Rolls-Royce to offload £1.5bn of assets over the next five years

Derby-based Rolls-Royce has announced a group-wide divestment program, with targets of proceeds of between £1bn and £1.5bn over the next five years.

The manufacturer will be offloading assets “at the right time and at the right price” which do not form part of its free cash flow targets of £2.8bn – £3.1m.

It outlined plans to exit Rolls-Royce Electrical in the “short run or alternatively for the right value, reduce our position to minority with an intention to exit fully in the mid-term”. And believes its Advanced Air Mobility division will have a “good value to a third party” and will also the firm to focus on its engineering activities in Power Systems, Defence and Civil Aerospace.

Mid-term targets have been set out in anticipation of its Capital Markets day to cause a “step change” in its financial performance. Rolls-Royce is looking to achieve an operating profit of £2.5bn-£2.8bn whilst moving towards a partnering model to strengthen its market position.

For its Civil Aerospace division, Rolls-Royce is looking to improve margins from 2.5% in 2022 to 15-17%. It is anticipating a return to the narrowbody market and believes that choosing a partnership approach for its next engine programme will be “vital”.

It will also focus on its Defence and Power Systems, with hopes of increasing margins by around 4% for both.

Partnerships are being considered in the group’s Power Generation and Battery Energy Storage Systems to grow market position and benefit from cross-business synergies.

Chief Executive Tufan Erginbilgic said: “Rolls-Royce is at a pivotal point in its history. After a strong start to our transformation programme, we are today laying out a clear vision for the journey we need to take and the areas where we must focus.

“We are creating a high performing, competitive, resilient and growing Rolls-Royce that will have the financial strength to control and shape its own destiny. We are confident in our ability to achieve these ambitions and have a clear and granular plan to deliver on our targets. We have made significant progress, with 2023 profit and cash forecast to be materially ahead of 2022.

“We are setting compelling and achievable financial targets for the mid-term which will take Rolls-Royce significantly beyond any previous financial performance. This will benefit not just our shareholders but our people, customers and partners. We are building ‘one Rolls-Royce’. A company that can fully realise its potential, ensuring the excellence and innovation that helped shape the modern world, endures long into the future.”