Ahead of its capital markets update tomorrow, Rolls-Royce has confirmed it is to shed 4,600 jobs as part of its broader restructuring programme.
The manufacturer announced in January that it would simply the business into three business units, which would create smaller and more cost effective corporate and support functions and reduce management layers and complexity, including within engineering.
Over the next 24 months, Rolls-Royce states that this proposed restructuring will lead to “the reduction of around 4,600 roles, predominantly in the UK where the majority of our corporate and support functions are based. Around a third of these roles are expected to leave by the end of 2018. The programme is expected to gain further momentum through 2019, with full implementation of headcount reductions and structural changes by mid-2020.”
The changes are predicted to result in net cost savings of £400 million per annum by the end of 2020.
“We have made progress in improving our day-to-day operations and strengthening our leadership, and are now turning to reduce the complexity that often slows us down and leads to duplication of effort,” says chief executive Warren East. “It is never an easy decision to reduce our workforce, but we must create a commercial organisation that is as world-leading as our technologies. To do this we are fundamentally changing how we work.”
He added that the changes will help the company a level of free cash flow well beyond its near-term ambition of around £1bn by around 2020.
The restricting of the company into three, distinct businesses, each fully accountable for their own strategic and financial targets, including their support needs, will lead the reduction of what Rolls-Royce calls its “corporate centre” by removing layers of complexity and duplication.
“A traditionally heavily centralised control culture will be replaced by empowered businesses, in a simpler, leaner structure with much clearer accountabilities. This will foster quicker decision-making throughout the organisation,” explains East.
In the announcement, East goes on to highlight the investments the company has invested significantly, more than £11bn over the past decade, in its core growth market of civil aerospace. As a result, East states, the company is “poised to become the world-leader in large aircraft engines, powering over half of the world’s passenger wide-body fleet within the next few years, compared to 22% just 10 years ago”.
With these changes and cost savings, East adds that the company will be able to seize current opportunities and also continue to also pursue disciplined investment in new technologies, including electrification and digitalisation.
Rolls-Royce does not expect the restructuring process to cause any reduction in its skills and capabilities and stresses that it will remain focused ramping up its civil aerospace engine production and managing the current in-service issues with the Trent 1000.
The programme honours the previous commitments for no compulsory redundancies of represented staff in Derby, Hucknall and Annesley, as promised last year.
The total cash cost of the restructuring is expected to be £500 million, which includes the cost of redundancies and required systems investments to facilitate the programme. Its full year expectations remain unchanged at this time at around £450m +/- £100m.
