Parsons disposal knocks Rolls-Royce into the red

The aero-engine manufacturer Rolls-Royce yesterday said it expected to complete the disposal of its Parsons steam turbine business in a matter of weeks as it plunged into the red because of heavy losses in the division.

Exceptional charges of pounds 263m to cover Rolls' withdrawal from the large steam power generation business turned a pounds 175m pre-tax profit in 1995 into a pounds 28m loss for last year. The turbine division, which employs 2,000 at the Parsons plant in Newcastle and International Combustion Limited in Derby, was put up for sale last summer and has attracted interest from Siemens of Germany and General Electric of the US.

"There has been a good level of interest in the businesses and we are in discussions with various parties," said John Rose, Rolls chief executive. "I am sure we will end up with a solution for both businesses but we are some weeks away."

However the talks have become bogged down over price. Industry sources suggested that bidders had been concerned at Parsons' declining order book. Rolls-Royce recently pulled out of bidding for a huge power station contract in India as it winds down Parsons' operations.

The original internal deadline for the sale had been the end of February. Siemens is believed to have indicated to Rolls-Royce in January that it might be prepared to pay around pounds 30m for Parsons. Mr Rose said that obtaining the best result for shareholders was Rolls' paramount concern but it also wanted to dispose of the businesses in such a way as to maximise employment prospects.

Leaving aside the businesses being disposed of, Rolls increased operating profits by a third to pounds 242m, helped by increased demand for engines from civil airlines and a full year's contribution from its US military engines business, Allison.

Mr Rose said Rolls expected to increase civil engine deliveries from 400 last year to 450 this year, increase the workload at its Derby and Bristol factories by 30 per cent and take on about 400 staff.

The group's order book stands at pounds 7bn and it is working with GE and Pratt and Whitney on engines for the US Joint Strike Fighter, a programme which could eventually be worth $150bn (pounds 93bn).