Rolls-Royce (RR.) has said its move to axe a further 400 marine jobs will "streamline" the division as it seeks to reignite confidence in its under-fire diversification strategy. This latest batch of cuts, made in response to stagnant exploration activity triggered by the tumbling price of brent crude, means the flagging division's workforce has been cut by nearly 17 per cent since May. The upshot will be £40m of savings, most of which will be reinvested in new technology capable of driving "future growth".
"This operating review is about what do we need to do and how do we do it," Rolls-Royce spokesman Richard Wray told Investors Chronicle. "In May we got rid of 600 factory staff because people weren't buying. This time we have stripped out the layer of middle management. We need to streamline what we do in marine. We think oil and gas will bounce back and need new technology to compete."
That message, coupled with marine unit president Mikael Makinen's declaration that the cuts were implemented to position the "strong" segment for future growth, will come as a slap in the face to disgruntled shareholders eager to see the engineer refocus its energies on the core aerospace business. If anything, US activist ValueAct buying a 5.4 per cent stake in the company over the summer further fuelled speculation of a potential break-up in recent months.
But Mr Wray disputed rumours that the engineer's diversification into land and sea propulsion had been aggressively challenged by the influential hedge fund, claiming early talks with ValueAct had been "constructive". Rather than being linked to shareholder disgruntlement, he said the latest headcount reduction was purely a reaction to the current economic environment. He also ruled out "drastic" changes, at least in the short to medium term.
City analysts were largely unmoved by this latest update. Although the shares rose 3 per cent on the news, Haitong analyst Ed Stacey pointed out that peers such as Airbus (Fr:AIR) and Safran (Fr:SAF) also rallied on the day of the announcement. Meanwhile, most agreed that ValueAct probably played a limited role in enforcing further cutbacks, including Raymond James analyst Harry Breach, who argued that a sustained low oil price presented Rolls with plenty of incentives to take action before the US activist investor arrived on the scene.
