CEO: Rolls Restructuring Shows Results

Rolls-Royce said its restructuring efforts begun in February are starting to show results.

The company’s Power Systems division saw a “stand out” performance during the first half of the year, according to CEO Warren East, who made the comment during a conference call about the company’s earnings.

“We continued to make good progress in the first half,” East said. “Financial results were ahead of our expectations with strong growth from Civil Aerospace and Power Systems and we achieved a number of operational and technological milestones.

The company’s underlying revenue was up 14% to £7,040 million.

In January, the company announced plans to simplify into three customer-focused business units. Along with its Civil Aerospace division, a new Defense business was formed by combining both the naval and submarine businesses with defense aerospace. The Civil Nuclear division was moved into Power Systems.

In the first half of the year, the Power Systems saw growth of 13%, which was spread across most markets, said CFO Stephen Daintith. He noted power generation was down slightly due in part because of earlier sales for data center market in China.

Rolls-Royce also noted that the recovery in commodity markets was helping drive strong volume growth.

The company’s restructuring efforts are now focused on removing duplication and fixing the inefficient processes and interfaces, East said. All parts of the business will be managed under a radically simplified structure, alongside an operating framework that clearly outlines roles and responsibilities, the company said.

As part of the restructuring, the Power Systems division reduced the number of product variants by about 30%.

As part of its restructuring, the company announced in June that it would cut 4600 jobs across the company by the end of 2019. East said that the Executive Leadership Team has held many face-to-face discussions with thousands of employees across the Group, collecting feedback, helping us to set priorities and identifying challenges ahead.

The company’s sale of L’Orange to Woodward Inc. for €673m was completed in June and the company announced the sale of its Commercial Marine business to Kongsberg in July for £500 million, with expected net proceeds of around £350m to £400 million. Both moves were part of the ongoing restructuring process.

The Commercial Marine sale includes propulsion equipment, deck machinery and automation and control systems, as well as a ship-design arm that’s previously engineered more than 1000 vessels for off-shore, cargo, passenger and fishing-vessel customers.

Rolls-Royce Power Systems will continue to supply MTU engines to a range of customers in the marine market including operators of commercial vessels and yachts. The Naval gas turbine propulsion activities will continue to be a core part of Rolls-Royce Defense, the company said.

The company noted the recent launch of pioneering Series 4000 marine gas engine, and said it demonstrates the company’s capability to meet stringent emissions regulations. The company also said “meaningful progress” was made on the MTU Yuchai Power joint venture as part of wider growth strategy in China.

By Jack Burke