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12 Feb 04. Rolls-Royce pleased the City with a set of excellent reulst which exceeded expectations. The marked difference in the strategy of Rolls-Royce and its UK engineering counterpart BAE SYSTEMS is remarkable. BAE takes the view that share price is the all important goal to aim for, cynics might suggest that this approach may be personal rather than strategic! However in doing so the company, with its various announcements of potential buyers has taken its eye off the ball in growing the company internally by increased performance and cutting costs. BAE has run out of partners and is left at the altar, Rolls on the other hand, has used a totally different strategy. After 9/11, the company embarqued on a ruthless cost-cutting drive and focused the business on core businesses such as after sales support, which now accounts for over 50% of revenues. It has strengthened its military capability and is now involved in most of the major programmes such as JSF and Typhoon with revenues stretching forward for decades. The shares languished at 67.5p at one time but this did not deter management from its current strategy (which in many ways is similar to that of GKN).

“I am pleased to report financial and operational performance in line with our guidance, demonstrating the strength of our business model and ability to respond to significant challenge. Action has been taken to reduce operating and unit costs and to reduce working capital. Importantly, we resolved our pension funding issue in line with the guidance we provided in 2002. We have competed effectively in all our market sectors and the strong international market positions we have established have enabled us to maintain a substantial order book and continue to expand our service activities. In 2004 we expect increased profits and a further reduction in average net debt.”Sir John Rose, Chief Executive Rolls-Royce Group plc

The FT reported Results for the year ended 31 December 2003 reflect the benefit of a maturing business portfolio and the effective restructuring actions taken to mitigate the downturn in civil aerospace, which was exacerbated by the Iraq war and the outbreak of the SARS virus during the first half of 2003. A combination of operational performance and mix enabled an increase profit on reduced revenues. Underlying profit before tax increased by 12 per cent to £285m (2002: £255m) and underlying earnings per share were 12.20 pence (2002: 11.10p). Basic earnings per share were 7.04 pence (2002: 3.29p).

Net debt was £323m (2002: £595m), reflecting a cash inflow of £272m (2002: £94m outflow). Average net debt for the year was £950m (2002: £1,090m). Rationalisation expense over the past two years has amounted to £247m. It is encouraging that, in spite of this, and the additional debt of £133m that was brought onto the balance sheet as a result of sales financing obligations, the company has generated a net cash inflow of £178m over this period, demonstrating our robust trading performance

Advanced technology is at the heart of Rolls’ success. Following a decade of high investment in new product development, the market requirement for new products is now slowing down. Technology acquisition, as well as supporting new product
development, will increasingly focus on the development of derivative products, unit cost reduction, improvement of in-service operation and extending the scope and value of our service capabilities.


The defence aerospace business has established a strong position in the world market, with a broad portfolio of programmes and a large customer base. In the short-term, we expect the mix of programmes to provide a stable outlook. Over the medium-term we will benefit from the continuing development of the programme portfolio and the increasing services opportunity.

The marine propulsion business is a world leader. Over recent years its growth has been led by the commercial offshore supp

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