Rolls-Royce unveils details of wide-ranging reviewNews // November 25, 2015
Rolls-Royce has presented the initial findings of Chief Executive Warren East’s review of operations including further details on the actions being taken to improve disclosure and transparency. There was no news about any potential disposals.
The initial findings of the review of operations are that the company has a strong portfolio of products and services providing highly differentiated, mission critical, power systems; sustainable barriers to entry; engineering excellence in long-life world-class products; good investment opportunities to strengthen competitive advantage in key markets; and clear areas for business improvement. However, the review also found that Rolls-Royce also has a complex business model with high embedded costs, and that previous disclosure has undermined confidence in the business model in the face of changing markets conditions in several businesses.
The company is proposing enhanced disclosure and simplification, which will help improve transparency while reducing costs and inefficiencies. Proposals have been made to increase revenue segmentation, business by business gross margin and trading cash flow analysis. A major restructuring will simplify the organisation, streamline senior management, reduce fixed costs and add greater pace and accountability to decisionmaking.
The aim is to achieve incremental gross cost savings of £150-200 million per annum, with benefits accruing from 2017 onwards, targeting a 1-2 year payback.
The company said the medium to long-term outlook remains strong with strong long-term cashflows will be driven by significant growth in widebody aircraft aftermarket, industrial transformation and cost reduction programmes.
The company said its "focused power systems portfolio will provide a strong balance of growth and cash generative businesses, protected by strong engineering-led barriers to entry."
Mr East said: “As a group we are undergoing an unprecedented period of change. Change in our mix of business and how we account for it. Change in our industrial footprint as we invest in a wide-ranging transformation. And change in demand for our products as we double our large engine output and manage reductions in demand in other markets. These changes, while more painful than we expected in the near-term, are vital to our long-term success.
“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.”
Ian Davis, Chairman of Rolls-Royce, added: “As a Board we are committed to providing Warren with the support he needs to implement the findings of his review. He is recommending clear and decisive actions which we fully support and we are committed to ensuring he has the right resources at the highest level to deliver these changes.”