Rolls-Royce says is embarking on what it called a ‘further simplification’ of its business that could include the sale of its commercial marine division.
The company is evaluating strategic options for its commercial marine operation and a reduction from five operating businesses to three core units based around civil aerospace, defence and power systems. As part of this exercise, it plans to consolidate its naval marine and nuclear submarines operations within its defence business, and civil nuclear operations within power systems business.
Chief executive Warren East said “Building on our actions over the past two years, this further simplification of our business means Rolls-Royce will be tightly focused into three operating businesses, enabling us to act with much greater pace in meeting the vital power needs of our customers. Alongside the simplification into three operating businesses, we must continue to address the cost and complexity of the structures that support and serve these businesses, including our corporate head office, with greater decisiveness.”
Since 2015 the company’s marine business has experienced weak demand for products and services for the offshore oil and gas market, which significantly impacted its profitability. It has divested non-core businesses and reduced the number of sites from 27 to 15 – an overall reduction in footprint of 40%. It has managed a reduction in its workforce by 30% to 4,200, with the majority now based in the Nordic region. At the same time, the business has been investing in new facilities and new technologies such as ship intelligence and autonomous vessels.
Given the progress the business has already made, the company said it is now an appropriate time to conduct a strategic review of commercial marine. This review will be undertaken during 2018.
Mr East said “This is the right time to be evaluating the strategic options for our commercial marine operation. The team there has responded admirably to a significant downturn in the offshore oil and gas market to reduce its cost base. At the same time, we have carved out an industry-leading position in ship intelligence and autonomous shipping and it is only right that we consider whether its future may be better served under new ownership.”
Regardless of the outcome of this strategic review, Rolls-Royce will retain the marine operations which supply complex power and propulsion systems to naval customers. During Q1 2018, naval operations will become part of an enlarged defence business named Rolls-Royce Defence.
Mr East said the company will also continue to have a successful engine business serving marine customers within power systems. The power systems business, including MTU and Bergen Engines, is unaffected by the decision to start a strategic review of the commercial marine operation. Rolls-Royce Power Systems, which has headquarters in Friedrichshafen, Germany, will continue to supply and service power and propulsion systems from MTU and Bergen Engines for customers in marine and infrastructure markets. Rolls-Royce's commercial marine operation, which has its largest facilities in Norway and Finland, provides ship design and onboard equipment mainly for the offshore oil and gas and commercial marine markets. It is this part of Rolls-Royce which is subject to the strategic review.
In 2016, marine contributed £1,114M (US$1,535M) in revenue and generated a loss of £27M. Within this, the commercial marine business, which supplies equipment and vessel design across the oil and gas, merchant and other commercial markets, accounted for 75% of revenues while the naval operations accounted for 25% and achieved a small profit.