Rolls-Royce to Cut Marine Unit Jobs

The Marine business employs around 6,000 people in 34 countries, according to Rolls-Royce. MT (Marine Turbine) 30 engine test file photo: Rolls-Royce

By Kari Lundgren

(Bloomberg) — Rolls-Royce Group Plc, which is already eliminating about 2,600 positions globally, said it will cut an additional 600 jobs at its marine unit that’s suffering from a slump in oil prices.

The cuts, equivalent to about 10 percent of the workforce at the subsidiary, will be global in scope, though about 300 positions will go in Norway, where the majority of workers and manufacturing are located, the London-based company said in a statement on Monday.

Rolls-Royce acknowledged earlier this month that 2015 had started slowly and today added that falling oil prices would necessitate further efficiency measures. The company is in the process of completing a senior management shift as outgoing Chief Executive Officer John Rishton, who departs in July after four years in the job, hands over to Warren East, the former head of U.K. semiconductor manufacturer ARM Holdings Plc.

“It is never an easy decision to propose reductions in our workforce, but it is a sign of the challenging market in which we operate,” Mikael Makinen, the president of Rolls-Royce Marine, said in the release.

Oil Slump

The marine subsidiary includes ship design, marine propulsion systems and other sub-systems for the ship industry. Rolls-Royce has expanded the business with acquisitions, most recently with the Tognum asset and an unsuccessful attempt to buy Finland’s Waertsilae Oyj. The moves have been criticized by some investors who have urged the company to narrow its focus on the aerospace business where it has a stronger position.

Last year, underlying revenue at the marine marine business stood at about 1.7 billion pounds ($2.66 billion), with 59 percent connected with the offshore oil and gas industry, according to the company.

The latest job cuts follow a muted outlook by shipbuilders including Norway’s Vard Holdings Ltd. and Ulstein Holding AS. Vard said on May 13 that it expected “reduced yard activity,” while Ulstein the same day described the market as “tough” and is prepared “for even harder times to come.”

Oil tumbled almost 50 percent in 2014 as expanding U.S. stockpiles and production exacerbated a global supply glut. While prices have rebounded from a six-year low in March, analysts from Goldman Sachs Group Inc. to Societe Generale SA are predicting the rally won’t last as the surplus persists.

’Pause, Stop’

“It looks like the offshore oil and gas sector has had one of those, ’pause, stop’ situations where no orders are coming in,” London-based Jefferies analyst Sandy Morris said in an interview. “If the shipbuilders have no orders, it will cascade down. You cannot wait, you have to take a view.”

The measures will have little effect on earnings this year, while making a positive contribution of about 25 million pounds ($39 million) from next year onwards, according to the London- based company.

A plan to cut positions at Rolls’s main aircraft-engine arm following the completion of development work on the Airbus Group NV A350 and Boeing Co. 787 powerplants is about half-way complete, Rolls-Royce said on May 8. Rolls-Royce is the second- largest maker of civil aircraft engines behind General Electric Co.

–With assistance from Benjamin Katz in London.

©2015 Bloomberg News