Business

Rolls-Royce plans 'major restructuring'

Rolls Royce Engine Image copyright Getty Images

Engineering group Rolls-Royce has said it will give details of a "major restructuring" of the business later.

Chief executive Warren East, who took the reins in July, said his changes would "simplify the organisation, streamline senior management, reduce fixed costs" and speed up decisions.

Mr East said he was targeting annual cost savings of between £150m-£200m.

Earlier this month, the company announced its fifth profit warning in less than two years.

Mr East said: "As a group we are undergoing an unprecedented period of change... these changes, while more painful than we expected in the near-term, are vital to our long-term success."

He added that his review had "underpinned my confidence" about the opportunities ahead for the business.

"This is fundamental to ensuring Rolls-Royce best positions itself to compete for the long-term opportunities before us," he said.

Earlier this month, the engineering group said the review was likely to involve job losses among its 2,000 senior managers.

It has previously announced 3,600 job cuts across the group.

Rolls-Royce chairman Ian Davis said in a statement that the board was committed to providing Mr East with the support he needed to implement the findings of his review.

ValueAct pressure

The firm has been badly affected by a decline in its main aircraft engine business.

Earlier this month, it said that while demand for new engines for large passenger aircraft remains unchanged, many airlines have been sidelining their older planes in favour of modern, more fuel efficient models.

As a result, profits from supplying spare parts and servicing have fallen significantly. In addition, sales of engines for corporate jets have declined sharply.

Meanwhile the low price of oil has taken a heavy toll on Rolls-Royce's marine engine business, largely because of falling demand from offshore energy companies.

Pressure to overhaul the business has been intensified by US-based activist investor ValueAct, which took a stake in Rolls-Royce not long after Mr East's arrival at the helm.

It recently doubled its holding to 10%, making it Rolls-Royce biggest investor. It is reported to want the engineer to sell off its marine business to focus on its main aero-engine business.

The firm has also asked for a seat on the Rolls board, but has been rejected by the company.

Rolls-Royce shares, which have fallen 15% since its profit warning earlier this month, were down 0.8% in early trading at 564.5p.

Hargreaves Lansdown equity analyst Keith Bowman said the proposed restructuring suggested "more near-term pain than management itself had expected".

"Reducing costs and inefficiencies and making the business easier to understand appears to be the short-term emphasis.

"On the downside, the update offers no quick fixes," he added.

More on this story

Related Internet links

The BBC is not responsible for the content of external Internet sites