Tuesday, November 04, 2014

Rolls-Royce to Cut 2,600 Jobs Reduction Part of Engine Maker’s Cost-Cutting Program

The Wall Street Journal
By Robert Wall And Ian Walker
Updated Nov. 4, 2014 10:54 a.m. ET

LONDON— Rolls-Royce Holdings PLC said on Tuesday it would slash 2,600 jobs and replace its chief financial officer after a series of profit warnings disappointed investors.

The company, which has roughly 55,000 employees, said most of the job cuts would come next year at its aerospace division, which produces engines for Boeing Co. and Airbus Group NV jetliners. The division, with 29,000 people on its payroll, is the biggest contributor to Rolls-Royce’s sales and profit.

“The measures announced today will not be the last, however they will contribute towards Rolls-Royce becoming a stronger and more profitable company,” Chief Executive John Rishton said. He added the company would work with unions and seek voluntary departures as it tries to ensure key skills aren’t lost.

The company’s board met Tuesday to approve the restructuring. The civil aerospace business, rather than defense, will take the brunt of the job losses. Rolls-Royce said future cost initiatives would target the land and sea operations.

The news comes after the U.K. engine maker issued a profit warning last month, saying sales would fall this year. Rolls-Royce, which no longer has links to the luxury car maker, also said a promised return to growth in 2015 would be delayed amid a global economic slowdown. Underlying revenue for this year is projected to fall by between 3.5% and 4%. Previously, the company said sales would be roughly unchanged from last year.

Mr. Rishton has struggled over the past year to push through cost-cutting measures he has long promised. He cited only “mixed progress” last month.

The engine maker on Tuesday said it had appointed David Smith as the new finance chief. He joined Rolls-Royce earlier this year, and was chief financial officer of the company’s aerospace division. He previously worked for Ford Motor Co. for 25 years.

Mr. Smith replaces Mark Morris, a 27-year company veteran who had served as Rolls-Royce’s finance chief since January 2012.

The profit warning last month surprised investors who were already caught off-guard when Rolls-Royce said in February that sales growth would stall for the first time in a decade. In July, it also cut its outlook for the marine unit.

Earlier this year, the company committed to its first share repurchase, valued at £1 billion ($1.6 billion), and said it planned to complete the sale of its energy-turbine unit to Siemens AG .

Rolls-Royce management has been under pressure in the past two years amid a range of issues. The company is under investigation by the U.K. Serious Fraud Office and U.S. regulators about alleged illegal business dealings in Asia. An aborted effort to strengthen its maritime engine business through a $10 billion takeover of Finland’s Wärtsilä Oyj also spooked investors.

The restructuring announced Tuesday is expected to cost around £120 million over the next two years, with around half of that sum expected to be booked in 2014, the company said. Rolls-Royce expects annual cost benefits of around £80 million when the program is fully implemented.

Those costs will hit underlying profit and represent a fourth revision to earnings this year.

- Source:  http://online.wsj.com

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