24th Nov 2015 07:20
LONDON (Alliance News) - Engineer Rolls-Royce Holdings PLC on Tuesday said it intends to simplify its business and cut its fixed cost base as it works to restore the business to health following a tough couple of years in which its results have been hit from multiple angles.
The FTSE 100-listed jet engines and power systems manufacturer issued a profit warning earlier this month, its fifth in around 18 months, as ongoing problems in its defence and marine businesses were exacerbated by margin pressures on its aerospace unit, amid declining aftermarket revenue for business and regional jets and as its Trent engine programme transitions to a new model.
Following the most recent profit warning, Rolls-Royce said it would start a fundamental restructuring process to try to restore the health of the company, focusing on simplifying its structure and taking costs out of the business.
On Tuesday, Rolls-Royce said its restructuring proposals will increase its revenue segmentation, its gross margin and its 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.
The group said its medium and long-term outlook remains strong, with good cash flows driven by growth in the wide-body jet engine aftermarket and cost-reduction programmes in the business.
"As a group we are undergoing an unprecedented period of change. Change in our mix of business and how we account for it. Change in our industrial footprint as we invest in a wide-ranging transformation. And change in demand for our products as we double our large engine output and manage reductions in demand in other markets. These changes, while more painful than we expected in the near-term, are vital to our long-term success," said Warren East, Rolls-Royce's chief executive.
"My review has underpinned my confidence about the opportunities before us and I am convinced that our long-term outlook is positive. It has also 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 effectivenes," East added.
By Sam Unsted; [email protected]; @SamUAtAlliance
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