Shares in Rolls Royce (LON: RR) soared 13 percent in early trading after the engine maker said it was on track for exceeding £1 billion of free cash flow by 2020.
The group announced on Friday plans to cut 4,600 UK jobs that will ultimately lead to £400 million in savings per year by the year 2020.
“It is never an easy decision to reduce our workforce, but we must create a commercial organisation that is as world-leading as our technologies,” said the chief executive, Warren East.
Around one-third of the job cuts will take place by the end of the year. The remainder of the job cuts will take place in the middle of 2020.
The manufacturing company said it plans to “significantly reduce” the size of its corporate centre as the group hopes to slim down.
“Today’s announcement builds on yesterday’s already impressive 6.5 percent climb on a trio of good news. Firstly, we were told that necessary restructuring/job cuts (to make it lean and mean) might cost £500 million but would save a net £400 million from 2020,” said Mike van Dulken, Head of Research at Accendo Markets.
“After all the positive noise from CEO East, now it’s time to deliver, to keep the shares bearing North,” he added.
The job cuts, which are expected to cost the group £500 million along with further restructuring, have not been taken lightly by the union Unite.
Steve Turner, the union’s assistant general secretary, said the cuts “could have a dire economic impact on local communities reliant on Roll-Royce jobs”.
“There is a real danger that Rolls-Royce will cut too deep and too fast with these jobs cuts, which could ultimately damage the smooth running of the company and see vital skills and experience lost,” he added.
“Unite will be offering our members maximum support through this process and seeking assurances on no compulsory redundancies from Rolls-Royce for Unite members affected by this announcement.”
Shares in Rolls Royce stood at 972.2p. This was slightly down from the early morning rally where they were trading at 999.8p.