Rolls-Royce PLC (LON:RR.) shares rose on Thursday as the group confirmed plans to cut 4,600 jobs, predominantly in the UK, as part of a plan to simplify its business and save £400mln a year by the end of 2020.
The FTSE 100-listed engines maker said the job cuts and overhaul of its business would cost it £500mln and be spread across 2018, 2019 and 2020.
READ: Rolls-Royce says Trent 1000 issues discovered in another engine type, will require further inspections
It added that they will be reported as separate one-off costs, allowing it to stick to its targets for free cash flow.
The group said: “Following the announcement in January that we 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.”
In a statement, Rolls-Royce chief executive Warren East said: "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 £1bn by around 2020."
The group also said its current trading remains in-line with the full year expectations set out at the time of its 2017 results in March.
It added; “Despite the already announced incremental costs associated with further recent Trent 1000 in-service issues, the mitigating actions we continue to take across the group enable us to be confident that our FY18 guidance for Group FCF of around £450m +/- £100m remains unchanged.”
Rolls-Royce has 55,000 employees worldwide of which 26,000 are in Britain and this reduction in staff follows previous job cuts under East, who joined the company three years ago with a mandate to turn the under-performing business around.
“Rolls is always tinkering with what is a hugely complicated business"
Lee Wild, head of equity strategy at interactive Investor commented: “Rolls-Royce’s decision to flag a ‘fundamental restructuring’ certainly cranks up the interest in tomorrow’s scheduled presentation to analysts and institutional investors.
“Rolls is always tinkering with what is a hugely complicated business, but results have been mixed, and this lumbering beast has become increasingly difficult to manage effectively and efficiently.”
He added: “There’s execution risk here, but the company has no choice and the rough plan appears sensible. Greater autonomy for businesses within the group is crucial for Rolls if it is to do more than just survive across hugely competitive industries.”
In early trading, Rolls-Royce shares were 2.8% higher at 852p.
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