
	Profile & highlights
	Creating value
	At a glance
	Acting Chairman's remarks
	Chief Executive's review
	Review of operations
	Civil aerospace
	Defence aerospace
	Marine
	Energy
	Focused investment
	Operational excellence
	Case study: TotalCare
	Finance Director's review
	Board of directors
	Report of the directors
	Directors' remuneration
	Financial statements & notes
	Shareholders' information
	Downloads

Highlights of the year

Rationalisation and restructuring completed without industrial disruption.
Progress in restructuring supply chain and renewing factories.
Significant product cost reduction achieved despite load drop.
First production parts made at new Inchinnan factory in Scotland.
Five engine types meet 40 Day Engine targets.

In 2003 we consolidated the improved performance achieved in 2002 and delivered additional improvements whilst coping with a further production load reduction of some ten per cent. The re-sizing of our operations was completed in anticipation of 2004 being the trough year for production and purchasing volumes. Once again I must pay tribute to the teamwork of our entire workforce in achieving these changes without industrial disruption.

Rolls-Royce gas turbine operations are global, with manufacturing facilities in the UK, US and Germany and joint ventures in the UK, Italy, Spain, Israel and China. In 2003, the added value from our manufacturing operations was 30 per cent (down from 32 per cent in 2002), with the remaining 70 per cent purchased from our global supplier network. Our strategy is to manufacture the highest value-added components ourselves and to purchase the remainder. Each purchasing and manufacturing operating unit will service all four businesses.

In 2003 we made significant progress in our initiative to restructure our supply chain. We completed the implementation of a tiered supply chain with structured build packages for the Trent 500 and delivered the associated productivity improvement on target. Other engine types are following. We reduced our supplier base by 142 to 765 after adding 37 new suppliers, mainly in emerging low-cost markets.

We expanded our use of Exostar, the aerospace and defence industry’s electronic trading exchange adding capability for catalogue management (involving 300,000 line items), e-auctions and a tool for collaborative engineering via the Internet known as ForumPass.

We have continued to react quickly to lower our cost base in the face of production volume reductions from the marketplace. In 2003 we were able to lower operating cost sufficiently to more than offset the fixed cost penalties resulting from the lower volumes. Despite the volume reductions, both our factories and our supplier network responded well to our product cost reduction programmes and delivered a more than five per cent year on year reduction.

We made positive progress in the ongoing consultations with our workforce regarding implementation of Modern Working Practices in the UK. These will be required to underwrite the business cases for new factories which we expect to bring forward in 2004.

Construction of our new factory at Inchinnan, Scotland, was completed in December on schedule. Initial production output was achieved prior to this, in June 2003. The full transfer of capability from the old Hillington factory will take place during 2004 for completion in early 2005.

Manufacturing lead times for parts reduced further in 2003 and by the year end met their component of the 40 Day Engine initiative target. Engine assembly lead times also reduced and by the year end five engine types were meeting the 40 day goal.

Other lean manufacturing initiatives, including implementation of the Rolls-Royce Production System, advanced during the year. The combined effect of all of these has produced a significant inventory reduction and consequent improvement in working capital utilisation.

In 2004 our priorities will be to continue with the implementation of our lean manufacturing initiatives, complete our plans for factory renewal, drive unit cost reduction and intensify our programme for quality improvement.

Delivering the highest efficiency focusing on the lowest operating cost

Employees. 2003 35,200. 2002 37,200. 2001 42,200. 2000 43,700. 1999 49,600.

Group turnover - per employee £'000. 2003 156. 2002 148. 2001 146. 2000 126. 1999 113.