Friday, July 6, 2018

Rational Purchase of UK Maritime Specialist by Energy, Aerospace and Defence Group

Rolls-Royce Sells Off Marine Subsidiary
Shipping News Feature
NORWAY – UK – Norwegian headquartered Kongsberg, which offers technology solutions across a range of sectors from oil & gas to fisheries, has signed an agreement to acquire Rolls-Royce Commercial Marine, the maritime technology arm of Rolls-Royce, in a deal worth £500 million. The transaction will see Kongsberg acquire the marine products, systems and aftermarket services businesses carried out by subsidiaries of Rolls-Royce. The deal does not include Bergen Engines nor Rolls-Royce's Naval Business.

Kongsberg, headquartered in Kongsberg, Norway, is represented in more than 25 countries with approximately 7,000 employees and has a turnover of NOK14.5 billion in 2017. Both parties holding positions within the maritime industry, the companies say they are complementary in their products, solutions and competence.

The move follows a strategic review by Rolls-Royce of its Commercial Marine operations announced at the beginning of the year. The sale includes propulsion, deck machinery, automation and control, a service network spanning more than 30 countries and also ship design capability, which to date has seen around 1,000 Rolls-Royce designed ships delivered to offshore, cargo, passenger and fishing vessel customers worldwide. Rolls-Royce’s Ship Intelligence activities, which have seen the rapid development of technologies to enable remote and autonomous operation of commercial vessels, are also included. Warren East, Chief Executive of Rolls-Royce, 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 and on meeting the vital power needs of our customers.”

Kongsberg will, through a trading arrangement, continue to have access to products from Bergen Engines, which remains part of Rolls-Royce Power Systems. The Bergen engine range of both diesel and gas medium-speed engines is a key component that is intended to enable Kongsberg to be a leader in the continued development of integrated ship systems. Kongsberg will also be an important partner and supplier to Rolls-Royce’s Defence business for the supply of Commercial Marine products used on naval vessels.

Rolls-Royce Power Systems will continue to supply MTU engines to a range of customers in the marine market including operators of commercial vessels and yachts. The Naval gas turbine propulsion activities will continue to be a core part of Rolls-Royce Defence.

Commercial Marine has approximately 3,600 employees, with the majority based in the Nordic region. In 2017 the Commercial Marine business generated revenue of £817 million with an operating loss of £70 million reflected in the Group’s financial results. After taking into account various central cost recharges included in this reported figure, the disposal is expected to have had around a £50 million positive profit impact based on 2017 pro forma figures. These figures were consolidated within the results of Rolls-Royce Marine. Geir Håøy, Chief Executive and President of Kongsberg, said:

“The acquisition of Rolls-Royce Commercial Marine makes us a more complete supplier to the maritime industry. The maritime industry is becoming increasingly globalised and is undergoing considerable technological and market driven changes. With this acquisition we will strengthen our strategic position with shipowners, shipyards and other customers and partners.”

The transaction has been approved by the boards of both Rolls-Royce and Kongsberg and is expected to close in Q1 2019, subject to clearance from the regulatory authorities. The disposal enterprise value is, as stated, £500 million. After taking into consideration pension liabilities and provisions, separation costs, advisor fees and working capital, net proceeds of £350 million to £400 million are expected. Net proceeds will be dependent upon final outturn working capital at completion.

The proceeds will be used to improve the resilience of the Rolls-Royce balance sheet and provide additional capital to pursue opportunities that are intended to drive greater returns for the Group. Rolls-Royce Commercial Marine has experienced considerable reductions in activity levels due to challenging market conditions within offshore related activity. A main priority going forward is ensuring profitability, and at the same time being an industry innovation leader. Mikael Makinen, Rolls-Royce President, Commercial Marine added:

“Today marks the start of a new horizon for our Commercial Marine business. This deal comes at a time when the maritime industry is at the dawn of a new and exciting era where digital and electrical technologies will transform shipping. Rolls-Royce has been responsible for leading many of those technological advancements, and with combination of great people, market-leading technology and a desire by Kongsberg to take this business to the next level, I am sure that this business will prosper in the years to come.

“We will now work closely with Kongsberg as we go through the transition in the months ahead. I would like to pay tribute to the 3,600 Commercial Marine employees who have maintained absolute focus on their day jobs, winning business and maintaining the levels of support our customers expect.”