Shares in Rolls hit by write-down

MAGNUS GRIMOND

Shares in Rolls-Royce tumbled 15p to 175.5p yesterday as Britain's only large aero-engine maker revealed it was writing off over 90 per cent of the pounds 353m cost of Allison, an important US manufacturer acquired in March, and unveiled disappointing half-time profits. Leading analysts immediately downgraded expectations.

A problem with a large contract, understood to be a deal to supply AE2100 engines for the new Saab 2000 aircraft, has led Rolls to take a $175m write-down against Allison's net assets. Along with a $50m charge against plant and equipment, the "fair value" adjustment has reduced Allison's net assets from $250m to just $29m, leading to a pounds 324m goodwill write- off, taken against reserves.

Sir Ralph Robins, chairman, said: "We looked at this contract and decided we should provide against it. We decided to be conservative and prudent." Although Rolls believed it would not make as much money as originally envisaged, it would lead to other contracts which would, he stressed.

The charge came alongside interim profits up from pounds 40m to pounds 70m in the six months to June, boosted by pounds 23m of gains from the sale of a military bridge business and a pump manufacturer. Underlying profits of around pounds 38m came in well below market expectations of pounds 55m-pounds 65m and were greeted with dismay by analysts, who pointed the finger at a collapse in trading profits from pounds 37m to pounds 7m in the industrial power division.

Sir Ralph suggested that the market had over-reacted a little. "What has happened is that a major contributor to margins - the marine and gas turbine business - has had a cyclic downturn and that has had an impact on margins."

He said there had been a fall-off in large orders and spare parts deliveries to the oil and gas industry. "We have seen the same thing happen in the aero-engines business, but in the end they have got to keep the engines running, pumping gas, so in the end they must come back and buy spare parts."

Rolls, which has shed over 20,000 jobs in the past five years, warned that "further refinement of the company's operations can be expected", but said it had no plans for compulsory redundancies.

In the aerospace division, a pounds 30m cut in development spending on the new Trent engine and a pounds 9m first-time contribution from Allison pushed trading profits from pounds 3m to pounds 46m. Sir Ralph said he was encouraged by recovering airline profitability. Rolls was well- placed to exploit the market. He denied reports the company had been in merger talks with Pratt & Whitney, a US rival.

He also dismissed disquiet over a pounds 159m cash outflow, leaving net cash balances of pounds 126m in June, saying this reflected the normal working capital increase at this time of year.

Investment Column, page 23

Start your day with The Independent, sign up for daily news emails
News
Ben Little, right, is a Labour supporter while Jonathan Rogers supports the Green Party
general election 2015
News
The 91st Hakone Ekiden Qualifier at Showa Kinen Park, Tokyo, 2014
news
Life and Style
Former helicopter pilot Major Tim Peake will become the first UK astronaut in space for over 20 years
food + drinkNothing but the best for British astronaut as chef Heston Blumenthal cooks up his rations
News
Kim Wilde began gardening in the 1990s when she moved to the countryside
peopleThe singer is leading an appeal for the charity Thrive, which uses the therapy of horticulture
Sport
Alexis Sanchez celebrates scoring a second for Arsenal against Reading
football
Life and Style
health
Voices
An easy-peel potato; Dave Hax has come up with an ingenious method in food preparation
voicesDave Hax's domestic tips are reminiscent of George Orwell's tea routine. The world might need revolution, but we like to sweat the small stuff, says DJ Taylor
News
i100
News
Japan's population is projected to fall dramatically in the next 50 years (Wikimedia)
news
Life and Style
Buyers of secondhand cars are searching out shades last seen in cop show ‘The Sweeney’
motoringFlares and flounce are back on catwalks but a revival in ’70s car paintjobs was a stack-heeled step too far – until now
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...

Ashdown Group: IT Manager / Development Manager - NW London - £58k + 15% bonus

£50000 - £667000 per annum + excellent benefits : Ashdown Group: IT Manager / ...

Recruitment Genius: Sales Consultant / Telemarketer - OTE £20,000

£13000 - £20000 per annum: Recruitment Genius: Scotland's leading life insuran...

Ashdown Group: Training Programme Manager - City, London

£40000 - £45000 per annum + benefits : Ashdown Group: Training Programme Manag...

Day In a Page

NHS struggling to monitor the safety and efficacy of its services outsourced to private providers

Who's monitoring the outsourced NHS services?

A report finds that private firms are not being properly assessed for their quality of care
Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

The Tory MP said he did not want to stand again unless his party's manifesto ruled out a third runway. But he's doing so. Watch this space
How do Greek voters feel about Syriza's backtracking on its anti-austerity pledge?

How do Greeks feel about Syriza?

Five voters from different backgrounds tell us what they expect from Syriza's charismatic leader Alexis Tsipras
From Iraq to Libya and Syria: The wars that come back to haunt us

The wars that come back to haunt us

David Cameron should not escape blame for his role in conflicts that are still raging, argues Patrick Cockburn
Sam Baker and Lauren Laverne: Too busy to surf? Head to The Pool

Too busy to surf? Head to The Pool

A new website is trying to declutter the internet to help busy women. Holly Williams meets the founders
Heston Blumenthal to cook up a spice odyssey for British astronaut manning the International Space Station

UK's Major Tum to blast off on a spice odyssey

Nothing but the best for British astronaut as chef Heston Blumenthal cooks up his rations
John Harrison's 'longitude' clock sets new record - 300 years on

‘Longitude’ clock sets new record - 300 years on

Greenwich horologists celebrate as it keeps to within a second of real time over a 100-day test
Fears in the US of being outgunned in the vital propaganda wars by Russia, China - and even Isis - have prompted a rethink on overseas broadcasters

Let the propaganda wars begin - again

'Accurate, objective, comprehensive': that was Voice of America's creed, but now its masters want it to promote US policy, reports Rupert Cornwell
Why Japan's incredible long-distance runners will never win the London Marathon

Japan's incredible long-distance runners

Every year, Japanese long-distance runners post some of the world's fastest times – yet, come next weekend, not a single elite competitor from the country will be at the London Marathon
Why does Tom Drury remain the greatest writer you've never heard of?

Tom Drury: The quiet American

His debut was considered one of the finest novels of the past 50 years, and he is every bit the equal of his contemporaries, Jonathan Franzen, Dave Eggers and David Foster Wallace
You should judge a person by how they peel a potato

You should judge a person by how they peel a potato

Dave Hax's domestic tips are reminiscent of George Orwell's tea routine. The world might need revolution, but we like to sweat the small stuff, says DJ Taylor
Beige is back: The drab car colours of the 1970s are proving popular again

Beige to the future

Flares and flounce are back on catwalks but a revival in ’70s car paintjobs was a stack-heeled step too far – until now
Bill Granger recipes: Our chef's dishes highlight the delicate essence of fresh cheeses

Bill Granger cooks with fresh cheeses

More delicate on the palate, milder, fresh cheeses can also be kinder to the waistline
Aston Villa vs Liverpool: 'This FA Cup run has been wonderful,' says veteran Shay Given

Shay Given: 'This FA Cup run has been wonderful'

The Villa keeper has been overlooked for a long time and has unhappy memories of the national stadium – but he is savouring his chance to play at Wembley
Timeless drama of Championship race in league of its own - Michael Calvin

Michael Calvin's Last Word

Timeless drama of Championship race in league of its own