Rolls beats forecasts, posts 54% hike in profits half way through year

LONDON: Aircraft engine maker Rolls-Royce defied expectations and posted a 54 per cent increase in profits for the first half of the year, pre-taxation.

The company’s pre-tax profits were 260 million pounds against analysts’ predictions of 229 million pounds, The company said the strong demand for aircraft engines from airlines had contributed to
the show.

The company will pay an increased dividend — by 5 per cent — for the first time since 2001. It pays in non-ordinary B shares instead of dividend to save money on taxes.

For the half-year under review ending 30 June, the company recorded sales of 3.18 billion pounds, an increase of 14 per cent on an underlying basis. Civil aerospace requirements contributed to 64 per cent of the revenue. Its defence, marine, energy and financial services divisions too showed higher revenues. The defence business, catering mainly to the U.S. Department of Defense, had its profits go up from 12 million pounds to 94 million pounds, while profits in marine division rose by four million pounds to 39 million pounds.

Its average net debt for the half year was reduced to 377 million pounds from 626 million a year earlier, while its order book had a record value of 21.9 billion pounds, Chief executive Sir John Rose told news persons in a conference call, “We are pleased with the first-half results, I think they represent very good progress in all the major elements of the business.”

Said Sir John, “We remain on target to generate continued growth in profits and reduction of average net debt in 2005.” Rolls Royce is hoping that the Airbus A350, set for launch in 2010,
will have a Rolls engine.

Sir John lamented the lack of research and development facilities in Britain as a result of which its ideas are turned into workable products outside. He pointed out that Rolls Royce’s substantial
product development is based in Germany. “The Government is doing the right thing in funding universities but industry is where ideas get turned into wealth,” said Sir John.

He said the issue is of vital importance as low cost countries have forced the industry to specialise in “high value added” products. This needs huge R&D; expenditure and the company spent 147 million pounds in the first half (almost 50 per cent of its turnover).

He also highlighted how the low cost economies of India and China are producing four million graduates every year compared with 250,000 in the U.K. Rolls Royce’s competitor GE has two of its four R&D; centres located in India and China.

Rolls Royce may not move any of its R&D; activities to developing countries, because “we are not very sensitive to labour costs as we’re high value added”, but it may think of drawing on the “global pool of engineers”.