Rolls-Royce seeks cheaper HQ to cut long-term expenses

London

ROLLS-ROYCE Holdings plans to quit its headquarters in one of London's swankiest districts for cheaper offices as the company seeks to bring down long-term expenses and cover the more immediate costs of fixing a faulty jet-engine model.

Rolls-Royce needs a "smaller, more cost-effective London head-office location" than the current premises midway between the Houses of Parliament and Buckingham Palace, chief executive officer Warren East said in a memo to staff that was obtained by Bloomberg.

One option would be to move closer to the rail route to Derby, central England, the company's main manufacturing site.

Chief operating officer Simon Kirby, who took over the role in late 2016, will leave, Mr East said, adding that the executive had demonstrated "his professionalism" by developing a leaner business that effectively resulted in his own role being eliminated. Mr Kirby was previously CEO of Britain's £55 billion (S$100 billion) HS2 high-speed rail project.

Staff based at Rolls-Royce's HQ will be briefed on options for a move in coming weeks, according to Mr East. The company has occupied the current 37,000 square foot space at 65 Buckingham Gate since 2014, having moved there from an address across the street. The office is leased from Land Securities Group, the UK's largest real estate investment trust.

The engine-maker may move across London to the area around St Pancras station, from where Mr East and other top executives typically travel to Derby several times a week. The district has itself become a property hot spot in recent years, with Google building a 10-storey campus at nearby King's Cross.

Discussions will also begin with staff representatives on "emerging proposals" for the company's human resources, finance, information technology, general counsel and strategic marketing functions, Mr East said.

The restructuring moves follow the appointment of US consultants Alvarez & Marsal, hired in March to secure a new round of savings as Rolls-Royce targets £1 billion in free cash flow by 2020.

Rolls-Royce is also clamping down on discretionary spending to help rein in costs this year as it seeks to deliver on financial targets amid spiralling expenses from durability issues afflicting the Trent 1000 engine that powers Boeing Co's 787 Dreamliner.

Mr East appealed in the memo for staff to "do everything you can to reduce costs now to only essential areas".

The CEO announced last month that Rolls-Royce would trim expenses to absorb the cost of extra shop visits and the redesign of components required to address the glitch, which affects around 380 of 500 engines that it has built for the Dreamliner and led regulators to place operating limits on the jet.

Rolls-Royce has already shed layers of management, cut less successful products and agreed to sell its fuel injection unit in earlier efforts to rein in costs after Mr East took the helm in 2015 amid a downturn in demand for marine engines and maintenance revenues from its business jet turbines. The marine unit remains under review for possible disposal. BLOOMBERG