FTSE 100 engineer Rolls-Royce (RR.) falls 1.9% to 721p as it agrees to pay €720 million to complete the full takeover of Spanish aero engine component manufacturer Industria de Turbo Propulsores (ITP). The company says this will increase its exposure to lucrative aftermarket revenue in the civil aerospace sector.
Before Rolls undermined its reputation with a series of damaging profit warnings, a big plank in its investment case was its leading position in this aftermarket. The company has a significant installed base of engines which fall under its total care management maintenance (spares and repairs) package.
The recurring revenue from this activity underpins earnings visibility but has been undermined by a poor performance from its oil and gas focused marine division and the impact on demand for its older Trent jet engines from the introduction of newer models.
Rolls currently owns a large minority stake in Bilbao-based ITP and will purchase the outstanding 53.1% from SENER Grupo de Ingeniería in eight instalments over a two years.
The acquired business, made profit after tax of €59 million from €710 million revenue in 2015, has partnered with Rolls-Royce on all Trent engine programmes.