Rolls-Royce backer demands commotion at company

Rolls-Royce faces demand from largest investor to consider board overhaul and sale of main division after pandemic

  • Causeway Capital has called for a ‘refresh’ at the top of UK engineer to bring in more expertise in engineering and green technologies
  • The fund manager is also calling on Rolls to consider selling its energy systems, which analysts believe could bring in £3.5 billion or more.
  • Causeway is the company’s largest investor at 9 percent, having built its stake during the Covid-19 crisis

Rolls-Royce faces demand from its largest investor to consider a board overhaul and sale of a key division following the pandemic.

Just weeks before Anita Frew arrives as chairman, Causeway Capital has called for a ‘refresh’ at the top of the UK engineer to bring in more expertise in engineering and green technologies.

The fund manager is also calling on Rolls to consider selling its energy systems, which analysts believe could bring in £3.5 billion or more.

Causeway is the company’s largest investor at 9 percent and has built its stake during the Covid-19 crisis.

The California-based company would welcome Rolls boss Warren East, but is calling on Frew to fire other board members when she replaces Ian Davis in October.

Jonathan Eng, portfolio manager at Causeway, did not name individual directors, but insisted it was time for a shake-up.

“I really believe the board of directors needs a fresh look – the company faces some challenges,” he told the Financial Times.

Eng wondered if the current board members have the right expertise to decarbonise the company and asked if more technical experience was needed given the company’s problems with the Trent 1000 engines.

‘I will ask’ [Frew], we now have the right people who ask the questions when difficult situations arise – because they will come naturally.’

New arrivals: Anita Frew is ready as chairman

New arrivals: Anita Frew is ready as chairman

New arrivals: Anita Frew is ready as chairman

The sale of the power systems division — which makes engines and batteries for boats, trains, mining excavators and oil rigs — would also help pay off debt.

Eng added: “In one fell swoop, they can become an aerospace and defense company and they can solve their balance problem in one go.”

Asked for Eng’s opinion yesterday, East declined to comment but said: “This is our largest shareholder and we talk to them regularly.”

The intervention comes at a critical time in Rolls’ history. The company, which makes propulsion systems for commercial aircraft as well as military warships, submarines and fighter jets, is only paid by aerospace customers when the engines fly. This left it exposed during the pandemic as airlines around the world cut their schedules and ground planes.

To survive, Rolls burned £1 billion in cash reserves every quarter – and was forced to cut 9,000 jobs and take on £7 billion in additional debt. And this has put the company in an even more difficult position as it continues to struggle with faulty Trent 1000 engines and the once-in-a-generation shift to greener technologies. It leaves City veteran Frew, 63, with an unenviable task when she replaces Davis.

She is expected to meet investors shortly after the job starts and revising the board is likely to be a top priority, following the departure of directors Lewis Both, Sir Frank Chapman and Jasmin Staiblin, all of whom had engineering and technology experience.

Causeway’s suggestion to sell power systems may not be received enthusiastically.

It is clear that East and other top executives at the company view the division as critical to the green energy transition.

A Rolls spokesperson said: “We regularly evaluate the effectiveness, composition and skills of our board of directors, using independent advice and benchmarking, and engage in robust succession planning to ensure we have the talent and capabilities necessary to secure the sustainable long-term vision. success of the company.’

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