Rolls Shedding Medium-Speed Engine Business

Rolls-Royce plans to shed its medium-speed gas and diesel engine business based in Bergen, Norway.

“As part of our ongoing efforts to evaluate our portfolio and create a simpler, more efficient group, today we announce the decision to carry out a strategic review of Bergen, our medium-speed gas and diesel engine business,” according to the company. The announcement was made as part of the company’s presentation on 2019 financial results. Employees in Bergen were told of the decision in Thursday, Feb. 27, according to media reports. The Bergen operations generated sales of £239 million with an underlying operating loss of £18 million in 2019.

The Bergen operation was purchased by Rolls-Royce in 1999 and was made part of the company’s Power Systems division during 2019 as part of a company-wide reorganization. Bergen produces gas and diesel engines from 1400 to 11830 kWe for both power generation and marine applications. The marine engines are sold exclusively through Kongsberg Maritime. Kongsberg Maritime’s parent company, Kongsberg Gruppen, acquired Rolls-Royce Commercial Marine (RRCM) business in 2019. RRCM includes propulsion equipment, deck machinery and automation and control systems, as well as a ship-design arm for off-shore, cargo, passenger and fishing-vessel customers. Also included is a business that develops remote and autonomous control of commercial ships.

The original Bergen Mekaniske Verksted (BMV) was founded in 1855. Bergen began making diesel engines in 1946 and has produced about 7000 engines since then—about 5000 are still in service, the company said. The company employs about 770.

During its earnings call, Rolls-Royce said its power systems division saw revenues increase 4% in 2019 with profit margin hitting 10.1%. Service revenue rose 4%.

Although there were “challenges in certain power systems end markets,” the power business had success targeting new applications, such as mission-critical backup power, and building sales in certain geographic areas, especially China, said Warren East, CEO of Rolls-Royce. In 2019, Rolls-Royce signed agreements for the delivery of more than 700 MTU engines in China. About 10% of the power system divisions revenue is derived from greater China, East said.

In 2019, the company delivered 6580 engines (excluding smaller off-highway engines). That compares to 5976 in 2019. The company now has an installed base of about 146 000 engines.

Looking to 2020, the company expects conditions in a number of end markets will remain challenging. But the company hopes to gain market share in Asia, where power systems has previously been “underexposed”, the company said. Overall, the company expects to see low single-digit organic revenue growth in 2020 despite this challenging backdrop.

The company said there are macro risks to navigate in 2020, notably the outbreak of COVID-19.

“The situation is still evolving, and as such our guidance for 2020 excludes any material impact. We are monitoring developments, taking mitigating actions, and will update the market as appropriate,” the company said in its earnings report.