New Rolls-Royce CEO Picks Top Management Amid Profit Warnings

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December 16, 2015

The LNG-powered Kvitbjørn, a short sea cargo vessel built to Rolls-Royce’s award-winning Environship concept. Photo: Rolls-Royce Plc.

By Andrea Rothman and Benjamin Katz

(Bloomberg) — Rolls-Royce Holdings Plc Chief Executive Officer Warren East culled senior managers including the heads of the engine maker’s top two divisions, which will disappear in a shakeup intended to streamline decision-making following two profit warnings since he took over in July.

East will split London-based Rolls into five units, each reporting directly to him, in the first moves of a wholesale reorganization and cost-cutting program that will be extended in February, the supplier of turbines for Boeing Co. and Airbus Group SE jets said in a statement Wednesday.

Tony Wood, 49, who has led the aerospace division for 2 1/2 years and had been tipped as a future chief, is the highest profile victim of the clear-out, and will leave in the new year. Lawrie Haynes, president of the troubled land and sea unit and aged 62, will retire.

East is betting that the shakeup will help him gain control of an engineering behemoth whose market value fell by 2.5 billion pounds ($3.8 billion) on Nov. 12 as the stock tumbled 20 percent following the latest in a succession of profit revisions that have dogged the U.K. company in recent years.

‘Add Pace’

Analyst Harry Breach at Raymond James in London said that while Wood’s departure was a surprise, Rolls hadn’t been able to justify a model with a high-level structure between its main units and CEO. Wood said in a statement that he’d worked with East on shaping the new organization and would help manage the transition over the next few months before leaving.

Shares of Rolls-Royce gained as much as 3.2 percent and were trading 3 percent higher at 556 pence as of 10:53 a.m. in London, paring their decline this year to 34 percent and valuing the company at 10.2 billion pounds.

East, the former head of semiconductor developer ARM Holdings Plc, said the management changes will “simplify organization, add pace and drive operational excellence.” The top-level restructuring will affect approaching a dozen positions, including some managers who won’t be leaving, Rolls said.

COO Search

The company will create a post of group president, to be filled by engineering director Colin Smith, who will head government and regulatory affairs, and is seeking to add both a chief operating officer — via an outside appointment — and a head of strategic marketing to help determine which sectors to focus on.

East is seeking to shave at least 150 million pounds from costs after saying last month that Rolls had been too slow to cut its cloth to changing market conditions, including a collapse in sales of engines for vessels used by the offshore oil industry, slumping demand from business and regional jets, and the retirement of some bigger planes as new models enter services.

Wood, who has worked at the company for 15 years, had been focused on a ramp up in production of the Trent XWB engine that powers the latest Airbus A350 wide-body, and the introduction of a revamped powerplant for the A330.

East last month ruled out an early return to the market for engines powering single-aisle jets while resisting investor calls for the disposal of assets from Rolls’s marine and power divisions, saying the company is better off retaining its current portfolio.

He said then that the focus would instead be on improving the response to volatile markets and bad news, as well as on slimming down a bloated management.

Under the five-unit structure, Eric Schulz, who ran the commercial large-engine business, becomes president for civil aerospace, also taking in regional and business engines, and Chris Cholerton remains in charge of defense aerospace.

Strategy director Harry Holt will run the nuclear arm, which has been overseen by Chief Financial Officer David Smith since its last head left, while Mikael Makinen and Ulrich Dohle will remain in the charge of the marine and power-systems units respectively.

©2015 Bloomberg News


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