Rolls-Royce Details Restructuring Plans; Workforce to be Reduced by 4,600 in the Next Two Years
Over the next 24 months, Rolls-Royce expects that the proposed restructuring will lead to the reduction of around 4,600 roles, predominantly in the UK where the majority of its corporate and support functions are based.
Rolls-Royce has announced a proposed restructuring that it expects will deliver improved returns, higher margins and increased cash flow. Following an announcement in January that it will simplify the group into three customer-focused business units, this proposed restructuring will create smaller and more-cost effective corporate and support functions and reduce management layers and complexity, including within engineering. The restructuring follows a comprehensive review of the company’s structure, culture, processes and people, with a view to creating a simpler, healthier and dynamic organization with clearer accountabilities, greater productivity, and quicker decision making.
Over the next 24 months, Rolls-Royce expects that the proposed restructuring will lead to the reduction of around 4,600 roles, predominantly in the UK where the majority of its corporate and support functions are based. Around one-third of these roles are expected to leave by the end of 2018. Full implementation of headcount reductions and structural changes is expected by mid-2020.
“Our world-leading technology gives Rolls-Royce the potential to generate significant profitable growth,” said Warren East, CEO. “The creation of a more streamlined organization with pace and simplicity at its heart will enable us to deliver on that promise, generating higher returns while being able to invest for the future.
“We have made progress in improving our day-to-day operations and strengthening our leadership, and are now turning to reduce the complexity that often slows us down and leads to duplication of effort. It is never an easy decision to reduce our workforce, but we must create a commercial organization that is as world-leading as our technologies. To do this, we are fundamentally changing how we work.
“These changes will help us deliver over the mid- and longer-term a level of free cash flow well beyond our near-term ambition of around £1 billion (approximately $1.3 billion) by around 2020. After a decade of significant investment, we are committed to delivering improved returns while continuing to invest in the innovation needed to realize our long-term aspiration to be the world’s leading industrial technology company.”
Rolls-Royce has traditionally operated with overlapping activities between individual business units and a large corporate center. The restructuring will make the three customer-facing business units fully accountable for the delivery of their strategic and financial targets. In turn, the business units will be in control of the support they need. The company will be significantly reducing the size of its corporate center to remove the complexity and duplication. According to Rolls-Royce, its traditionally heavily centralized control culture will be replaced by empowered businesses in a simpler, leaner structure with much clearer accountabilities.
The total cash cost of the restructuring is expected to be £500 million (~ $658.7 million), which includes the cost of redundancies and required systems investments to facilitate the program. These cash costs will be incurred across 2018, 2019 and 2020. Full-year net cost savings from this restructuring are expected to reach a run rate of £400 million (~ $527 million) per year by the end of 2020.
Additional details are available at www.rolls-royce.com.