Hello, and welcome to today's Rolls-Royce Holdings plc Investor Conference Call. Throughout this call, all participants will be in listen-only mode, and afterwards, there will be a question and answer session. Just to remind you, this call is being recorded. Today, I'm pleased to present Ian Davis, Chairman of the Board. Please go ahead.
Good morning, everyone. It's Ian Davis, Chairman of Rolls-Royce. I assume you've all by now seen the announcement that John Rishton is going to be retiring from Rolls-Royce in the summer, and that Warren East will take over from him as Chief Executive. This happened after an extensive search once John had told me towards the end of last year of his intentions to retire. What I'd like to do is give you a chance to ask me any questions. If I could just say a couple of words beforehand, though. We do have to finish by 20 past 11, so we are a bit constrained. I'd also just like to emphasize up front, there's no change to our guidance, there's no business story here, and I also hope you appreciate that I cannot and I will not get into a trading update or giving an update on the business.
It's absolutely not appropriate for a call of this type. I'd also just like to say, it was a surprise and a disappointment to me and the board when John announced his retirement. Although last year was a very bumpy year as you know as well as I do, the progress in the last four years and indeed the last 10 years has been exceptional. We're really doing well, I think, on the four Cs. We're beginning to see that coming through. A lot more to be done. We've had some tremendous customer advances. If you look at John's record over the four-year period in terms of profits, order book, share price, it isn't really half bad at all. I did just want to say that on behalf of myself and the company. Equally, I'm genuinely, and so is the board, very excited about Warren joining the company.
I think you will know of his record. He's got an exceptional record at Arm Holdings. Arm, although it's not a manufacturing business, and you may want to ask me about that, it does have a lot of similarities with Rolls-Royce in terms of supply chain, its business model, and particularly in terms of services, and also its involvement in technology supply chain. A lot of similarities there. A great record. He does have the advantage in knowing a little bit about the company and the company knowing him. I think that does reduce the cultural risk and all the rest of it. Disappointed John's going, excited about Warren. Just with those few words of introduction, perhaps I could throw this open for any questions you might have. Please, don't push me on strategy and trading.
We'll do that in the interims in two weeks' time. Then again in July.
Thank you. Ladies and gentlemen, if you wish to ask a question, could you please press zero and then 1 on your phone keypad now in order to enter the queue. Then after I announce you, just ask your question. If you find that question has been answered before it's your turn to speak, just press zero and then 2 to cancel. There'll be a brief pause while questions are being registered. Our first question is from the line of Robert Stallard at RBC. Please go ahead. Your line is open.
Thanks so much. Good morning.
Good morning.
A couple of quick questions.
I do apologize. We will go back to that line. Robert, please go ahead. Your line is open.
Okay. Is it working now?
Yes, it is.
Okay. Good morning. Thanks so much. Couple of quick questions. What do you expect Warren to do differently from John, and what's he going to do the same? Thank you very much.
Well, I think Warren will have the chance to talk with you in the market in July. In terms of my expectations, there's a lot of tremendous momentum in the company at the moment, particularly on the operational four Cs agenda. I think the expectation of myself and the board, and Warren is part of the board, is we really want to keep that momentum going, perhaps even accelerate it if we can, and then real progress. I also would be surprised if Warren doesn't keep this relentless focus on customer. Although last year was a very disappointing year in terms of financial expectations and performance, we made huge strides with customers, as we've seen, and I think one manifestation of that was the order that we received last week.
I would very much hope and expect, and I've obviously talked to Warren about this, really keep the focus on the four Cs, the restructuring, the focus on cost and margin. In terms of what will be different, that's up to Warren. There's some unfinished business that we know we have to do. For example, getting into question about how we're going to deal with narrow-body. We will look to progress on that. I do think that continuity as well as change is a very important part of Warren's appointment. The fact that he knows a bit about the company and has got a very good sense of it, I think, is quite an important signal.
Okay. Thanks so much.
Our next question is from the line of Ben Fidler at Deutsche Bank. Please go ahead. Your line is open.
Yes. Thank you. Good morning. I just had one quick question, really, which is, feel free to correct me if you think the first thesis is wrong in this, but it strikes me that what Rolls-Royce really needs is someone who's got a good track record of restructuring large, complex, heavy manufacturing industries. I guess the question is, how do you think Warren fits that bill, bearing in mind, although he has an extremely successful track record at Arm, from everything I understand, that was about growing the business, not about restructuring the business. It's a business that does not have a large, complex, heavy manufacturing supply chain underneath it. It's just to understand your thinking as the Chairman and the board's thinking about why he is the right individual with the right skill set to manage a business as complex as Rolls. Thank you.
Well, thanks, Ben. Well, I think restructuring is part of the Rolls-Royce story. We have made it very clear that there's a lot of opportunity to improve our operational efficiency and to restructure the manufacturing. By far, the bigger part of the story longer term is growth. We really are looking to grow our global footprint, grow our global customer base, not least in Asia. I wouldn't change your thesis in one sense. Short term, you're right, but longer term, this is a growth story. I think Warren really epitomizes what it takes to build a global business, particularly if I call it David and Goliath. We're up against some very big beasts in not just the aerospace industry, but in the land and sea business as well. Warren, I think, has demonstrated just what it takes to succeed like that.
Restructuring, yes, but growth is, to me, strategically much more important. When it comes to the point, a lot of Warren's experience is incredibly relevant to us. The business model of ARM, with its focus on service revenues and aftercare, is very similar. The focus on technology and R&D is absolutely crucial to us. We do recognize, and Warren knows, he doesn't have the manufacturing experience, but there's a lot of that in Rolls-Royce. There's also quite a bit of that on the board as well. As a board, and Warren himself, is absolutely committed to building the necessary support around areas where he doesn't have the expertise. We are going to absolutely continue the restructuring. There's a lot of momentum going on that, and I feel that we have the appropriate expertise to do that.
Warren will be focusing on the strategic development of the company and building the other aspects, not least around the services, which, as you know, Ben, is more than 50% of our revenues and value.
Thank you very much.
Our next question is from the line of Christian Laughlin at Bernstein. Please go ahead with your question. Your line is now open.
Yes. Hi. Thanks, Ian. Actually, my questions have already been answered. I tried to remove myself from the queue, anyway, thanks.
Thanks. Nice to hear your voice anyway, Christian.
Okay, if anyone has any further questions at this stage, could you please press zero and then one on your phone keypad now to enter the queue? If you want to retract that question, just press zero and then two to cancel. There'll be a further pause while questions are being registered. Okay. Our first question is from the line of Sandy Morris at Jefferies. Please go ahead. Your line is open.
Hello, good morning. Just pursuing Ben's line of questioning slightly. We did do an extensive search. Did we ever really get so far as interviews of people who might have fulfilled Ben's criteria better, and then, having weighed it all up, decided that, again, sitting on the board as a non-exec was already someone who best fit the bill? Did we get into that degree of detail, Ian? Sorry to pester on this.
No. Yes, we did. We did do an extensive search both inside the company and outside, including people from either the industry or related industries. So it was a very thorough search. Obviously, the current industries were a big part of it, but we concluded at the end of that Warren was the right man for the job.
Yeah. Okay. Thank you. That's good. Thanks ever so much, Ian.
Our next question is from the line of Edward Stacey at Besi. Please go ahead with your question. Your line is open.
Hello. Just a question really about the operating difficulties that you had last year, Mr. Rishton sort of choosing to retire just as those appear to be sort of solved, I guess. In a way, I suppose we wait a few more quarters before the stock market will really be very confident that all of the 2014 issues are laid to rest. Can you say anything about the degree of confidence that everything has been dealt with that needed to be dealt with?
Well, as I said at the beginning, there's no change in our guidance and plan. We're hard at work fixing the things that need to be fixed, but most importantly, growing the business and building the customers. I would just say that 2014 was a tough year for us, particularly on the financial side. From a business point of view, we have to keep that in context. On the technology and the customer side, last year was the best year that we've had, and we're beginning to see some of the fruits of that now. When you look at things in 10-year cycles, 2014 was one of those, excuse my language, oh, shit years in terms of certain things happening. The fundamental strategic momentum wasn't really changed. I'd also say, too, last year, a lot of our problems weren't actually operational problems for us.
They were market related. We know that we didn't cover ourselves in glory in the way we communicated with the market, and I hope you're beginning to see the emphasis. We're absolutely determined to get our communications better. A lot of last year's problems were market related. This isn't an easy period in equipment supply, as you know as well as I do. Yes, absolutely, we are focused on fixing those problems that we can fix. There are certain problems which just go with the cycle, and we'll get through that. It's really important that we keep our focus on the customers and the technology. It's not just a business school wishlist thing. This is what leads to the cash in the long term. Last year, on that sense, wasn't such a bad year.
I would just remind people for context, that last year was our second record year in terms of profits and revenues as well. This was, to me, it was all about expectation management as it was about actual performance. We know that we've got to do better on expectations, management, and communications. I'd be very surprised if you didn't find that Warren didn't keep that momentum going along with David.
That's very clear. Thank you very much.
Okay. If anyone has any final questions, please press zero and then one. We go over to the line of Ben Fidler. Please go ahead. Your line is open. Ben, your line is open. You might want to take yourself off mute.
Can you hear me now? Sorry.
Yeah, we can hear you now.
Sorry to come back with one further question, but just to understand, does Warren have a free mandate to, as CEO, change whatever he wants, whether that be accounting, whether that be the structure of the organization and the portfolio shape, whether that be the long-term strategic plans and the guidance, et cetera? You see it as him having free rein to do what he wants with that as a board, do you?
Well, I don't think any CEO, certainly not on the board of which I am Chairman, will have a totally free mandate to do whatever they want. I do believe that CEOs should run the company with their team, and certainly that will be the spirit of it. He can and should look at anything that he wants to look at. If he's unhappy with any of our procedures, accounting or otherwise, I would expect him to argue strongly the case for further. Any major changes like that would absolutely go through the board.
Thank you very much.
Okay. At this stage, there are no further questions in the queue.
Okay.
May I please pass it back to you?
Yeah. Okay. Well, thank you very much. I do appreciate this is a very brief call, and I do hope that if you have any follow-up questions, you'll be in touch with our IR team. I do want to reiterate, we are determined to improve our communication with the investing community. As I said, I hope you'll begin to see some signs of this. This is something I personally can commit on the company that, if we are disappointing you, not being sufficient, just let us know. We're determined to get the relationships that we seek with our shareholders. As I said, we're a long-term company. We've got to deliver, and we'd like to have long-term relationships with our investors. Thank you very much for joining the call, and do get in touch with the IR team.
If you'd like to see me at some stage, let me know. Warren, for sure, will be in touch with you when he takes up the reins in July and August. Thanks very much, everyone.
This now concludes today's call. Thank you all very much for attending. You may now disconnect your lines.