Rolls-Royce seeking cheaper headquarters to cut expenses

Keywords Rolls-Royce

Rolls-Royce Holdings Plc plans to quit its headquarters in one of London’s swankiest districts for cheaper offices as the company seeks to bring down long-term expenses and cover the more immediate costs of fixing a faulty jet-engine model.

Rolls-Royce—which has major operations in Indianapolis—needs a “smaller, more cost-effective London head-office location” than the current premises midway between the Houses of Parliament and Buckingham Palace, CEO Warren East said in a memo to staff obtained by Bloomberg. One option would be to move closer to the rail route to Derby, central England, the company’s main manufacturing site.

Chief Operating Officer Simon Kirby, who only took over the role in late 2016, will meanwhile leave, East said, adding that the executive had demonstrated “his professionalism” by developing a leaner business that effectively resulted in his own role being eliminated. Kirby was previously CEO of Britain’s $75 billion HS2 high-speed rail project.

Staff based at Rolls’s HQ will be briefed on options for a move in coming weeks, according to East. The company has occupied the current 37,000-square-foot space at 65 Buckingham Gate only since 2014, having moved there from an address across the street. The office is leased from Land Securities Group Plc, the U.K.’s largest real estate investment trust.

Outside of England, one of Rolls-Royce's largest offices is in Indianapolis. More Rolls-Royce products are built in Indy than anywhere else in the world, according to the company. About 4,000 employees work in Indianapolis in manufacturing, assembly, test, engineering and a variety of staff support roles.

St Pancras plan

The engine-maker may move across London to the area around St Pancras station, from where East and other top executives typically travel to Derby several times a week. The district has itself become a property hot-spot in recent years, with Google building a 10-storey campus at nearby King’s Cross.

Discussions will also begin with staff representatives on “emerging proposals” for the company’s human resources, finance, IT, general counsel and strategic-marketing functions, East said. The restructuring moves follow the appointment of U.S. consultants Alvarez & Marsal, hired in March to secure a new round of savings as Rolls targets 1 billion pounds in free cash flow by 2020.

Rolls-Royce is also clamping down on discretionary spending to help rein in costs this year as it seeks to deliver on financial targets amid spiraling expenses from durability issues afflicting the Trent 1000 engine that powers Boeing Co.’s 787 Dreamliner. East appealed in the memo for staff to “do everything you can to reduce costs now to only essential areas.”

The CEO announced last month that Rolls would trim expenses to absorb the cost of extra shop visits and the redesign of components required to address the glitch, which affects around 380 of 500 engines that Rolls has built for the Dreamliner and led regulators to place operating limits on the jet.

Rolls-Royce has already shed layers of management, cut less-successful products and agreed to sell its fuel-injection unit in earlier efforts to rein in costs after East took the helm in 2015 amid a downturn in demand for marine engines and maintenance revenues from its business-jet turbines. The marine unit remains under review for possible disposal.

The Financial Times reported Kirby’s departure earlier.

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