Weak sales of spares will slow Rolls-Royce

ROLLS-ROYCE, whose RB211 Trent engines are used to power several Boeing aircraft and the Airbus A330, said yesterday that its aerospace order book had held up at pounds 5.4bn but it saw only a slow recovery in civil aircraft spares sales, which are the key to a full recovery in its profits.

Half-year pre-tax profits, combining Rolls' aerospace and industrial power interests, showed an improvement from pounds 11m to pounds 20m after losing pounds 10m on the translation of dollar net income.

The figures and comments on current trading disappointed the stock market, sending the shares 4p lower at 128p. Analysts downgraded their forecasts for the full year, previously more than pounds 100m. Smith New Court is now expecting pounds 80m followed by pounds 150m in 1993.

But the stock market still expects Rolls-Royce to maintain its total dividend at 7.25p, after an unchanged interim of 2.55p, even though forecast profits will not cover the payment.

'Our expectation of a steady improvement in performance over the next few years is unchanged and this has prompted us to maintain the interim dividend. We have always told our shareholders that this is a long-term business and we must take the same view,' Lord Tombs, the retiring chairman, said.

The company has used up the pounds 50m of cash it had in its balance sheet at the start of the year.

During the first half, Rolls-Royce cut 2,200 jobs throughout its aerospace and industrial power activities, although the charge for restructuring was pounds 5m lower at pounds 14m. Similar reductions in the 54,900 workforce are expected in the second half of the year.

Aerospace profits, before restructuring costs, improved from pounds 4m to pounds 8m on sales reduced from pounds 987m to pounds 924m because of a phasing of engine sales into the second half.

Industrial power sales rose by 5 per cent to pounds 714m ,largely because of increased switchgear sales by NEI Reyrolle, and profits, before exceptional charges, eased back from pounds 38m to pounds 36m.