based engineering giant putting its loss-making marine business up for sale and cutting itself down into three divisions: civil aerospace, defence and power. 

Rolls-Royce said its 2017 figures were better than it expected, but added that the company was likely to see 'mid-single digit' revenues growth in 2018 as it faced costs related to carrying out repairs on some aero-engines. 

It expects to take a hit of about £340million to account for the cost of carrying out repairs on existing engines, primarily the Trent 1000 engine which is installed on the Boeing 787 aircraft.

However, it also said it remained on track to meet its goal of generating free cash flow of £1billion by around 2020.      

East added: 'The business unit simplification and restructuring programme that we announced this January will drive further rationalisation and is a fundamental step in the journey started two years ago to bring Rolls-Royce closer to its full potential both operationally and financially.'

George Salmon, equity analyst at Hargreaves Lansdown, commented: 'When Warren East took over at Rolls-Royce, the group was in pretty serious trouble. While his work so far has steadied the ship, heading into these results there were plenty out there unconvinced by his turnaround strategy. With opinion divided, that made these numbers crucial.

'Beating market expectations in every division is a major coup for the former ARM boss, and brings more credibility to his ambition of improving the group's free cash flow from just £100m last year to £1bn by 2020. Cash flows were the main issue during the dark times of 2014/15, so it's great to see things moving in the right direction on that front.

'The only black mark against the group is the £170m soaked up by 'durability issues' in the Trent 1000 and 900 engines. There's more costs coming in the next year or so too.' 

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