Rolls-Royce Holdings plc · LSE:RR.
Rolls-Royce — Investor Presentation (September 2022)
71 slides from Rolls-Royce's investor presentation, September 2022
Slide 1: Rolls-Royce Investor Presentation September 2022
Rolls-Royce Investor Presentation September 2022 1 Investor Presentation © Rolls-Royce
Slide 2: Agenda
1 Investment case 2 What we do 3 Civil Aerospace in more detail 4 FY 2021 results and supplementary slides
Slide 3: Investment case
1 Investment case 3 © 2022 Rolls-Royce
Slide 4: Summary financial performance
Summary financial performance Our financial performance was severely impacted by the COVID-19 pandemic Improving financial • Civil Aerospace margins and cash flows are leveraged to recovering large performance engine flight hours, with costs permanently rebased during COVID • Defence and Power Syste
Slide 5: Delivering on our commitments
Delivering on Improving Investing for our Our financial financial performance was severely growth and impacted by the COVID-19 pandemic Generating positive commitments performance sustainable momentum value “The positive Operating profit momentum we are generating gives us >£1.3bn £bn 1 confidence b
Slide 6: Delivering on our commitments
Delivering on our commitments Key milestones for Pearl and First milestone achieved on the B-52 UltraFan development programmes programme in Defence Another record quarter for Progress in advanced air mobility order intake in Power Systems in New Markets 6 Investor Presentation © Rolls-Royce
Slide 7: Rebuilding the balance sheet
Pathway to investment grade profile Rebuilding the Reduce Improve financials balance sheet uncertainty Improve Reduced Improve business Deliver Improve Clear pathway to on our uncertainty operational leverage profile Strong ESG improving our credit of EFH and financial (balanced scorecard commitment
Slide 8: Civil Aerospace: Our route to increasing returns
Leading products in growing markets Civil Aerospace: Our route to increasing returns and a sustainable Embedded value in a future growing installed base Driving cost reduction, efficiency and margin expansion Investing in technologies to lead in sustainable 8 Investor Presentation aviation © Rolls-R
Slide 9: 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 MAXIMISE BUSINESS SERVICES COST OE MARGIN INVESTMENT SERVICES AVIATION Retaining the operational REDUCTION IMPROVEMENT CYCLE efficiency and productivity REC
Slide 10: Defence: long term drivers of defence spending
Defence Demand for defence business’ transport, UK Mod 25% combat, submarine and naval products is driven US DoD 50% by government defence spending Export 25% ME, Korea, Japan, Canada and India Long term drivers of defence spending • US: large new programmes expected for US DoD (including FLRAA) • U
Slide 11: Power Systems medium and long term outlook
Power Systems Power Generation Marine Industrial Defence 33% of Sales 33% of Sales 25% of Sales 9% of Sales • Mission critical backup • Government focused • Oil & Gas, mining, • Defence end markets Record order book and order power for data centres, customer base with construction and driven by Gove
Slide 12: New Markets: Rolls-Royce SMR and Electrical
New Markets Rolls-Royce SMR Leveraging Small Modular Reactors are 470mw, synergies across 50Hz, nuclear power stations designed the group to help decarbonise global power generation Factory production of modules lowers Rolls-Royce Electrical cost and risk with repeatable precision engineering and pr
Slide 13: 2022 outlook and guidance
Well positioned for the anticipated growth in our end markets • Positive momentum in 2022 despite the challenges and risks around the pace of 2022 outlook market recovery, global supply chain disruption and rising inflation and guidance • A strong order book and continuation of the gradual improveme
Slide 14: A disciplined approach to investing
A disciplined approach to investing by the COVID-19 pandemic Investing for growth and sustainable value Our updated approach to New Markets Returns: Strict financial investment places an even investment: Clear hurdles which target a greater focus on synergies across the blend of near, medium sustain
Slide 15: Investing in technologies to shape the future
Markets COMMUTER / BUSINESS WIDEBODY NARROWBODY REGIONAL eVTOL AVIATION Investing in Strengthen and sustain core Ambition to re-enter market Growth through new technology Disrupt with new technology Explore new market segments technologies to business shape the future of aviation Step change in effi
Slide 16: UltraFan and low carbon technologies
UltraFan: next generation aero engine • Scalable engine architecture offers market optionality Low carbon • 25% more fuel efficient and 100% sustainable aviation fuel compatible technologies • Incorporates ALECSys Lean Burn Combustor • Progressing to final assembly Improving engine efficiency and en
Slide 17: Hydrogen, energy storage and small modular reactors
Hydrogen • Member of European Clean Hydrogen Alliance • Exploring the fundamentals of H2 in aviation • Partnership with Daimler Truck / Volvo on stationary H2-powered Enabling net zero fuel-cell generators in finalisation • MTU Series 500 engine for power generation to be available for operation wit
Slide 18: Urban air mobility and electric aviation
Urban Air Mobility • First commercial contract for electric propulsion units to power an eVTOL vehicle (with Vertical Aerospace) Enabling net zero: • Vertical Aerospace >$5bn pre-orders for >1,300 aircraft electric aviation • EVE >$5bn pre-orders for >1,700 aircraft • CityAirbus eVTOL demonstrator f
Slide 19: Fundamental role in meeting climate change challenge
We have a Applying technical pathways to Net Zero Targets fundamental role decarbonise complex, critical systems to play in meeting Rolls-Royce Products in Service Change in Annual CO2 Emissions from 2019 to 2050 the challenge of climate change 2019 2025 2030 2035 2040 2045 2050 Time Hypothetical ‘n
Slide 20: What we do
2 What we do InvestorPresentation 20 Investor Presentation © © Rolls-Royce Rolls-Royce
Slide 21: Our business groups
Civil Power Systems Defence Electrical SMR Our business groups 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 £52m £16m installed base around reciprocating engines engines in ser
Slide 22: Our markets
CIVIL • Major manufacturer of aero engines for the 4% 3% large commercial aircraft, business aviation £4,536m Underlying revenue AEROSPACE and regional jet markets Underlying revenue Large engines 21% Business • Engineering expertise, in-depth knowledge £(172)m Regional Our markets and capabilities
Slide 23: Civil Aerospace
Civil Aerospace £4,536m Underlying revenue © Dassault £(172)m FY 2021 highlights Underlying operating loss • Improved operational gearing with restructured cost base • Significant value in installed base of around 5,700 large and 9,700 regional and business £(1,670)m aviation engines Trading cash fl
Slide 24: Defence
Defence £3,368m Underlying revenue £457m FY 2021 highlights Underlying operating profit • Awarded the B-52 engine replacement contract in the US, securing new work for the coming decades £377m • In a competitive process for the Future Long-Range Assault Aircraft (FLRAA) programme Trading cash flow •
Slide 25: Power Systems
Power Systems £2,749m Underlying revenue £242m FY 2021 highlights Underlying operating profit • 2021 represented the best order book in Power Systems’ history, with a record order intake in the 4th quarter £219m • Significant awards include power solution for a hyperscale data centre customer and a
Slide 26: New Markets: Rolls-Royce Electrical
New Markets: Rolls-Royce Electrical New Markets reporting segment established for • Double world record success of the ‘Spirit of Innovation’ demonstrates pace of electrical technology acceleration and exciting applications for the Advanced Air Mobility Markets Rolls-Royce SMR and Rolls-Royce Electr
Slide 27: New Markets: Rolls-Royce SMR
New Markets: Rolls-Royce SMR New Markets reporting segment established for • Rolls-Royce SMR secured £490m of funding in 2021 Rolls-Royce SMR and • UK Government grant and third party equity investment helping to support SMR design Rolls-Royce Electrical through multi-year UK Generic Design Assessme
Slide 28: Civil Aerospace in more detail
3 Civil Aerospace in more detail InvestorPresentation 28 Investor Presentation © © Rolls-Royce Rolls-Royce
Slide 29: Civil Aerospace value drivers and outlook
Value Medium-term drivers financial Maximise outcomes Civil Aerospace Service Leading products in value drivers growing markets Receipts Revenue Low double digit and outlook % CAGR Service Cost Embedded value in a Reduction Civil Aerospace Investor growing installed base Day was held in Derby in Ope
Slide 30: Leading products in growing markets
Business Aviation Portfolio In Service In Production In Flight-test In Development Leading products in growing markets © Gulfstream © Bombardier © Gulfstream © Dassault Gulfstream Bombardier Gulfstream G700 Dassault Falcon X Tay * BR710 * AE3007 G650 5500/ 6500 BR725 Pearl 15 Pearl 700 Pearl 10X Civ
Slide 31: We are well positioned to outperform
Share of in Rolls-Royce Service OE Future Fleet age (# aircraft) outlook EFH potential We are well RR positioned to Legacy large 13 years 4,955 25% >40% outperform engines (Trent 700: 11 Years) Trent 700 for military MRTT only market growth Trent 700 RR New 4 years 58% >90% 1,554 generation Trent 10
Slide 32: Maximise services receipts: Trent 700 fleet is still young
Trent 700 fleet is still young Securing future value Maximise services A330 fleet by age (# aircraft) receipts 444 80 A330 TotalCare Trent 700 will remain a 378 extensions strong foundation for our in 2020-2022 large engine business Trent 700 is recognized as the best engine for the A330 232 >200 A3
Slide 33: Indexed engine flying hours and shop visits
Indexed engine flying hours and shop visits Maximise services receipts 150 EFH growth drives services receipts. Shop visit growth drives revenue and profit 100 EFH recovery driven by reduction of global COVID restrictions and pent up international demand 50 New generation Trent engines reach first r
Slide 34: Extend time on wing
Product High pressure 2x Trent improvements turbine blade life 1000/7000 Extend time on wing Life limited parts Trent XWB-84 +11% Intensely focused on extensions LLP lives extension delivering time on wing improvements Building on all our Trent family experience Enhancing Trent XWB-97 +8% turbine Po
Slide 35: Trent XWB-84 shop visit cost
Trent XWB-84 shop visit cost First major shop visit Reduce shop visit cost 40% Trent 40% lower Trent XWB-84 Reducing shop visit cost to XWB-84 shop visit cost further improve LTSA margins in 2 years Shop visit costs are reducing Trent 700 for all new generation Trent 5-year average engines Trent XWB
Slide 36: Reduce shop visit cost
Lean engine Horizontal 15% Lower overhaul overhaul method labour cost Reduce shop visit cost Trent XWB-97 $100k+ More re-use front cover plate savings per Learning from every shop of parts re-use shop visit visit and intensely focused on delivering cost reductions Applying all our Trent family exper
Slide 37: Large engine OE margin
OE margin (Large engines, installed) -34% Large engine OE margin OE margin significantly improved 2019 2022E Strong improvements Losses reduced by >30% since across all key installed engines Volume (Large engines, installed) 2019 despite volume drop of Sustainable improvements approximately 50% desp
Slide 38: Enhance OE margins: Make
Cost rate (£/h) & production volumes Enhance OE margins: Make Breaking the link between volumes & operating cost 2022 cost rates on pre-COVID levels, whilst volumes still Higher efficiency and 30% lower productivity -30% 2022 expected cost rates back to pre-COVID levels, with 30% lower volumes £600m
Slide 39: Enhance OE margins: Buy
Concentration of spend Enhance OE with class-leading suppliers margins: Buy (2019 = 100) 400 Spend with class-leading Supply chain restructuring suppliers more than doubled 300 delivering increased since 2019 cost savings 200 Procurement excellence 100 drives costs out and increases supply chain res
Slide 40: Operational inputs, operating model and value drivers
Operational inputs OE deliveries Engine flying hours Shop visits Operating model Cost, pricing & mix Utilisation, pricing & mix Cost, shop visit scope & mix Overheads & investments Relentless focus on our value drivers to deliver material Value drivers improvement in financial outcomes Original Equi
Slide 41: Medium term: OE revenue
1 Revenue 2 Margin 3 Cash flow Medium Revenue 2019 2021 term OE 729 Engine Mid deliveries teens Low teens CAGR in 309 CAGR OE revenues from 2021 • Mid teens overall delivery volume growth • Increased proportion of Business Aviation engines 30% 37% business business (lower price vs large Mix aviation
Slide 42: Medium term: Services revenue
1 Revenue 2 Margin Medium 3 Cash flow 2019 2021 Revenue term Services 1,554 Low Shop visit double- 953 volumes digit High single-digit CAGR in CAGR services revenue from 2021 • Low double-digit shop visit volume growth 20% large engine 22% • Increasing mix of large large engine business 38% refurbs
Slide 43: Medium term: Total revenue
1 Revenue 2 Margin 3 Cash flow Medium Revenue 2019 2021 term Total OE £3,246m £1,611m Low teens CAGR revenue Services £4,861m £2,926m High single-digit CAGR Low double-digit overall revenue CAGR from 2021 revenue OE growth led by Business Aviation ramp-up and services led by large engine shop visit
Slide 44: Medium term: Margin
1 Revenue 2 Margin 3 Cash flow Profit progression Medium Margin 2019 2021 term Higher High single- profitability Operating margin 1% (4)% digit % Operating profit margins to reach high single-digits • Higher services profit driven by shop visit volumes HIgher shop visit volumes • OE margin improveme
Slide 45: Cash generation: entering low point of investment cycle
1 Revenue 2 Margin 3 Cash flow Cash generation 2010-2015 2016-2019 2020+ Entering low point Major investment in large Business Aviation Reduced intensity of development and investment spend and of investment cycle engine development ramp-up capex COVID-19 reductions = engine entry We have completed
Slide 46: Medium term: Engine flying hour receipts
Medium 1 Revenue 2019 2021 2 Margin 3 Cash flow term 19.4m Engine flying 15.3m hour receipts Engine flying 10.3m Strong EFH recovery led by large engines hours (EFH) 4.1m 7.4m 2.9m Recovery in engine flying Large engine Business Aviation & Regional Total hours post-COVID-19, led by widebody, will ou
Slide 47: Medium term: Cash flow
Illustrative (not to scale) 1 Revenue 2 Margin 3 Cash flow Medium Cash flow 2019 2020 2021 term Driving materially Comfortably higher cash flow exceed operating profit Further cash flow High quality cash generation £0.4bn improvement led by operating profit and flying hour recovery Cash flow comfort
Slide 48: Cash conversion
Operating • Revenue growth at low double-digit CAGR profit • High single-digit operating margins Cash conversion Net LTSA • Average of ~£500m pa medium term balance change Materially improved, higher quality cash generation versus • Very low level of R&D capitalisation due to product maturity pre-CO
Slide 49: Understanding the LTSA balance
Cash flows P&L Difference between invoiced EFH receipts 3 Understanding 1 & revenue recognised ∆ LTSA balance Net LTSA the LTSA balance cash flow LTSA Invoiced EFH profit receipts LTSA revenue The LTSA balance is the LTSA 2 P&L revenue is driven LTSA connection between profit and costs by LTSA costs
Slide 50: Civil Aerospace guidance summary
Guidance summary 2019 2021 Medium term Civil Aerospace DRIVERS guidance Engine deliveries (large & business engines) 729 309 Mid teens CAGR summary Shop visit volumes (large, business & regional engines) 1,554 953 Low double-digit CAGR LTSA engine flying hours (large, business & regional engines) 19
Slide 51: Civil Aerospace investment cycle
In-service Civil Aerospace Cash investment cycle generation Long investment cycles supported by: Access to government R&D funding for technology development OE Build and Delivery Risk and revenue sharing Cash consumption partnerships for programme investment Supply chain and services joint ventures
Slide 52: 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 LTSA example Cash Invoiced EFH receipts 1,000 1,000 1,000 1,000 1,000 5,000 flow Shop visit costs -2,000 -2,000 Other ongoing costs -100 -100 -100 -100 -100 -500 Total costs -100 -100
Slide 53: LTSA example: catch-up in year 4
$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 LTSA example Cash Invoiced EFH receipts 1,000 1,000 1,000 1,000 1,000 5,000 Catch-up in year 4 flow Shop visit costs -1,500 -1,500 Other ongoing costs -100 -100 -100 -100 -100 -500 Tot
Slide 54: H1 2022 Results and supplementary detail
4 H1 2022 Results and supplementary detail InvestorPresentation 54 Investor Presentation © © Rolls-Royce Rolls-Royce
Slide 55: 2022 Half Year underlying results
2022 Half Year Underlying results 1 Organic £m 2022 H1 2021 H1 Change2 underlying results Strong growth in Civil Aerospace and Power Systems revenues, offset by Revenue 5,308 5,227 223 lower Defence revenues against a Underlying performance tough comparative Gross profit 942 1,097 (135) from continu
Slide 56: Civil Aerospace
OE deliveries flat, but Civil Aerospace Underlying results Organic with fewer large £m 2022 H1 2021 H1 Change % engines. Higher services revenues from Revenue 2,339 2,168 174 8% shop visits and LTSA catch ups Large engine operational inputs Gross profit 256 380 (127) (33%) Broadly flat gross 78 OE d
Slide 57: LTSA balance: drivers of Civil LTSA balance change
Invoiced EFH receipts P&L revenue Reflects invoiced EFH receipts on long-term Driven by cost (e.g. shop visits) across large contracts across entire Civil LTSA-covered fleet engine, business aviation and regional fleets. LTSA balance: Recognised by contract, as costs incurred, at Drivers of Civil LT
Slide 58: Defence
Defence Underlying results Organic £m 2022 H1 2021 H1 Change % Lower spare engine sales and sales of high- Revenue 1,609 1,721 (164) (9%) margin legacy spare parts versus Gross profit 326 395 (77) (19%) H1 2021 Order intake Gross margin % 20.3% 23.0% (2.5)%pt £1.4bn up 8% Operating profit 189 269 (8
Slide 59: Power Systems
Power Systems Underlying results Organic £m 2022 H1 2021 H1 Change % Record order intake and very strong Revenue 1,371 1,181 229 20% revenue growth in all end markets, despite Gross profit 401 301 110 37% supply chain constraints Order intake Gross margin % 29.2% 25.5% 3.7%pt £2.1bn up 53% Operating
Slide 60: New Markets
Low revenue due to New Markets Underlying results Organic both businesses being £m 2022 H1 2021 H1 Change % in early stage Leveraging synergies development Revenue 1 2 - - across the group Gross loss (2) - - - Higher R&D investment we grow the workforce to Employees Operating loss (48) (28) (20) 71%
Slide 61: Summary funds flow
£m 2022 H1 2021 H1 Change Underlying operating profit 125 307 (182) Profit from discontinued ops 68 (93) 161 Summary funds Depreciation, amortisation £0.5bn flow: and impairment 455 504 (49) 1 Operating performance £68m free cash improvement Civil Aero net LTSA contract Led by higher EFH receipts ou
Slide 62: FY 2022 guidance summary
Group: • Low-to-mid-single digit revenue growth • Operating profit margin to be broadly unchanged • Profit margins and cash flows expected to improve in the second half FY 2022 • Modestly positive free cash flow in 2022, seasonally weighted towards H2 • P&L tax rate in 2022/23 expected to be high ve
Slide 63: Foreign exchange
Rolls-Royce hedges transactional FX • Achieved rate is not typically affected by short-term spot rate movements unless new cover is taken; this impact is usually diluted • $21 billion GBP:USD hedge book Foreign • Hedge book average rate is £/$1.53 exchange • $3 billion EUR:USD hedge book • Hedge boo
Slide 64: Hedging our transactional FX exposure
USD by hedge the book, 2022-2026 COVID-19 pandemic Hedging our transactional FX exposure • New approach = a more tapered % across a rolling 5-year horizon • Simple, makes us more comparable, and allows proactive management • Each 1 $ cent change in the hedge rate impacts underlying operating profit
Slide 65: Civil Aerospace revenues by engine type
Civil Aerospace Organic revenues by £m 2022 H1 2021 H1 change1 engine type Original Equipment 660 722 (8%) Large engine 478 607 (21%) Business aviation 175 113 59% V2500 7 2 250% Service 1,679 1,446 16% Large engine 1,135 1,036 9% Business aviation 329 295 12% Regional 100 63 56% V2500 115 52 121% T
Slide 66: Trent engine products
Trent engine products Market Engines on £m Airframe share* Engines in service order Trent 7000 Airbus A330neo 100% 144 366 Leading widebody Trent XWB Airbus A350 100% 826 863 backlog market share Trent 1000 Boeing 787 33% 630 114 Trent 900 Airbus A380 48% 220 0 Trent 800 Boeing 777 40% 184 0 Trent 7
Slide 67: Civil Aerospace engine deliveries
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 H1 2022 By engine Trent 500 8 - - - - - - - - - - Trent 700 157 181 184 140 88 110 63 10 2 2 - Civil Aerospace Trent 800 - - - - - - - - - - - engine deliveries Trent 900 64 42 35 6 30 67 44 34 15 1 1 Trent 1000 46 59 79 106 122 109 125 126 82 12 - T
Slide 68: Civil Aerospace in-service installed fleet
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 H1 2022 By engine 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 Civil Aerospace RB211 535 1,028 1,026 1,012 908 868 826 850 824 576 658 682 in-service RB211 Total Trent 500 1,564 452 1,484 440 1,367 388 1,213 352
Slide 69: Civil in-service thrust base (millions lbs)
Thrust per engine (lbs) 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 H1 2022 By engine RB211 22B 60,000 - - - - - - - - - - - RB211 524 60,000 32 32 27 21 18 17 16 15 13 5 5 Civil in-service RB211 535 40,000 41 41 41 40 36 35 33 34 33 23 26 thrust base RB211 Total 73 69 62 55 52 49 49 46 28 31
Slide 70: Safe harbour statement
Safe harbour statement This announcement contains certain forward-looking statements. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. In particular, all statements that express forecasts, expectations and projections with re
Slide 71: Contacts
Contacts Isabel Green Head of Investor Relations isabel.green@rolls-royce.com Jeremy Bragg Investor Relations Director Jeremy.bragg@rolls-royce.com Elena Prentice Investor Relations & ESG Manager elena.prentice@rolls-royce.com Sophie Parry Investor Relations Manager sophie.parry@rolls-royce.com Paul
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