Rolls-Royce Holdings plc · LSE:RR.
Rolls-Royce — Investor Presentation (December 2023)
65 slides from Rolls-Royce's investor presentation, December 2023
Slide 1: Rolls-Royce Investor Presentation December 2023
ROLLS-ROYCE INVESTOR PRESENTATION December 2023
Slide 2: Rolls-Royce Proposition
ROLLS-ROYCE PROPOSITION 1. HIGH PERFORMING, COMPETITIVE AND RESILIENT BUSINESS 2 GROWING SUSTAINABLE . CASH FLOWS 3 STRONG BALANCE SHEET AND . GROWING SHAREHOLDER RETURNS © 2023 Rolls-Royce Not Subject to Export Control 2
Slide 3: Differentiated Group Strengthened Through Transformation
DIFFERENTIATED GROUP STRENGTHENED THROUGH TRANSFORMATION …TRANSFORMING INTO … BUILDING ON…. ▪ A more resilient and efficient business with ▪ Civil Aerospace | Leading positions in Business Aviation, and ‒ Quality of earnings – cash expansion focused exclusivity on the latest Airbus widebody aircraft
Slide 4: Differentiated and Advantaged Technologies
DIFFERENTIATED AND ADVANTAGED TECHNOLOGIES Advantaged technologies UltraFan Nuclear Systems integration Leading technologies for next generation Trusted and proven aircraft reactor design Advanced manufacturing Vertically integrated Control systems Next generation technology Electrical systems © 202
Slide 5: Capturing Performance Improvement Opportunities
CAPTURING PERFORMANCE IMPROVEMENT OPPORTUNITIES Strategic framework 1. Portfolio choices & partnerships High performing Operating profit 2. Advantaged businesses & strategic initiatives Competitive Operating margin Efficiency & simplification Growing 3. Sustainable cash flow Resilient 4. Lower carbo
Slide 6: Group Mid-Term Targets
CAPTURING PERFORMANCE IMPROVEMENT OPPORTUNITIES Group mid-term targets Operating profit Operating margin Free cash flow Return on capital £2.5bn-£2.8bn 13-15% £2.8bn-£3.1bn 16-18% +£1.8bn-£2.1bn +8–10pts +£2.3bn-£2.6bn +11–13pts 5.1% £0.65bn 4.9% £0.5bn 2022 2023 Mid- 2022 2023 Mid- 2022 2023 Mid- 2
Slide 7: Divisional Mid-Term Targets
CAPTURING PERFORMANCE IMPROVEMENT OPPORTUNITIES Divisional mid-term targets Divisional operating margin, % CIVIL AEROSPACE DEFENCE POWER SYSTEMS +12-14 pts +2-4pts +4-6pts 11.8% 8.4% 2.5% 15-17% 14-16% 12-14% 2022 2023 Mid- 2022 2023 Mid- 2022 2023 Mid- term term term © 2023 Rolls-Royce Not Subject
Slide 8: Portfolio Choices & Partnerships
1. PORTFOLIO CHOICES & PARTNERSHIPS Focused and granular approach Key investment areas for performance and growth Partnerships Exits Focused on CIVIL AEROSPACE ▪ Non-core businesses ▪ Valued higher outside portfolio Business Aviation Widebody Narrowbody DEFENCE Electrical – Advanced Air Mobility Tra
Slide 9: Advantaged Businesses: Attractive and Growing Markets
2. ADVANTAGED BUSINESSES & STRATEGIC INITIATIVES Positioned in attractive and growing markets 2022-2030 annual market growth rates1 COMMERCIAL AVIATION DEFENCE POWER SYSTEMS 3-5% Business Aviation 0-2% Combat & Transport 5-7% Power Generation 5-7% Widebody UK & AUKUS Submarines 4-6% Mobile Applicati
Slide 10: Sustainably Expanding Earnings Potential
2. ADVANTAGED BUSINESSES & STRATEGIC INITIATIVES Sustainably expanding earnings potential Group operating profit improvement Strategic initiatives driving margin improvements CIVIL AEROSPACE 15-17% £2.5bn-£2.8bn Mid-term operating margin target 2022 Business Efficiency & Portfolio Mid- Aviation Wide
Slide 11: Efficiency & Simplification
3. EFFICIENCY & SIMPLIFICATION Sustainable cost efficiency to improve competitiveness and resilience Key drivers Total Cash Cost / Gross Margin (TCC/GM) (40-50)% Right-sizing the organisation 0.8x ▪ Reduction of 2,000-2,500 roles proposed worldwide ▪ Focus on efficiency, simplification and enterpris
Slide 12: Lower Carbon & Digitally Enabled Businesses
4. LOWER CARBON & DIGITALLY ENABLED BUSINESSES Transition to lower carbon, supporting our customers on their journey to net zero SUSTAINABLE ENGINE AEROSPACE EFFICIENCY AVIATION FUEL AND DEFENCE ▪ Committed to 2050 net zero ambition ALTERNATIVE BATTERY ENERGY POWER FUELS AND STORAGE ▪ All in-product
Slide 13: Differentiated Customer Experience and Operational Efficiency
4. LOWER CARBON & DIGITALLY ENABLED BUSINESSES Differentiated customer experience and greater operational efficiency CUSTOMER DESIGN MANUFACTURE PEOPLE Differentiated service Digitally-integrated Improved operational Digitally connected and experience design, build and performance workforce operate
Slide 14: Long-Term Growth Momentum
LONG-TERMGROWTH MOMENTUM Continued material growth opportunities beyond mid-term Rolls-Royce long-term growth prospects New business Additional upside potential from narrowbody and nuclear micro-reactors SMR Poised to play major role in the civil nuclear market Power Systems Grow in line with market
Slide 15: Transforming the Business for Sustainable Growth
TRANSFORMING THE BUSINESS FOR SUSTAINABLE GROWTH OUR TRANSFORMATION STRATEGIC FRAMEWORK ▪ Portfolio choices & partnerships ▪ Advantaged businesses & strategic initiatives 1.HIGH PERFORMING, COMPETITIVE AND RESILIENT BUSINESS ▪ Efficiency & simplification ▪ Lower carbon & digitally enabled businesses
Slide 16: Financials
FINANCIALS © 2023 Rolls-Royce
Slide 17: Capital Framework
CAPITAL FRAMEWORK Driving shareholder value Strong balance sheet and Committed to growing Disciplined investment investment grade credit profile shareholder returns Improved net debt/EBITDA Rigorous capital allocation process Once strong balance sheet Reduced gross debt and investment grade profile
Slide 18: Sustainable and Growing Free Cash Flow
SUSTAINABLE AND GROWING FREE CASH FLOW Driven by higher operating profit and stronger balance sheet £2.8bn-£3.1bn mid-term Free Cash Flow (FCF) Improvement in FCF to mid-term driven by +£2.3bn-£2.6bn FCF growth • Operating profit growth (£1.8bn-£2.1bn) with an operating margin of 13-15% £2.8bn-£3.1b
Slide 19: Civil LTSA Balance Growth
CIVIL LTSA BALANCE GROWTH £0.8bn-£1.2bn per annum growth Civil LTSA balance growth1 £0.8bn-£1.2bn p.a. Growing cash receipts ahead of shop visits costs driven by growth • Widebody EFH growth reaching 120-130% of 2019 levels • Business Aviation growth • Higher average EFH rate • Time on wing improvem
Slide 20: Working Capital Optimisation
WORKING CAPITAL OPTIMISATION c.£2bn of sustainable improvements more than offset the impact of headwinds Net Working Capital1 management Disciplined working capital management Receivables & Portfolio 2022 Inventories Payables Concessions Growth & Other Mid-term INVENTORIES • Significant improvement
Slide 21: Financial Results Summary
FINANCIAL RESULTS SUMMARY FINANCIAL PERFORMANCE FOR PAST 5 YEARS £m 2022 2021 2020 2019 2018 Underlying revenue 12,691 10,947 11,430 15,450 15,067 Underlying operating profit/(loss) 652 414 (2,008) 808 616 Profit/(loss) for the year from continuing operations 158 10 (3,997) 306 305 Group FCF 505 (1,
Slide 22: Revenue by Business and Geography
REVENUE BY BUSINESS AND GEOGRAPHY Full year 2022 RoW 6% Power Systems Civil £3,347m Aerospace Europe Asia/Middle £5,686m 35% East 25% BUSINESS Defence £3,660m North America 34% Our New Markets business contributed £3m underlying revenue to the Group The Group’s revenue by destination of the ultimate
Slide 23: Guidance
GUIDANCE GROUP GUIDANCE FOR MID-TERM (BASED ON 2027) Mid-term guidance Change FY22 Operating profit £2.5bn-£2.8bn +£1.8bn-£2.1bn £652m Operating margin 13-15% +8-10%pts 5.1% Free cash flow £2.8bn – £3.1bn +£2.3bn-£2.6bn £505m Return on capital 16-18% +11-13%pts 4.9% DIVISIONAL GUIDANCE FOR MID-TERM
Slide 24: Civil Aerospace
CIVIL AEROSPACE Page 24
Slide 25: Civil Aerospace: Advantaged Products and Services
CIVIL AEROSPACE Advantaged products and services in growing markets Underlying revenue (2022) BUSINESS AVIATION WIDEBODY REGIONAL / V2500 £5,686m Market leading position Capitalise on Power of the Trent Strength in legacy programmes ~70% Aircraft in service market share1 ~55% Widebody delivery share
Slide 26: Leading Products in Growing Markets
LEADING PRODUCTS IN GROWING MARKETS Widebody Portfolio Market leading 35% Sole-source Sole-source Sole-source legacy large engine ** market share Airbus A330 Boeing 787 Airbus A350-900 A350-1000 & A350F Airbus A330neo ** Legacy large engine Trent 700 Trent 1000 Trent XWB-84 Trent XWB-97 Trent 7000 f
Slide 27: Civil Aerospace Strategic Initiatives
CAPTURING PERFORMANCE IMPROVEMENT OPPORTUNITIES Strategic initiatives driving margin improvements Civil Aerospace operating profit improvements (£bn) Business Aviation 15-17% Grow market share, aftermarket growth and commercial optimisation Mid-term operating margin targets Widebody Keep Engines Ear
Slide 28: Business Aviation
BUSINESS AVIATION Strategic initiatives driving margin improvements GROW MARKET SHARE WITH PEARL ▪ Leaders in resilient and growing market 8-9% Annual growth of ▪ Pearl is today’s engine family of choice Rolls-Royce powered aircraft deliveries1 ▪ Won the last three major campaigns 28 SIGNIFICANT SER
Slide 29: Widebody
WIDEBODY Strategic initiatives driving margin improvements KEEP ENGINES EARNING Powering ▪ Improve engine performance and earning 80% of A330 through extensions, transitions and passenger committed freighter to freighter conversions conversions1 COMMERCIAL OPTIMISATION Drive towards ▪ Drive contract
Slide 30: Widebody: Time on Wing and Cost Reduction
WIDEBODY Strategic initiatives driving margin improvements EXTEND TIME ON WING ~40% ▪ Improve product durability ▪ Extend life and component limits Time on Wing increase ▪ Optimise aircraft operations and maintenance over mid-term 1 REDUCE SHOP VISIT COST ▪ Greater control workscope ▪ Optimise MRO b
Slide 31: Transition to Lower Carbon
TRANSITION TO LOWER CARBON Supporting our customers on their journey to net zero Maximise efficiency All in-production UltraFan technologies of current fleet engines compatible for current and next with 100% SAF generation widebody and narrowbody aircraft © 2023 Rolls-Royce Not Subject to Export Con
Slide 32: Defence
DEFENCE Page 32
Slide 33: Defence: Advantaged and Resilient Business
DEFENCE Advantaged and resilient business operating in attractive markets Underlying revenue (2022) TRANSPORT COMBAT1 SUBMARINES NAVAL HELICOPTER £3,660m Versatile core Global solutions Full value chain Power-dense Decades of small with leading capability engines engine experience technology 25-30%
Slide 34: Products Stay in Production for Decades
ONCE SOLD OUR PRODUCTS STAY IN PRODUCTION FOR DECADES AND OUR CUSTOMERS USE THEM FOR DECADES Lifecycle Development Growth Maturity Product Development Production Services • Customer funding • ~38% of product revenues from • ~62% of product revenues from Services available for Original Equipment • De
Slide 35: Defence Strategic Initiatives
CAPTURING PERFORMANCE IMPROVEMENT OPPORTUNITIES Strategic initiatives driving margin improvements Defence operating profit improvements (£bn) Transport 14-16% Operating margin mid-term target Continuing support for a growing Transport & Patrol fleet Combat Pursuing new, funded Combat programmes £432
Slide 36: Key Drivers of Defence Operating Profit
CAPTURING PERFORMANCE IMPROVEMENT OPPORTUNITIES Key drivers of operating profit improvements Defence operating profit improvements (£bn) VOLUME & MIX 22% 14-16% • Moving from legacy to new, funded programmes • Profitable aftermarket volume growth Increase in AE shop visits Operating margin mid-term
Slide 37: Long-Term Growth Momentum: Recent Wins
LONG-TERM GROWTH MOMENTUM Recent wins underpin long-term growth in Transport, Combat and Submarines RECENT WINS FUTURE OPPORTUNITIES Future Long Range Assault Aircraft (FLRAA) Grow market share by leveraging FLRAA TRANSPORT position for additional Transport & Patrol opportunities © Crown copyright G
Slide 38: Power Systems
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Slide 39: Power Systems: Resilient Business Model
POWER SYSTEMS Resilient business model in attractive growth markets Revenue split (2022) 1 POWER GENERATION GOVERNMENTAL MARINE INDUSTRIAL £3,347m Mission-critical power Stable, high-power Complete integrated Efficient, long-lasting solutions systems engines 15-20% Power Gen – 34% Governmental – 29%
Slide 40: Power Systems Strategic Initiatives
CAPTURING PERFORMANCE IMPROVEMENT OPPORTUNITIES Strategic initiatives driving margin improvements Power Systems operating profit improvements (£bn) Granular Strategic Initiatives 12-14% Power Generation Strengthen position with increased profitability in growing market Operating margin mid-term targ
Slide 41: Power Generation Performance Improvement
POWER GENERATION PERFORMANCE IMPROVEMENT Strategic initiatives driving margin improvements Power Generation operating profit improvements (£bn) LEVERAGE HIGH GROWTH MARKETS >20% AI-related data Build on strong position in data centre spend centre market and focus on growth growth p.a. with strategic
Slide 42: Profitable Governmental Growth
PROFITABLE GOVERNMENTAL GROWTH Strategic initiatives driving margin improvements Governmental operating profit improvements (£bn) CAPTURE MARKET GROWTH Leverage technology leadership and >10% close customer relationships to Mid-term revenue growth per annum capture current market dynamics and servic
Slide 43: Profitable Marine Growth
PROFITABLE MARINE GROWTH Strategic initiatives driving margin improvements Marine operating profit improvements (£bn) EXPAND SOLUTION OFFERING Grow integrated propulsion 2x solution offering in line with Sales potential Bridge to Propeller strategy SECURE LEADING Sustainable PORTFOLIO POSITION fuel-
Slide 44: Transition to Lower Carbon
TRANSITION TO LOWER CARBON Supporting our customers on their journey to net zero Alternative fuels Battery Energy Storage Further advance engines certified for alternative Solutions fuels to support energy transition Strengthen existing Hybrid offerings portfolio and expand Digital initiatives offer
Slide 45: Safety, Ethics and Sustainability
SAFETY, ETHICS AND SUSTAINABILITY Page 45
Slide 46: Our Sustainability Approach
OUR SUSTAINABILITY APPROACH We focus on areas where we can make the most material contributions to a sustainable future, informed by our impacts as a business, supported by global frameworks such as the United Nations Sustainable Development Goals, and the expectations of our all stakeholders. We lo
Slide 47: Safety
SAFETY Rolls-Royce provides mission critical products that people’s lives depend on. Our commitment to the safety of our products is therefore at the heart of our ‘Operate Safely’ core value. The Rolls-Royce Product Safety Policy sets out the five principles which we have established to ensure we ke
Slide 48: Our People
OUR PEOPLE Progress on gender diversity (% female representation) We work to create an environment where everyone at Rolls-Royce can be at their best. 33% 22% 18% • safety, health and wellbeing of our people; Board level Senior leaders All company Headcount by business Headcount by location 0% 2% 7%
Slide 49: Ethics
ETHICS We are committed to maintaining high ethical standards underpinned by our values and behaviours to create a working environment where everyone at Rolls-Royce and those we work with can be at their best. Our code of conduct (Our Code) and associated Group policies form a key part of the Rolls-
Slide 50: State of the Art Facilities
STATE OF THE ART FACILTIES We continue to invest in developing state of the art manufacturing and production environments that enable us to reduce the environmental impact of our operations. Revert Programme: Our closed loop recycling Energy Total solid and Recycling & programme consumption liquid w
Slide 51: Appendix
APPENDIX Page 51
Slide 52: Group Mid-Term Targets and Guidance
GROUP MID-TERM TARGETS AND GUIDANCE Mid-term targets Operating profit £2.5bn-£2.8bn Operating margin 13-15 % Free Cash flow £2.8bn-£3.1bn Return on Capital 16-18 % Other guidance TCC/GM 0.4-0.5x Gross disposal proceeds £1.0bn-£1.5bn over 5 years Net investments Investments > D&A in the mid-term vs.
Slide 53: Divisional Mid-Term Targets and Guidance
DIVISIONAL MID-TERM TARGETS AND GUIDANCE Civil Aerospace Operating margin mid-term target 15-17% Market growth: Widebody 5-7% (CAGR 2022 – 2030) Market growth: Business Aviation 3-5% (CAGR 2022 – 2030) Large engine deliveries 300-350 Business Aviation deliveries 250-300 Large engine refurbs 700-750
Slide 54: 2023 Guidance
2023 GUIDANCE 2023 guidance Guidance at FY 2022 Divisional guidance Operating profit £1.2bn - £1.4bn £0.8bn - £1.0bn Free cash flow from continuing operations £0.9bn - £1.0bn £0.6bn - £0.8bn • Civil Aerospace operating profit in the second half is expected to Significant profit items: be broadly sim
Slide 55: 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 56: Transactional Foreign Exchange
Transactional foreign exchange % cover of forecast £/$ exchange net US$ income rate Rolls-Royce hedges transactional FX • Transactional exposure arises when revenue currencies differ from cost 100% 1.6 currencies • Achieved rate is not typically affected by short-term spot rate movements unless new
Slide 57: Translational Foreign Exchange
Translational foreign exchange The impact of translational foreign exchange is driven by period average spot rates Period average rates 2023 H1 2022 H1 Rolls-Royce does not hedge against the USD 1.23 1.31 impact of translational FX EUR 1.14 1.19 • Translational exposure varies by source of revenues
Slide 58: Civil Aerospace Revenues by Engine Type
Civil Aerospace revenues by engine type £m 2023 H1 2022 H1 Organic change 1 Original Equipment 1,055 660 58% Large engine 828 478 73% Business aviation 221 175 21% V2500 6 7 (14)% Service 2,202 1,679 30% Large engine 1,547 1,135 36% Business aviation 407 329 20% Regional 122 100 17% V2500 126 115 9%
Slide 59: Trent Engine Products
Trent engine products Large engines backlog and market share Airframe Market share* Engines in service Engines on order Trent 7000 Airbus A330neo 100% 196 358 Trent XWB Airbus A350 100% 1012 929 Trent 1000 Boeing 787 31% 696 118 Trent 900 Airbus A380 48% 280 0 Trent 800 Boeing 777 40% 200 0 Trent 70
Slide 60: Civil Aerospace Engine Deliveries
Civil Aerospace engine deliveries By engine 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 H1 Trent 500 - - - - - - - - - - - Trent 700 181 184 140 88 110 63 10 2 2 1 1 Trent 800 - - - - - - - - - - - Trent 900 42 35 6 30 67 44 34 15 1 2 - Trent 1000 59 79 106 122 109 125 126 82 12 5 13 Tren
Slide 61: Civil Aerospace In-Service Installed Fleet
Civil Aerospace in-service installed fleet* By engine 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 H1 RB211 22B 3 3 3 3 3 3 3 3 3 - - RB211 524 455 352 302 278 266 242 210 82 80 85 77 RB211 535 1,026 1,012 908 868 826 850 824 576 658 682 714 RB211 Total 1,484 1,367 1,213 1,149 1,095 1,095
Slide 62: Civil In-Service Thrust Base
Civil in-service thrust base (millions lbs)* Thrust per engine (lbs) 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 H1 RB211 22B 60,000 - - - - - - - - - - - RB211 524 60,000 27 21 18 17 16 15 13 5 5 5 5 RB211 535 40,000 41 40 36 35 33 34 33 23 26 27 29 RB211 Total 69 62 55 52 49 49 46 28 31
Slide 63: Definitions and Calculations
DEFINITIONS AND CALCULATIONS Return on Capital: RoC = net operating profit after tax / average invested capital Net operating profit is defined as underlying operating profit after tax (where the tax charge reflects the group tax charge after removing the estimated tax shield on net financing costs)
Slide 64: 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 65: ROLLS
ROLLS ROYCE ST
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