Rolls-Royce sells commercial marine unit

British engine maker Rolls-Royce announced on 6 July that it has agreed to sell its loss-making commercial marine business to Norwegian industrial group Kongsberg for £500 million.

The deal, worth $661 million, is part of a massive overhaul led by chief executive Warren East, Rolls-Royce said in a statement.

The news comes three weeks after the London-listed company launched plans to axe 4,600 mainly British management roles by 2020 to further slash costs.

Rolls is implementing a sweeping restructuring plan which aims to generate £400 million of annual cost savings by the end of 2020.

The group has weathered a tough trading environment in recent years on weak demand for its power systems, in particular ones used by the marine industry.

Warren East said: ‘This transaction builds on the actions we have taken over the last two years to simplify our business. The sale of our commercial marine business will enable us to focus on our three core businesses of civil aerospace, defence and power systems, and on meeting the vital power needs of our customers.’

The commercial marine division, which has been drastically restructured since 2015, employs about 3,600 staff mainly in the Nordic region.

In recent years, the troubled business has been hurt by weak oil prices, which has dented demand for marine vessels and equipment.

Kongsberg added in a separate statement that the acquisition will be partly financed by a rights issue, or sale of new shares, totalling $620 million.

Kongsberg is 50% owned by the Norwegian government.

Rolls-Royce expects net proceeds of £350 million to £400 million from the transaction, which is set to complete early in 2019.

The disposal is meanwhile set to have a positive profit impact of around £50 million based on 2017 figures, according to Rolls-Royce.

The company had in January 2018 launched a strategic review of the division, which generated 2017 revenues of £817 million but an operating loss of £70 million.

Kongsberg, which has operations in 25 countries and 7,000 staff, provides products to sectors including defence, oil and gas and aerospace.

Geir Haoy, chief executive of Kongsberg, said: ‘The acquisition of Rolls-Royce Commercial Marine makes us a more complete supplier to the maritime industry. With this acquisition we will strengthen our strategic position with shipowners, shipyards and other customers and partners.’