16th Dec 2015 07:11
LONDON (Alliance News) - Rolls-Royce Holdings PLC on Wednesday said it will ditch its divisional structure in the new year and move to a model of five market-facing businesses, part of the wider restructuring programme the group is enacting.
The FTSE 100-listed jet engine and power systems engineer, which has been hit by a slew of profit warnings caused by pressures on all of its business units, said from January 1, it will end its current divisional structure, by which it operates under the Aerospace and Land & Sea units.
Instead, it will operate as five market-facing units, covering Civil Aerospace, Defence Aerospace, Marine, Nuclear and Power Systems. The presidents of those five units will then report directly to Warren East, Rolls-Royce's chief executive.
Due to the changes, Tony Wood and Lawrie Haynes, respectively the presidents of the Aerospace and Land & Sea divisions, will retire. They will stay with the company into 2016 to assist with the transition to the new structure.
East, who joined the company in the middle of the year, is in the early stages of a massive restructuring of the business. Rolls-Royce has been bruised heavily by challenges not only in its defence and oil and gas-facing businesses, but also by a recent slowdown for its core aerospace engines arm and, in particular, its high-margin aftersales business.
Last month, East tabled a series of plans designed to simplify the company's structure and slash its fixed cost base. It said its restructuring proposals will increase revenue segmentation, widen gross margin and increase trading cash flow. It intends to simplify its organisational structure, reduce fixed costs in the business, and add more pace and accountability to decision-making within the business.
The company said the changes it will make will deliver incremental gross cost savings of GBP150.0 million to GBP200.0 million per year, feeding through from 2017.
In addition to the profit warnings, East also faces pressure from ValueAct, the San Francisco-based activist investor which has built a 10% stake in the company and is pushing for a seat on its board.
By Sam Unsted; [email protected]; @SamUAtAlliance
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