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Rolls-Royce's new chief executive has made paper profits approaching £22m from his holdings in the British engineer after a strong rise in its share price.
Tuvan Erginbilgic, who took over in January last year, received £7.5m worth of shares in two tranches as a gold bonus to make up for lost profits and bonuses from the private equity firm he previously worked for, Global Infrastructure Partners.
Investors bought into his restructuring, making Rolls-Royce stock the best performer in the European Stoxx 600 index of the largest listed companies. Shares in the company, which makes large civilian aircraft engines and nuclear propulsion systems for the Royal Navy's submarine fleet, have jumped more than 250 percent since he joined.
Erginbilgiç shares were granted in March 2023 at a price of 90.8 pence per share. They closed at 353p on Friday, giving him a paper profit of £21.6m. Erginbilgiç cannot realize any potential gains until 2027 at the earliest; The two tranches will be effective in 2027 and 2028 and can be redeemed if necessary.
The former oil executive said on Thursday that annual operating profits and margins had more than doubled and he expected further growth in 2024.
Erginbilgic declined to comment on the rise in Rolls-Royce's share price, telling the Financial Times on Thursday that he doesn't look at the stock price every day: “It's not a good idea.”
He added that there were no “easy victories.”
“As long as we do the right things and make progress on our agenda, the stock price will go where it goes,” he added. “Our goal is to create value for all Rolls-Royce stakeholders.”
“Any shareholder who has held shares since March last year will see exactly the same percentage gain as a result of our transformation programme,” Rolls-Royce said.
Erginbilgic earns a basic salary of £1.25m at Rolls-Royce, 30 per cent of which is paid in deferred shares for two years. He would have earned more than £6.2m in salary and shares in his first year at the helm if he had achieved all annual performance targets.
While the actual goals of the incentive plan were not disclosed in last year's annual report, they include metrics for free cash flow and operating profit. Under the terms, 40 percent of the shares granted must be held for three years and 60 percent for four years.
Erginbilgic, who was criticized for describing Rolls-Royce as a “burning platform” shortly after joining, has insisted that the company's strong financial performance was due primarily to his actions rather than to the recovery of international aviation. The company makes most of its money from maintenance and service contracts when its engines fly.
So-called engine flight hours recovered to 88% of pre-2019 coronavirus levels last year, up from 65% in 2022, the company said on Thursday.
Rolls-Royce in November set medium-term financial targets, including operating profits of £2.8bn and free cash flow of £3.1bn by 2027.
Rolls-Royce will be “more than halfway” towards achieving these medium-term goals by the end of 2024, Erginbilgic said, noting that “we are front-loading the delivery of performance improvement.”
While 2027 remains the “most likely outcome” for Rolls-Royce to achieve its goals, “if we can go faster, we will,” he told the Financial Times.
