ROLLS-ROYCE AND GKN ANNOUNCE BETTER THAN EXPECTED RESULTS
4 Mar 03. Rolls-Royce said on Tuesday that underlying profit before tax was £255m, a fall of 46%, which resulted primarily from the predicted difficult conditions in the civil aerospace market.
At Dec. 31, 2002, after taking account of deferred taxation, the FRS 17 deficit in the Rolls-Royce UK pension funds was approximately £1.1bn. The next formal actuarial review of the major fund is due to commence on Mar. 31, 2003 and is expected to be completed before the year-end.
Encouragingly, order intake at £8.7bn remained strong during 2002. The firm order book was £16.2bn (2001 £14.4bn) at the year-end, with a further £0.9bn business announced.
In Defence, Rolls-Royce is a major partner in the European collaboration which is responsible for the EJ200 engine for Eurofighter. The first production Eurofighter Typhoon aircraft flew in 2002 powered by production EJ200 engines. The company expects engine deliveries to grow over the next few years.
On March 3rd, GKN announced 2002 preliminary results. Sales for the year of £4.5bn were 3% higher than the comparable figure for 2001. The negative impact of currency translation was £62m and the net favourable impact of acquisitions and divestments was £50m. Operating profit before goodwill amortisation and exceptional items was 3% higher at £315m. The net impact of currency translation, acquisitions and divestments was insignificant. Operating profit after goodwill amortisation and exceptional items was £230m (2001: £161m).
Operating cash flow after net capital expenditure was again strong at £174 (2001: £210m). Net debt reduced to £834m at the end of 2002 from £885m a year earlier. Interest was covered 6.6 times (2001: 5.0 times).
Aerospace sales of £1,502m were level with 2001 but with different year-on-year performance in subsidiaries and joint ventures. Subsidiary sales of £559m were £71m (11%) lower as a consequence of the fall in demand for civil aircraft. Joint venture and associate sales (mainly AgustaWestland) were £943m, an increase of £80m (9%) as production peaked on EH101 and Apache.
Operating profit before goodwill amortisation and exceptional items, after charging GKN’s £11 million share of redundancy and reorganisation costs in AgustaWestland, was £118m compared with £119m in 2001.
GKN Aerospace Services announced 2002 sales of £559m (2001: £630m) The downturn in civil aerospace was exacerbated for GKN by BAE Systems’ cancellation of its RJX regional jet programme and the financial collapse of Fairchild Dornier in early 2002. GKN was a significant supplier to both. A rationalisation of Aerospace Services’ civil operations in the UK announced in late 2001 resulted in more than 800 redundancies mainly at Cowes on the Isle of Wight. The rationalisation was mostly completed in the first half of 2002. The business is now operating at a size appropriate to current demand but the management task continues to be challenging. In 2002, two small but significant US transactions brought new technology to the business. In January, GKN acquired the assets of Boeing’s Thermal Joining Center (TJC) in Kent, Washington State. The facility produces a critical titanium assembly for the F/A-22. The TJC, acquired for $2.5m, has the largest electron beam welding chamber in the US. In May, GKN acquired ASTECH Inc of the US for $32m. ASTECH is a US technology leader in super alloy, honeycomb structures based in Santa Ana, California in the US.
GKN is a leader in the development of new composite technologies such as Resin Film Infusion (RFI) and Resin Transfer Moulding (RTM) which enable higher levels of precision, quality and productivity. During 2002 a new composite engineering centre was opened at Meriden, Connecticut in the US and the largest RTM facility in the US was established at the St Louis, Missouri facility. On the F-35 Joint Strike Fighter GKN has been selected to develop and manufactu