Trent 900 Costs Hit Rolls Results

Rolls-Royce is projecting modest revenue growth in 2011 and “good growth” in underlying profits after delivering strong operating results in 2010 that were tinged by GBP56 million in costs linked to a Trent 900 uncontained engine failure last year.

Some repercussions of last year’s Qantas QF32 incident could still be felt in 2011, the company reports.

Despite the Trent 900 problems, departing company chief executive John Rose says overall product development has been improving, particularly on the TP400D turboprop for the A400M airlifter – where Rolls-Royce is a major partner on the Europrop International joint venture. He also listed the Trent 1000 for Boeing among the efforts to have “made good progress” despite several test setbacks in 2010.

Overall, Rolls-Royce reported revenue of GBP11.1 billion, up from GBP10.4 billion the year prior, and a growth in the order book to GBP59.2 billion. The underlying profit was up to GBP955 million, GBP40 million above 2009 levels.

In 2011, Rose sees modest revenue growth and underlying profits should “see good growth benefitting from a strong trading performance in the Civil aerospace” and other factors. Net profit was down sharply owing to foreign exchange accounting rules.

As to segment performance, Rolls reported order bookings for last year of 846 units, roughly flat from the year prior. Order intake grew by GBP1.5 billion to GBP48.5 billion. Profitability was hit, though because of “the increasing costs of bringing major new programs to market, higher research and development charges and the new effective of a number of one-off items.”

Rolls hopes the situation will ease, with Trent 1000 deliveries ramping up, although research and development expenses will remain relatively high owing to the work on the TrentXWB. Three TrentXWB development engines are built, with four more to come this year.

However, service activities are expected to increase, allowing Rolls to predict a 25% boost in underlying profit for the civil aerospace sector this year.

Rolls-Royce should also benefit from Airbus’s decision to increase Airbus A330 production rates; the engine maker has won the lion’s share of competitions on the aircraft type.

On the defense side, order bookings were flat, with deliveries up to 710 engines from 662 the year prior. Revenues should increase around 5% this year and service revenue should be stable, with profit flat.

Rolls could see some one-off additions, this year, from the U.K. government linked to termination costs on the Nimrod MRA4 program.

As to the continued battle in the U.S. to preserve the F136 alternative engine option for the F-35 Joint Strike Fighter, a Rolls official hopes the program can be kept alive until U.S. Secretary of Defense, Robert Gates, a critic of the two-engine plan, leaves his post. Gates has signaled he will depart this year.