Aero engine manufacturer Rolls-Royce reported healthy 2001 figures last week, but the news was overshadowed by the company's gloomy forecast for the years ahead and the retirement within the next 12 months of its chairman Sir Ralph Robins.

More than half the company's sales last year, and almost two-thirds of its pre-tax profits, came from commercial aircraft engines - an over-exposure to a volatile market that will see profits from this sector plunge further next year.

R-R's 2001 profits before tax were £475 million ($673 million) on sales of £6.3 billion. However, this did not include exceptional charges, chiefly the £230 million cost, announced last October, of restructuring the company after 11 September, including 5,000 redundancies. Final profits were £192 million, up from £166 million in 2000.

Civil engine deliveries will fall from 1,362 in 2001 to 900 in 2002, the company predicts, cutting profits from the sector to less than £99 million, compared with £198 million in 2001 and £312 million in 2000. This reflects the fall in aircraft orders as airlines cancel or delay orders. The decline in orders also represents a £1 billion drop in revenue from civil aero engines.

Armoured-vehicle manufacturer Vickers Defence Systems, although it made a contribution to defence profits from sales of the Challenger 2 tank in 2001, is not expected to contribute similarly in 2002, and may soon be sold to Alvis.

Another area of concern is R-R's reporting of its engine development joint ventures, or risk and revenue sharing partners (RRSPs). RRSPs provide some of the development funding up front - which R-R recognises as operating income - in exchange for a share of revenue from engine sales, which will only be recognised when the engines are sold. This effectively boosts profits now at the expense of later income. But R-R defended this as "a standard form of co-operation".

Source: Flight International