Delivery of aftermarket
The Group’s revenues are balanced between original equipment delivery and aftermarket services. The growth in product sales provides a large installed base, of which a high proportion has successfully been contracted under long-term post-sale support arrangements, so that aftermarket revenues now constitute a majority of forecast revenue. A significant failure to deliver the aftermarket commitments made to its customers and meet anticipated contractual profitability could have an adverse impact on the Group’s financial results and reputation.
The Group places great importance on working closely in partnership with its customers to understand their operations and align the Group’s service capability to meet their needs. Within the dedicated services organisation, management initiatives have developed robust processes, structures and networks to ensure required support levels can be delivered effectively and economically. Nevertheless, economic pressures on commercial aviation, as well as changes in regulations, could lead to reductions in utilisation rates and operational budgets, representing a continuing threat to the realisation of future revenues.
The markets in which Rolls-Royce operates are highly competitive. The majority of its programmes are long term in nature and access to key platforms is critical to the success of the business. This requires sustained investment in technology, capability and infrastructure, all creating high barriers to entry. However, these factors alone do not protect the Group from competition, including pricing and technical advances made by competitors.
The Group has developed a balanced business portfolio and maintained a steady focus on improvement in operational performance, for example through the modernisation of its facilities. This, together with the establishment of long-term customer relationships and sustained investment in technology acquisition, allows the Group to respond to competitive pressures.
Rolls-Royce designs and supplies a number of gas turbine products and services for the defence aerospace market. Many countries in which the Group conducts its business operate legislation controlling the export of specified goods and technology intended or adaptable for military application. The Group is committed to complying with the requirements from national governments in all jurisdictions when exporting goods, parts, technologies or information, although globalisation of the Group’s operations brings with it complexities of concurrent but differing national export control legislation. Non-compliance with export controls is recognised as a principal risk to both programme performance and the Group’s reputation.
The exports committee, chaired by the Chief Operating Officer, directs the Group’s strategy and policy on exports. Export control managers are embedded throughout the business and the Group will continue to implement any necessary changes to ensure that it maintains the capability necessary to monitor and comply with requirements.