Sir Colin Chandler, Vickers' chief executive, confirmed BMW would be interested in taking over Rolls-Royce, following a deal where the German group will supply engines for the next generation model due to emerge from the historic Crewe works by 2000. He said: "I would not deny that at all and neither would they but the point is we are not selling."
The comments were the clearest signal yet that Rolls-Royce will stay as a long-term part of the Vickers empire, which ranges from Challenger tanks to baby incubators.
Rolls-Royce sales rose by 12 per cent world-wide in 1996, though there were fewer esoteric bespoke cars made last year for wealthy individuals, which hit profit margins.
Rolls-Royce's sales slumped during the recession, but Sir Colin said heavy investment in production technology was paying off. Production of the current range of Rolls-Royce engines, which date back to the mid-1960s, shifted last year from Crewe to Vickers' other automotive company Cosworth, which is better known for making Formula One racing engines. Profits from the automotive businesses as a whole fell by 10 per cent to pounds 36.7m following reduced demand for Cosworth engines from Ford.
Vickers also revealed it was urgently seeking a deal with prospective partners to inject cash into its troubled medical products division, which has about half the baby incubator market in the UK and US.
Sir Colin said he was "frankly disappointed" by the results from the medical business, which saw operating profits rise last year to just pounds 1.6m, from pounds 900,000 in 1995, on sales of pounds 118.5m. The division, which employs 1,500 staff, continued to be hit by falling or deferred equipment orders from the National Heath Service.
"We need a partner for the medical division and we're in dialogue with prospective partners. It's a very urgent issue for us," Sir Colin said. A deal is expected in a matter of weeks.
The comments came as Vickers announced an 11 per cent rise in pre-tax profits to pounds 83.3m. Sir Colin also insisted Vickers was over quality problems identified during trials of its Challenger 2 battle tank.
He said a second test in Dorset had just been completed and the situation was now "completely solved".