Rolls-Royce Holdings plc Half-Yearly 2011 Results

Thursday, 28 July 2011

Group Highlights

  • £8.7bn of new orders: record order book of £61.4bn.
  • Underlying revenues up four per cent to £5.46bn.
  • Underlying profit before tax, up 28 per cent to £595m, benefiting from one-off trading items.
  • First half payment to shareholders up eight per cent to 6.9 pence per share.
  • Exclusive agreement to power the Airbus A350-1000.
  • Over 94 per cent of shares secured in the joint Public Tender Offer for Tognum AG.
  • Full year Group profit guidance for 2011 confirmed.
Financial highlights
H1 11H1 10+/-
Order book£61.4bn£59.2bn*+4%
Underlying revenues**£5.46bn£5.26bn+4%
Underlying profit before tax**£595m£465m+28%
Underlying earnings per share23.89p18.72p+28%
Reported revenues£5.36bn£5.42bn-1%
Reported profit before financing£716m£594m+21%
Net cash£1.45bn£1.53bn*-5%
Half-year payment to shareholders6.90p6.40p+8%

John Rishton, Chief Executive, said:

“Since taking over from Sir John Rose in April, I have had the chance to travel extensively, meeting customers and seeing a broad range of Rolls-Royce’s capabilities. It has confirmed my view that this is an outstanding company with a proven strategy and many choices about how and where it can grow in the future.

“Performance in the first half of the year was strong with our order book and underlying profit showing solid growth, enabling an increased payment to shareholders. This demonstrates the resilience of our strategy that is based on a diverse portfolio and access to global markets.

“Completion of the acquisition, with Daimler, of the German diesel engines group Tognum will give us further opportunities for profitable growth and add significantly to the breadth and balance of our portfolio.

“For the full year, we continue to expect good growth in underlying profit and, excluding the effect of the Tognum investment, a modest cash inflow”.

Group Overview

Rolls-Royce benefits from a consistent and long-term strategy which has given us a broad installed base of power systems and a record order book of £61.4bn. This order book and our strong market position reinforce our belief that the Group’s revenues will double in the next decade through organic growth alone.  Successful implementation, with Daimler, of our joint plans for Tognum AG (Tognum) will accelerate that growth.

The knowledge that we will grow significantly in the coming years gives us the confidence to continue investing in our portfolio and operations. These investments will enable us to meet our customer commitments and improve operational effectiveness. In the previous three years we have invested over £4bn in technology and infrastructure. This programme of investment continued in the first half:

  • Our new disc manufacturing facility opened in Crosspointe, Virginia, USA.
  • Equipment testing started at our new manufacturing, research and training facilities in Singapore.
  • Building works continued, with our partners, at the advanced manufacturing research centres in Ansty, Sheffield and Bristol - these sites remain on track for second half openings.
  • New Marine services centres were opened in Rotterdam in the Netherlands, Gdynia in Poland and Walvis Bay in Namibia - more will open in the second half.
  • The first production BR725 engines for the Gulfstream G650 were manufactured in Germany.

The first half was also notable for two important decisions to expand our portfolio:

1. Joint Public Tender Offer for Tognum

Our 50:50 joint venture with Daimler to acquire Tognum will combine the strengths of three world-class companies to create a leader in integrated solutions for industrial engines, systems and services. This is a global market, worth €30bn annually, that is seeing significant growth.

With complementary product ranges, a strong technology portfolio and good aftermarket opportunities, we are confident that this joint venture will create opportunities and add scale to our Marine and Energy businesses.

2. Launch of the higher thrust Trent XWB for the A350-1000

We have agreed with Airbus SAS to provide engines on an exclusive basis for the new extended-range A350-1000 aircraft.

Our position across all A350 XWB variants is a testament to our technology, which is setting new standards of efficiency and performance.

The Trent XWB has already become the fastest selling Trent engine with almost 1,200 firm engine orders from 36 customers included in the orderbook. Before it has even flown, the Trent XWB has secured a similar number of engine orders to the market-leading Trent 700 that has been in service since 1995. 

Group Trading Summary


  • The difficulties faced by the global economy and by those governments with budgetary imbalances are well publicised. However, due to the diversity of our businesses, customers and programmes and the strength of our product line-up, demand for our products and services remains robust, particularly in developing markets.
  • The order book benefited from new first half orders of £8.7bn, up 60 per cent on H1 2010, comprising £6.5bn in Civil Aerospace, £0.8bn in Defence Aerospace, £1.0bn in Marine and £0.4bn in Energy. The order book provides good visibility of growth for many years to come.

Income Statement

  • Underlying revenues, up four per cent to £5.46bn, included ten per cent growth in services revenues (£2.87bn), partially offset by a two per cent reduction in Original Equipment (OE) revenues (£2.59bn). OE performance included strong growth in Civil Aerospace (up 22 per cent) and improvement in the achieved USD exchange rate. This growth was more than offset by the anticipated reduction in Marine OE revenues (down 25 per cent).
  • Underlying services revenues continued to benefit from the increased size of the installed base and expansion of our services network. Defence Aerospace benefited from one-off contract termination settlements resulting from the Strategic Defence and Security Review (SDSR) of the UK Ministry of Defence (MoD). Marine services saw further double-digit growth.
  • Underlying profit before tax, up 28 per cent to £595m, was helped by the increased size of the installed base, better revenue mix, the improved achieved USD exchange rate and better productivity that broadly offset inflationary pressures as expected.   As is normal, there were a number of one-off items in the period that are explained further in the business reviews, the most significant of which relates to a £60m benefit from the SDSR settlements.  Underlying earnings per share (UEPS) improved 28 per cent compared with H1 2010.

Balance Sheet

  • The balance sheet remains strong with net cash at period end of £1.45bn, down from £1.53bn at the end of 2010. Average net cash for the first half reduced by £135m to £780m from the same period in 2010 due to the phasing of acquisition spend in 2010 and foreign exchange.  Debt maturities remain well spread through 2019 and the credit ratings agencies provide strong debt ratings for Rolls-Royce with stable or positive outlooks.
  • Pension liabilities remain stable with no significant change expected to the ongoing funding levels of the UK pension schemes in 2011 or 2012.
  • Customer financing commitments remain modest.

Cash Flow

  • A modest cash outflow of £82m resulted from the continued investment programme in both tangible and intangible assets, an increase in net working capital, in part reflecting supply chain disruption around the tragic events in Japan, lower customer deposits, mainly in Marine and Energy, and the purchase of shares in Tognum AG.

Group Prospects

Confirming full year 2011 guidance for underlying revenues and underlying profit:

For the full year, underlying revenues are expected to grow modestly in 2011 as we experience strong OE growth in Civil Aerospace and Defence Aerospace together with further growth in services activities from all businesses. This growth in revenues will be partially offset by a slowdown in OE revenues in the Marine business.

Group underlying profit before tax for 2011 is expected to see good growth resulting from a strong trading performance in Civil Aerospace and the one-off settlements in Defence Aerospace. The Civil Aerospace performance includes a better revenue mix, an improved achieved USD exchange rate and a continued focus on cost control, more than offsetting higher than expected research and development (R&D) charges and the consequences of the Japanese earthquake.  The Marine and Energy businesses are expected to deliver broadly similar profit performances to 2010.

Excluding the implications of the Tognum acquisition and after a modest cash inflow for the full year, average net cash balances are expected to remain similar to those of the first half of 2011.

The implications of the Tognum joint public tender offer on 2011 performance:

As a joint venture, Tognum will be equity-accounted and therefore will have no impact on the Group’s 2011 revenues. The associated net funding costs are expected to broadly offset any 2011 operating profit benefit. We do not therefore expect any significant impact on the Group’s underlying profit before tax.

The 2011 cash consideration for the Group of the Tognum acquisition is expected to be around £1.3bn.

Business Segment Reviews

Civil Aerospace

Defence Aerospace



Additional Group Financial Data


This Half-Yearly Results Announcement contains certain forward-looking statements. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. In particular, all statements that express forecasts, expectations and projections with respect to future matters, including trends in results of operations, margins, growth rates, overall market trends, the impact of interest or exchange rates, the availability of financing to the Group, anticipated cost savings or synergies and the completion of the Group's strategic transactions, are forward-looking statements. By their nature, these statements and forecasts involve risk and uncertainty because they relate to events and depend on circumstances that may or may not occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements and forecasts. The forward-looking statements reflect the knowledge and information available at the date of preparation of this Half-Yearly Results Announcement, and will not be updated during the year. Nothing in this Half-Yearly Results Announcement should be construed as a profit forecast.

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