CITY FOCUS by RUTH SUNDERLAND: Rolls is in bloom as Rose bows out

By RUTH SUNDERLAND
Updated: 17:02 EST, 10 February 2011

It is the end of an era for British industry. Sir John Rose yesterday delivered his final set of results after 15 years at the helm of Rolls-Royce, in a farewell that was clouded by the 'regrettable' blow-up in November of a Trent 900 engine on a Qantas A380 aircraft.

The cost of that incident, at £56million, is small change to Rolls, given that it saw a 4 per cent increase in profit for the year to £955million and revenues up 6 per cent to £11billion.

But it is undeniable that the engine failure is a blemish on its reputation, in a business that depends so heavily on trust and safety.

Standing down: Sir John Rose has transformed the firm from a laggard to a world-beating company

Rose, who remained tight-lipped about his plans after he leaves Rolls next month, tetchily dismissed suggestions it might harm his prospects of a high-profile job elsewhere, possibly the chairmanship of another FTSE company.

'If issues like the Trent 900 affected people's employability, then no-one in this industry would be employable,' he said.

It would be churlish to doubt that City headhunters will be chasing Rose harder than a pack of bloodhounds.

His record at Rolls since becoming chief executive in 1995 will surely make him the most sought-after addition to any boardroom in the land.

Under Rose's command - sometimes, according to former insiders, an autocratic rule - the company has been transformed from a laggard struggling against overseas rivals into one of the few truly world-beating British companies we still have.

Three of its divisions - marine, civil aviation and defence - each make profits of more than £300million a year and would qualify for membership of the elite FTSE 100 index in their own right.

The order book of £59.2billion is enough to keep the company's 38,500 employees busily occupied for the next five years without a single new contract being inked.

The share price, down 11p to 644.5p, took a beating after the engine blow-out. But it has risen 230 per cent over the Rose years.

By any reckoning, it is an impressive legacy for his successor, 52-year-old John Rishton, the chief executive of Dutch retailer Ahold and a former finance director at British Airways.

Rose has also been a dogged champion of UK manufacturing, right through the roaring Noughties-when it was commonly believed that industry was irrelevant and the City would single-handedly assure our prosperity.

Rose says: 'The language of government has changed as they have recognised that the lack of balance is unhelpful for the economy.

'Manufacturing has halved over the past decade as a proportion of the economy and there has been a significant reduction in employment.'

The dearth of big manufacturing companies here, he says, has hollowed out the UK's industrial base, making life harder for smaller companies.

'You do have to have a range of capabilities you can sell as a nation, and that is narrower than it needs to be,' he adds. 'A company like Rolls-Royce can spend 50 years in China or India and not be rewarded for its efforts very quickly, but it is harder for a smaller company to do that.'

Rose is a spirited advocate for skills training in engineering and technology. 'You have to take the stigma away from the technical colleges. It is not obvious to me why everyone needs to go to university.'

There were some curiosities tucked away in the figures. While the headline profit number rose moderately, reported pre-tax profit fell by 76 per cent to £702million from £2.96billion, due to currency movements. It argues swings on the forex markets are nothing to do with its underlying performance.

It is also creating a new holding company, in order, it says, to ensure that revenues flowing in from all over the world 'are in the right place for us to pay dividends'. Rose says there are no plans to move the group's tax residence overseas.

In the future, Rolls sees good prospects for its defence business in emerging markets including China, the Middle East and India, and for its marine division in oil and gas exploration in difficult areas including the Arctic.

It will be a wrench for both the company and Sir John - who has been drawing his £450,000 a year pension since 2008 - when the two finally part their ways.

Rose says: 'I will miss it hugely. It has been huge fun and a big part of my life. People say I am synonymous with Rolls, but they said that about my predecessor, Sir Ralph Robins. The waters close over your head quite quickly.'

Maybe. But despite a few thorny issues, Rose leaves the company to bloom under his successor.