Aero engine maker Rolls-Royce has reported a 76 per cent fall in half-year profits before tax as the company spent £120 million developing new emissions technologies.

For the six months to June 30, pre-tax profits at the group were £38 million, compared with £159 million in the comparable period last year.

But stripping out the £120 million one-off cost, operating profits across the group rose to £214 million from £169 million the time before.

The firm is entirely separate from the Volkswagen-owned Rolls-Royce car firm, which is building a new head office at Goodwood, near Chichester. Rolls-Royce's energy division made a £34 million loss during the period on sales of £214 million.

Chief executive John Rose described the £120 million investment as a "positive move" which would allow Rolls-Royce to meet tough new emissions regulations.

Group sales for the six months rose 33 per cent, from £2.1 billion to £2.8 billion.

But the company warned earnings for 2001 were expected to be flat because of the impact of stronger sales of original equipment in the civil aerospace division, leading to slower sales of spares and the removal from service of a number of mature engines.

Earnings during 2001 will also be affected by delays in sales from the energy side of the business because of the development of the new emissions technology and the ongoing cost of restructuring.

The company shed 3,000 jobs worldwide this year and expects to lose a further 2,000 during 2001.

Mr Rose expected restructuring to cost £50 million a year for the next three years.

He said: "We are extremely disappointed that our outlook for 2001 has been changed but we are confident for 2001 and beyond."