ENGINEERING group Rolls-Royce has replaced chief financial officer and company veteran Mark Morris and said it plans to cut 2,600 jobs over the next 18 months as it aims to restore confidence in its finances.
The job losses, which the world’s second-largest maker of jet engines said will mostly come in its civil aerospace division, come three weeks after it issued a profit warning – the second in eight months – that wiped £2bn of its market value.
Morris, who served as chief financial officer since January 2012 and spent 27 years with the company, has stepped down with immediate effect, Rolls-Royce said. He has been replaced by David Smith, a former Ford and Jaguar executive, who joined the company this year. Smith spent 25 years at Ford, where he served as CFO before becoming CEO of Jaguar Land Rover and latterly as chief financial officer at technology company Edwards Group.
“David has an exceptional track record as a finance leader,” said John Rishton, chief executive of Rolls-Royce. “These are qualities that will be essential in returning Rolls-Royce to its long-term path of profitable growth.”
The FTSE 100 engineer is aiming to make annual savings of £80m once the restructuring programme is complete. It said it expects to incur restructuring costs of around £120m over the next two years as it continues to pursue cost improvements in all areas.
“The company is well-positioned in long-term growth markets, but we need to accelerate progress on our priorities: customer, concentration, cost and cash – most especially cost,” said Smith.
Markers responded positively to the announcement as shares in Rolls-Royce ended the day up 1.5% at 848p, having lost a third of their value this year.
Espirito Santo analyst Ed Stacey said investors would be looking for a clear message from the new finance director and tight control on all the financial metrics, Reuters reported.
“The share price reaction shows that there’s some optimism that he can deliver that,” Stacey said. “Some restructuring had already been indicated… two weeks ago, the plan is probably not any better or worse than people had expected but what we have now is some concrete numbers, so it’s eliminating uncertainty.”
The majority of the cuts in its aerospace division will come in US and UK, where the Unite union told the BBC there would be 800 to 1,200 jobs cut in Derby and Bristol. Rolls said it hoped that all the job losses will be voluntary.
Unite’s national officer Ian Waddell said: “Rolls-Royce is in danger of making decisions in the short term that it will later regret. This is a bitter blow to a proud workforce and we will be doing everything we can to fight for jobs and skills.”
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In The Times, Stacey expressed surprise that the measures had come in the aerospace division. “Since we know revenue expectations are down for power systems, which is mainly diesel engines wouldn’t you look for where you can get cost savings from within that business,” he said.
Rishton said the most recent cost cutting measures “will not be the last” but would “contribute towards Rolls-Royce becoming a stronger and more profitable company”. The company requires less staff after the development of new facilities had made the group more efficient, and the development of its Trent engines has moved to production. At the same time, reorganising the group into two divisions has reduced the number of management jobs.
The company did not give a reason for why Morris was leaving the business after nearly three decades. It is not thought to relate to a Serious Fraud Office investigation over allegations of bribery.
In February, the company was forced to restate its 2012 figures following advice from the Financial Reporting Council.