- Decline in crude prompts engine maker to re-size business
- Cutbacks to result in $61 million in annual cost savings
Rolls-Royce Holdings Plc said it will cut another 400 jobs at its marine-engines arm as the oil-price decline continues to weigh on demand for the specialist offshore vessels that the business helps power.
The cutbacks will save 40 million pounds ($61 million) a year, with incremental benefits from 2016 onwards, the London-based company said in a statement Monday. Most of the early savings will be invested in increased research and development, the company said. Profit and revenue guidance for the marine unit remains unchanged, according to Rolls-Royce, which is cutting more than 3,000 jobs across its entire business.
The cuts announced Monday follow the elimination of 600 factory posts at the division announced in May, mostly focused on Norway, where Rolls-Royce’s marine manufacturing operations are based. Rolls-Royce is slimming down the marine unit from a workforce of 5,800 as Chief Executive Officer Warren East undertakes a review of the group’s operations after taking over in July. Some investors have urged it to focus solely on the aerospace business, where it has a stronger market position.
“Our order book and profitability have been adversely impacted by the sharp and subsequently prolonged drop in the price of oil,” Mikael Makinen, president of Rolls-Royce Marine, said in the statement. “This is a fundamentally strong business, but we have to take decisive action to position it for future growth, with a structure that is simple, efficient and effective.”
The marine arm includes ship design, propulsion systems and other sub-systems for the ship industry. Rolls suffered a setback in expanding the unit when plans to merge it with Finland’s Waertsilae Oyj fell through in 2014.
Last year, underlying revenue at the division was about 1.7 billion pounds, 59 percent connected with offshore oil and gas, according to the company. Shipbuilders linked to the sector, including Norway’s Vard Holdings Ltd. and Ulstein Holding AS, have reported sharply declining demand.
Rolls gained 2.2 percent to 720 pence at 8:03 a.m. in London. The stock had fallen 18 percent this year through Friday, giving the company a market value of 12.9 billion pounds.
The cost of the job cuts was anticipated in the financial guidance that Rolls provided in July, which included a restructuring charge of as much as 30 million pounds. Of that, 20 million pounds will be charged this year and the rest in 2016, the company said Monday.