Rolls Royce to close factories as profits fall 32%

As part of a controversial 2,600 job cull at a time of a record £76.5 billion order book, Rolls-Royce today confirmed it is closing its facilities at Ansty in Coventry and at East Kilbride, south of Glasgow.

According to The Times, the aero-engine giant reported a dive in first-half underlying profits to £439 million, down from £646 million in the same period last year. At the same time cash is flying out of the business with negative free cash flow of £576 million.

At issue is an aerospace business which is migrating to new, and for the time-being less profitable, engines while its diesel engine operations are hurting from a slowdown in the number of new orders for offshore oil and gas vessels.

Of the job cuts, Rolls said: “In order to maximise the benefit of our growing order book, we are investing in our global industrial base and establishing a more competitive supply chain.

“The new facilities are leaner, more cost efficient and more flexible. For example, during the last six months we opened our advanced blade casting facility in Rotherham which will halve the time it takes to manufacture turbine blades.

“Our investment plans will also reduce our dependency on older, less capable plants. For example, we are closing two facilities in the UK, at Ansty and East Kilbride.”

Of the impact on its finances, which has prompted a 40 per cent collapse in its share price on the back of multiple profit warnings, the company said: “Some of our older, more profitable [aerospace] programmes are now peaking or starting to decline.

“These include the Trent 700 [for the Airbus A330], now approaching the later stage of its delivery lifecycle.”

The company has been spending billions on developing new engines for the A380 superjumbo and the new fuel-efficient long-haul aircraft, the Boeing 787 Dreamliner and the Airbus A350.

“This transition creates near-term challenges as newer programmes typically see lower pricing for launch customers and higher initial costs,” Rolls said. “However, the roll-out of new engines will significantly grow our market share and the installed base of engines that will deliver aftermarket revenue for decades to come.”

New chief executive Warren East has been in the job less than a month and is expected to deliver a shake up of the company. In a statement today he said: “The initial phase of my ongoing operational review has and will continue to concentrate on how we drive improvements and sharpen our focus to make us a more resilient and sustainable business.”

The interim dividend is increasing 3 per cent to 9.27p.