The Business Times

Rolls-Royce to cut 2,600 staff, appoints new finance chief

Published Tue, Nov 4, 2014 · 11:11 PM

[LONDON] British engineer Rolls-Royce plans to cut 2,600 jobs to save money and has replaced its finance director, aiming to restore confidence following two profit warnings in eight months.

The world's second-largest maker of aircraft engines said the job cuts, which will mostly come in the Aerospace division and will take 18 months to complete, were designed to save around 80 million pounds (US$128 million) a year once the redundancy programme was complete.

Rolls-Royce, which dates back to 1884 and has around 55,000 staff worldwide, has traditionally had lower margins than market leader General Electric, meaning it can be undercut by its rival. "We are taking determined management action and accelerating our progress on cost," said Chief Executive John Rishton. "The measures announced today will not be the last, however they will contribute towards Rolls-Royce becoming a stronger and more profitable company." The majority of the aerospace jobs are in Britain and the United States and the need to cut numbers comes as the focus on Rolls' key Trent engines moves from a development to production phase, requiring fewer engineers.

The development of new facilities has also made the group more efficient, requiring fewer staff, and a move to reorganise the group into two divisions has reduced the number of management jobs.

The announcement comes almost three weeks after Rolls issued a major profit warning, saying deteriorating economic conditions meant profit would not rise next year as previously forecast, sending its shares plunging by 16 per cent at the time.

The warning was the second such downgrade in eight months and paved the way for another year of stagnation after more than a decade of strong growth. It also prompted concern that the company did not have sufficient visibility over its future earnings.

Without giving any explanation, Rolls also said Finance Director Mark Morris had left after 27 year with the company and would be replaced by David Smith, who is promoted from finance director of the Aerospace division.

Espirito Santo analyst Ed Stacey said investors would be looking for a clear message from the new finance director and tight control on all the financial metrics. "The share price reaction shows that there's some optimism that he can deliver that," Mr Stacey said. "Some restructuring had already been indicated ... two weeks ago, the plan is probably not any better or worse than people had expected but what we have now is some concrete numbers, so it's eliminating uncertainty." Shares in the group spiked on the news and were up 2 per cent at 1426 GMT.

Rolls said in October that the market for its main aircraft engine business would strengthen but customers in the oil and gas, mining, construction, industrial and agricultural sectors were cancelling or delaying orders.

Until this year, the company had enjoyed 11 years of strong profit and revenue growth, as soaring demand for fuel-efficient engines for passenger jets made by Airbus and Boeing boosted its civil aerospace unit, which accounted for 43 per cent of sales in 2013.

Rolls-Royce reassured investors that the outlook for its aero engine business remained good, thanks to increasing demand for travel in emerging economies and the need to replace older aircraft with new, fuel efficient models.

A spokesman for the Unite union declined to comment.


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