What's going on?
Rolls-Royce – one of the UK’s manufacturing darlings – announced 4,600 job cuts and a plan targeting over $500 million in cost savings on Thursday, sending its shares cruising up by 6%.
What does this mean?
Rolls-Royce is a company that’s bloated with costs. Despite being a manufacturer, it has over 30,000 non-manufacturing jobs – which explains why it’s on a warpath to reduce its non-essential spending and create a leaner organisation.
Since his appointment in 2015, Rolls’s CEO has made almost 10,000 heads roll through job cuts. This latest round hits back and middle office roles (like admin, risk management and IT), that are just under 10% of all Rolls-Royce’s jobs globally.
Why should I care?
For markets: Rolls-Royce’s investors breathed a sigh of relief.
Rolls-Royce is one of the largest companies in the UK. It’s also part of a group of the biggest companies on the UK stock market, whose stocks investors can buy and sell together (a.k.a. an index). Investors buying Rolls’s stock likely hope the cost-cutting plan clears a path for Rolls-Royce to become more profitable in the future. It’s probably a welcome relief following a share price decline of 8% over the past year – and news earlier this week that the company has had to delay faulty engine repairs (another reason to keep those factory workers in place).
The bigger picture: The UK’s outlook is uncertain – especially in manufacturing.
Data released on Monday showed the UK’s manufacturing sector is at its weakest in five years as manufacturing output declined by 1.4% in April, compared to the previous month. Growth in the UK has been slowing – and it’s unlikely to be helped by Brexit or 3,000 of Rolls’s jobs being cut in the UK.