The Rolls-Royce Holding PLC (LON:RR) (RR.L) share price has risen by over 3% today following news of a major restructuring.
The company intends to reduce headcount by around 4,600, with many of the job losses expected to be in the UK where the majority of its corporate and support functions are based. Roughly a third of these roles are expected to leave by the end of 2018, with the full impact of the changes expected to be delivered by mid-2020.
Rolls-Royce is seeking to become a simpler, leaner and more agile organisation. It is aiming to put in place smaller and more cost effective corporate and support functions, while reducing management layers and complexity.
The changes could deliver improved returns according to today’s update. The company anticipates that there could be run-rate net cost savings of £400 million per year by 2020. The changes could also support its goal of generating free cash flow that is beyond its original £1 billion target by around 2020.
In my view, the prospects for Rolls-Royce continue to improve from an investment perspective. Clearly, reducing headcount in any business is a painful experience for those involved. But from an investor’s perspective, it could lead to a more efficient business that is better able to generate stronger profitability and cash flow over the coming years.
With the global defence industry having a bright future in my view, I feel upbeat about the stock’s outlook. It seems to offer an improving financial future, with its current management team methodically moving through the business as they seek to generate efficiencies.
Alongside further investment in its products and services, this could lead to an improving share price performance over the medium term. As a result, I feel that after a disappointing year which has seen its stock price fall by over 5%, there could be upside potential on the horizon.