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ROLLS RESULTS PLEASE CITY

04 Aug 03. Results from engine maker Rolls-Royce pleased the City. Results for the half-year ended June 30 2003 were consistent with previous guidance and reflected both the balanced nature of the company’s business and the restructuring actions taken to mitigate the downturn in civil aerospace.

Underlying profit before tax was £115m, an increase of 11 per cent, and underlying earnings per share were 4.97 pence (h1 2002: 4.60p). Basic earnings per share were 2.09 pence (h1 2002: 0.99p)

Net debt was £675m (h1 2002: £770m), reflecting a cash outflow of £80m (h1 2002: £269m) during the first half. Average net debt for the period was £895m (h1 2002: £990 million).

The order book remained strong, at a record level of £17.6bn (h1 2002: £16.7bn), following an order intake of £4.0bn (h1 2002: £5.2bn). A further £1.4bn worth of business was announced (h1 2002: £1.9bn), resulting in a firm and announced order backlog of £19.0bn (h1 2002: £18.6bn). Aftermarket services accounted for 34 per cent of the firm and announced order backlog (h1 2002: 29 per cent).

The company has made good progress with its cost reduction programmes, including facilities rationalisation, supply chain restructuring and lead-time reduction. Headcount was 36,200, a net reduction of 1,100 during the first half. The headcount is expected to be reduced to around 35,000 by the year-end, in line with previous guidance. During this difficult period, the company’s employees have continued to demonstrate strong teamwork and commitment.

Outlook

The company’s defence, marine and energy businesses, which represent 54 per cent of Group sales, are performing in line with expectations. The after-effects of the Iraq war, coupled with the impact of SARS, have impacted the civil aerospace business, causing some deferrals of original equipment deliveries. However, year to date Rolls-Royce civil engine flying hours have increased compared to the same period in 2002, confirming that the company’s aftermarket can continue to grow even in a depressed cycle for original equipment.

Defence: Sales £642m; underlying profit before interest £60m

The company continued to develop its aftermarket services, which represented 51 per cent of defence sales. During the first half, additional orders were announced for Mission Ready Management Solutions (MRMS), which brought the total of MRMS business booked so far to more than $500 million.

As a member of the Europrop International consortium, the company will develop the engines for the new European transport aircraft, the A400M. The value to Rolls-Royce amounts to more than $500 million. Also in the transport sector, the company was awarded new contracts, worth more than $350 million, for AE 1107C-Liberty engines for the Bell Boeing V-22 for the US Marine Corps. A six-year agreement was concluded with Lockheed Martin covering 248 AE 2100D engines for C-130J aircraft for the US Department of Defense.

Good progress on the F-35 Joint Strike Fighter included production of the first Rolls-Royce LiftFan(tm) blisk (bladed disk) for the System Development and Demonstration phase of the programme.

The Japanese Defense Agency selected the RTM322 engine for its fleet of EH101 helicopters, maintaining the engine’s position as the leading powerplant for modern, medium-sized helicopters.

Bahrain signed a contract for six Hawk Advanced Jet Training aircraft, to be powered by the Adour Mk 951 engine, which is currently completing flight certification trials for South Africa.

Marine: Sales £456m; underlying profit before interest £37m

The Marine business continues to develop its world leading position in commercial and naval markets. Aftermarket services represented 30 per cent of marine sales in the first half. Submarine support work, in particular, is providing significant opportunities for growth in services.

The company entered the US Navy large gas turbine market with the sele

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