Rolls-Royce looks to cut costs as it announces up to 2,500 job losses

One of the best performers this year has been Rolls-Royce, the share price has more than doubled as the turnaround plan set in motion by previous CEO Warren East and carried on by new CEO Tufan Erginbilgic has continued apace.

In August, the company upgraded its estimates for full year underlying profits from between £800m and £1bn, to between £1.2bn and £1.4bn. Underlying H1 revenues soared to £6.95bn, an increase of over 30% and comfortably ahead of forecasts, while operating profits rose to £673m.

Underlying operating margins also more than tripled to 9.7% while pre-tax profits rose to £524m, most of which was driven by the civil aerospace business which saw H1 revenues rise to £3.26bn, while defence also saw a strong first half with revenues of £1.9bn.

It’s certainly a long way from this time last year when the incoming CEO described the company as a “burning platform” and it would appear that Erginbilgic doesn’t want to sit on his laurels when it comes to making the company more efficient.

Having announced a strategic review of the business back in February, Rolls-Royce has announced that it is looking to reduce the global headcount from 42,000 by between 2,000 and 2,500, with the focus on the core business, with engineering technology and safety being rolled up into one division. One notable casualty will be Chief Technology Officer Grazia Vittadini who will be leaving the business in April 2024.

Procurement as well as supplier management will be streamlined into an enterprise-wide process, removing duplication, and ensuring better oversight of costs across the entire business.

These changes would appear to be an attempt to not only increase business efficiencies, as well as improve cashflow as the company looks to reduce net debt levels further which still remain high at £2.85bn but are down from £3.25bn a year ago.

When the company reported in August, management insisted they remained committed to restoring Rolls-Royce investment grade status, and today’s measures could well be part of that process.

Progress is being made on that front with various ratings upgrades from the likes of S&P, Moody’s and latterly Fitch which upgraded Rolls-Royce long-term issuer default rating, and senior unsecured rating to BB, with a positive outlook.

We should find out more about the company’s longer-term goals at the Capital Markets Day on November 28th when the findings of the ongoing strategic review will be published, along with new medium term financial targets.