Rolls-Royce Holdings Group Plc (RR/) said there’s a good chance that it will agree a sale of most of its energy unit to Siemens AG as part of a plan to revive sales growth and focus on businesses where it’s a major player.
“I’m reasonably optimistic that we’ll get something done,” Chief Executive Officer John Rishton told reporters at the company’s annual shareholder meeting in London, adding that the power arm is “sub-scale” and can’t effectively compete with either the German company or General Electric Co. (GE)
Rolls-Royce is negotiating with Siemens on the disposal of operations that supply equipment derived from its core aero-engine product line to the oil and gas industry and power utilities. Rishton said today that the move would improve the jet-engine maker’s focus as it seeks to revive growth that’s forecast to be flat this year for the first time in a decade.
“The financial performance of that part of the business has not been what we need it to be,” he said of the energy unit, which has sales of 1.05 billion pounds ($1.8 billion). “Scale is really important in this market. We’re simply tiny.”
Rishton said Siemens’s separate interest in European rival Alstom SA is unlikely to affect its ability to do a deal for the Rolls-Royce unit, or the timing of any transaction.
Siemens has said it may submit an offer to Alstom after the French engineer was targeted by GE. The Munich-based company has declined to comment on any interest in Rolls assets.
Rishton said his company sought to identify possible disposals, as well as acquisitions, as part of a wider review of its business activities.
“We’ve cleaned up the portfolio in terms of making sure we focus on the areas that we are really strong at, that we really understand, and selling out the other areas,” he said. “We continue to look at opportunities.”
Rolls-Royce said earlier today it remains in negotiations with Siemens regarding the disposal of its energy gas turbine and compressor businesses, adding that talks have not concluded and that a further announcement will be made in due course.
The company had said April 29 it was seeking to sell the bulk of its energy division after Bloomberg reported talks were under way with Europe’s biggest engineering firm.
A deal to offload non-nuclear energy assets would sharpen Roll’s focus on jet engines, where it’s the No. 2 supplier to Airbus Group NV (AIR) and Boeing Co. behind GE.
The energy division generated 68 percent of sales from oil and gas operations last year, 21 percent from power generation and 11 percent came from the nuclear-industry operations.
Rolls-Royce has moved to build up its range of engine operations, agreeing last month to pay 2.43 billion euros ($3.4 billion) for Daimler AG’s 50 percent stake in a marine-, energy-and defense-engine venture, created from the purchase of Germany’s Tognum AG, after the carmaker exercised a put option.
The company also pursued a bid for Finnish marine-engine maker Waertsilae Oyj this year before talks ended.
Group sales and earnings won’t increase this year even before the adverse impact of exchange-rate fluctuations, Rolls said in a statement, reiterating guidance from Feb. 13 and adding that it’s “confident” growth will resume in 2015.
The company said its outlook across business units is unchanged, except at the marine division, where profit and sales are likely to decline 10 percent versus a year earlier on a one-time charge and lower demand for support services.
Two-thirds of 2014 earnings are likely to be generated in the second half as the marine charge and restructuring costs weigh on performance in the first six months, Rolls-Royce said.
The U.K. company will report first-half results July 31.
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