ALEX BRUMMER: Rolls-Royce defies the bears

Amid the carnage on world markets caused by fears surrounding the coronavirus health catastrophe, not all shares were deeply in the red.

On a day when the FTSE 100 dropped 3.2 per cent and shares of Willie Walsh’s International Airlines Group plummeted 8.4 per cent, stock in Britain’s aircraft engine maker Rolls-Royce was the great exception, rising by 3.2 per cent.

Airlines are in the front line, so the fall in shares of BA’s parent company was not surprising in spite of operating profits of £2.7billion in 2019. 

Taking off: On a day when the FTSE 100 dropped 3.2 per cent, stock in Britain’s aircraft engine maker Rolls-Royce was the great exception, rising by 3.2 per cent

What made the performance of Rolls remarkable is that it has considerable operations in China and its chief executive, Warren East, estimates that there could be a 2.5 per cent impact on the engineer’s revenues in February alone.

In spite of this setback and the changes made in working procedures in Singapore to cut down the risk of infection, East is in a chipper mood.

He is starting to see an end to the problems of the Trent 1000 engine, fitted on many of the world’s long-haul carriers, which required nine fixes to make them more durable.

Eight faults have been resolved and the ninth will be tested this spring. Insurance which Rolls has against claims from customers came good, with a payout of £170million making a dent in the overall £2.4billion cost of the fix spread over several years.

What is really pleasing for Rolls stakeholders is that simplification of the group is paying off, with free cash flow of £911million – way above expectations.

On land, Rolls is making progress in developing small nuclear reactors, based around submarine power systems, which could generate power for e-fuels for aircraft. 

There is also the potential for this to be the replacement technology on sites of retired UK nuclear plants such as Hartlepool.

Backing research and development eventually could have a big pay-off.

CBI shunned

Normal expectations would be for a Tory government to reach out to business. Boris Johnson’s administration is different.

I am told that the main representative organisation, the CBI, is not welcome in Downing Street.

It has never been forgiven for an unwavering ‘Remain’ stance before and since the June 2016 referendum.



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