Record orders book powers Rolls-Royce to higher profits

Rolls-Royce shrugged off the disappointment of losing out on the chance to build a rival engine for the US Joint Strike Fighter aircraft by unveiling a near 50 per cent increase in profits yesterday and a record £23bn order book.

Despite the surge in underlying pre-tax profits last year to £584m on sales of £6.6bn, the shares fell 3 per cent on profit-taking, closing 13p lower at 431.5p. In the last nine months, the stock has risen 80 per cent.

Sir John Rose, the chief executive, said that more than a third of the £11bn order intake last year was for the highly lucrative spares business, while after-market sales now accounted for 54 per cent of overall revenues.

Rolls' share of the civil engine market slipped to 23 per cent in 2005, largely as a result of a bumper year for the Boeing 737 where the rival manufacturer General Electric is the sole supplier.

But Sir John said its Trent engine had taken 50 per cent of the market on the new Airbus A380 and Boeing 787 jets with orders worth $3bn for 246 engines.

Sir John said that the group had lessened its exposure to the civil aerospace cycle through its move into the industrial and marine engine markets. But he appeared to rule out any further major acquisitions, saying that expansion would come through development of new products.

Net debt shrank from £632m to just £260m but Sir John said that rather than gearing up the balance sheet to hand cash back to shareholders, Rolls would maintain a prudent stance given the significant levels of investment it continues to make. Spending on research and development reached £630m last year, of which £300m came from the company's own resources and £330m from government and risk-sharing partners.

Although there has been some bid speculation supporting the Rolls' share price, Sir John pointed out that the Government continued to hold a golden share in the company, limiting any single shareholder to 15 per cent.

Overseas share ownership now stands at just under 50 per cent, with US investors holding about a third of the stock.