Rolls-Royce to Exit Commercial Marine Business in Restructuring -- Update
January 17 2018 - 9:53AM
Dow Jones News
By Robert Wall
LONDON--British aircraft-engine maker Rolls-Royce Holdings PLC
on Wednesday said that it was ready to exit its commercial marine
business as part of its biggest shakeup in years.
The British blue-chip company--best known for supplying engines
to Boeing Co. (BA) and Airbus SE (AIR.FR) jetliners--said it would
focus on its commercial-aerospace activities, which generate most
sales and profit, as well as its defense and power-systems
businesses.
The company has launched a strategic review over the future of
its commercial marine business, which has experienced a 30% cut in
staff in recent years amid slack demand, Rolls-Royce said.
Its marine business, which sells engines for ships--including
warships--and designs vessels, had GBP1.1 billion ($1.5 billion) in
sales in 2016 but posted a GBP27 million loss.
The business to power warships, including Britain's new aircraft
carriers, would remain in company hands, Chief Executive Warren
East said. The naval business, which accounted for about 25% of
marine sales, was profitable, the company said.
The potential disposal of its marine operations mark the
highest-profile step yet that Mr. East has taken to boost
Rolls-Royce's profitability after he took over the company in 2015
following several profit warnings. Since then, the company that
competes for business with General Electric Co. (GE) has made large
layoffs, overhauled management, and closed some sites.
"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," Mr. East said.
Rolls-Royce, which is no longer affiliated with the luxury car
maker, is under pressure to improve its financial performance.
Activist investor ValueAct Capital Management LP in 2016 won a seat
on the company's board after becoming its largest shareholder. As
part of the deal to gain board representation, ValueAct agreed not
to push for changes in Rolls-Royce's strategy or publicly challenge
management for about two years. That agreement runs until the next
shareholder meeting expected in May.
Shares in Rolls-Royce surged 7.8% after the announcement.
Mr. East has previously promised investors that the company will
generate at least GBP1 billion in cash by 2020.
Rolls-Royce said it was taking measures to further simplify and
restructure the business. It didn't say how many jobs may be shed
as part of the streamlining. More detail on the restructuring,
along with full-year results, will be released next month, the
London-based company 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," Chief Financial Officer Stephen
Daintith said. "Costs and complexity within our business remain too
high," he added.
Rolls-Royce last week said it was considering strategic options
for L'Orange, a part of its power-systems operations. Other parts
of the company's power-systems operations are unaffected, it
said.
Write to Robert Wall at robert.wall@wsj.com
(END) Dow Jones Newswires
January 17, 2018 09:38 ET (14:38 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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