Rolls-Royce has announced plans to transform its marine business as a result of continuing weakness in the maritime market. Rolls-Royce's marine business supplies a range of technology and services to customers operating merchant, offshore and naval vessels.
Planned measures include a further simplification of the structure of the business, with a streamlining of the senior management team, and a series of cost reduction initiatives which will result in the loss of around 800 roles worldwide and an estimated £45-50 million of annualised savings from mid-2017. Costs of this restructuring are expected to be around £20 million, split between 2016 and 2017.
As part of the program, investments are also being proposed to establish an R&D center for the development of new propulsion products, and an expanded Services hub for Northern Europe, both in Ulsteinvik, Norway. The organizational changes will also increase the company's focus on developing further electrical and digital technologies as the maritime industry shifts towards a more digital future where Ship Intelligence plays a greater role.
The proposals follow a series of cost reduction initiatives carried out over the past three years to improve the affordability and competitiveness of the marine business. The proposed job reductions are in addition to the reduction of 1,000 employees announced in May and October last year. Rolls-Royce's marine business currently employs around 4,800 people in 34 countries.
In its trading update on November 16, Rolls-Royce said it saw no signs of a recovery in offshore oil and gas markets and orders for new equipment remain very weak, resulting in expectations of further revenue weakness for the business in 2017. Service revenues have also been impacted by lower utilization of vessels.
Mikael Makinen, Rolls-Royce, President - Marine, said, "The ongoing market weakness that has followed the dramatic fall in the price of oil continues to have an adverse impact upon our order book and profitability. We have made significant progress in transforming Marine into a far more agile and simplified business than we were and we have to take further steps to address our cost base.
"Reducing our workforce is never an easy decision, but we have no option but to take further action beyond the changes we have made to date. This remains a fundamentally strong business, but we need to overcome the immediate challenges and focus our investments on the technologies that will shape our future growth."
Warren East, CEO of Rolls-Royce added, "I am very supportive of Mikael and his team's proactive efforts to optimize our marine business in extremely challenging market conditions and at the same time to target investment on future opportunities. The actions being taken will enhance the competitive strength and resilience of the business in what remains an attractive market for Rolls-Royce."
