Rolls-Royce accelerates cost reduction, continues restructuring

Derby, U.K. – Rolls-Royce officials have announced additional headcount reductions as part of an intensified program to improve operational efficiency and reduce cost across the group. It now proposes a restructuring plan that will reduce headcount by 2,600 over the next 18 months, principally in the aerospace division. The majority of this reduction will be achieved in 2015.

 

This is consistent with the announcement of Oct. 17, 2014, which committed the company to accelerate progress on the 4Cs: customer, concentration, cost and cash – particularly cost. The company will continue to pursue further cost improvements in all areas, including in its Land & Sea division.

 

The statement issued Nov. 4, 2014, noted that investment made in technology and new capacity, alongside the organizational changes made to simplify the group, have enabled the company to increase output and improve efficiency.

 

Among the changes and rationales mentioned:

 

1. A large engineering team was required for the development phase of the Trent 1000 and Trent XWB engines. Both these major programs have now entered their production phase, reducing the firm’s engineering requirement.

 

2. The company has opened a number of world-class new facilities, such as Crosspointe in the U.S.A. and in the U.K. at Rotherham and Washington, Tyne & Wear. These set new standards in productivity and efficiency and allow the company to improve the competitiveness of its footprint.

 

3. The organization of the group into two divisions, Aerospace and Land & Sea, will enable the group to reduce management layers and structural cost including indirect labor.

 

Management anticipate these actions will result in incremental restructuring costs of around £120m over the next two years, with the intention to accrue around half of these costs this year, subject to employee consultation. Annualized cost benefits of around £80m are expected when fully implemented. 

 

John Rishton, chief executive officer, said: “We are taking determined management action and accelerating our progress on cost. The measures announced today will not be the last; however, they will contribute towards Rolls-Royce becoming a stronger and more profitable company.

 

“We will work closely with employees and their representatives to achieve the necessary reductions on a voluntary basis where possible, while making sure we retain the skills needed for the future.”

 

On May 6, 2014 Rolls-Royce signed an agreement to sell its Energy gas turbine and compressor business to Siemens for a £785m cash consideration. On completion, expected before the end of December 2014, Rolls-Royce will receive a further £200 million for a 25-year licensing agreement.