Rolls-Royce Marine Faces Further Cuts

Rolls-Royce CEO Warren East gave an investor presentation Wednesday on the firm’s outlook, and he suggested that its Marine division faces further cutbacks. 

The firm expects "transformation benefits" from a restructuring of Rolls-Royce Marine totaling $45 million this year and $50 million in 2017. It has already closed 12 of its 27 business locations.

Michael Makinen, the president of Rolls-Royce Marine, said that the division would be shifting much of its engineering operations to locations in Eastern Europe and Asia. It will be trimming its business sites down to a "very, very few” locations.

Rolls-Royce Marine currently employs about 4,500 worldwide; it made about 1,000 positions redundant last year.

East's presentation noted that there was no sign yet of recovery in the key offshore E&P market, which has historically provided over half of the Marine division's revenue. In addition, the division's financial performance is weakening as its existing order book runs down, with further weakness expected next year.

East has worked hard to cut overhead at Rolls Royce, trimming management by 25 percent and reducing overall head count by thousands of positions. However, he told investors that he was still "restless" and not yet satisfied with the pace of change. 

Underlying revenue for the group was down by five percent in the first half, due in part to a change in accounting rules affecting the profitability of Rolls-Royce's core civil aviation business. Underlying revenue at the Marine division was down by 25 percent, pulled down by weak sales and service numbers for offshore vessels, and it posted a loss for the period. Still, Rolls-Royce said that the division's restructuring was already starting to show benefits.

East has resisted activist investors' calls for spinning off Rolls-Royce Marine and other non-core assets in favor of a focus on aviation, and has pointed to the benefits of a broader, diversified strategy.