Defence Aerospace (First-half)

Defence Aerospace
Order book (£bn)6.66.5
Engine deliveries373284
Underlying revenues (£m)1,018969
Underlying OE revenues (£m)510473
Underlying services revenues (£m)508496
Underlying profit before financing (£m)158136

The Defence aerospace portfolio is characterised by its large installed fleet of engines across a broad range of applications and geographies, supporting more than 160 customers in 103 countries.

A significant number of new Rolls-Royce powered helicopter, transport and combat aircraft programmes continue to make good progress. Development and certification testing in the first-half included the A400M and the F-35 Lightning II Joint Strike Fighter (JSF) LiftSystem™. Good technical progress is also being made with the F136 engine for the JSF.

The TP400 engine has achieved more than 1,500 engine flight test hours on the three aircraft involved in the flight test programme. While there remains continuing uncertainty about the A400M programme, we believe that the future cost of the remaining phases of this development programme have been appropriately provided for.

Total orders in the period reached £1.2bn, of which £0.8bn related to service contracts, including the contract for the UK’s Royal Air Force’s fleet of RB199 powered Tornado aircraft. This strong performance supported a resilient order book which ended the period at £6.6bn.

Engine deliveries for the transport sector including the C-130J and V-22 Osprey continue to grow, supporting a five per cent improvement in first-half revenues.

Lower restructuring spend, lower R&D charges, improving operational performance and mix helped deliver particularly strong first-half margins and a 16 per cent improvement in underlying profits.

Defence aerospace outlook

The expansion of the portfolio, the strong positions in military transport and access to a global customer base leaves the defence portfolio well positioned to access growing markets. These factors provide resilience in an uncertain budgetary environment.

The business is well positioned to deliver another good performance in 2010. Revenues are expected to grow by mid single digits and, although second half profits will be weaker than the first due to the phasing of costs, we expect strong full-year profit growth.

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