Rolls-Royce increases dividend; [LONDON 1ST EDITION]

SYLVIA PFEIFER. Financial Times. London (UK): Feb 8, 2008. pg. 20

Abstract (Summary)
Sir John Rose, chief executive, said the decision to rebase the dividend and commit to a progressive dividend policy subject to earnings was "the most powerful way of showing confidence in the future of the business".
After last year's record order in-flow Sir John said the group was still seeing "order activity". In the first month of this year, Rolls-Royce took about Pounds 2.5bn worth of orders.
"This is a completely unforgiving market right now and people only want to see negatives," said Steve East, analyst at Credit Suisse. He stressed, however, that "for a company that is still cyclical to take the dividend up by 35 per cent and say that it's sustainable, that is good news."
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(Copyright Financial Times Ltd. 2008. All rights reserved.)
Rolls-Royce, the aircraft engine maker, raised its dividend by more than a third, a move it said reflected its continuing confidence in future growth.
The company increased the total pay-out by 35.6 per cent to 13p, following a year-long strategic financial review.
Rolls-Royce is also making a one-off cash injection of Pounds 500m into its pension fund.
However, the return to investors was much less than the market had expected and the shares fell 49p, or more than 10 per cent, to 431p.
Some analysts had predicted a share buy-back or special dividend of as much as Pounds 1bn.
Sir John Rose, chief executive, said the decision to rebase the dividend and commit to a progressive dividend policy subject to earnings was "the most powerful way of showing confidence in the future of the business".
The company needed to remain flexible, both in terms of its balance sheet and its capacity, to be able to respond to customers' demands as well as new opportunities.
It had net cash at the year end of Pounds 888m.
Rolls-Royce is benefiting from a boom in aviation in the Middle East and Asia.
It revealed a record order book of Pounds 45.9bn, an increase of 76 per cent, with nearly half - Pounds 20bn - coming from those two regions.
The company is predicting that by 2010, more than 500 aircraft in China will be powered by Rolls-Royce engines, up from 41 in 1997.
The company expects to achieve continued growth in profitability and a positive cashflow in 2008. This is in spite of a weak dollar and rising raw material prices.
After last year's record order in-flow Sir John said the group was still seeing "order activity". In the first month of this year, Rolls-Royce took about Pounds 2.5bn worth of orders.
The company reported that underlying profits rose from Pounds 705m to Pounds 800m in the year to end-December. That figure was distorted by foreign exchange hedging.
With much of its revenue in dollars, Rolls-Royce has Dollars 9.4bn of hedges in place at an average sterling exchange rate of Dollars 1.83, equivalent to 2.6 years cover.
"This is a completely unforgiving market right now and people only want to see negatives," said Steve East, analyst at Credit Suisse. He stressed, however, that "for a company that is still cyclical to take the dividend up by 35 per cent and say that it's sustainable, that is good news."Pre-tax profits fell to Pounds 733m (Pounds 1.4bn) and earnings per share were 32.9p