Rolls-Royce to sell commercial marine business

January 17, 2018

Rolls-Royce will consider selling its commercial marine business as chief executive Warren East launches the strategic phase of the blue-chip engineer’s two-year restructuring.

Mr East said he was looking at the strategic options for the division as part of a wider shake-up that will reduce the number of divisions from five to three.

People with knowledge of the situation said Rolls-Royce was prepared to sell the business if suitable offers emerged.

Mr East said the actions were “designed to align our business more closely with our strategic vision to pioneer cutting-edge technologies that deliver vital power”.

He added the restructuring would deliver further cost reductions “and assist us in improving performance from our core businesses”. Details of the cost savings would be given when Rolls-Royce publishes annual results March 7.

While the commercial marine business will be shed, Rolls-Royce is keeping its naval marine business which, with the nuclear submarine propulsion operation, will form part of an enlarged defence unit.

The civil nuclear operation — currently a contender in the government competition to build small modular reactors — will be placed into the group’s power systems business.

Mr East last year promised shareholders that after years of cost-cutting and restructuring, he intended in 2017 to review the group’s strategic direction.

His decision to sell commercial marine, which serves the offshore oil and merchant ship market, will please many investors who have pushed for the group to shed a business that has suffered badly as a result of the downturn in oil and gas exploration. Last year the marine division, combining commercial and naval, generated losses of £27m on sales of £1.1bn.

The commercial marine element accounted for 75 per cent of revenues.

The Rolls-Royce chief executive has repeatedly voiced his support for the diversified portfolio built up by his predecessors, and has postponed a decision on a sell-off while the business — based in Norway and Finland — has been restructured. Close to 2,000 jobs have been cut in the marine business in the past three years, and the number of factories reduced from 27 to 15.

The group has also attempted to reduce its reliance on oil and gas by investing heavily in autonomous and remote systems, as well as real-time monitoring using big data to improve efficiency of fleets. Mr East told shareholders last year that the opportunities in this area were such that he planned to increase investment in research and development.

However, in an interview with the Financial Times last month, the division’s chief executive, Mikael Makinen, suggested there could be further factory closures if the market continued to be depressed.

The decision to sell is likely to come as a surprise to Rolls-Royce’s marine employees, many of whom believed Mr East would resist pressure to divest the division.

“Rolls-Royce has repeatedly over the past few years confirmed their commitment to the marine industry . . . and I do not see any reason to doubt that commitment,” one union leader told the FT last month.

Rolls-Royce earlier this week confirmed it was considering a sale of L’Orange, a German-based subsidiary, which makes fuel injection systems for marine and industrial diesel engines. The statement followed a report by Bloomberg last week that suggested a sale could raise as much as $700m.

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