LONDON-- Rolls-Royce Holdings PLC said Wednesday that John
Rishton will retire as chief executive and be replaced by former
ARM Holdings PLC chief Warren East, following a tumultuous period
for the British engine maker, marked by profit warnings, layoffs
and the exit of its chief financial officer only a few months
ago.
Mr. Rishton, who informed the company chairman Ian Davis late
last year of his plans to exit, will depart on July 2 after more
than four-year leading the company.
Mr. East, 53-years-old, was CEO of ARM Holdings from 2001 to
2013 and a nonexecutive director at Rolls-Royce. He "has proven
strategic and leadership skills in a global business and a strong
record of value creation," Mr. Davis said. Investors welcomed the
change, sending Rolls-Royce stock up more than 3%.
The change comes after one of Rolls-Royce's big investors, the
Seqoia Fund, called Rolls-Royce's performance in 2014 "a horror
show." In its annual report, the fund criticized Mr. Rishton for
showing "minimal awareness of the returns on capital his
acquisitions have generated."
Mr. Davis Wednesday signaled that no big strategy changes were
planned, saying the board was "comfortable" with its involvement in
making engines for ships and planes and land-based power
systems.
Rolls-Royce shares slumped last year after the company said it
wouldn't have any profit growth and then revised earnings downward
multiple times. The company in November announced plans to slash
2,600 jobs and the replacement of chief financial officer Mark
Morris, a 27-year company veteran.
To appease investors, Rolls-Royce last year embarked on a GBP1
billion ($1.5 billion) share repurchase, a first for the
company.
Incoming chief executive Mr. East said the near-term focus would
be on driving restructuring measures put in place by Mr. Rishton.
"You can see the positive effects of the operational
transformation," Mr. East said.
One of the issues for the new Rolls-Royce management team will
be figuring out how to re-enter the narrowbody aircraft engine
market: by far the largest sector of commercial flying. Rolls-Royce
was a partner with Pratt & Whitney, the engine unit of United
Technologies Corp., before exiting several years ago as it opted
not to invest in a new turbine design.
Mr. Davis said he wanted Rolls-Royce to re-enter that sector,
though echoed Mr. Rishton's view that doing so wouldn't be done
alone because of the scale of the financial commitment and the risk
of such a project. "Partnering in some form is a very important
part of our approach to get into the narrowbody," he said.
Mr. Rishton's also saw other developments that unnerved
investors. The U.K. Serious Fraud Office and U.S. regulators have
begun looking into alleged illegal business dealings conducted by
Rolls-Royce in Asia. Rolls-Royce has strengthened its
anticorruption process but the probe remains open.
The British company also tried to strengthen its maritime engine
business through a $10 billion takeover of Finland's Wärtsilä Oyj,
which rebuffed Rolls-Royce's preliminary approach. The attempted
acquisition of a company of that size surprised investors who
hadn't realized expansion was on the management's agenda so soon
after its full takeover of Tognum, a German engineering company
originally acquired in partnership with Daimler.
The sale of its subscale industrial gas turbine business to
Siemens was received better.
The company also sold its subscale industrial gas turbine
business to Siemens.
Rolls-Royce said Mr. East will get a base salary of 925,000
pounds ($1.38 million) and a pension allowance of 25% of salary. He
will also be eligible to participate in annual performance related
bonus scheme up to a maximum of 180% of salary per annum and in the
performance share plan up to a maximum of 180% of salary.
Mr. East, who said he has been eager to resume a chief executive
role since leaving ARM, would lean on his technology background to
bring out more of that focus at Rolls-Royce.
Write to Robert Wall at robert.wall@wsj.com and Ian Walker at
ian.walker@wsj.com
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