Proactive Investors - A bold move by Rolls-Royce Holdings PLC (LON:RR.) chief executive Tufan Erginbilgic to cut up to 2,500 jobs at the manufacturing giant was well received on Tuesday morning.
Following confirmation of the sweeping headcount reduction, shares in the FTSE-100 listed firm climbed, as investors seemed to welcome the move as a major step in Erginbilgic’s transformation plan, rather than a worrying turn.
“While not good news for people working for the engineer,” AJ Bell analyst Russ Mould acknowledged, “cutting jobs means saving money in the future, hence why the market has given it the thumbs-up”.
These savings could total around £200 million a year, interactive investor analyst Richard Hunter tipped, marking the latest turn in Erginbilgic’s effort to rectify the company, which was hit hard by the grounding of flights during the pandemic.
Given the hefty debt and supply chain woes left in the wake of this, Erginbilgic has been on a path of reform since taking charge in January.
Rolls-Royce’s engineering technology and safety teams will be combined under the latest plan, which will ultimately aim to prevent duplication and aid efficiency.
Chief technology officer Grazia Vittadini will be among those to leave with reductions stretching to around 6% of the firm’s staff.
Despite Rolls-Royce’s confidence that the plan would ultimately address supply chain delays and improve customer relations, analysts warned that success may not be so clear cut.
“Reducing the workforce [...] is a bold move,” Mould continued, “the challenge is not to sacrifice quality in the quest to save a few quid”.
Erginbilgic has indeed proved his ability to improve operations at Rolls-Royce thus far.
August’s interims saw Rolls-Royce return to a pre-tax profit of £1.42 billion over the half year, up from a £1.75 billion loss last time around.
Net debt slipped from £3.25 billion to £2.85 billion over the period.
These were largely attributed by analysts to Erginbilgic’s efforts to drive margins since taking charge, particularly in the firm’s civil aerospace wing.
Recovery of the global aviation sector has indeed played a part too though, with developments in China tipped by UBS as key for Rolls-Royce’s future performance.
“Things couldn’t be going much better for Erginbilgic,” interactive investor Victoria Scholar continued following Tuesday’s restructuring announcement.
“For years, the engine maker failed to rev up investor confidence. Now Rolls-Royce is the best-performing stock on the FTSE 100 over a one-year period.”
Shares climbed over 2% early on, before subsiding to 214.50p - up 0.5% on Monday’s close.