TIDMRR.
RNS Number : 1547C
Rolls-Royce Holdings plc
17 January 2018
17 January 2018
ROLLS-ROYCE ANNOUNCES FURTHER SIMPLIFICATION OF BUSINESS,
STRATEGIC REVIEW OF COMMERCIAL MARINE OPERATION
AND PLANS TO RESTRUCTURE SUPPORT AND MANAGEMENT FUNCTIONS
Rolls-Royce announces that it is embarking on a further
simplification of the business, including the evaluation of
strategic options for our Commercial Marine operation and a
reduction from five operating businesses to three core units based
around Civil Aerospace, Defence and Power Systems. As part of this
exercise, we plan to consolidate our Naval Marine and Nuclear
Submarines operations within our existing Defence business, and
Civil Nuclear operations within our Power Systems business. This
will facilitate a more fundamental restructuring of support and
management functions in particular.
These actions are designed to align our business more closely
with our strategic vision to pioneer cutting-edge technologies that
deliver vital power. It will allow us to better capitalise on our
relationships with Defence customers and our market leading
widebody position within Civil Aerospace, while strengthening our
technology capabilities across a broad range of power generation
applications. We would expect the subsequent restructuring to
deliver an additional reduction in costs and assist us in improving
performance from our core businesses and the whole Group. We are in
the process of defining this restructuring and further details will
be given at the time of our 2017 financial results on 7 March 2018
and a fuller discussion at a Capital Markets event later this
year.
Chief Executive Warren East said: "Building on our actions over
the past two years, this further simplification of our business
means Rolls-Royce will be tightly focused into three operating
businesses, enabling us to act with much greater pace in meeting
the vital power needs of our customers. It will create a Defence
operation with greater scale in the market, enabling us to offer
our customers a more integrated range of products and services. It
will also strengthen our ability to innovate in core technologies
and enable us to take advantage of future opportunities in areas
such as electrification and digitalisation."
"Alongside the simplification into three operating businesses,
we must continue to address the cost and complexity of the
structures that support and serve these businesses, including our
corporate head office, with greater decisiveness. Taking this
action now will help secure the long-term benefit for our business
and stakeholders of the growing cash flows that will be generated
over the coming years. At the same time, our operational teams must
continue to focus on managing in-service issues within Civil
Aerospace and delivering the current increase in engine
production."
Strategic review of Commercial Marine
Since 2015 our Marine business has responded to weak demand for
products and services for the offshore oil and gas market, which
significantly impacted its profitability. It has divested non-core
businesses and reduced the number of sites from 27 to 15 - an
overall reduction in footprint of 40%. It has managed a reduction
in its workforce by 30% to 4,200, with the majority now based in
the Nordic region. At the same time, the business has been
investing in new facilities and new technologies and become an
industry leader in the fields of ship intelligence and autonomous
vessels, culminating in June 2017 with the successful
demonstration, in Copenhagen harbour, of the world's first remotely
operated commercial vessel. Given the progress the business has
already made, it is now an appropriate time to conduct a strategic
review of Commercial Marine. This review will be undertaken during
2018 and we will update the market of the outcome at the
appropriate time.
Warren East said: "This is the right time to be evaluating the
strategic options for our Commercial Marine operation. The team
there has responded admirably to a significant downturn in the
offshore oil and gas market to reduce its cost base. At the same
time, we have carved out an industry-leading position in ship
intelligence and autonomous shipping and it is only right that we
consider whether its future may be better served under new
ownership."
Regardless of the outcome of this strategic review, Rolls-Royce
will retain the Marine operations which supply complex power and
propulsion systems to Naval customers, including the Royal Navy and
US Navy. During the first quarter of 2018, these Naval operations
will become part of an enlarged Defence business named Rolls-Royce
Defence, comprising the current Defence Aerospace business and our
Nuclear Submarines operation. We will also continue to have a
successful engine business serving marine customers within Power
Systems.
In 2016, Marine contributed GBP1,114m revenue and generated a
loss of GBP27m. Within this, the Commercial Marine business, which
supplies equipment and vessel design across the oil and gas,
merchant and other commercial markets, accounted for 75% of
revenues while the Naval operations accounted for 25% and achieved
a small profit. Marine continues to be impacted by weak demand for
products and services for the off-shore oil and gas market, as we
said on 9 November 2017, and will continue to pursue cost reduction
opportunities.
Integration of Nuclear business
In order to further simplify our business from five operating
businesses to three focused units, we intend to integrate our
existing Nuclear operations into our Defence and Power Systems
businesses. Our Nuclear Submarines operation, which is the sole
provider and technical authority for the Royal Navy's nuclear
submarine fleet, will form part of Rolls-Royce Defence, while our
Civil Nuclear operations will be placed within Rolls-Royce Power
Systems, which already provides services to the nuclear industry
such as emergency diesel generators.
We expect these changes to take effect during the first quarter
of 2018. In 2016, our Nuclear business reported revenues of GBP777m
and generated a profit of GBP45m. Our Submarines operation
accounted for 79% of revenues and our Civil Nuclear operations
accounted for 21%.
Restructuring of support and management functions
The simplification of our operating businesses into three
focused units will enable them to operate at greater pace, but the
full benefits can only be realised if we undertake a more
fundamental restructuring, in particular of our support and
management functions, and take a highly disciplined approach to
capital allocation on investment expenditure and R&D spend. We
will also be taking further measures to streamline processes and
reinforce behavioural change, accelerating the work we have already
done to drive simplicity.
Chief Financial Officer Stephen Daintith, said: "We must address
the imbalance and duplication between our corporate functions and
our three business units, as well as the cost of our corporate head
office. Costs and complexity within our business remain too high,
despite the delivery of the transformation activities announced in
November 2015 which will achieve the committed fixed cost reduction
rate of over GBP200m from the end of 2017. We are taking decisive
action now in order to secure and enhance the long-term benefit of
the cash flows that will be generated over the coming years."
Although the potential impact on our workforce remains to be
quantified, we do not anticipate any reduction in the skilled
operational and engineering roles that we require to support our
current ramp-up in Civil Aerospace engine production. We will
honour commitments made to workers' representatives in the UK and
elsewhere, including those which enabled last year's GBP150m
investment in new and existing Civil Aerospace facilities.
Further broad details of the restructuring will be given
alongside our 2017 financial results. Within those results we will
report our Marine and Nuclear businesses as separate units, as in
prior years. In addition, we plan to hold a Capital Markets event
later this year at which we will be in a position to provide a
fuller discussion of the expected benefits of the restructuring
programme.
Finally, as noted above, Rolls-Royce will be announcing its
final results for the year ending 31 December 2017 on 7 March 2018.
We remain comfortable with market expectations.
About Rolls-Royce Holdings plc
1. Rolls-Royce pioneers cutting-edge technologies that deliver
the cleanest, safest and most competitive solutions to our planet's
vital power needs.
2. Rolls-Royce has customers in more than 150 countries,
comprising more than 400 airlines and leasing customers, 160 armed
forces, 4,000 marine customers including 70 navies, and more than
5,000 power and nuclear customers.
3. Annual underlying revenue was GBP13.8 billion in 2016, around
half of which came from the provision of aftermarket services. The
firm and announced order book stood at GBP82.7 billion at the end
of June 2017.
4. In 2016, Rolls-Royce invested GBP1.3 billion on research and
development. We also support a global network of 31 University
Technology Centres, which position Rolls-Royce engineers at the
forefront of scientific research.
5. Rolls-Royce employs almost 50,000 people in 50 countries.
More than 16,500 of these are engineers.
6. The Group has a strong commitment to apprentice and graduate
recruitment and to further developing employee skills. In 2016 we
recruited 274 graduates and 327 apprentices through our worldwide
training programmes.
For further information, please contact:
Investors:
Jennifer Ramsey
+44 7825 903206
jennifer.ramsey@rolls-royce.com
Helen Harman
+44 7968 906645
helen.harman@rolls-royce.com
Ross Hawley
+44 7920 822534
ross.hawley@rolls-royce.com
Media:
Richard Wray
+44 7810 850055
richard.wray@rolls-royce.com
www.Rolls-Royce.com
This information is provided by RNS
The company news service from the London Stock Exchange
END
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