Rolls-Royce unveils €1.4bn defence contract

Rolls-Royce today unveiled a ground-breaking £1bn (€1.4bn) contract with the Ministry of Defence to help keep Royal Navy submarines at sea.

The agreement is for the provision and support of pressurised water reactors for the Royal Navy’s nuclear powered submarines over the next ten years, including the new Astute class submarines when they enter service.

The contract breaks new ground because Rolls and the MoD will form a joint team to set agreed service levels, and the company will be paid for meeting those targets rather than through individual contracts.

Rolls will also receive additional incentive payments for improvements which create savings for the MoD when the submarines are in service.

The new working arrangements reflect the MoD’s drive for closer co-operation from its contractor base to better manage costs.

Rolls has been supplying nuclear steam raising plants to the Royal Navy for almost 50 years from its production site in Derby, meaning this new contract will help secure the future of staff working in this part of the business.

Lord Drayson, Minister for defence equipment and support, said: “This landmark 10-year contract will deliver more cost effective management of submarine maintenance and safeguard essential skills in the UK.”

The contract boosted Rolls-Royce shares on the eve of its half-year results tomorrow. Analysts expect the company to report underlying profits of £370 million, against £324 million achieved a year earlier.

The Rolls-Royce naval business provides products and services to 70 navies and coastguards and powers 400 ships. The company is conducting a £137m (€204m) long-term service and support contract for gas turbines which power 27 ships in service with the Royal Navy, and French, Belgian and Royal Netherlands navies, and is part of a team providing support to four Royal Australian Navy amphibious and afloat support ships for seven years with options for a further five.

About 40% of marine turnover comes from after-market service support, with a global customer support network of sales and service centres in 33 countries.