Rolls-Royce price hit by engine sales warning

A WARNING that civil aircraft engine deliveries were likely to fall next year prompted an 8p drop to 180p in Rolls-Royce's share price yesterday as the company reported an improvement in first-half pre-tax profits from pounds 31m to pounds 40m despite lower sales, writes Terence Wilkinson.

Sir Ralph Robins, chairman, also warned that delays in securing final signings on industrial power contracts were leading to uneven workloads. However, a financing package for a contract won last year to supply turbines to three new power stations in India was expected in a few weeks.

Analysts said the pick-up in pre-tax profits in the face of a 14 per cent fall in turnover from pounds 1.75bn to pounds 1.5bn provided evidence that the company's pounds 200m restructuring programme, begun in 1992, was taking effect despite poor market conditions.

'I think the company has been keen to talk down some of the wilder profits forecasts for 1995 and that is why it warned on deliveries,' said Paul Ruddle, of NatWest Securities.

'But even if engine deliveries fell from 400 to 370 next year this might mean the loss of pounds 40m of sales, which is not much in a pounds 1bn turnover business.'

Operating margins rose from 8.9 to 9.9 per cent, reflecting cost reductions and higher productivity. Sir Ralph said little had yet been seen of the pounds 165m annual cost savings expected from the restructuring, which will involve the closure of six plants and the loss of 6,500 jobs.