Rolls-Royce Holdings plc Half-Year 2012 results

Thursday, 26 July 2012

Group Highlights

  • Order book of £60.1bn, up four per cent.
  • Underlying revenue of £5.8bn, up five per cent.
  • Underlying profit before tax of £637m, up seven per cent.
  • First half payment to shareholders of 7.6 pence per share, up ten per cent.
  • Completion of sale of share holding in International Aero Engines AG (IAE).
  • Full year Group guidance confirmed.
H1 12H1 11+/-
Order book£60.1bn£57.6bn*+4%
Underlying revenue** £5.76bn £5.46bn +5%
Underlying profit before tax** £637m £595m +7%
Underlying earnings per share 26.54p23.89p +11%
Half-year payment to shareholders 7.6p 6.9p +10%
Reported revenue£5.72bn £5.36bn +7%
Reported profit before financing £1,280m £716m +79%
Net cash £869m £223m†-
Average net cash £(590)m£780m -

*   Restated 2011 year-end data excluding IAE order book of £4.6bn 
**  See Note 2 on p.19 for explanation 
†  Full year 2011 data.  

John Rishton, Chief Executive, said:

“Rolls-Royce has delivered solid growth in underlying revenue and underlying profit in the first half of the year.

“We continue to invest to support future growth, including our new production facility in Singapore, a new turbine blade casting plant in the UK, a new stator facility in the USA and a new assembly plant for our Energy business in Brazil.

“For the full year, we continue to expect good growth in underlying profit with cash flow around breakeven, excluding the positive impact of the Tognum acquisition and the sale of our equity stake in IAE.”

Group Overview

In the first half of the year, underlying revenue increased by five per cent and underlying profit by seven per cent. We continue to invest in technology, infrastructure and people.  These investments will enable us to meet our customer commitments and improve efficiency.

This programme of investment continued in the first half:

  • We opened our new state-of-the-art facilities in Singapore, where we will manufacture wide-chord fan blades and assemble large civil engines for the first time outside the UK. We will be producing engines later in 2012 and will be at full production capability by the end of 2013.
  • We are building a new casting facility at Rotherham in the UK that will have capacity to produce 100,000 turbine blades a year.
  • A new advanced manufacturing facility at Indianapolis will produce compressor banded stators for our Civil Aerospace business.
  • At Santa Cruz in Brazil work has started on a new assembly plant for our Energy business.
  • We began building a new nuclear reactor core factory at Derby in the UK as part of a £1bn contract with the Ministry of Defence to support the UK’s nuclear powered submarine fleet.
  • Construction has begun on a new Heathrow Services Centre. This will expand the scale and capability of the services operations for our growing Civil Aerospace customer base at London Heathrow.
  • We announced an expansion programme of our global network of Authorised Maintenance Centres (AMCs) for our Defence Aerospace customers. These AMCs will enhance our capacity to provide repair and overhaul services for the installed base of T56 engines that power military transport aircraft such as the C-130 Hercules and the P3 Orion.
  • We announced our intention to acquire Aero Engine Controls (“AEC”), a joint venture with Goodrich Corporation. The transaction will give us full ownership of a critical capability that enhances jet engine performance.

The status of two major transactions is as follows:

1. Sale of IAE Share Holding

The sale to Pratt & Whitney of our 32.5% share holding in IAE completed for a consideration of US$1.5 billion, subject to working capital adjustments. We remain an essential supplier to IAE and will benefit from a revenue stream from the current installed fleet of V2500-powered aircraft for the next 15 years. Rolls-Royce remains committed to the mid-size aircraft market, to IAE and to its customers and will continue to be responsible for the manufacture of high-pressure compressors, fan blades and discs as well as the provision of engineering support and final assembly of 50 per cent of V2500 engines.

Our long and successful partnership with Pratt & Whitney will continue through a new venture to be established, subject to regulatory approval, to develop engines for the next generation of mid-size aircraft. The other IAE partners, Japanese Aero Engines Corporation (JAEC) and MTU Aero Engines GmbH (MTU), have also agreed to join this new venture.

2. Acquisition of Tognum AG

Engine Holding GmbH, our 50:50 joint venture with Daimler, owns over 99% of shares in Tognum.  The German legal process to acquire the remaining shares is now expected to be completed in the first half of 2013. The Group will therefore equity account Tognum for 2012 and fully consolidate it upon completion.

Group Trading Summary

Order Book

  • The order book increased four per cent to £60.1bn, adjusted for the IAE disposal.  Order intake of £9.1bn comprised new orders of £6.0bn in Civil Aerospace, £0.6bn in Defence Aerospace, £2.2bn in Marine and £0.3bn in Energy.

Income Statement

  • Underlying revenue, up five per cent to £5.76bn, included five per cent growth in underlying OE revenue (£2.72bn) and six per cent growth in underlying services revenue (£3.04bn).
  • Underlying OE revenue growth included increased deliveries of Trent, V2500 and corporate engines in Civil Aerospace (up 26 per cent) and of military transport and civil helicopter engines in Defence Aerospace (up 11 per cent). Growth was offset by the reduction in Marine (down 11 per cent) and Energy (down 43 per cent).
  • Underlying services revenue increased six per cent. Services grew ten per cent in Civil Aerospace, in line with growth in the installed base, and ten per cent in Defence Aerospace, excluding the £60m one-off SDSR settlement in 2011. Energy also saw good growth. Marine was down six per cent reflecting deferrals of maintenance activity by customers and lower spares spend.
  • Underlying profit before tax increased seven per cent to £637m, reflecting revenue growth, revenue mix, unit cost reduction and the contribution of Tognum. These benefits were partially offset in Civil Aerospace by higher R&D charges and lower entry fees associated with major new programmes, and in Defence Aerospace by the non recurrence of the £60m SDSR settlement.  Underlying earnings per share (UEPS) improved 11 per cent compared with H1 2011.

Balance Sheet

  • The balance sheet remains strong with net cash at period end of £869m, up from £223m at the end of 2011. Average net cash reduced since the first half of 2011, primarily due to the acquisition of Tognum in the second half of 2011.  The £953m consideration for the sale of the IAE share holding had no effect on average net cash in the first half but will have an impact in the second half of the year.
  • In April, Standard & Poor's Ratings Services raised its long- and short-term corporate credit ratings for the Group to 'A/A-1' from 'A-/A-2'.
  • The Group continued to have good liquidity with £3.15bn of cash and committed facilities. Debt maturities remain well spread through to 2019.
  • Pension liabilities increased by £173m on an accounting basis due to a reduction in the discount rate. On an economic basis however, funding requirements remain stable following the series of measures taken in recent years to achieve greater certainty for our major UK schemes. 
     

Cash Flow

  • A cash inflow of £646m during the period included £953m from the disposal of IAE and £167m for the contribution of Bergen to Engine Holding. Excluding acquisitions, disposals and foreign exchange, the outflow of £447m reflects the continued investment programme in future growth and the increase in net working capital required ahead of OE volume growth, predominantly in Civil Aerospace. 

Group Prospects

Confirming full year 2012 Group guidance for growth in underlying revenue and underlying profit:

For the full year 2012, the Group continues to expect good growth in underlying revenue and underlying profit, with cash flow around breakeven as we continue to invest for future growth.

This guidance includes the performance of Bergen, but excludes the impact of the Tognum acquisition and the IAE transaction, for which further information is given below.

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 now expect underlying revenue to be broadly flat with some improvement in underlying profit.

The implications of the Tognum acquisition on 2012 performance:

The Group cannot provide financial guidance on Tognum while it is still listed.

Tognum will report its second quarter results on 7 August 2012.

The implications of the IAE transaction on 2012 performance:

The Group expects the revised trading arrangements with IAE to produce a benefit of around £70m to Civil Aerospace’s underlying profit in 2012.

Business Segment Reviews*

*Commentaries in all reviews relate to underlying revenue and underlying profits, unless specifically noted.

Additional Financial Information

This Half-Year Results Announcement contains forward-looking statements. Any statements that express forecasts, expectations and projections are not guarantees of future performance and will not be updated. By their nature, these statements involve risk and uncertainty, and a number of factors could cause material differences to the actual results or developments. This report is intended to provide information to shareholders, is not designed to be relied upon by any other party, or for any other purpose and the Company and its directors accept no liability to any other person other than under English law.

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