London: British engine-maker Rolls-Royce Group said there were no signs of a sustained recovery in its aviation and defence markets and profit is likely to be flat this year, despite an expected rise in sales.
“Global economic activity remains depressed. Whilst some emerging economies have shown signs of recovery, there is no evidence yet of a sustained and general return to growth across the group’s markets,” chief executive John Rose said in a third-quarter trading update on Tuesday.
Rolls-Royce, which makes engines and turbines for passenger planes, fighter jets, ships and power stations, said its expects underlying sales to grow in 2009, with profit remaining broadly similar to 2008 levels, after a solid third-quarter.
Rolls reported a pretax profit of £872 million in 2008, on sales of 8.7 billion.
The company is expected to report an average pretax profit of £851.7 million for 2009, according to a poll of 18 analysts by Thomson Reuters.
Some analysts say Rolls’ civil aerospace business has yet to be fully hit by the economic downturn.
“The lag between the downward trend in airline traffic and the decline in deliveries is about two to three years so the civil engine downturn will probably come in the second half of 2010 or possible 2011,” said Evolution analyst Nick Cunningham.
“The markets see revenues holding up, but parts of the company are not as much resilient as late to the downturn.”
Shares in Rolls-Royce, which have risen 10% in the last three months, were 2.8% lower at 439.2 pence by 0944 GMT, valuing the group at around £8.2 billion.
Aircraft order delay
Like other engine suppliers, Rolls-Royce has been affected by delays in production of two airliners, the Airbus A380 and Boeing 787, crimping revenues from engine deliveries and prompting a build-up in inventory.
A drop in global passenger demand means Airbus and Boeing are heading for their worst annual order tally in 15 years as airlines cancel and defer orders, weighing on the whole aerospace supplier sector.
Industry body IATA said last month that the sector is still far from returning to profit, though air traffic demand has started recovering from the steep slump. It has said it sees the world’s airlines losing $11 billion this year.
Rolls-Royce, which split from the luxury car maker of the same name in 1971, said its order book continues to grow despite some minor cancellations and that it would continue to invest.
The group, which last week won a $720 million deal to supply Trent 700 engines for 10 Virgin Atlantic aircraft, also plans to proceed with a number of new operational and research facilities in the UK, Singapore and the USA.