RR. Rolls-royce Holdings Plc

By Robert Wall 

LONDON-- Rolls-Royce Holdings PLC on Tuesday signaled its commitment to remain a diversified engine maker ahead of an investor briefing to outline restructuring measures after a series of profit warnings.

Chief Executive Warren East, who took over as head of Rolls-Royce in July, said the operational would lead to job cuts, though he didn't disclose their scale.

The review "highlighted a number of areas where we can simplify the way we work, inject pace into our decision-making and responsiveness, and improve our operational gearing and operational effectiveness," Mr. East said.

He has repeatedly stressed the review was focused on operations. Strategic decisions, such as whether to divest business lines, weren't on the agenda, he has said, after concerns were raised its land and sea engines business are a drag on its aerospace activities.

U.S. activist investor ValueAct Capital Management LP has become Rolls-Royce's largest shareholder and is seeking a seat on the company's board, Rolls-Royce has said. The London-based company last week disclosed ValueAct now holds more than 10% of its shares.

The maker of engines for Boeing Co. and Airbus Group SE airliners said its medium to long-term outlook remained strong and included a "focused power systems portfolio" that would deliver growth and cash generation.

Mr. East said there were opportunities, though, to "adjust the portfolio" in its land and sea turbines activities.

Rolls-Royce said earlier this month its earnings outlook for next year had worsened and it may cut its dividend, prompting the worst selloff in the company's stock in 15 years. The company has struggled to deliver on cost-cutting efforts and been hit by weakening demand for some civil aircraft engines, its largest profit contributor.

Mr. East also downplayed expectations Rolls-Royce would make a push to re-entering the market to power narrowbody jets, the backbone of global airline fleets.

The company does not have to be in that segment, he told investors. Mr. East's predecessor signaled Rolls-Royce was keen on re-entering the market, possibly through a partnership with Pratt & Whitney, the engine unit of United Technology Corp.

Mr. East said there were no near-term opportunities to break into that segment. "This is not something we should be wasting our time on debating."

He also said the company should "harvest" earnings in its declining market to power regional jets, where an opportunity to power new models also is lacking. Those sales could fall by a third over the next five years, he said.

Ian Davis, Rolls-Royce's chairman, said the new chief executive "is recommending clear and decisive actions which we fully support and we are committed to ensuring he has the right resources at the highest level to deliver these changes."

Rolls-Royce reaffirmed it expects cost savings of 150 million pounds ($226.9 million) to GBP200 million a year from 2017.

Rolls-Royce said earlier this month its earnings outlook for next year had worsened and it may cut its dividend, prompting the worst selloff in the company's stock in 15 years. The company has struggled to deliver on cost-cutting efforts and been hit by weakening demand for some civil aircraft engines, its largest profit contributor.

Rolls-Royce billed the changes as a "major restructuring" that would streamline management and make it more accountable, reduce fixed costs and expedite decision making. "This is fundamental to ensuring Rolls-Royce best positions itself to compete for the long-term opportunities before us," Mr. East said.

A new top-level structure should be defined by year end, he said. Other details of the turnaround plan would not be detailed until next year.

The company said there was "clear areas for business improvement" including its complex business model. There are also investment opportunities to strengthen its position in some markets, Rolls-Royce said, without providing details.

Write to Robert Wall at robert.wall@wsj.com

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(END) Dow Jones Newswires

November 24, 2015 12:12 ET (17:12 GMT)

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