Rolls-Royce Holdings plc · LSE:RR.
Rolls-Royce — Investor Day (June 2014)
34 slides from Rolls-Royce's investor day presentation, Jun 19, 2014
Slide 1: Strategy
Strategy John Rishton 19 June 2014 © 2014 Rolls-Royce plc The information in this document is the property of Rolls-Royce plc and may not be copied or communicated to a third party, or used for any purpose other than that for which it is supplied without the express written consent of Rolls-Royce pl
Slide 2: Overview of morning
Overview of morning Strategy Capital allocation & guidance TotalCare® Q&A Trusted to deliver excellence Privileged and confidential - prepared at the request of outside counsel 2
Slide 3: Strategy – evolution, not revolution
Strategy – evolution, not revolution Place the customer at the heart of the organisation Customer Understand and shape their requirements Relentless focus on delivering our promises Value innovation in everything we do Innovation Ensure competitive technology ahead of product requirements Establish
Slide 4: Consistent long-term delivery
Consistent long-term delivery Order book (£bn) Revenue (£bn) 71.6 15.5 18.7 5.6 2003 2013 2003 2013 Profit (£bn) 1.8 0.3 Trusted to deliver excellence 2003 2013 Privileged and confidential - prepared at the request of outside counsel 4
Slide 5: Who we are
Who we are “ …for use on land or water or in the air.”* Group Rolls-Royce Complex power systems & services group Power Gas turbines Reciprocating engines Nuclear Systems LiftFan, engine controls, propulsion, deck machinery, I&C Services Aftermarket services Divisions Aerospace Marine & Industrial Po
Slide 6: Strong growth and better revenue balance
Strong growth and better revenue balance 2003: £5.6bn 11% CAGR 2013: £15.5bn Aerospace Aerospace 73% 59% MIPS 41% MIPS 27% Trusted to deliver excellence Privileged and confidential - prepared at the request of outside counsel 6
Slide 7: Strong growth and better profit balance
Strong growth and better profit balance 2003: £0.4bn 17% 17% CAGR CAGR 2013: £1.8bn Aerospace Aerospace 84% 70% MIPS 30% MIPS 16% Trusted to deliver excellence Privileged and confidential - prepared at the request of outside counsel 7
Slide 8: Balanced revenue by product & type
Balanced revenue by product & type 2013: £15.5bn Aerospace OE 28% Gas Turbines 66% Reciprocating engines MIPS OE 19% 25% Nuclear 4% Marine Marine equipment 14% Aerospace services MIPS services 11% 31% 16% Trusted to deliver excellence Privileged and confidential - prepared at the request of outside
Slide 9: Growth and balance driven by portfolio approach
Growth and balance driven by portfolio approach Similar ROCE, complementary profiles Civil gas turbines Reciprocating engines ROCE* 18% - 23% 25% - 30% Investment risk High Low Entry barriers High Medium Net R&D spend ~£1bn ~£150m Capex ~£0.5bn ~£100m Programme launch to EIS 5 – 7 years 3 - 5 years
Slide 10: Fix the Basics – “4C’s”
Our 5 priorities Fix the Basics – “4C’s” Bedrock Culture Wide body civil GTs Narrow body civil GTs Investment choices Medium-speed recips Trusted to deliver excellence Privileged and confidential - prepared at the request of outside counsel 10
Slide 11: Fix the basics: the "4C's"
Fix the basics: the "4C's" Customer Concentration Cost Cash Trusted to deliver excellence Privileged and confidential - prepared at the request of outside counsel 11
Slide 12: Customer
Customer On time delivery – trend improving but much more to do On time to customer On time to internal plan 2013 2012 2013 2012 Civil Aerospace 100% 80% 25% 4% Defence Aerospace 93% 88% 39% 7% Marine 95% 55% 77% 30% Trusted to deliver excellence Privileged and confidential - prepared at the request
Slide 13: Concentration
Concentration Focus on where we add most value When What Why 2014 Energy gas turbine business to Siemens Scale Sold 2013 RTM322 helicopter engine business Non-core 2012 Tidal Generation, Fuel Cells Non-core 2011 - 2014 Tognum Product Bought 2011 - 2013 Various Civil Nuclear businesses Technology 201
Slide 14: Cost
Cost Area Action Product redesign • 600 engineers • LCC sourcing to 40% by 2020 Structural change • 20% lower footprint by 2020 New manufacturing • New plants hitting targets Plants & technology • 160 new projects via AMRCs • Reduce logistics costs - 20% Logistics & inventory • Continue to improve i
Slide 15: Cash
Cash Type 2013 Action Drive down from current Capex spend £0.7bn 4.9% revenue to c. 4% in next 3-5 years. R&D spend £0.8bn Ease as % of revenue Continue to drive turn times by reducing buffers, Inventory year-end total £3.3bn improving productivity and increasing manufacturing stability. Trusted to
Slide 16: Cash
Cash Inventory turns improving but more to do 2013 2012 Civil 3.4 3.0 Defence 4.6 3.4 Marine 3.6 3.4 Group 3.4 3.0 Trusted to deliver excellence Privileged and confidential - prepared at the request of outside counsel 16
Slide 17: Fix the Basics – “4C’s”
Our 5 priorities Fix the Basics – “4C’s” Bedrock Culture Wide body civil GTs Narrow body civil GTs Investment choices Medium-speed recips Trusted to deliver excellence Privileged and confidential - prepared at the request of outside counsel 17
Slide 18: Culture
Culture Importance of culture: “Culture eats strategy for breakfast” Innovation Cost Ethics Trusted to deliver excellence Privileged and confidential - prepared at the request of outside counsel 18
Slide 19: Fix the Basics – “4C’s”
Our 5 priorities Fix the Basics – “4C’s” Bedrock Culture Wide body civil GTs Narrow body civil GTs Investment choices Medium-speed recips Trusted to deliver excellence Privileged and confidential - prepared at the request of outside counsel 19
Slide 20: Wide body aircraft deliveries to 2023
Wide body aircraft deliveries to 2023 Over 4,000 deliveries vs. over 2,000 in last decade Annual Boeing and Airbus aircraft units 500 450 400 350 300 250 200 150 100 50 0 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Source: Jefferies. Trusted to deliver excellence Privileged and confidential -
Slide 21: Projected Trent deliveries to 2023
Projected Trent deliveries to 2023 Over 4,000 deliveries vs. over 1,600 in last decade 700 600 Annual Trent deliveries 500 400 300 200 100 - 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Trusted to deliver excellence Privileged and confidential - prepared at the request of outside counsel 21
Slide 22: Rolls-Royce wide body installed thrust
Rolls-Royce wide body installed thrust More than doubles in next decade 2023 RB211– 6% lbs million lbs 700 Trent 700 – 24% Trent 1000 – 17% XWB – 34% 600 thrust 500 2013 RB211 – 32% thrust million Trent XWB Net cumulative 400 Trent 700 – 32% installed Trent 1000 – 3% Trent 1000 XWB – 0% Trent 900 30
Slide 23: Future products
Future products Continuous improvement essential to remain competitive Trent XWB Advance UltraFan™ World’s most efficient engine New engine core architecture >1600 sold >20% better fuel burn >25% better fuel burn Composite fan system New engine core architecture Geared design 84k variant EIS Q4 Adva
Slide 24: Fix the Basics – “4C’s”
Our 5 priorities Fix the Basics – “4C’s” Bedrock Culture Wide body civil GTs Narrow body civil GTs Investment choices Medium-speed recips Trusted to deliver excellence Privileged and confidential - prepared at the request of outside counsel 24
Slide 25: Narrow body deliveries to 2023
Narrow body deliveries to 2023 71% market units, 48% market value 1,200 Annual Boeing and Airbus aircraft units 1,000 800 Benefits • Customer intimacy 600 • Technology • Volume • Large market 400 200 0 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Source: Jefferies Trusted to deliver excellence
Slide 26: Fix the Basics – “4C’s”
Our 5 priorities Fix the Basics – “4C’s” Bedrock Culture Wide body civil GTs Narrow body civil GTs Investment choices Medium-speed recips Trusted to deliver excellence Privileged and confidential - prepared at the request of outside counsel 26
Slide 27: Low speed recips characteristics
Low speed recips characteristics rpm 50 - 300 Power (MW) 3 - 85 Weight (tonnes) 50 – 2400 Length (m) 4 – 24 Fuel type Diesel (HFO), gas Competitors MAN Diesel, MHI Typical uses Large merchant vessels Trusted to deliver excellence Privileged and confidential - prepared at the request of outside couns
Slide 28: High speed recips characteristics
High speed recips characteristics rpm 1000 – 2500+ Power (MW) <1 – 10 Weight (tonnes) <1 - 40 Length (m) <1 - 8 Fuel type Diesel (distillate), gas Competitors Caterpillar, Cummins, Yanmar, GE Jenbacher, Volvo Penta, Weichai Typical uses Marine leisure craft, naval, construction, rail, mining, standb
Slide 29: Medium speed recips characteristics
Medium speed recips characteristics rpm 300 – 1000 Power (MW) 1 – 25 Weight (tonnes) 18 – 350 Length (m) 3 – 14 Fuel type Diesel (distillate, residual/HFO), gas Competitors Wärtsilä, MAN Diesel, Caterpillar, Hyundai, Niigata Typical uses Offshore, small-medium merchant, distributed PG • Extensive us
Slide 30: Medium speed market: growing marine and land power forecast
Medium speed market Growing marine and land power forecast Market growth drivers: 5 • GDP • Population growth Annual OE market size- £bn +3.2% CAGR 4 Global financial crisis • Emerging markets power generation demand 3 • Environmental legislation • Oil price 2 • Gas price / availability • £35bn mark
Slide 31: Portfolio pull through
Portfolio pull through Each product gives access to others Propulsion Power electrics, systems automation & control Engines Complex deck machinery Vessel design • Early customer engagement • Access systems integration opportunities • Portfolio helps pull-through of other equipment Trusted to deliver
Slide 32: Marine revenue strong in marine equipment
Marine revenue strong in by product type 2013: £2.0bn* - strong in marine equipment Marine equipment 87% Gas turbines 6% Medium speed reciprocating engines 7% * pro-forma excluding Submarines revenue to be reported in Energy & Nuclear from FY14 Trusted to deliver excellence Privileged and confidenti
Slide 33: Fix the Basics – “4C’s”
Our 5 priorities Fix the Basics – “4C’s” Bedrock Culture Wide body civil GTs Narrow body civil GTs Investment choices Medium-speed recips Trusted to deliver excellence Privileged and confidential - prepared at the request of outside counsel 33
Slide 34: Summary
Summary Serv Strong position in growth markets Concentrating on what we know Significant opportunities Trusted to deliver excellence Privileged and confidential - prepared at the request of outside counsel 34