Rolls makes progress despite dollar challenge

Rolls-Royce posted a 13 per cent improvement in underlying profits for 2007 today, despite the "continuing challenges" of a weak US dollar and rising costs.

The engines giant, which has major UK plants at Bristol and Derby, said the figure of £800 million reflected increased trading profits at all its businesses, including civil aerospace and marine.

It faced a further 8 per cent deterioration in the US dollar rate in 2007 - at a cost of £92 million - as well as increased operating costs.

Chief executive Sir John Rose described conditions as challenging but added the company's order book increased by 76 per cent to a record £45.9 billion, with the Asia and Middle East order book more than doubling to £20 billion in 2007.

Rolls said new orders were secured last year in a number of countries in which it previously had little or no presence.

The order book for Asia and the Middle East finished the year at the same level as the total value of the company's order book four years ago.

The company's unit costs rose 7 per cent in 2007, reflecting higher material costs, disruption due to facility moves and cost escalation among suppliers.

However, Rolls said it was hopeful that this year would see a reduction in the rise in unit costs to between 2 per cent and 4 per cent.

It has sought to improve efficiency through its supply chain and the previously-announced reduction of 2,300 jobs in support activities.

The company has also carried out a financial review, following on from last year's £500 million contribution into its UK pension schemes.

It said the "overall strength and its future prospects" supported a significant increase in payments to shareholders, with the company's annual dividend payments up by 35 per cent over 2006.

Rolls said: "The group has to compete against large competitors on programmes where returns are measured over decades and where the group's competitive advantage depends on its ability to make substantial investments and long-term commitments to customers, not always at a time of our choosing."

The company's bottom-line profits figure for 2007 - £733 million against £1.39 billion in 2006 - reflected reduced benefits from derivative and hedging contracts, plus the recognition of past service costs for UK pension schemes.

Sales on an underlying basis increased by 6 per cent to £7.82 billion.