Not only has the company’s share price fallen by almost 40 per cent in 2015, it now faces two investigations in Brazil over ties with oil company Petrobas. Pressure on the company has further increased due to activist investor ValueAct doubling its stake in Rolls-Royce to ten per cent in a bid to force the firm to sell its marine business and better focus on aircraft engines.
Howard Wheeldon, an aerospace analyst, said: “The main problem is that while Rolls-Royce has invested huge amounts of money to improve efficiency and make itself more competitive, it failed to make a significant enough dent in fixed costs.
“That sadly means that when revenue slips a touch, profits take a dive. Added to this is the serious oil price-related impact on marine and that while new plants are brought on stream, there is some duplication until older, less-efficient plants can be closed.
“CEO Warren East recognises the problems and also what needs to be done – significantly reducing the fixed cost base. He also recognises that you can’t do all that is needed in one year. I am very confident that not only have they now got the right man for the job, but that given the space, he will succeed.”
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Taking industry and shareholder criticism in stride, East is to announce his plans for a “major restructure”, which would “simplify the organisation, streamline senior management, reduce fixed costs” and speed up decisions.
East said he was targeting annual cost savings of between £150m-£200m.
“As a group we are undergoing an unprecedented period of change,” he said. “My review has underpinned my confidence about the opportunities before us and I am convinced that our long-term outlook is positive.
“It has also highlighted a number of areas where we can simplify the way we work, inject pace into our decision-making and responsiveness, and improve our operational gearing and operational effectiveness.
“This is fundamental to ensuring Rolls-Royce best positions itself to compete for the long-term opportunities before us.”
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