Rolls-Royce Holdings plc 2011 Full-Year Report

Thursday, 9 February 2012

Group Highlights

  • Record order book of £62.2bn, up five per cent.
  • Record underlying revenue of £11.3bn, up four per cent.
  • Record underlying profit before tax of £1.16bn, up 21 per cent.
  • Full year payment to shareholders of 17.5 pence per share, up nine per cent.
  • Joint acquisition of Tognum, Rolls-Royce investment £1.5bn.
  • Proposed restructuring of International Aero Engines (IAE) and sale of share holding.
Summary data
Summary data - £ million20112010Change
Order book62,20159,153+5%
Underlying revenue*11,27710,866+4%
Underlying profit before tax*1,157955+21%
Underlying earnings per share*48.54p38.73p+25%
Full year payment to shareholders17.5p16.0p+9%
Reported revenue11,12411,0850%
Reported profit before financing1,1891,134+5%
Net cash2231,533-
Average net cash320960-

*   See explanations in Note 2

John Rishton, Chief Executive, said:

“Rolls-Royce performed well in 2011, and at the year-end had a record order book, record underlying revenue and record underlying profit. We continue to benefit from a broad portfolio, a large and growing customer base and access to markets where demand remains strong for our products and services.

“Our order book gives us good visibility of future revenues and demonstrates the confidence our customers have in us.  

“We see opportunities for profitable growth across our portfolio. In particular, the acquisition of Tognum, that we have made in partnership with Daimler, adds significantly to the breadth of our portfolio and will accelerate growth.

“For 2012 we expect good growth in both underlying revenue and underlying profit with cash flow around breakeven as we continue to invest in future growth.”

Group Overview

Rolls-Royce continued to perform well in 2011. Our order book grew to £62.2bn, underlying revenue increased to £11.3bn and underlying profit rose to £1.16bn. This strong performance demonstrates the increasing resilience of our business and underpins our confidence for the future which is reflected in a final payment to shareholders of 10.6 pence per share, bringing the full year payment to 17.5 pence per share.

Rolls-Royce is a long-term business. We invest in products, systems and services that take many years to develop but then have life cycles that last for decades. The Group has consistently invested in future growth and we continue to develop technology and expand capacity in order to meet our customers’ current and future needs. This consistent record of long-term investment has given Rolls-Royce a broad portfolio, a strong market position and access to world markets, creating a powerful platform for future growth.

This disciplined application of a long-term strategy has enabled Rolls-Royce to grow its underlying revenue, profit and order book consistently over a decade. This has been achieved despite the financial crisis of 2008, recessions in Europe and the USA and significant economic and social turmoil. We have doubled our revenues within the past decade and expect to double them again in the coming ten years through organic growth alone.

To fulfil our record order book, we continue to invest in operational capacity. During 2011, we opened a major new facility at Crosspointe, in Virginia USA, where we are now manufacturing gas turbine discs. We completed the construction of a 65,000 sq metre facility at Seletar in Singapore where, for the first time outside the UK, we will manufacture wide-chord fan blades and assemble and test Trent engines. We also continued to add to our network of Marine service centres during the year, opening or expanding sites in the Netherlands, Poland, Namibia, Germany and Hong Kong. These investments and others across the portfolio add to our capacity and increase productivity.

Close collaboration with our suppliers is critical to our continued success. Around 70 per cent of our manufacturing is conducted within our supply chain. Our partners and suppliers are also investing significantly to deliver future growth and improve productivity.

During 2011, we took three strategic actions that will further strengthen our position and underpin long-term growth. The first was our acquisition of the German industrial engines group Tognum, that we made in a joint offer with Daimler. It brings together highly complementary product and technology portfolios and creates significant new opportunities for our Marine and Energy businesses. Second, we signed an exclusive deal to develop an enhanced Trent XWB that will power the long-range Airbus A350-1000 aircraft. Third, we agreed to sell our equity stake in IAE to Pratt & Whitney, at the same time announcing our intention to form a new joint venture to develop engines for the next generation of mid-size aircraft. This agreement builds on a long and successful partnership with Pratt & Whitney in this segment and charts a clear course for our future in this important market.

Progress was evident in each of our business segments in 2011.

In Civil Aerospace good order intake accompanied strong growth in underlying revenue and profit. We celebrated the first commercial flight of the Boeing 787 Dreamliner powered by Trent 1000 engines. The Trent XWB engine programme for the Airbus A350 progressed well, with over 1,500 test hours completed. Our BR725 engine, developed for Gulfstream’s new flagship executive jet, the Gulfstream G650, is due to enter service in 2012.

Our Defence Aerospace business performed well despite the pressure on defence spending in Europe and the USA. We continue to benefit from the diversity of our portfolio and our access to emerging markets. Our LiftFan™ system for the F-35 Lightning II Joint Strike Fighter (JSF) continued to make good progress during intensive flight tests that included multiple take offs and vertical landings on board the aircraft carrier USS Wasp. The TP400 engine for the Airbus A400M is on course to enter service in 2013.

While the underlying profit generated by the Marine business was broadly flat, original equipment (OE) revenue failed to meet our expectations as some offshore customers deferred investment decisions beyond 2011. Set against this, revenue from services grew strongly as the business benefited from the expansion of our network of service centres and the growth of the fleet equipped with our systems. During the year, we received an order to power a further ten US Navy Littoral Combat Ships, our largest ever surface fleet order. We also secured the first orders for our award winning Environship, a cargo vessel powered by liquid natural gas.

In Energy, underlying profit fell, primarily due to our investment in Civil Nuclear and revenues declined, reflecting  weak demand for gas turbine power generation. However, strong demand from the oil and gas industry drove a significant increase in the order book. This included our biggest ever single contract, to supply Petrobras, Brazil’s leading oil company, with 32 gas turbine power generators for its offshore operations.

Trading Summary

Underlying revenue

The Group’s underlying revenue increased four per cent to £11.3bn. This includes a nine per cent growth in services revenue to £6.0bn that more than offset a one per cent reduction in OE revenue to £5.3bn. OE performance included strong 18 per cent growth in Civil Aerospace offset by a greater than anticipated reduction of 23 per cent in Marine OE revenue.

Underlying services revenue continues to represent more than half (53 per cent) of the Group’s revenue. In 2011, we achieved growth in services revenue in each of our businesses as we continue to benefit from the growth in our installed base and the expansion of our services network. Defence Aerospace income included contract termination settlements resulting from the Strategic Defence and Security Review (SDSR) of the UK Ministry of Defence (MoD).

Underlying profit

Underlying profit before tax increased 21 per cent to £1.16bn. This was due to a better mix between OE and services, an improvement in productivity resulting from the focus on cost, net foreign exchange (FX) benefits of £54m including an eight cent improvement in the achieved rate on selling USD income. In addition there was a benefit of £30m from Tognum net of the costs of the acquisition and a £60m benefit from the SDSR settlements referred to above. 

Cash and liquidity

The reported net cash position was £223m after the impact of the acquisition of Tognum and R Brooks Associates totalling £1.5bn. Excluding these acquisitions and FX translation there was a cash inflow of £210m. The Group retains a strong balance sheet with debt maturities well spread and total liquidity of £2.5bn.

Tognum

The Group’s joint venture with Daimler now owns over 99 per cent of Tognum AG for which Rolls-Royce paid a cash consideration of £1.5bn in 2011. This joint venture investment made a £30m net contribution to underlying profit before tax but did not impact the Group’s 2011 revenues.

International Aero Engines (IAE)

The Group’s proposed sale of its 32.5 per cent shareholding in IAE is subject to regulatory approval and did not impact 2011 financial performance.  Rolls-Royce will continue to play an active role as a first tier supplier of high pressure compressors and fan blades and remains responsible for the final assembly of 50 per cent of the production engines. The announced new joint venture with Pratt & Whitney to develop an engine to power the next generation of mid-size aircraft is also subject to regulatory approval and had no effect on 2011 financial performance. 

Group prospects

Our consistent strategy, which has been pursued over many years, has created a broad and balanced portfolio and established a strong financial position. Despite continued macroeconomic uncertainty, our record order book and strong market positions underpin our confidence in the future. The increasing resilience of the business has enabled Rolls-Royce consistently to grow its underlying revenue, underlying profit and order book in spite of the significant macro economic turbulence of recent years.

In 2012 the Group expects to see good growth in underlying revenue and underlying profit with a cash flow around breakeven as we continue to invest for future growth, excluding the impact of the Tognum acquisition and the proposed IAE transaction.

In Civil Aerospace, we anticipate good growth in underlying revenue and strong growth in underlying profit. In Defence Aerospace we expect modest growth in underlying revenue and profit. In Marine we expect a modest increase in underlying revenue, with underlying profit broadly flat. And in Energy we see growth in underlying revenue and some improvement in underlying profit.

Review by business segment

This Full Year 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 Company, anticipated cost savings or synergies and the completion of the Company'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 Full Year Results Announcement, and will not be updated during the year. Nothing in this Preliminary Full Year Results Announcement should be construed as a profit forecast.

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