Rolls-Royce thinking about selling its commercial marine business

Seeking to further simplify its business, British engineering company Rolls-Royce will be conducting a review of its commercial marine unit, which might include its sale. 

Rolls-Royce said on Wednesday it 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, the company plans to consolidate its naval marine and nuclear submarines operations within its existing defence business, and civil nuclear operations within power systems business.

“This will facilitate a more fundamental restructuring of support and management functions in particular. These actions are designed to align our business more closely with our strategic vision to pioneer cutting-edge technologies that deliver vital power,” the company explained.

Chief Executive, Warren East, said: “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.”

Better under new ownership? 

According to the company, its marine business has since 2015 responded to 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. Given this progress, it is now time to conduct a strategic review of the commercial marine business unit, which will be done during 2018, the company stated.

Warren East said: “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.”

However, the company emphasized that, regardless of the outcome of this review, it will keep the marine operations which supply complex power and propulsion systems to naval customers, including the Royal Navy and US Navy.

When it comes to financial performance of the marine business, in 2016 marine contributed £1.114 billion revenue and generated a loss of £27 million.

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.

Rolls-Royce also noted it will continue to pursue cost reduction opportunities in the marine business as the unit continues to be impacted by weak demand for products and services for the offshore oil and gas market.