Rolls-Royce not out of the dark yet

The weak cash performance reflected a £509m build-up in working capital as Rolls-Royce has accepted lower upfront payments from customers, including in TotalCare, its flagship service package for jet engines. Lower volumes have also been a problem, leading management to unveil "decisive action" to shore up the engineering giant's financial performance.

So far, the accelerated focus on "Customer, Concentration, Cost and Cash" has involved reducing the headcount by 2,600 in aerospace and rationalising the land and sea business. Five plants have already been closed, and steering gear and waterjet production is being consolidated in Finland to help curb the damage caused by weak customer spending in the face of the falling oil price. These restructuring initiatives helped boost gross margins by 1.7 percentage points during 2014, but came at a cost of £188m - a further pressure on cash flow. Management, however, expects the so-called 4Cs programme to deliver huge benefits in the medium term, and for restructuring costs to fall substantially in the next few years.

Money was also ploughed into improving capacity, resulting in a record order book for the year of £74bn. As expected, the majority of orders were for its popular civil aerospace Trent engines, though defence orders also increased for the first time since 2010. Mr Rishton reckons rising demand for air travel should see civil aerospace orders continue to grow. He also argues that urbanisation, population growth and tighter environmental regulation should drive demand for cleaner power, benefiting the land and sea business.

A turnaround isn't on the cards for this year, though. The company's guidance for 2015 warns that the naval marine business will continue to struggle in the face of rock-bottom oil prices. Broker Investec expects adjusted pre-tax profits of £1.46bn, giving EPS of 59.2p (from £1.62bn and 65.3p in 2014).