Rolls-Royce shares rise 10 per cent following bullish growth forecasts after restructuring plan
Shares in Rolls-Royce were flying 10 per cent higher today after the car and aviation manufacturer said it was on track to exceed its target of £1bn of free cash flow by 2020.
Shares in the company stood at 972.2p, slightly down from an earlier morning rally in which they were trading at 999.8p.
Rolls-Royce held an investors conference in which it projected a bullish forecast for the year after unveiling a restructuring program designed to cut costs and duplication throughout the company.
The £500m restructuring will see around 4,600 job cuts, which it said will deliver cost savings of around £400m per year by the end of 2020.
Around a third of the roles are expected to leave by the end of the year, with the company saying the programme will gather "further momentum" through 2019, with full implementation of headcount reductions and the structural overhaul by mid-2020.
The company said it expects the total cash cost of the restructuring to come in at £500m, which will include the cost of redundancies and the systems investments needed for the programme. They will be incurred across 2018, 2019 and 2020.
The company said it will be "significantly reducing" the size of its corporate centre to remove duplication, as it looks to become a leaner organisation.
Middle managers and back-office staff are expected to account for a large number of the cuts, affecting the company's Derby base.
Mike van Dulken, Head of Research at Accendo Markets said: "Today’s announcement builds on yesterday’s already impressive 6.5 per cent climb on a trio of good news. Firstly, we were told that necessary restructuring/job cuts (to make it lean and mean) might cost £500m but would save a net £400m from 2020.
"After all the positive noise from CEO East, now it’s time to deliver, to keep the shares bearing North."
Rolls-Royce did however say it had encountered "further issues" with its Trent 1000 engines that could lead to combined additional 2018 cash costs of around £100m.
It said it was taking action to mitigate the problem and that it still planned to meet its target of free cash flow of £450 plus or minus £100m in 2018.