By MarEx 2015-10-05 17:15:51
Britain’s Rolls-Royce said it would cut an additional 400 staff from its marine business by the end of next year, its latest move to make the unit more efficient and cope with a fall in orders sparked by lower oil prices.
The marine unit, which depends on oil and gas-related customers for about 60 percent of its business, has seen some of its orders cancelled in the past 16 months as the price of Brent crude collapsed to six-year lows.
Rolls-Royce had already announced in May that it would cut 600 jobs in its marine business, which employs 5,800 people in 34 countries and builds propulsion systems, winches and anchors. The latest job cuts would be worldwide, it said.
In 2014, the marine unit accounted for about 12 percent of Rolls-Royce total group revenue.
Rolls-Royce’s Chief Executive Warren East, who took up the role on July 2, is in the process of carrying out an operational review of the whole business, the results of which he will present on November 24.
The group issued a profit warning last year as it was hit by the slump in oil prices and earlier this year said profits at its biggest business, which makes aero-engines for large planes, would also falter next year.
Maintaining current profit guidance for the marine unit, Rolls-Royce said on Monday it would invest the cost-savings from the job cuts into research and development activity.
“We will sharpen our focus on the marine technologies of tomorrow by significantly increasing our current rate of investment in research and development,” Rolls-Royce’s marine president Mikael Makinen said in a statement.
“This is a fundamentally strong business, but we have to take decisive action to position it for future growth, with a structure that is simple, efficient and effective,” he said. “Reducing our workforce is never an easy decision, but the continued weak oil price, and the need to become more competitive, means it is necessary, if we are to build a strong base from which we can successfully grow this business in the future.”
The company said the latest job cuts would generate full-year savings of 40 million pounds ($60.7 million) with incremental benefits from 2016 onwards, and that the cost would be covered by a previously flagged 30 million pound restructuring charge which would now be spread over this year and next.
“This is an acceleration of the downsizing,” said Haitong Research analyst Edward Stacey.
Shares in Rolls-Royce, which hit a four-year low in September, traded up 3.5 percent to 729 pence, ahead of a two percent rise in Britain’s blue-chip index.
The company added that its focus in the marine unit was to improve competitiveness by reducing corporate and administrative costs.