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Rolls-Royce Cuts 200 Managers to Extend Savings Push

Sept. 19, 2016
CEO Warren East said the engine maker has suffered from a bloated management team and overly complex decision-making procedures.

Rolls-Royce Holdings Plc (IW1000/192) is eliminating more than 200 positions from its management team as Chief Executive Officer Warren East extends a wide-reaching restructuring of the embattled engine maker.

The additional cuts brings the total trimming of management positions under East’s reign to more than 600, a Rolls-Royce spokesman said in a statement Sunday in response to a Financial Times report outlining the plans. About 270 of those positions had been phased out as of July 28, the CEO said at the company’s half-year earnings report.

Rolls-Royce has been struggling amid a downturn in demand for marine engines and servicing revenues from its business jet turbines. The company targets savings of 30 million to 50 million pounds (US$65 million) this year as part of a broader restructuring effort aimed at cutting spending by 200 million pounds by the end of 2017. The goal is to match margins achieved by competitors Pratt & Whitney and General Electric Co., implying savings of as much as 1 billion pounds.

The latest push “involves restructuring our management population and will result in a number of people leaving the business,” Rolls-Royce said in the statement. “This is part of our ongoing transformation program, designed to remove complexity and cost by simplifying our processes and our structure.”

Rolls-Royce shares rose 1.9% to 741.5 pence at 9:56 a.m. in London. The stock has climbed 30% this year, valuing the company at 13.6 billion pounds.

East, who took over the leadership role from predecessor John Rishton in July last year, has said the engine maker has suffered from a bloated management team and overly complex decision-making procedures. The leadership change came as Rolls-Royce entered a demanding ramp up of engine deliveries for Airbus Group SE’s A350 XWB and A330neo aircraft that will see the manufacturer double its output of engines to meet demand.

Last year the company said its average annual employee numbers had dropped by 3,600 to 50,500 in 2015. The company has separately announced 2,600 staff cuts in its aerospace business and 1,000 in its marine business, which supplies engines mainly to the oil and gas industry. At the same time the company, which on Friday was awarded a contract to develop Britain’s first nuclear plant in three decades, has doubled its employees in its nuclear business since 2011.

Rolls-Royce took 53 million pounds in restructuring charges in the first half, the company said in July, with its expectations for a full-year hit on profits of between 75 million pounds and 100 million pounds unchanged, the company said Sunday.

By Benjamin Katz

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