Jason Butler of NW Brown: Will fresh cuts at Rolls Royce get the engine running again?
PUBLISHED: 14:46 19 June 2018 | UPDATED: 15:12 19 June 2018
Will Rolls Royce's biggest transformation plan in nearly 20 years pay off, asks Jason Butler of NW Brown.
Chief executive Warren East said an overcomplicated way of working was holding the 112-year-old engineering giant back, and a
A six-month review revealed unnecessary complexities in processes and a lack of accountability and cost-awareness throughout the business.
As a result, Mr East has announced that he will be implementing further restructuring in the business.
He had already announced plans to consolidate the company into three focused business units - civil aerospace, defence and power systems, as opposed to the current five-unit structure.
This is designed to remove management duplication, with each unit having more autonomy. Some 4,600 back office and middle-management jobs will be cut over the next two years, about two-thirds in the UK headquarters in Derby.
The company needs production staff to help it deliver a sizeable order book of new aero engines. This shake-up is aimed at saving £400m a year by 2020 and generating about £1.9bn in free cash flow over the next five years.
It has been a tough couple of years for Rolls-Royce after five profit warnings, dividend cuts and a dividend freeze.
The new plan sounds promising and brings a breath of fresh air. Investors welcomed the transformation plan and sent the shares soaring to a six-month high. But the business must start delivering against its targets on operational improvements, cost reductions and cash generation before it can convince the market it is on the path to recovery.
• Jason Butler of NW Brown is an EDP columnist.