Embattled engineer Rolls-Royce (RR.) has unveiled plans to cut costs by up to £200m a year as part of a "major restructuring" programme designed to reignite confidence and revive its fortunes. In a brief statement, chief executive Warren East said "painful" changes, which include simplifying the organisation, streamlining senior management, reducing fixed costs and speeding up decisions, are "vital" to the engine-maker's long-term success.
Shareholders had been eagerly awaiting Mr East's plan on how to fortify the group's prospects after what has been a difficult first six months in the role. While a low oil price continues to erode the spending power of customers in the submarine engineering arm, weak appetite for aircraft parts and engines has added to the blow. These difficult trading conditions prompted Rolls to issue its fifth profit warning in under two years recently, with such uncertainty weighing on the engineer's reputation and under-fire share price.
To add to these pressures, US activist fund ValueAct recently doubled its stake to 10 per cent. The San Francisco-based hedge fund, which has been sniffing around ever since Mr East took on the role back in July, made the move after selling its stake in fellow struggler Smiths (SMIN). News that the influential fund has become the engineer's biggest investor has refuelled speculation that it plans to force its way on to the board in order to better challenge Rolls' diversification into land and sea propulsion.
But what represents a headache for bosses was met with a positive reaction by investors. That development, coupled with reports that the UK government will increase the nation's 10-year defence equipment budget by £12bn to £178bn, triggered a 5 per cent surge in Rolls' share price. One of David Cameron's key priorities is to speed up purchases of the F-35 Joint Strike Fighter, for which Rolls makes the lift fans.
