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Rolls-Royce Holdings plc
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== Risks == === '''Debt & interest rates''' === <big>In 2021, Rolls Royce had a debt of £5.2 billion which reduced significantly to £3.3 billion. However, £1.49 billion (around 78%) of the total debt repayment was financed by the sale of ITP Aero and AirTanker shares. It is expected that the primary route Rolls Royce can take to further reduce its net debt is by selling more of its assets.</big> <big>Higher debt can be very expensive especially as the interest rates continue to rise.</big> <ref>https://investingreviews.co.uk/news/rolls-royce-shares-up-in-2023/</ref> === '''Inflation''' === Revenue of Rolls Royce is strongly linked to the growth of the airline industry. 44% of its income comes from the sale and servicing of civil airplane engines. High inflation is significantly denting consumer’s spending power especially on luxurious products and services including holidays abroad. <ref name=":0">https://www.fool.co.uk/2022/10/24/4-big-reasons-to-avoid-rolls-royce-shares/</ref> === '''New CEO''' === Tufan Erginbilgic is appointed as the new CEO for Rolls Royce. He is a former executive at BP. He has been very transparent about the poor performance of the Rolls Royce compared to its competitors. The share price of Rolls Rise has dropped by two-thirds in the last 5 years. It is anticipated that under the leadership and restructuring plans of the new CEO, Rolls Royce will steer towards growth in the near future however there are concerns if Tufan Erginbilgic will be able to successfully implement his plans. <ref>https://www.theguardian.com/business/2023/jan/27/rolls-royce-is-a-burning-platform-that-must-transform-says-new-ceo</ref> === '''High R&D costs''' === To stay ahead of the competition, it is crucial for Rolls Royce to invest in researching and developing new technology that can be incorporated into its products. This often has high costs associated with it and significantly dents the company’s profits. Failure to keep up with the latest technological advancements can result in the risk of falling behind in this competitive industry. <ref name=":1">https://thestrategystory.com/blog/rolls-royce-swot-analysis/</ref> === '''Environmental Concerns''' === Recently, the airline industry like many others aims to to reduce the carbon emission. Aircraft engines will play a crucial role in the transition towards more environment friendly air transport. Some of the earlier Rolls Royce products therefore need to be quickly replaced with more green products. <ref name=":1" /> === '''UK defence quota''' === Around 30% of Rolls Royce’s underlying revenue comes from the defence and military segment. It is anticipated that the demand for plane, boat, and submarine engines will fall from the Ministry of Defence considering the political factors and concerns over the rising public debt. Liz Truss, former prime minister, aimed to spend 3% of GDP on defence by 2030 however this doesn’t seem to be the case after her term ended in Oct 2022. <ref name=":0" /> === '''Currency''' === Rolls Royce is a global company operating with many different currencies. It is vital for Rolls Royce to manage the risks related to exchange rates and the respective impact on its core financials and profitability. <ref name=":1" /> === '''Competition''' === Rolls Royce faces fierce competition from other industry players including: General Electric, Pratt & Whitney, and Siemens. Additionally, in the recent years, many new competitors have entered the market which puts pressure on pricing, reduces the market share for the market leaders and makes innovation extremely important for survival. <ref name=":1" /> === '''Economy and Industry Downturns''' === Recently, the profitability was significantly affected due to the Covid 19 pandemic, supply chain issues, Russia-Ukraine conflicts and other geopolitical tensions. All of these have a significant impact directly or indirectly (through the civil aerospace industry). <ref name=":1" />
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