LONDON (Reuters) –Rolls-Royce is to cut 4,600 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.
Mr East, a softly-spoken former tech boss, has overhauled the 134-year-old Rolls 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 Mr East said is 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 United States in 2001.
The plan will remove 10 percent of the workforce, targeting duplication in corporate, administration and management roles to try to save 400 million pounds ($536 million) a year by 2020.
Two thirds of the job cuts will fall in Britain. Rolls is the biggest employer in the city of Derby, central England, with 15,700 at its headquarters.
“Rolls-Royce is at a pivotal moment in its history,” East told reporters. “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.
“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 will not affect its engineers, Rolls said.
The news has echoes of an announcement from BT last month, another venerable company that is cutting 13,000 managerial and back-office jobs to reduce bureaucracy and respond faster to its customers’ needs.
Mr East, who built the chip designer ARM Holdings from a start-up into Britain’s biggest tech company, has complained that Rolls, a rival to General Electric, is too complex and cumbersome due to layers of bureaucracy above the shopfloor.
Driving home his new focus, he has set a 2020 free cash flow target of 1 billion pounds, a sizeable jump from the 273 million pounds recorded in 2017, off revenue of 15 billion pounds.
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 ever increase 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 500 million pounds 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,” Mr East said.
The company holds an investor day on Friday 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, Mr East said he would provide shareholders with a “short update” on Friday.
Investors will also be looking for hints that the dividend could start to grow. It was halved in 2016 to enable the company to shore up its finances and cope with the declines in its aero engine and oil and gas businesses over the previous two years.
Rolls shares traded 3 percent higher to 854 pence by 1055 GMT after it published details of the restructuring plan.
The rise came despite analyst concerns about Rolls excluding the costs of restructuring from its the free cash flow targets.
