After market gains for Rolls-Royce

The news that 35% of Rolls-Royce’s aerospace sales last year were in spares, repairs and overhaul cheered City analysts. Margins for these after market sales, mainly for civil aircraft, are much higher than for sales of original equipment. The firm will not reveal how much better the margins are, but Sir Ralph Robins, chairman, presenting […]

The news that 35% of Rolls-Royce’s aerospace sales last year were in spares, repairs and overhaul cheered City analysts.

Margins for these after market sales, mainly for civil aircraft, are much higher than for sales of original equipment.

The firm will not reveal how much better the margins are, but Sir Ralph Robins, chairman, presenting the 1996 results, conceded the after market is `what the aerospace industry is about’.

He reckons sales in the after market would rise to 50%. Beyond that and it would dilute business in new engines, of which Rolls-Royce sold 1,100 last year.

The results caught brokers unawares. Operating profits were £242m, around £20m higher than expected and 36% up on the year before. Robins duly produced a promised dividend increase – the first since 1991 – with a payment of 5.3p (5p): more than twice covered by earnings of 12.7p.

The trading result, dividend increase, and a confident accompanying trading statement, sent the shares sharply higher. Brokers have upgraded this year’s forecast to around £290m pre-tax, with earnings expected at between 15.5p and 16.5p and dividends of between 5.5p and 6p.

Aerospace accounted for most of the profit increase, with the US Allison engine arm making a first full-year contribution of £24m.

The firm’s steam power generation businesses are for sale, with deals disposing of them expected soon. The £263m of provisions for these meant a combined pre-tax loss of £28m (profit £175m).

Turnover on Rolls-Royce’s ongoing business was up 21% at £4.04bn. A 7% fall in research spending reflected progress on current development programmes. Orders were up £800m at £7bn.