Rolls-Royce to Exit Commercial Marine Business in Restructuring -- Update
(Adds detail and comments from chief executive)
LONDON--British aircraft-engine maker Rolls-Royce Holdings PLC on Wednesday said that it was ready to exit its commercial marine business as part of its biggest shakeup in years.
The British blue-chip company--best known for supplying engines to Boeing Co. (BA) and Airbus SE (AIR.FR) jetliners--said it would focus on its commercial-aerospace activities, which generate most sales and profit, as well as its defense and power-systems businesses.
The company has launched a strategic review over the future of its commercial marine business, which has experienced a 30% cut in staff in recent years amid slack demand, Rolls-Royce said.
Its marine business, which sells engines for ships--including warships--and designs vessels, had GBP1.1 billion ($1.5 billion) in sales in 2016 but posted a GBP27 million loss.
The business to power warships, including Britain's new aircraft carriers, would remain in company hands, Chief Executive Warren East said. The naval business, which accounted for about 25% of marine sales, was profitable, the company said.
The potential disposal of its marine operations mark the highest-profile step yet that Mr. East has taken to boost Rolls-Royce's profitability after he took over the company in 2015 following several profit warnings. Since then, the company that competes for business with General Electric Co. (GE) has made large layoffs, overhauled management, and closed some sites.
"Taking this action now will help secure the long-term benefit for our business and stakeholders of the growing cash flows that will be generated over the coming years," Mr. East said.
Rolls-Royce, which is no longer affiliated with the luxury car maker, is under pressure to improve its financial performance. Activist investor ValueAct Capital Management LP in 2016 won a seat on the company's board after becoming its largest shareholder. As part of the deal to gain board representation, ValueAct agreed not to push for changes in Rolls-Royce's strategy or publicly challenge management for about two years. That agreement runs until the next shareholder meeting expected in May.
Shares in Rolls-Royce surged 7.8% after the announcement.
Mr. East has previously promised investors that the company will generate at least GBP1 billion in cash by 2020.
Rolls-Royce said it was taking measures to further simplify and restructure the business. It didn't say how many jobs may be shed as part of the streamlining. More detail on the restructuring, along with full-year results, will be released next month, the London-based company said.
"We must address the imbalance and duplication between our corporate functions and our three business units, as well as the cost of our corporate head office," Chief Financial Officer Stephen Daintith said. "Costs and complexity within our business remain too high," he added.
Rolls-Royce last week said it was considering strategic options for L'Orange, a part of its power-systems operations. Other parts of the company's power-systems operations are unaffected, it said.
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(END) Dow Jones Newswires
January 17, 2018 09:38 ET (14:38 GMT)