Slide 1: 2019 Half Year Results
2019 Half Year Results 6 August 2019 2019 Half Year Results © Rolls-Royce
Slide 2: Jennifer Ramsey, Head of Investor Relations
Jennifer Ramsey Head of Investor Relations 2 2019 Half Year Results © Rolls-Royce
Slide 3: Agenda for today
Agenda for today Introductions Jennifer Ramsey Highlights & Strategy Warren East Financial Review Stephen Daintith Business Outlook Warren East 3 2019 Half Year Results © Rolls-Royce
Slide 4: Safety Notices
Safety Safe Mobile Harbour Phones Notices 4 2019 Half Year Results © Rolls-Royce
Slide 5: Highlights - Warren East
Highlights Warren East Chief Executive 5 2019 Half Year Results © Rolls-Royce
Slide 6: Group Overview
Group Overview 6 2019 Half Year Results © Rolls-Royce
Slide 7: Results summary
Underlying core Underlying core Results revenue operating profit summary Further progress £7.2bn 7 %* £203m +33%* Core free cash flow Underlying core PBT £(391)m H1 2018: £10m £94m £5m* ‘Dividend’ per share Core underlying EPS 4.6 p H1 2018: 4.6 p (1.4)p H1 2018: 3.1p 7 2019 Half Year Results © Roll
Slide 8: 2019 Half Year Results overview
Civil Aerospace Good engine flying hour growth; OE loss reduced; technical fixes on Trent 1000 2019 Half Year progressed; material Trent 7000 production ramp-up Results Power Systems overview Healthy progress in H1 with sales outperforming GDP growth; strong growth in LTSA revenues; book-to-bill rat
Slide 9: Focus on value creation
Free cash flow ambition Disciplined allocation >£1 FCF per share Strengthen balance sheet Focus on value – improve credit rating At least creation £1bn Fund organic investment ~£0.7bn – brought more rigour to £0.6bn internal process £0.3bn 2017 2018 2019 2020 Mid-term ambition Increase in CROIC
Slide 10: Our commitment to sustainable growth
Creating a sustainable future Our through a pragmatic and balanced commitment approach to the present to sustainable growth The drive for low carbon power Products Operations People Increase efficiency of Decrease greenhouse Safety & ethics are existing products gas emissions non-negotiable
Slide 11: Enabling change
Key objectives Run rate cost savings Significantly reduce central costs Enabling £134m Empowered businesses, more change control of own costs To create a £81m Shared vision and clear stronger more accountability competitive FY 18 H1 19 business Cumulative net Simplification headcount reduction
Slide 12: Business update
Business update 12 2019 Half Year Results © Rolls-Royce
Slide 13: Civil Aerospace
Civil Aerospace Progress across a number of key metrics; successful transition to Trent 7000 production from Trent 700 Widebody EFH growth Trent 7000 Trent XWB Business Aviation 8% Ahead of air traffic growth Material ramp Cumulative four Delivered first up achieved in million flying Pearl 15 engine
Slide 14: Trent 1000 update
Continued progress with technical Trent 1000 solution update Cash cost in H1 2019 of £219m (H1 2018: £107m) Trent 1000 variants Operational Trent 1000 Trent 1000 TEN Pack B update pack B/C high pressure TEN turbine blade MRO capacity increased Incremental cash cost Limited to around a increase
Slide 15: Power Systems
Power Systems Healthy progress with increasing penetration of services; good demand for power generation products for data centres Order Operating Total Microgrid progress intake profit solutions ABB collaboration on microgrid solutions £1.7bn +20% Moving portfolio from Book-to-bill increase product
Slide 16: Defence
Defence Strong order intake and good operational performance with increased investment in new products and technologies Strong order intake F-35 Future Directed LiftSystem products energy 1.5 Book-to-bill ratio Driving higher Bell vertical lift Successful OE sales with demonstration LRIP 11 & 12 Tem
Slide 17: ITP Aero
ITP Aero Good revenue growth, expansion of externals business Revenue Profit Expansion Milestones growth headwinds First test of UltraFan intermediate pressure turbine 23% (18)% New and extended led by progress Temporary facilities in Spain in civil headwinds from and Mexico Technologies aerospace O
Slide 18: Financial Review - Stephen Daintith
Financial Review Stephen Daintith Chief Financial Officer 18 2019 Half Year Results © Rolls-Royce
Slide 19: Agenda for today
Agenda for today 01 Half year results 02 Business unit review 03 Guidance 19 2019 Half Year Results © Rolls-Royce
Slide 20: Half year results
Half year results 20 2019 Half Year Results © Rolls-Royce
Slide 21: Core & Non-core business reporting format
A reminder of our reporting format Core & £m Non-core Civil Aerospace x business Power Systems x reporting Defence x format ITP Aero x Core business Key focus of Corporate / eliminations x Group operations Core business x Non-core business x Non-core business Group underlying result x Legacy energ
Slide 22: Group underlying results
Group £m Underlying Revenue Organic change Underlying op. profit Organic change underlying Civil Aerospace 4,018 +11% (21) +86 results Power Systems 1,553 +6% 96 +20% Good revenue growth Defence 1,494 +2% 173 +2% and operating profit ITP Aero 457 +23% 32 -18% improvement; typically Corporate/elimina
Slide 23: Core business underlying results
Organic Core business £m H1 2019 H1 2018 Change change underlying Core underlying revenue 7,213 6,680 +8% +7% results Core underlying gross profit 995 897 +11% +10% Gross margin % 13.8% 13.4% +40bps +30bps Commercial & administrative costs (516) (467) +10% +10% Further progress Restructuring (9) (12
Slide 24: Strong organic LTSA growth across core businesses
Organic Continued £m H1 2019 H1 2018 Change change underlying OE revenue 3,350 3,201 +5% +4% growth in core LTSA service revenue 1,868 1,645 +14% +13% OE & LTSA Other service revenue 1,995 1,834 +9% +8% revenue Core underlying revenue 7,213 6,680 +8% +7% Gross margin (%) 13.8% 13.4% +40bps +30bps 8%
Slide 25: Progress on key levers
H1 2019 saw further progress delivered on Progress on key drivers of cash flow improvement key levers £0.2m £0.1bn 110bps improvement improvement lower as % sales per engine Reduced avg. OE Improved Bending the loss per engine aftermarket cash fixed cost curve margin Progress achieved towards CMD ta
Slide 26: Reduced OE cash deficit per engine
Widebody deliveries Successful transition to Trent 7000 14 Shipped Reduced OE 240 239 Engines 54 cash deficit per 202 Installed Installed invoiced 41 Trent 7000s engine Installed Trent 700s 7 Spare 19 Spare 18 Spare 7 Trent 700s H1 17 H1 18 H1 19 H1 18 H1 19 £0.2m improvement per engine H1 2019 OE e
Slide 27: Improved aftermarket cash margin
Underlying widebody aftermarket cash margin (pre-Trent 1000 costs) Improved aftermarket U/L cash margin £0.7bn £0.8bn cash margin in Civil Aerospace In-service fleet 4,567 4,897 engines engines £0.1bn Invoiced EFH 6.9m EFHs 7.5m EFHs improvement Income Major refurbs 137 SVs 141 SVs Costs Check & rep
Slide 28: Bending the fixed cost curve
Core cash R&D and certification Core capex as % sales costs as % sales 7.8% 5.0% Bending the 7.1% 4.8% fixed cost 6.0% 4.0% curve H1 18 H1 19 Mid-term H1 18 H1 19 Mid-term ambition ambition 110bps lower as % of sales R&D and capex as % of sales will Adjusted underlying core C&A as % sales continue
Slide 29: Progress on restructuring
Progress on restructuring FY18 H1 19 Total Group actual actual FY19 FY20 Target restructuring Gross headcount reduction ~2,000 ~540 ~2,600 ~2,000 ~6,600 announced in Net headcount reduction ~1,300 ~300 ~1,400 ~1,900 ~4,600 June 2018 Cumulative net headcount reduction ~1,300 ~1,600 ~2,700 ~4,600 Cash
Slide 30: Summary funds flow
£m H1 2019 H1 2018 Change Underlying operating profit 203 141 62 Summary Depreciation and amortisation 511 315 196 funds flow Lease payments (capital plus interest) (184) - (184) Capital expenditure (PPE & intangibles) (622) (669) 47 Core FCF Change in inventory (433) (461) 28 £(391)m Change in net
Slide 31: Key drivers of cash flow performance
Underlying Operating Profit £203m Key drivers of Improved underlying operating profit (+£62m YoY) cash flow Further improvement expected in H2 performance Since the year-end higher inventory has Inventory offset a favourable £(433)m impact from receivables and Outflow reflecting seasonality an
Slide 32: Key drivers of cash flow performance
Underlying increase in deferred EFH revenue Key drivers of £120m cash flow Continued contribution from higher invoiced Engine Flying Hours in excess of revenue recognised as our installed base grows performance £(175)m lower YoY, primarily due to absence of material aftermarket Impacted by the d
Slide 33: Clear pathway to reducing inventory in H2
Clear pathway to reducing inventory in H2 Inventory: H1 inventory build of ~£433m to unwind in H2 £(433)m China sales growth in H2 supported Temporary build-up to Power Systems by backlog. Consumption of buffer support production Globalisation stocks in India ahead of local localisation and sales st
Slide 34: Civil Aerospace: Drivers of LTSA balance
Invoiced EFH receipts P&L revenue Reflects invoiced EFH receipts on long-term contracts across entire Civil LTSA-covered Driven by cost (shop visit & other costs) across large engine, business aviation Civil fleet: and regional fleets Large engine (7.5m EFH in 1H 19) + business Aerospace: avia
Slide 35: Group funding
£m H1 2019 FY 2018 Cash 4,182 4,980 Group funding H1 2019 group free cash outflow Debt 6,119 4,369 £(429)m Net cash/(debt) (1,937) 611 Successful actions strengthen position in Completed disposal of Undrawn facility 2,500 2,500 H1 2019 Commercial Marine, net proceeds Cash 4,182 4,980 of £451m Li
Slide 36: Capital allocation priorities
Strong balance sheet: Fund organic improve credit rating Investment: drive growth & Capital technology leadership allocation priorities Payment to M&A: H1 2019 Interim shareholders: disciplined & selective payment maintained; increase dividend as 4.6p per share FCF grows Committed to restoring sha
Slide 37: Business unit review
02 Business unit review 37 2019 Half Year Results © Rolls-Royce
Slide 38: Civil Aerospace
Organic £m H1 2019 H1 2018 Change change Civil OE revenue 1,570 1,530 +3% +3% Aerospace Services – LTSA 1,576 1,328 +19% +18% Strong growth in Services - T&M/other 872 742 +18% +17% revenue. Operating loss Underlying revenue 4,018 3,600 +12% +11% reduced by Gross profit 276 175 +58% +54% £86m Gross
Slide 39: Civil Aerospace underlying revenue
OE revenue growth 3% Good widebody OE growth +6% Underlying revenue and strong growth in business jets Civil +9%. Material decline in V2500 OE £4,018million Aerospace Services revenue +18% By type 20% growth in large engine T&M & Good growth in services led by higher shop visit other widebody an
Slide 40: Power Systems
Organic Power £m H1 2019 H1 2018 Change change Systems OE 994 945 +5% +6% Services 559 526 +6% +7% Underlying revenue 1,553 1,471 +6% +6% Good revenue and profit Gross profit 389 354 +10% +10% growth driven by end Gross margin % 25.0% 24.1% +90bps +90bps market strength Operating profit 96 80 +20% +
Slide 41: Power Systems underlying revenue
OE revenue growth 6% Underlying revenue Power Strong demand for power generation products in data centre markets. £1,553million Systems Growth despite non-recurrence of By type overview 2018 pre-buy in construction & agriculture markets T&M & other Increased OE volumes 5% and services growth Ser
Slide 42: Defence
Organic £m H1 2019 H1 2018 Change change OE 653 608 +7% +4% Defence Services – LTSA 277 250 +11% +7% Services – T&M/other 564 557 +1% -2% Solid performance; gross profit higher Underlying revenue 1,494 1,415 +6% +2% Gross profit 295 281 +5% +1% Operating margin stable Gross margin (%) 19.7% 19.9% -2
Slide 43: Defence underlying revenue
Solid OE revenue +4% Underlying revenue Combat and naval growth, partially Defence offset by lower transport volumes £1,494million Stable revenues and Services revenue +1% Increased transport LTSA sales offset By type margins, with by lower naval T&M (phasing) investment ramping T&M & OE & Devel
Slide 44: ITP Aero
Organic ITP Aero £m H1 2019 H1 2018 Change change OE 400 290 +38% +40% Continued strong Services 57 85* -33% -32% revenue growth, Underlying revenue 457 375 +22% +23% temporary margin Gross profit 80 85 -6% -4% headwinds Gross margin (%) 17.5% 22.7% -520bps -490bps Operating profit 32 40 -20% -18% O
Slide 45: ITP Aero underlying revenue
Underlying revenue OE revenue up 40% ITP Aero Growth in Trent and P&W programmes £457million Growth in Civil OE and By type Services installed fleet Services revenue decline (32)% Lower spare parts consumption - 12% expected to increase in H2 Margin headwinds, largely due to phasing 88% OE Ope
Slide 46: FY19 guidance
03 FY19 guidance 46 2019 Half Year Results © Rolls-Royce
Slide 47: H1 2019 core FCF and FY 2019 core FCF
H1 2019 core FCF FY 2019 core FCF Key drivers of £(391)m £700m +/- £100m our H2 FCF improvement Higher profits and significant working H1 2019 core FCF: £(391)m H2 Contribution capital unwind will drive cash Higher underlying profit led by Power Systems; improvement performance in ITP Aero; Civil Ae
Slide 48: 2019 Outlook
£m 2018 Core 2019 Outlook 2019 Outlook Underlying revenue Civil Aerospace 7,378 Around 10% growth Power Systems 3,484 Mid single-digit growth FY 2019 guidance Defence 3,124 Stable confirmed ITP Aero 779 Around 10% growth Core underlying revenue 14,336 Underlying operating profit Civil (162) Closer t
Slide 49: Business outlook - Warren East
Business outlook Warren East Chief Executive 49 2019 Half Year Results © Rolls-Royce
Slide 50: Market environments
Civil Aerospace Widebody civil engine deliveries moving to long-term trend Published build rate Market Engine (airframe per month) environments Trent 1000 14 c. 500 6,500 Trent 7000 4.5 Our deliveries p.a. Our installed base Trent XWB 10 Trent 900 0.5 Business aviation current build rates expected t
Slide 51: Pioneering the Power that Matters
Pioneering the Power that Matters Develop: Rolls-Royce pioneers cutting edge technologies that deliver clean, safe and Our long-term vision and strategy competitive solutions to meet our planet’s vital power needs Creating the leading industrial technology Vitalise existing Reinvent with digital Tra
Slide 52: Playing our part in delivering lower carbon power
The ‘power Playing our part in delivering that matters’ lower carbon power is increasingly lower carbon Vitalising existing Championing Few companies are capabilities electrification better placed than Two-thirds of R&D Real products today us to be part of the solution New technologies Bolt-
Slide 53: Building on progress for FY 2019
Building on progress for FY 2019 Customers Technology People & Financial culture progress Increase production Revitalise service Build a resilient Continue improving volume business free cash flow Develop new engine Expand service architecture Continue restructuring Further strengthe
Slide 54: Safe harbour statement
Safe harbour This announcement contains certain forward-looking statements. These forward- looking statements can be identified by the fact that they do not relate only to statement historical or current facts. In particular, all statements that express forecasts, expectations and projections with r