Rolls-Royce Boss Sets Out 'Painful' Shake-Up

Engine maker Rolls-Royce has set out "painful" restructuring plans to help save up to £200m a year but does not know how many more jobs that will affect.

Chief executive Warren East, who took over in the summer, outlined plans to investors after the firm issued its fourth profit warning in just over a year, earlier this month.

The warning saw shares crash by 20%. They rose today by 3.4% as Mr East outlined the operational review, which placed a focus on retaining engineers and simplifying the business elsewhere to escape a "bloated" past.

Rolls-Royce had already said the major restructuring "will simplify the organisation, streamline senior management, reduce fixed costs and add greater pace and accountability to decision making."

Mr East said the business was undergoing an "unprecedented period of change" as it invests in a transformation, with output for large engines doubling but demand elsewhere falling.

The group's warning earlier this month came as the economic slowdown in Asia hit lucrative servicing work on older aircraft engines.

Shares have recovered a little since they were hit by the warning, including a boost this week as the Government set out plans to increase defence spending.

It is reportedly under pressure from US activist investor ValueAct, which holds a 10% stake in Rolls, to focus on its core aero engine operations and sell its marine business.

Mr East said today: "The notion that we're going to sell big chunks is just wrong" - choosing to focus on cost reduction instead.

Rolls-Royce has already announced 1,000 job cuts in its marine division this year, hit by the impact of lower oil prices resulting in a drop in orders.

Last November it had already announced an 18-month programme to cut 2,600 jobs globally in its aerospace division and at headquarters.

The group employs 54,000 people in 50 countries including 24,000 in the UK, with 14,000 in Derby alone.

Keith Bowman, equity analyst at Hargreaves Lansdown stockbrokers, said the latest announcement marked the start of the new chief executive’s battle to restore investor confidence.

He added: "On the downside, the update offers no quick fixes, with the chief executive offering more near-term pain than management itself had expected. Real evidence of improvement is now required."