Rolls-Royce closes digital AI start-up after talks with buyers collapse

Rolls-Royce is closing down its digital artificial intelligence start-up after talks with two potential buyers fell through and as the company’s new chief executive puts his stamp on Britain’s flagship engineering company.

The R2 Factory venture, which celebrated its first anniversary this week, is the first casualty under Tufan Erginbilgic, who took the helm in January with a brief to drive performance and cut costs at the FTSE 100 group.

The company blamed the closure on the “tough economic environment and embryonic nature of the business”, which had made it difficult to secure investment.

Erginbilgic, who described Rolls-Royce as a “burning platform” in a speech to staff in January, has made no secret of his plans to shake up the company, which makes civil engines that power many of the world’s largest aircraft.

The former BP executive almost immediately launched an internal plan to transform the way the company operates and identify potential cost savings across the group.

R2 Factory is an offshoot of R2 Data Labs, Rolls-Royce’s innovation hub to help the company implement advanced data analytics and artificial intelligence across supply chains, fuel efficiency and other areas.

R2 Factory, which is chaired by Rolls-Royce’s chief technology officer Grazia Vittadini, was meant to offer a similar service to large industrial customers.

While an eventual spinout of the business had always been planned, the impending arrival of Erginbilgic was seen as a catalyst for talks with potential buyers to begin late last year, according to people familiar with the venture.

There were also concerns within some circles about the levels of expenditure by R2 Factory on dinners and other hospitality events, the people familiar with the group added.

Styled along the lines of a digital members’ community, R2 Factory was based in an embassy-style townhouse at Portland Place in central London.

The building, said a person close to the business, was a “key part of the identity”, a place to meet and to help attract paying members. It had underspent its budget for 2022, the person added.

Recent clients included pharmaceutical group AstraZeneca, which wanted to improve its data analytics and artificial intelligence capabilities in its factory processes.

The team’s wider work included looking at how to use AI to create more adaptive supply chains and to conduct robotic inspection of components in factories.

The business had been in talks with a private equity backer about a potential management buyout, as well as talking to a competitor about a sale, according to people familiar with the venture.

Staff, who were told this week that the talks had collapsed and the venture was being wound down, were left in shock by the abrupt decision. The company was still hiring new people as recently as two to three weeks ago.

The move puts at risk a 50-strong team of data and software engineers, scientists and support staff and comes as companies are racing to integrate AI technologies into products and services to raise productivity.

Rolls-Royce said: “We have decided to close our digital start-up, R2 Factory. It is a business that was created in 2022 as a non-core innovation opportunity and was designed to be spun out.”

It added it would “endeavour to find redeployment opportunities for our people within Rolls-Royce”.

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