Worst over, says Rolls as earnings climb to £101m

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The Independent Online
BY RUSSELL HOTTEN

Difficult conditions in both Rolls-Royce's main markets, aero engines and industrial power, are expected to continue into next year - but the company says that it is in a strong position to cope.

Announcing a £25m rise in profits to £101m, the chairman, Sir Ralph Robins, said yesterday that the worst of the restructuring was over but further cost-cuts would be made.

He also said that US regulatory approval of Rolls' purchase of Allison, the American engine-maker, was expected before the end of April. Rolls has still to decide whether to finance the $525m acquisition through a rights issue or a share placing.

The company's restructuring has cost £180m in provisions, but Sir Ralph said: "We are at the end of the big bang. We have made the major plant closures. But you have never finished in these sort of businesses with cost reductions and efficiency gains."

However, the provisions and plant closures, which have cost 20,000 jobs in five years, were over as Rolls was now in a strong position. "While the markets are tough we are steadily improving profitability,'' Sir Ralph said.

"Everyone is cost-cutting, of course, so the rate at which we can achieve reductions is important. But we have no evidence that we are not competitive. We have quite a lot of evidence that we are," he said. But markets remained difficult, with sales last year falling to £3.2bn from £3.5bn in 1993 as the civil aircraft market remained very weak. The order book for signed contracts was £5.9bn, with a further £900m worth of business awaiting confirmation. In the long term the market will recover as airlines replace engines and environmental concerns demand quieter and more fuel-efficient products.

Sir Ralph said: "The scene still remains a little cloudy. Until we can see airline yields going up it's difficult for us to predict when they are going to order new equipment. We still see 1996 being the earliest. But at least the underlying trend is good in that there are more people flying and airlines are making more money. But they need to make more still."

Spending on research and development would fall sharply now Rolls had completed development of its new Trent twin engines, which were principally designed for the new Airbus A330 and Boeing 777 airliners.

Last year R&D spending fell to £218m from £253m.

The industrial power division saw profits fall £2m to £66m, on turnover down from £1.3bn to £1.2bn, due to protracted contract negotiations.

Rolls had always expected that approval for the Allison purchase would be around March or April, and the timetable was still on course, Sir Ralph said, adding that no decision had been made on how to finance the deal. Net cash at year-end was £285m, after an outflow for the year of £112m.

A final dividend of 3p makes a total of 5p for the year, unchanged from 1993.

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