Annual report 2016

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Business highlights

The Group is organised into five customer-facing businesses: Civil Aerospace, Defence Aerospace, Power Systems, Marine and Nuclear.

underlying revenue £7,067m

underlying profit before financing £367m

Underlying revenue mix

color x y actual prefix postfix
#234d9d OE Revenue 48     %
#129fd2 Services Revenue 52     %
Underlying revenue mix
Key highlights
  • Underlying revenue unchanged; gross margins lower:
    • Original equipment (OE): increased deliveries of newer Trent engines but lower link-accounted Trent 700 and business aviation sales reduced achieved margins.
    • Services: growth from in-production large engine fleet, but declining regional and older large engine fleet aftermarket revenues; increase in technical costs for large engines, including the Trent 700 and Trent 900, largely mitigated by foreign exchange benefits.
  • £4.4bn order book growth; includes £2.1bn benefit from long-term US dollar planning rate change.
  • New programmes: Trent 1000 TEN received EASA certification in July; first test run of new UltraFan® gearbox; first flight of the Airbus A350-1000 powered by the Trent XWB-97.
  • Supply chain modernisation reducing costs and increasing capacity for Trent XWB ramp up.
  • 2017 outlook: modest growth in revenue and profit; cost improvements offsetting OE and aftermarket mix effects.

underlying revenue £2,209m

underlying profit before financing £384m

Underlying revenue mix

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#234d9d OE Revenue 40     %
#129fd2 Services Revenue 60     %
Underlying revenue mix
Key highlights
  • Underlying revenue up slightly; modest growth in OE.
  • Underlying profit before financing down 8%; reflecting adverse product mix and costs related to the TP400 programme, partially offset by through-life cost savings on a major EJ200 contract.
  • Investing to enhance manufacturing, aftermarket service and closer proximity to core customers.
  • 2017 outlook: revenue steady; margin and profit expected to soften from recent levels.

underlying revenue £2,655m

underlying profit before financing £191m

Underlying revenue mix

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#234d9d OE Revenue 68     %
#129fd2 Services Revenue 32     %
Underlying revenue mix
Key highlights
  • Underlying revenue 1% lower; growth in power generation and industrial markets offset by reduction in commodity and oil price driven sales.
  • Underlying profit before financing 14% lower; volume reduction and adverse product mix.
  • Good start to transformation with new leadership in place to drive further performance improvement.
  • 2017 outlook: steady, healthy order book in key segments offsetting some challenging markets.

underlying revenue £1,114m

underlying loss before financing £(27)m

Underlying revenue mix

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#234d9d OE Revenue 57     %
#129fd2 Services Revenue 43     %
Underlying revenue mix
Key highlights
  • Underlying revenue down 24%; weak offshore markets impacting both OE and service revenues.
  • Underlying profit before financing negative; lower volumes and reduced overhead absorption.
  • Net restructuring benefits from current and legacy programmes starting to improve performance.
  • £200m impairment of goodwill reflecting a more cautious outlook; further weakness in offshore oil & gas markets offset by ongoing cost improvements as we refocus the business.

underlying revenue £777m

underlying profit before financing £45m

Underlying revenue mix

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#234d9d OE Revenue 46     %
#129fd2 Services Revenue 54     %
Underlying revenue mix
Key highlights
  • Underlying revenue 11% higher; strong revenues led by increased submarine work.
  • Underlying profit before financing 37% lower; adverse margin mix in submarine projects, lower R&D credit than 2015 and R&D spend on small modular reactor concept development.
  • 2017 outlook: focus on further delivery improvements and investing to address future opportunities.

Group at a glance

Underlying Revenue
£13,783m

Underlying profit before FINANCING
£915m

ORDER BOOK
£79.8bn

Engineers (year end)
16,526

GROSS R&D EXPENDITURE
£1.3bn

EMPLOYEES (YeAR AVERAGE)
49,900

PATENTS APPLIED FOR
672

Countries
50

color x y actual prefix postfix
#004990 Civil aerospace 51     %
#009ec5 Defence aerospace 16     %
#356eb5 Power Systems 19     %
#59c2e2 Marine 8
    %
#c4e5f2 Nuclear 6
    %

Priorities for 2017

1 – Strengthen our focus to drive long-term profitable growth (on Engineering excellence, Operational excellence and Capturing aftermarket value), 2 – Sustain the strong start to our transformation programme, 3 – Continue to rebuild trust and confidence in our long-term growth prospects, 4 – Develop our long-term vision and strategy. Underpinned by a commitment to developing our people and our culture in a safe and ethical environment.

Review of 2016

“Progress in 2016 can be judged by how we have overcome our challenges; we have delivered on our commitments in a difficult year while at the same time embarking on a significant transformation.”

“2016 has been an important year as we accelerated the transformation of Rolls-Royce.”

“We performed ahead of expectations despite the known headwinds and challenges faced in the year.”

A sustainable business

We continue to invest in the resources and capabilities which underpin our future success as we transform the business.

Download Sustainable business report (pdf)
Through engineering and innovation

In 2016, we spent over £1.3bn on gross R&D to develop the technology we embed in our products and deliver to market. As a result, we applied for 672 patents in the year, a Rolls-Royce record.

Through our people

In 2016, we invested over £32m in employee learning and development, delivering over one million hours of employee training. 97% of Rolls-Royce employees completed annual ethics training, focused on dealing with ethical dilemmas.

Through our operations and facilities

In 2016, we invested £50m in improvements to existing facilities and £184m in the development of new facilities, while at the same time reducing our global operational footprint by 2%.

Through our supplier and customer relationships

At the end of 2016, 99% of our suppliers had contractually agreed to adhere to our Global Supplier Code of Conduct. In September 2016, the USAF recognised Rolls-Royce as a Superior Supplier.

Forward-looking statements

This Annual Report contains forward-looking statements. Any statements that express forecasts, expectations and projections are not guarantees of future performance and guidance may be updated from time to time. This report is intended to provide information to shareholders, and 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 that required under English law. Latest information will be made available on the Group’s website. By their nature, these statements involve risk and uncertainty, and a number of factors could cause material differences to the actual results or developments.