Russell Lynch: East pulls out all the stops to set Rolls in the right direction

Rolls-Royce chief executive Warren East counts playing the organ among his hobbies. But when he took the top job at the most famous name in British engineering two years ago, the company was hitting all the wrong notes.

The storied name had become a byword for corporate bureaucracy under former boss John Rishton, faced with spiralling costs, weak markets and a Serious Fraud Office probe to boot.

It was in the middle of a horrendous run of five profit warnings. Even worse, talk of a takeover or break-up abounded for the maker of Britain’s nuclear submarine reactors after activist investor ValueAct built a stake.

East would oversee two more profit warnings in 2015 but his medicine — targeting £200 million in cost savings over three years — is now hitting the spot.

He’s taken out the engineering bureaucracy which infected the rest of the business by stripping out management. Rolls is also getting better at making its key Trent XWB engines.

The firm loses money building the engines, but profits in the after-market servicing them.

Now Rolls is making almost twice as many engines as last year, so the costs are coming down, and there are more engines in the sky, so the servicing profits go up.

Added to that, Airbus’s cheaper “launch” price period for its A350 aircraft to encourage airlines to buy them is coming to an end in another boost to revenues.

Even with Brexit on the horizon, the turnaround looks to be gathering pace. East, understandably cautious after Rolls’ recent history, says “this is no time for complacency”.

But the City has given its own verdict today — marking the shares up 7.9% after a near-trebling of underlying profits — which isn’t usually the reaction when a company says its outlook for the full year is “unchanged”.

The mutter is that a profit upgrade might be coming before long: East — who fully deserves whatever bonus is heading his way in an era of generally overpaid executives — should be producing even sweeter music soon.