Rolls-Royce’s profitability powers ahead despite cuts in UK defence

By KRISTY DORSEY and GRAEME EVANS
Published on Friday 10 February 2012 00:00

ENGINEERING giant Rolls-Royce yesterday posted record full-year profits of more than £1 billion in the wake of strong demand from airlines for more fuel-efficient engines.

The firm – which has operations at East Kilbride and Inchinnan – said it expects further growth this year after its the value of its order book hit £62.2bn at the end of 2011.

Unveiling profits of £1.2bn and revenues of £11.3bn, chief executive John Rishton said the business performed well in 2011.

Rishton added: “Our order book demonstrates the confidence our customers have in us.”

The profits represent an increase of 21 per cent on a year earlier and was helped by foreign exchange benefits worth £54 million. Shareholders will receive a full-year dividend of 17.5p a share, an increase of 9 per cent on a year earlier.

A year ago, the company’s results were blighted by the £56m impact of the mid-air failure of one of its Trent 900 engines on a Qantas superjumbo.

However, the civil aerospace division appears to have weathered the storm after its order book grew by 7 per cent to £51.9bn, a workload that includes more than 5,000 engines. Profits in the division increased by 27 per cent to £499m due to higher volumes and improved productivity.

Rolls expects the operation to produce further strong profits growth this year, alongside more modest improvements in its defence, marine and energy arms.

The pressure on UK government budgets meant the order book in defence fell by 7 per cent to £6bn but Rolls said the £1.8bn of new business achieved in the year demonstrated there were still opportunities for growth.

Rolls completed one of the biggest deals in its history last year when it joined forces with Mercedes-Benz owner Daimler to acquire German engine maker Tognum for about £3bn.

The UK company will combine Tognum with its own Bergen business, which makes engines used across the maritime and power generation sectors.

Andrew Gollan, an analyst at Investec Securities, said: “After a good run, we might expect the shares to pause in the short term, but we continue to believe Rolls offers investors an attractive long-term story.”

Rolls’ East Kilbride plant is the latest jet engine repair facility in Europe, while its Inchinnan operation houses the compressor component-making works that were based at its Hillington factory until 2005. Hillington had previously built Merlin engines for Hurricane, Lancaster and Spitfire aircraft during the 1930s and 1940s.

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