New CEO cuts management layer at struggling Rolls-Royce

'First important steps in driving operational excellence'
By Sarah Young
|hrreporter.com|Last Updated: 12/16/2015

LONDON (Reuters) — Rolls-Royce, the British engineering company which has issued four profit warnings in little over a year, is scrapping a layer of senior management in the first major move by new boss Warren East to try to turn the business around.

East, who took charge of Rolls-Royce in July, wants to cut the company's cost base and simplify decision-making, with the aim of saving between 150 million pounds (C$310 million) and 200 million pounds (C$414 million) per year by 2017.

Under the changes the heads of five units — civil aero-engines, defence, nuclear, marine, and power systems — will report directly to East. The company has eliminated the aerospace, and land and sea divisions which had straddled the different businesses.

Tony Wood, head of aerospace, and Lawrie Haynes, head of the land and sea division, would leave the company next year, Rolls-Royce said on Wednesday.

"The changes we are announcing today are the first important steps in driving operational excellence and returning Rolls-Royce to its long-term trend of profitable growth," East said in a statement.

Without the extra layer of management, a week would be saved for every month it took to make a decision, East told the Financial Times in an interview.

Shares in Rolls-Royce, which employs 54,000 people across the world almost a third of whom are engineers, traded up 2.2 per cent to 552 pence at 1015 GMT.

FALL FROM GRACE

Founded in 1884, Rolls-Royce the aero-engine maker was separated from the luxury car brand of the same name in the 1970s when it was under state ownership before establishing itself as one of Britain's most prominent engineering companies.

The company increased profit every year in the decade to 2013 but has since repeatedly unnerved investors by slashing forecasts, culminating in a warning in November that could cut its dividend.

The stock has lost half its value since February 2014 when it warned that profit would not grow that year.

In 2015, annual pretax profit is expected to shrink 21 per cent to about 1.28 billion pounds and the company has already said it faces further headwinds of 650 million pounds next year, blaming a slowdown in servicing older aircraft engines and weakness in its marine engine business due to a low oil price.

East has said that Rolls-Royce's engineering capability is world-class. With future orders of 76.5 billion pounds, he maintains its long-term future is positive but he wants the company to be run more efficiently and at lower cost.

A chief operating officer will be hired next year, Rolls-Royce said on Wednesday, adding that it will provide a further update on its savings programme in February.

The new structure will come into force from Jan.1. As part of it, Colin Smith, director of engineering, will become group president of the company, and report directly to East.

The number of people affected by the shake-up announced on Wednesday was fewer than 12, a spokesman for the company said.

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