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Rolls-Royce 2010 Profit Drops 76 Percent

Results included an $89.9 million charge due to the disintegration of a Trent 900 engine on an Airbus A380 operated by Qantas Airways on Nov. 4.

LONDON (AP) -- Rolls-Royce Group PLC, which drew unwanted attention last year when one of its engines failed on a passenger flight, said Thursday that full-year profit fell by 76 percent as financing costs took a huge bite out of rising income.

The results included a 56 million pounds ($89.9 million) charge due to the disintegration of a Trent 900 engine on an Airbus A380 operated by Qantas Airways on Nov. 4. The aircraft landed safely but Rolls-Royce shares slumped as the company struggled to regain confidence.

For the year ending Dec. 31, Rolls Royce said its net profit was 539 million pounds ($862 million) compared with 2.22 billion a year earlier. It booked a loss of 432 million pounds on financing income, compared with a gain of 1.79 billion in 2009, when it profited from an increase in the value of foreign currency contracts. The company maintains large hedging positions to manage swings in exchange rates.

Operating profit before financing and taxation was 1.13 billion pounds, down from 1.17 billion pounds in 2009.

Revenue rose 6.4 percent to 11.1 billion pounds, and Rolls-Royce said it won new orders worth 12.3 billion pounds in 2010, boosting its order book to 59.2 billion pounds.

Rolls-Royce shares were up 0.15 percent at 656.6 pence in morning trading in London. That is just above the 654.5 pence level they had closed at the day before the Qantas incident in November, having touched a low of 584 pence on Nov. 11.

"Civil Aerospace trends are encouraging and this division will be the main driver of growth and potential outperformance over the next couple of years," said a research note from Investec Bank. "However, for now we do not anticipate material upgrades and after a reasonable run, we think the shares are unlikely to significantly outperform in the near term."

The company's chief executive, Sir John Rose, said the group expects "good profit growth and a modest cash inflow" in the current year. Rose is retiring in March, when John Rishton moves up to CEO.

Guy Brown, analyst at Evolution Securities, said Rolls-Royce's exposure to the civil aerospace industry is likely to produce "a strong growth year in 2011."

Rolls-Royce said the 56 million pounds charge for the Trent 900 failure includes service and support costs, settlements to affected customers and the impact on the company's operational activity.

"A modest level of additional costs may be incurred in 2011," the company said.

Since the incident, Rolls-Royce won a firm order from British Airways for Trent 900 engines to power a dozen A380s which are due for delivery in 2013.

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