Rolls-Royce to reduce costs as activist shareholder Value Act builds stake

Rolls-Royce’s new chief executive aims to strip out costs, rather than selling off chunks of the business, as he seeks to return the aero-engine company to growth.

After four profit warnings in just over a year, and with an activist shareholder pushing for change, Warren East is under pressure to outline a strategy after spending much of his first four months in the job in firefighting mode.

“The notion that we’re going to sell big chunks is just wrong,” Mr East told reporters yesterday.

According to media reports, US activist shareholder ValueAct wants Rolls-Royce to focus on its main aero-engine business and divest its marine engine business.

Mr East, however, said the focus will be on reducing costs and simplifying processes which he said had become “bloated”.

Rolls-Royce is in trouble. But its new chief executive says ‘No’ to wholesale change https://t.co/OK8M13Bx5w pic.twitter.com/pozskl247f

— Financial Times (@FT) November 24, 2015

The board was committed to supporting Mr East in implementing his plan.

Activist shareholder Value Act, doubled its stake last week to 10%.

“ValueAct asked some very constructive questions and they absolutely share our view on the strength of the business,” Mr East said.

The profit warnings have come as the company struggles to cope with shrinking demand for marine engines and declines in its aero-engine business.

In the last year, Rolls-Royce’s share price has lost a third of its value.