Rolls-Royce’s chief executive has said the company will be more transparent about the risks it faces and will cut up to £200m of costs a year.

Warren East said the engineering group had developed an “accounting fog” which had left investors unclear about the direction it was going.

He said investor “confidence was not in a good place”, and the company must make shareholder returns a priority.

Rolls-Royce’s share price has plunged after a series of profit warnings.

Earlier this month, the company saw one of the sharpest falls in its share price since it floated in 1987 after announcing that profits could be £650m lower than expected next year. The share price fell by a fifth.

Numbers game

Mr East’s comments came as he unveiled details of a review of the business.

He insisted that despite a downturn in the aircraft engine business and oil exploration, Rolls-Royce was still a fundamentally strong company.

He said it would focus on boosting its engineering skills and reducing the number of senior managers.

Although the company is cutting costs, Mr East refused to be drawn on the precise number of jobs that might be lost.

“I don’t actually know the job numbers right now,” he said, explaining that more will be revealed when the company reports its full-year results in February.

‘Simpler’

Rolls-Royce employs more than 21,000 people in the UK, with more than 12,000 employed at its Derby aerospace engines and submarines division.

Mr East said he wanted to employ more engineers, so it appears that any job losses will be a relatively small addition to the 3,600 already announced.

“The last thing I want to do is lose engineers,” he said.

Rolls-Royce will become a “simpler” business which will operate with more “pace” after Mr East admitted that the business was “over-managed” and cumbersome.

For example, Mr East told investors that the company had 27 management structures to deal with different types of technology – a number Mr East would like to see reduced to eight.

He said this cumbersome set-up was to blame for the firm’s sluggish responsiveness to market changes.

Mr East also said Rolls-Royce would aim to present fresh medium-term business targets in 12 to 18 months.

On the long term, he said: “There’s a very strong engineering base and there’s a very strong business model and operational execution is really masking the strength of both of those at the moment.”

‘Wrong’

Pressure for an overhaul of the business has been intensified by US-based activist investor ValueAct, which took a stake in Rolls-Royce not long after Mr East’s arrival at the helm.

It recently doubled its holding to 10%, making it Rolls-Royce biggest investor. It is reported to want the engineer to sell off its marine business to focus on its main aero-engine business.

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

ValueAct has also asked for a seat on the Rolls board, but has so far been rejected by the company.

Mr East said it was up to the Rolls-Royce board as to whether the US investor fund was given a seat.

“ValueAct… they’re quite supportive, they asked some very constructive questions and they absolutely share our view on the strength of the business in the long term,” he added.