The situation in the offshore markets remains »extremely challenging« for the company that is already running restructuring programmes. Underlying profit before financing for marine sharply declined to -£27m.
The underlying group revenue declined 2% in 2016 compared to 2015 on a [ds_preview]constant currency basis, reflecting declines in both original equipment revenue (down 2%) and services (down 3%) and driven almost entirely by Marine (-24%).
Teh company reported that its Marine profit was sharply lower led by continuing weakness in the offshore markets. Underlying profit before financing was -£27m down £42m from 2015. Underlying revenue in the Marine business of £1,114m was 24% lower on a constant currency basis. Within this, original equipment and services revenues were 26% and 21% lower respectively. This reflected continued weakness in offshore and merchant, as ship owners deferred overhaul and maintenance on the back of reduced utilisation of their vessels, Rolls-Royce said.
The Marine order book declined 29% during the year at constant currency, reflecting adjustments for a number of postponed or cancelled orders and very weak offshore markets. Orders for new vessels, projects and services were all sharply lower than 2015 and as a result order intake was only £715m, 29% down on the previous year at constant currency.
Rolls-Royce further reduces headcount
As Rolls-Royce stated the Marine business continues to lower its cost base and build flexibility into the organisation particularly across back office and operational activities. The restructuring programmes announced in 2015 have led to a reduction of around 1,100 headcount with £65m of annual savings recognised from 2017.
Reflecting the ongoing subdued and increasingly cost-conscious market environment, in December further restructuring to take place in early 2017 was announced, targeting annualised savings of around £50m. This included a further headcount reduction of around 800 across operations and back-office functions as the business continues to shrink footprint, reduce indirect headcount, and consolidate manufacturing activity.
Cautious outlook
Overall Rolls-Royce’s outlook for Marine remains cautious. »We expect that the market will continue to feel the impact of low oil prices, and the general overcapacity in several segments will take time to reach equilibrium. This will impact the demand for our products and services. We will sustain our active cost reduction programmes, focusing on manufacturing, supply chain and overhead costs, in order to drive a more competitive business adapted to the current market conditions«, it was said.
