Rolls-Royce Holdings plc · LSE:RR.
Rolls-Royce — Investor Presentation (March 2023)
46 slides from Rolls-Royce's investor presentation, March 2023
Slide 1: Rolls-Royce Investor Presentation
Rolls-Royce Investor Presentation March 2023 The information in this document is proprietary and confidential to Rolls-Royce and is available to authorised recipients only – copying and onward distribution is prohibited other than for the purpose for which it was made available. Rolls-Royce content
Slide 2: Stronger future
Stronger future Aim to create a high performing, competitive, resilient and growing business Significant opportunity to expand our cash generation and profitability Already in action to improve underlying performance We will set a granular strategy with mid term targets Page 2 © 2023 Rolls-Royce
Slide 3: Observations and key issues
Observations and key issues Rolls-Royce has potential to achieve far more Underlying Free Cash Flow EBIT Margin Return on capital Credit rating operating profit Post tax Min £(4,255)m – Min £(2,008)m – Min (17.6)% – Min (19.5)% – Moodys Ba3 Max £873m Max £808m Max 5.2% Max 4.6% Fitch BB - 2018 - 202
Slide 4: Rolls-Royce proposition: a stronger business
Rolls-Royce proposition A stronger business Focus on profitable performance and operational efficiency 1 High quality and competitive business EBIT margin and returns Growing cash from operations and disciplined 2 Growing sustainable cash flows capital investment 3 Strong balance sheet and growing R
Slide 5: Priorities to deliver on our potential
Priorities to deliver on our potential Significantly Deliver Generate cash, Develop a clear Play a key improve efficiency reduce debt and granular role in the operating profit improvements and improve strategy energy transition and cash shareholder returns Safety – people and product Page 5 © 2023 R
Slide 6: Transformation programme – overview and governance
Transformation programme – overview and governance Discipline and governance to drive sustainable change Steering Committee Transformation Planning Group Central Transformation Office Efficiency & Simplification Commercial Optimisation • Organisation and footprint efficiencies • Contract profitabili
Slide 7: Key building blocks - efficiency and simplification
Key building blocks - efficiency and simplification Sustainable cost efficiency delivery will unlock synergies and reduce our Total Cash Costs/Gross Margin Operating Leverage 3 Workstreams: (Total Cash Costs*/Gross Margin) 1 Organisational design 2 Footprint efficiencies Best in class 3 Third party
Slide 8: Key building blocks - commercial optimisation and working capital
Key building blocks - commercial optimisation and working capital Commercial Optimisation Working Capital £25bn The right reward for the value delivered and the risks • Structural working taken for our customers capital release targeted Payables Focus on Civil Aerospace and Power Systems • £2bn incr
Slide 9: Key building blocks – strategic review: capital allocation framework
Key building blocks – Our new capital allocation framework strategic review Higher priority on deleveraging the balance sheet and shareholder payments. Cash flow - Safety capex and engineering spend • Prioritise investment opportunities - Contractual committed investment = • Central capital allocati
Slide 10: Financial performance
Financial performance 2 The information in this document is proprietary and confidential to Rolls-Royce and is available to authorised recipients only – copying and onward distribution is prohibited other than for the purpose for which it was made available. Rolls-Royce content only. Page 10 © 2023
Slide 11: FY 2022 results summary
FY 2022 results summary Improved orders, revenue, profit and cash flow in 2022 • Strong new order wins in Civil Aerospace and Defence and a record order book in Power Systems Underlying revenue by business – FY 2022 • Underlying operating profit of £652m, £238m higher than the prior year, with the i
Slide 12: Guidance and outlook
Guidance and outlook 2023 group guidance Operating profit £0.8bn - £1.0bn FCF £0.6bn - £0.8bn Based on… Civil large EFH at 80%-90% of 2019 level Renewed and intensified focus on performance Total Civil shop visits approx. 1,200-1,300 and efficiency Continued recovery in our end markets, notably Civi
Slide 13: 2022 Full year underlying results
2022 Full year underlying results Underlying results Organic Organic Higher Civil Aerospace shop visit and spare engine £m 2022 2021 Change1 Change %1 volumes and Power Systems growth Revenue 12,691 10,947 1,534 14% Gross profit 2,477 1,996 436 22% Gross margin % 19.5% 18.2% 1.3%pt Underlying operat
Slide 14: Civil Aerospace
Large engine Total Civil Aerospace Civil Aerospace operational inputs operational inputs 190 248 10.0m 355 1,044 13.2m OE Major LTSA engine OE Total LTSA LTSA engine deliveries shop visits flying hours (EFH) deliveries shop visits flying hours (EFH) Underlying results Organic Organic 2022 2021 £m Ch
Slide 15: Defence
Order intake Order backlog Defence £5.4bn Up 131% £8.5bn 2023 sales cover 1.5x book to bill c.86% Underlying results Organic Organic 2022 2021 £m Change Change % Underlying revenue splits Revenue 3,660 3,368 78 2% 13% Gross profit 726 721 (28) (4%) 33% Gross margin % 19.8% 21.4% (1.3)%pt 45% 21% 55%
Slide 16: Power Systems
Order intake Order backlog Power Systems £4.3bn Up 29% £4.0bn 2023 sales cover 1.3x book to bill c.76% Underlying results Organic Organic 2022 2021 £m Change Change % Underlying revenue splits Revenue 3,347 2,749 626 23% 10% Gross profit 918 778 148 19% 31% 35% Gross margin % 27.4% 28.3% (0.9)%pt 34
Slide 17: New markets
Employees R&D Spend New markets c1,000 (+80% vs FY21) £108m (+£40m y/y) (FTE at period end) Underlying results Organic Organic 2022 2021 £m Change Change % £490m SMR committed funds £108m R&D spend Revenue 3 2 1 50% 10% Gross (loss)/profit (1) 1 (2) 38% Operating loss (132) (70) (62) (89)% 43% Tradi
Slide 18: Summary funds flow
Summary funds flow £m 2022 2021 Change Underlying operating profit 652 414 238 Operating profit from discontinued operations Depreciation, amortisation and impairment 86 953 (43) 971 129 (18) 1 £1.2bn Operating performance Movement in provisions (23) (136) 113 improvement Movement in Civil LTSA bala
Slide 19: Balance sheet
Balance sheet Net Debt Progression (including leases) Illustrative, not drawn to scale £3.3bn £0.5bn £5.2bn £1.4bn 2021 Disposal proceeds FCF 2022 Net Debt in 2022 2022 Net Debt Target to return to investment grade credit rating Page 19 © 2023 Rolls-Royce
Slide 20: What we do
What we do 3 The information in this document is proprietary and confidential to Rolls-Royce and is available to authorised recipients only – copying and onward distribution is prohibited other than for the purpose for which it was made available. Rolls-Royce content only. Page 20 © 2023 Rolls-Royce
Slide 21: Our business groups
Our business groups Civil Power Systems Defence Electrical SMR 35 40,000 160 NEW MARKET NEW MARKET types of commercial customers in 11 customers in over aircraft powered by us different industries 103 countries 15,400 20,000 16,000 £67m £41m installed base around reciprocating engines engines in ser
Slide 22: Our markets
Our markets 5% 4% Civil Aerospace is a major manufacturer of aero engines CIVIL for the large commercial aircraft, regional jets and £5,686m Underlying revenue AEROSPACE Underlying revenue business aviation markets. The business uses its 21% engineering expertise, in-depth knowledge and capabilities
Slide 23: Civil Aerospace value drivers and outlook
Civil Aerospace Value drivers value drivers and outlook Leading products in growing Maximise Service Receipts markets Civil Aerospace Investor Day was held in Derby in May 2022 and provided deeper Embedded value in a growing Service Cost Reduction view into the value drivers installed base and mediu
Slide 24: Key drivers of Civil Aerospace value
Key drivers of Civil Aerospace value Creating value from a growing and maturing fleet as the market for international passenger travel recovers Retaining the operational efficiency and productivity gains Maximise Services Business OE margin Investment already delivered to drive further service cost
Slide 25: Leading products in growing markets
Leading products Business Aviation Portfolio in growing markets In Service In Production In Flight-test In Development © Gulfstream © Bombardier © Gulfstream © Dassault Civil Aerospace 2022 Gulfstream Bombardier Gulfstream G700 Dassault Falcon X underlying revenue Tay * BR710 * AE3007 G650 5500/ 650
Slide 26: We are well positioned to outperform market growth
We are well positioned to outperform market growth Rolls-Royce Share of in Service OE Future Fleet age (# aircraft) outlook EFH potential RR 25% Legacy large 13 years 4,955 Trent 700 for >40% engines (Trent 700: 11 Years) military MRTT only Trent 700 New generation 4 years 1,554 RR >90% Trent 1000/7
Slide 27: Investing in technologies to shape the future
Markets Investing in COMMUTER / BUSINESS technologies to WIDEBODY NARROWBODY REGIONAL eVTOL AVIATION shape the future Strengthen and Ambition to Growth through Disrupt with new Explore new sustain core re-enter market new technology technology market segments business of aviation We play a vital rol
Slide 28: Civil Aerospace investment cycle
Civil Aerospace investment cycle In-service Cash Long investment cycles generation supported by: ▪ Access to government funding for technology development ▪ Risk and revenue sharing R&D partnerships for programme OE Build and Delivery investment Cash ▪ Supply chain and services joint consumption ven
Slide 29: Defence
Defence Demand for defence business’ transport, combat, submarine and naval products is driven by government defence spending 25% UK MoD 50% US DoD 25% Export ME, Korea, Japan, Source: Jane’s Defence Budgets (JDB) defence spending Canada and India summary spreadsheet, 2020. Long term drivers of defe
Slide 30: Power Systems
Power Systems Power Generation Marine Industrial Defence 34% of Sales 31% of Sales 25% of Sales 10% of Sales Record order book and order intake in 2022 Diversified end markets and mission critical services • Mission critical backup • Government focused • Oil & Gas, mining, • Defence end markets powe
Slide 31: New Markets
New Markets Leveraging synergies across the group Rolls-Royce Electrical Rolls-Royce SMR Complete power and propulsion systems Small Modular Reactors are 470MW, 50Hz, for all-electric and hybrid-electric nuclear power stations designed to help applications. decarbonise global power generation Our re
Slide 32: Fundamental role in meeting the challenge of climate change
We have a fundamental role to play in meeting the challenge of climate change Applying technical pathways to Net Zero Targets decarbonise complex, critical systems Rolls-Royce Products in Service Change in Annual CO2 Emissions from 2019 to 2050 2019 2025 2030 2035 2040 2045 2050 Time Hypothetical ‘n
Slide 33: Additional information
Additional information 4 The information in this document is proprietary and confidential to Rolls-Royce and is available to authorised recipients only – copying and onward distribution is prohibited other than for the purpose for which it was made available. Rolls-Royce content only. Page 33 © 2023
Slide 34: FY 2023 outlook and guidance
FY 2023 outlook and guidance 2022 2023 Operating profit £652m £0.8bn - £1.0bn Free cash flow from continuing operations £505m £0.6bn - £0.8bn Significant profit items: Civil LTSA catch-ups £319m £100m - £200m Significant cash flow items: LTSA creditor growth £792m £500m-£700m Net OE engine concessio
Slide 35: Drivers of Civil LTSA balance change
Drivers of Civil LTSA balance change Deferred revenue reflects difference between invoiced EFH receipts and P&L revenues traded - Invoiced EFH receipts P&L LTSA Invoiced revenue LTSA contract Reflects invoiced EFH receipts on EFH (pre-catch-ups) catch-ups FX & other long-term contracts across entire
Slide 36: Understanding the LTSA balance
Understanding the Cash flows P&L LTSA balance 1 Difference between invoiced EFH receipts & 3 ∆ LTSA balance revenue recognised Net LTSA cash flow The LTSA balance is the Invoiced LTSA profit connection between profit and EFH cash flow receipts LTSA revenue Looking at profit + the change in 2 P&L rev
Slide 37: LTSA example
LTSA example $m Year 1 Year 2 Year 3 Year 4 Year 5 Total Engine flying hours 100 100 100 100 100 500 $ per EFH 10 10 10 10 10 10 Invoiced EFH receipts 1,000 1,000 1,000 1,000 1,000 5,000 Cash Illustrative example of a single flow Shop visit costs -2,000 -2,000 contract Other ongoing costs -100 -100
Slide 38: LTSA example: catch-up
LTSA example Catch-up in year 4 $m Engine flying hours Year 1 100 Year 2 100 Year 3 100 Year 4 100 Year 5 100 Total 500 $ per EFH 10 10 10 10 10 10 Invoiced EFH receipts 1,000 1,000 1,000 1,000 1,000 5,000 Cash In year 4 due to cost reduction flow Shop visit costs -1,500 -1,500 efforts the estimated
Slide 39: Civil Aerospace revenues by engine type
Civil Aerospace revenues by engine type £m 2022 2021 Organic change1 Original Equipment 1,982 1,612 23% Large engine 1,516 1,297 17% Business aviation 447 310 45% V2500 19 5 280% Service 3,704 2,924 26% Large engine 2,492 1,958 27% Business aviation 721 654 8% Regional 229 187 17% V2500 262 125 110%
Slide 40: Trent engine products
Trent engine products Widebody backlog and market share Airframe Market share* Engines in service Engines on order Trent 7000 Airbus A330neo 100% 170 372 Trent XWB Airbus A350 100% 886 784 Trent 1000 Boeing 787 33% 662 125 Trent 900 Airbus A380 48% 252 0 Trent 800 Boeing 777 40% 184 0 Trent 700 Airb
Slide 41: Civil Aerospace engine deliveries
Civil Aerospace engine deliveries By engine 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Trent 500 8 - - - - - - - - - - Trent 700 157 181 184 140 88 110 63 10 2 2 1 Trent 800 - - - - - - - - - - - Trent 900 64 42 35 6 30 67 44 34 15 1 2 Trent 1000 46 59 79 106 122 109 125 126 82 12 5 Tren
Slide 42: Civil Aerospace in-service installed fleet
Civil Aerospace in-service installed fleet* By engine 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 RB211 22B 6 3 3 3 3 3 3 3 3 3 - RB211 524 530 455 352 302 278 266 242 210 82 80 85 RB211 535 1,028 1,026 1,012 908 868 826 850 824 576 658 682 RB211 Total 1,564 1,484 1,367 1,213 1,149 1,095
Slide 43: Transactional foreign exchange
Transactional foreign exchange % cover of forecast £/$ exchange net US$ income rate Rolls-Royce hedges transactional FX 100% 1.60 • Transactional exposure arises when revenue currencies differ from cost currencies • Achieved rate is not typically affected by short-term spot rate movements 80% 1.50 u
Slide 44: Translational foreign exchange
Translational foreign exchange The impact of translational foreign exchange is driven by period average spot rates Period average rates 2022 2021 Rolls-Royce does not hedge against the USD 1.24 1.38 impact of translational FX EUR 1.17 1.16 • Translational exposure varies by source of revenues and pr
Slide 45: Safe harbour statement and contact details
Safe harbour statement and contact details Isabel Green This announcement contains certain forward-looking statements. These forward-looking statements can be Head of Investor Relations identified by the fact that they do not relate only to historical or current facts. In particular, all statements
Slide 46: Page 46 © 2023 Rolls-Royce
Page 46 © 2023 Rolls-Royce
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