Engine strategy pays off for Rolls-Royce

Rolls-Royce said the combination of world-beating technology and a strong business model added up to a storming 2003.

Profits before tax surged to £180m last year compared with £105m in 2002 even though sales fell slightly, and Rolls-Royce entered 2004 with record orders.

Its upbeat performance and outlook put the UK engineering giant firmly back in the good books of the investment community, some parts of which had been sceptical over its prospects in a depressed civil aerospace sector.

Rolls has insisted for several years that selling new engines will form only part of its future strategy. At least as important will be the signing of deals to maintain its products for decades after they have left the factory and entered service around the world.

To this end, Rolls set out to convince its customers that, since it designed and built the engines, nobody is better qualified to look after them.

It seems to be winning the argument. Aftermarket revenue has grown steadily for the past five years and accounted for half the company’s income in 2003, said chief executive Sir John Rose.

‘It represents a reasonably predictable and growing source of revenue based on long-term contractual relationships.’

The installed base of Rolls-Royce civil jet engines now stands at almost 10,500. Each generates the equivalent of its list price again in spare parts over an average of 25 years in service. According to Rolls, this adds up to a £15bn opportunity in supplying spares to existing engines alone. Repair and overhaul will bring in even more revenue.

The company said a common technology approach focusing on the gas turbine had enabled it to compete strongly across all its markets.

Rolls expects the civil aero-engines market to gradually recover from its current slump while defence aerospace will be stable.

The group’s marine business is expected to benefit from increased demand for gas turbine propulsion systems and an increase in naval shipbuilding.

Last year was particularly good for the energy division, which turned a £41m loss into a £30m profit. Its energy strategy centres on developing industrial versions of its aero-engine cores for use in the power generation sector.

Rolls recently won a £56m order to supply industrial engine systems to the huge Dolphin Gas Project in the middle east.

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