Rolls-royce agrees to sell struggling marine business for £500m

ROLLS-ROYCE has struck a deal to offload its loss-making commercial marine business to Norway’s Kongsberg as part of its efforts to streamline the engines giant and put finances in order.

Kongsberg, which employs 7,000 people and turned over 14.5bn krona (£1.4bn) last year, will pay £500m including debt for the unit, generating proceeds of around £350m to £400m for Rolls-royce. The FTSE 100 company said the sale would add around £50m to its bottom line for the year.

The unit had revenues of £817m and made an operating loss of £70m last year. It provides engines and other machinery for passenger and cargo ships and those working on oil rigs, as well as designing some boats itself.

The deal comes after Rolls-royce revealed on Thursday that it was pressing ahead with plans to move design approval for its engines to Germany to safeguard against the risk of disruption due to Brexit.

Several other engineering giants including Airbus, Jaguar Land Rover and BMW have warned of the potential risks of a bad Brexit deal.

Warren East, Rolls-royce’s chief executive, said the marine sell-off would allow Rolls-royce to focus on its three core areas of civil aerospace, defence and power systems set out in his latest turnaround plan earlier this year. It had already slashed thousands of jobs and shut several sites across the division, which had suffered after a sharp downturn in the oil and gas industry.

The deal, expected to close in the first quarter of 2019, does not include Rolls-royce’s work on naval ships. Mr East, former Arm chief executive, took on his current job in 2015 after a series of a profit warnings and embarked on a plan to cut costs and get Rolls-royce on a more stable footing. After reporting its biggest ever annual loss of £4.6bn in 2016, the following year it bounced back to £4.9bn of pre-tax profits.

Jeanine Arnold, an analyst at Moody’s, said the deal showed Rollsroyce’s commitment to strengthening its balance sheet but that it was “no substitute for strong underlying cash flow generation” from core businesses.

She added: “Resolving in-service engine issues and ensuring there are no further negative consequences for cash flows than already guided must remain a top priority for Rolls-royce over the coming months.”

Rolls-royce shares closed unchanged yesterday at 985.6p.