INTERNATIONAL - Rolls-Royce is to cut 4600 jobs over two years in the latest attempt by boss Warren East to reduce costs and complexity and make Britain’s best-known engineering company more profitable and dynamic.
East, a softly-spoken former tech boss, has overhauled the 134-year-old Rolls-Royce since he took charge in 2015, but the new cuts come as the group grapples with an aero-engine problem that has grounded planes and angered clients.
The announcement, which East said was not linked to the Trent 1000 engine issue, marks the biggest round of job cuts since the company had to retrench during the aviation crisis that followed the 9/11 attacks in the US in 2001.
The plan will remove 10percent of the workforce, targeting duplication in corporate, administration and management roles to try to save £400million (R7.11billion) a year by 2020.
Two-thirds of the job cuts will fall in Britain. Rolls-Royce is the biggest employer in the city of Derby, central England, with 15700 staff at its headquarters.
“Rolls-Royce is at a pivotal moment in its history,” East said.
“We are poised to become the world leader in large aircraft engines. But we want to make the business as world class as our engineering and technology.
More streamlined
“We are proposing the creation of a much more streamlined organisation.
"We have to significantly reduce the size of our corporate centre, removing complexity and duplication that makes us too slow, uncompetitive and too expensive.”
The cuts would not affect its engineers, Rolls-Royce said.
The news has echoes of an announcement from BT last month, another venerable company that is cutting 13000 managerial and back-office jobs to reduce bureaucracy and respond faster to its customers’ needs.
East, who built the chip designer ARM Holdings from a start-up into Britain’s biggest tech company, has complained that Rolls-Royce, a rival to General Electric, is too complex and cumbersome due to layers of bureaucracy above the shop-floor.
Driving home his new focus, he has set a 2020 free cash flow target of £1bn, a sizeable jump from the £273m recorded in 2017, off revenue of £15bn.
In January he divided the company into three business units - Civil Aerospace, Defence and Power Systems - and the new restructuring is designed to remove management duplication between those layers and the corporate centre.
The cuts follow a lengthy period of investment in previous years that has meant it is now delivering its biggest increase yet in large engine production.
The union Unite warned: “There is a real danger that Rolls-Royce will cut too deep and too fast with these jobs cuts, which could ultimately damage the smooth running of the company and see vital skills and experience lost.”
The major restructuring, costing a total of £500m between 2018 and 2020, will be reported as separate one-off costs, allowing it to stick to its targets for free cash flow.
“These changes will help us deliver over the mid- and longer-term a level of free cash flow well beyond our near-term ambition,” East said.
The company holds an investor day today, where it is expected to provide more details on its targets and outlook.
Asked about the potential sale of the company’s commercial marine business, which supplies oil and gas customers and is under review, East said he would provide shareholders with a “short update” today.
Investors will also be looking for hints that the dividend could start to grow. It was halved in 2016.