Written by: Keith Tully
Reviewed: Tuesday 6th October, 2015
Rolls-Royce has announced its intention to cut a further 400 jobs in the Marine Division of the company and this comes after 600 job cuts were announced in May. Rolls-Royce Marine is one of its oldest divisions but there have been considerable changes in the market which has affected revenue and profits at the company.
As a leading aero-engine maker, Rolls-Royce depends on customers in the gas and oil sector for around 60% of its business and, with this in mind, it is the sharp and sudden drop in crude oil prices that are at the root of these cuts in their Marine Division.
There has been huge pressure at the Marine unit of the company for around 18 months as the price of crude oil collapsed, with six-year low figures recorded and resulting in ship orders having to be cancelled. This sector of their business currently employs around 5,800 people. Despite the initial blow to the company and its staff, the news has been received well by the market in general, with shares in the company jumping over 3% after the announcement.
The President of the Marine department of Rolls-Royce, Mikael Makinen, commented that despite a strong position in the market to 2013 their ‘order book and profitability has been adversely impacted by the sharp and subsequently prolonged drop in the price of oil.’ This has led to necessary cuts of which the majority will be in management and administration roles.
All job cuts are expected to be complete by the end of next year according to Makinen and the company has predicted that the redundancies will result in full year savings of £40m, which gives them scope to further their investment in research and development and look for ways to move forward despite the oil price drop.
The Marine Division of Rolls-Royce has a rich history which they trace back to as early as 1831 where they were involved in the creation of many early marine technologies including pitch propellers and nuclear propulsion for Royal Navy submarines. Fortunes have changed of late but it is more due to issues beyond the control of the company than in-house problems or management.
The Marine Division isn’t the only sector where Rolls-Royce has seen cuts. In November 2014 they announced their whole company headcount would be reduced by 2,600, with most cuts in the aerospace sector and, by July this year, they had issued a profit warning; the fourth in the last 18 months, due to this sharp drop in crude oil pricing.
In 2015, Rolls-Royce plan to see underlying profits in their marine sector between break-even and £40m, not between £90m and £120m as hoped. Warren East, the newly appointed chief executive of the company, is currently carrying out a full operational review.