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Rolls-Royce says to cut 2,300 jobs

(Adds more detail, analyst comment, background)

LONDON, Jan 11 (Reuters) - British engine maker Rolls-Royce Group Plc RR.L plans to cut 2,300 jobs at home and abroad in an efficiency drive to help offset rising costs, such as higher prices for speciality metals, and the effect of a weak dollar.

“Costs associated with this exercise in 2008 will largely be balanced by savings achieved in the course of the year,” Rolls-Royce said on Friday, adding the restructuring would affect managerial, professional and clerical staff.

It will not hit its 2007 results which are due on Feb. 7.

Rolls-Royce said the job cuts “will extend to the UK, United States, Germany, the Nordics and other countries where the relevant functions are located... In the UK, the group will seek to secure the headcount reductions, wherever possible, through voluntary redundancy”.

Numis Securities analysts, who rate Rolls-Royce stock an “add” with a 605 pence price target, said: “Essentially Rolls-Royce has become more efficient from ongoing productivity initiatives in recent years and needs to employ less admin and support staff. Note, this is not engineers which continue to be recruited as production expands rapidly.” Rolls-Royce is best known for aero engines, and booming demand for commercial airlines last year left it with a record order book. But it also has sizeable business making gas turbines for ships and power generation markets, and in 2006 got half its turnover from contracts to service engines.

By 1115 GMT, Rolls-Royce shares, which have performed in line with other London-listed aerospace and defence companies .FTASX2710 over the past 12 months, were down 3.2 percent at 508 pence to value the business at 9.3 billion pounds ($18.14 billion).

While Rolls-Royce manages its dollar exposure through long-term hedging, like other British companies which carry out a large part of their business in dollars, it has been affected as sterling rose to a 26-year high last year.

Also, raw materials it uses, such as cobalt, nickel and titanium are at historically high levels.

Credit Suisse analysts in a recent broker note, looking at the pound backing away from those highs, estimated that “every 1 cent move in the long-term dollar assumption added 12 million pounds to (Rolls-Royce’s) long-term EBIT (earnings before interest, and tax)”. They rate Rolls-Royce shares an “outperform” with a 580 pence target.

Citigroup analysts, who rate Rolls-Royce stock a “sell” with a 462 pence target, said the pound remained a problem even at $1.95 and “raw material prices, cobalt and titanium, have risen and this increases the profit headwind”.

(Editing by Louise Ireland)

((dan.lalor@reuters.com; +44 20 7542 2737; Reuters Messaging: dan.lalor.reuters.com@reuters.net))

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