Rolls-Royce Holdings Plc said it’s working on plans to eliminate as many as 300 more management posts as the maker of engines for Airbus Group SE and Boeing Co.’s biggest jets steps up a cost-cutting drive amid sputtering first-half earnings.
The UK company, which has already announced the elimination of 200 senior positions in two tranches, is in the process of informing employees of the next steps in its savings programme, and will reach a decision on the number of jobs to go by the end of the first half.
All-told, London-based Rolls-Royce plans to cut between 20 and 25 percent of its 2,000 management positions, Chief Executive Officer Warren East said in a briefing following the company’s annual shareholder meeting this week.
The CEO said 2016 earnings will be “a little more skewed” toward the second half than the company had anticipated, after Rolls said in a statement that the first-half figure will be “close to break even.” Any profit the company does report for the current six months will be “very, very small,” he said.
While Rolls-Royce shares fell as much as 6.7 percent on the earnings update, East said he’s “totally confident” that an end-of-year surge in aero-engine deliveries will enable the company to “significantly” lift profit before interest and tax in order to meet its full-year earnings guidance.
Airbus’s handover rate for the A350 wide-body jet — which accounts for 50 percent of Rolls-Royce’s engine backlog — has been lower than planned this year as the European planemaker grapples with issues affecting the supply of cabins. Rolls said transitioning between the Trent 700 and 7000 engines for the current and future A330 models has also taken a toll.
East said Rolls-Royce faces “quite a lot of activity” next year in order to deliver the balance of its savings goal of 150 million to 200 million pounds ($217 million to $290 million), after targeting 30 million to 50 million pounds this year. Wider savings potential of as much as 1 billion pounds probably won’t be addressed, he said.
Rolls-Royce shares fell the most since November 12 before trading 4.6 percent lower at 615.5 pence in London, paring gains this year to 8 percent and valuing the company at 11.3 billion pounds. The stock had its biggest gain in 12 years on February 12 as East ended a run of six profit warnings and said restructuring efforts were bearing fruit.
The CEO reiterated full-year guidance that envisages a 650 million-pound hit against earnings from slowing business-jet sales, slumping revenue from maintaining regional aircraft and a collapse in demand at a marine unit that mainly serves the oil industry.
East, who previously ordered a strategy review to accompany his operational overhaul, said he’s planning no major announcements on changes to Rolls’s business portfolio this year. The CEO said the marine arm may be trimmed to broaden its focus away from oil, while ruling out significant disposals. He said that Rolls also has no reason to be “angsty” about its absence from the short-haul engine market. ValueAct, which had been touted as likely to seek disposals before it built up its stake, will work with the board in Rolls’s best interests.