Rolls-Royce Holdings plc · LSE:RR.
Rolls-Royce — H1 2020 Earnings Presentation
33 slides from Rolls-Royce's earnings presentation, Aug 27, 2020
Slide 1: 2020 Half Year Results
2020 Half Year Results 27 August 2020 1 2020 Half Year Results © Rolls-Royce
Slide 2: 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
Slide 3: Warren East, Chief Executive
Warren East Chief Executive 3 2020 Half Year Results © Rolls-Royce
Slide 4: Summary of COVID-19 impact and H1 2020 performance
Decisive actions taken in response to Summary of COVID-19 H1 2020 performance COVID-19 pandemic has • H1 2020 performance severely affected by COVID-19; Group significantly affected our revenue down 24%, Operating loss £(1.7)bn 2020 performance, with an unprecedented impact • Rapid actions taken to
Slide 5: Overview: H1 results summary and priorities
Overview 1. • Material impact from COVID-19 on H1 performance • Civil Aerospace and ITP Aero most affected H1 results summary • Defence resilient, Power Systems less severely impacted COVID-19 has damaged performance, and will have a lasting impact on the aviation sector, 2. • £1.3bn group-wide rest
Slide 6: Stephen Daintith, Chief Financial Officer
1. • Material impact from COVID-19 on H1 performance • Civil Aerospace and ITP Aero most affected H1 results summary • Defence resilient, Power Systems less severely impacted 2. • £1.3bn group-wide restructuring programme • Re-sizing Civil Aerospace for a smaller mid-term market Stephen Restoring fi
Slide 7: Impact of COVID-19 on Civil Aerospace and divisions
Significant impact from COVID-19 across aviation with flights grounded Impact of Widebody monthly average EFH Widebody engine deliveries (including spares) COVID-19 on Civil Aerospace Rolls-Royce 2019 257 & ITP Aero ~(50)% H1 Significant impact on ~(50)% in H1 commercial aviation, but 2020 Power Sys
Slide 8: Group underlying results
Underlying Organic £m H1 2020 H1 2019 Change change Group Revenue 1 5,561 7,353 -24% -23% underlying Gross profit/(loss) 2 (967) 1,030 -1,997 -1,959 results Gross margin % (17.4)% 14.0% -3140bps -3170bps Operating profit/(loss) (1,669) 203 -1,872 -1,882 Significant impact from Operating margin % (30
Slide 9: Civil Aerospace
Organic £m H1 2020 H1 2019 Change change Civil Aerospace Underlying OE revenue 1,198 1,570 -24% -24% Underlying services revenue 1,329 2,448 -46% -46% Significant COVID-19 Underlying revenue 2,527 4,018 -37% -37% impact on both OE and Services Underlying gross profit (1,562) 276 -1,838 -1,842 Gross
Slide 10: Power Systems
Organic £m H1 2020 H1 2019 Change change Power Systems Underlying OE revenue 823 923 -11% -11% Underlying services revenue 427 485 -12% -12% Varied end market impact Underlying revenue 1,250 1,408 -11% -11% from COVID-19 Underlying gross profit 265 370 -28% -28% Gross margin % 21.2% 26.3% -510bps -5
Slide 11: Defence
Organic £m H1 2020 H1 2019 Change change Defence Underlying OE revenue 678 653 +4% +2% Underlying services revenue 875 841 +4% +2% Robust performance with Underlying revenue 1,553 1,494 +4% +2% limited COVID-19 impact. Operating profit up 19% Underlying gross profit 332 295 +13% +11% Gross margin %
Slide 12: ITP Aero
Organic £m H1 2020 H1 2019 Change change ITP Aero Underlying OE revenue 267 400 -33% -33% Underlying services revenue 79 57 +39% +39% Performance impacted by Underlying revenue 346 457 -24% -24% weak civil aviation environment Underlying gross profit 47 80 -41% -42% Gross margin % 13.6% 17.5% -390bp
Slide 13: Summary funds flow
£m H1 2020 H1 2019 Change Summary Underlying Operating Profit (1,669) 203 -1,872 Represents deferred funds flow Civil Aero net LTSA contract revenue (Invoiced EFH receipts > revenues) 788 128 +660 balance change Fall in flying hours drove reduction in LTSA £2.8bn free cash outflow balance, more than
Slide 14: Inventories and working capital
Inventories Reduction in 2020 Large engine deliveries volumes from ~450 H1 Inventory build >10% 2010-19 to ~250 per year Working CAGR in OE deliveries £0.3bn capital Swift actions taken to reduce procurement; but lead time delay resulted in H1 build Largest impact on H1 H2 Outlook: inventory unwind
Slide 15: Recovery scenario
Recovery scenario 2020E 2021E 2022E Widebody EFH (base case) ~45% ~70% ~90% (% of 2019) Widebody EFH (downside case) ~35% ~45% ~80% Recovery Widebody deliveries (base case) ~250 ~250 ~250 scenario Power Systems (base case) Quick recovery with most markets returning to 2019 levels by 2021E Defence (b
Slide 16: Guidance: 2020 and beyond 2020
2020 ~ £(1)bn H2 free cash outflow; significant improvement vs £(2.8)bn in H1: Guidance Non-repeat of £1.1bn invoice discounting impact Inventory unwind in H2 driven by procurement actions Financial guidance H2 flying hours lower than H1 levels (H1: ~50% of 2019 levels) reflects our current view in
Slide 17: Warren East, Chief Executive
1. • Material impact from COVID-19 on H1 performance • Civil Aerospace and ITP Aero most affected H1 results summary • Defence resilient, Power Systems less severely impacted 2. • £1.3bn group-wide restructuring programme • Re-sizing Civil Aerospace for a smaller mid-term market Restoring financial
Slide 18: FCF generation expected to return
Rolls-Royce illustrative monthly free cash flow £750m FCF as early as 2022 Return to sustainable FCF generation positive FCF expected to return sustainably positive during H2 2021 2020 2021 Typical seasonality: higher activity in Power Systems H1 H2 H1 H2 and Civil Aero (including Flying hours Unpre
Slide 19: Key FCF drivers
Improved cash flow supported by recovery of Civil Aerospace aftermarket, cost reduction actions, and stabilisation of working capital Key FCF drivers 1. 2. 3. Targeting improvement to Civil Aerospace Restructuring Power Systems £750m FCF as early as aftermarket £1bn 2020 cash & Defence 2022, depende
Slide 20: Civil Aerospace aftermarket
WB aircraft in-service by delivery year (shown pre-COVID, as of 31 December 2019) Rolls-Royce installed fleet: 1. • ~9 years on average • 77% on more economic* aircraft types Civil Aerospace • Strong market share in China aftermarket The material recovery in Civil aftermarket cash flows is a key dri
Slide 21: Restructuring: group reorganisation programme
Group reorganisation programme 2020 2021 2022 Total Total headcount reduction ~5,000 ~3,000 ~1,000 >9,000 2. Expected implementation costs ~£400m ~£300m ~£100m ~£800m Restructuring • ~1/3 reduction in Civil Aero headcount, driving up to 8,000 of the 9,000 Group total Step-change in • Remaining 1,000
Slide 22: Smaller footprint, MRO optimisation, spare engines
Smaller footprint • Significant consolidation as part of Civil Aero restructuring • Review of ‘make versus buy’, increase outsourcing non-critical parts • Create sustainably lower capex needs & more variable cost base 2. MRO optimisation Restructuring • Change in MRO business model to reduce capital
Slide 23: Power Systems and Defence resilience
Power Systems 3. Power Generation Marine Industrial Other Power Systems 35% of sales 29% of sales 25% of sales 11% of sales Strong growth in mission Government-focused Oil & gas and mining Defence & Civil & Defence critical back-up power customer base with remain subdued, nuclear markets Cyclical re
Slide 24: Stephen Daintith, Chief Financial Officer
1. • Material impact from COVID-19 on H1 performance • Civil Aerospace and ITP Aero most affected H1 results summary • Defence resilient, Power Systems less severely impacted 2. • £1.3bn group-wide restructuring programme • Re-sizing Civil Aerospace for a smaller mid-term market Stephen Restoring fi
Slide 25: Group funding under our recovery
• £6.1bn liquidity at H1, with additional • £4.2bn new debt in place: £2bn term loan announced in July ‒ Additional £1.9bn RCF (undrawn) • Factors impacting liquidity over next ‒ £0.3bn CCFF funding (H1) 18 months: Group funding ‒ £2.0bn loan partly guaranteed by the UKEF announced in July ‒ ~£1bn H
Slide 26: Taking actions to strengthen our balance sheet
2020 net debt of approximately ~£3.5bn (pre-leases), before 2021 cash outflow Self-help underway to support aim to return to net cash position (pre-leases) Taking actions to Reviewing our New forms of >£2bn Continue to strengthen our make versus industrial potential review range of further buy strat
Slide 27: Warren East, Chief Executive
1. • Material impact from COVID-19 on H1 performance • Civil Aerospace and ITP Aero most affected H1 results summary • Defence resilient, Power Systems less severely impacted 2. • £1.3bn group-wide restructuring programme • Re-sizing Civil Aerospace for a smaller mid-term market Restoring financial
Slide 28: We will emerge as a different, stronger Group
We need to think and operate differently after COVID-19 We will emerge as a different, • Step-change in Civil Aerospace stronger Group • Focus on resilient & higher-quality cash flows Performance • Reviewing our portfolio with renewed focus on critical value Using this moment to fundamentally change
Slide 29: Three key Civil Aerospace focus areas
Three key Civil Aerospace focus areas Focused on maximising the value inherent in Civil Improved Aftermarket Partnerships Aerospace manufacturing efficiency value creation for new programmes • 1/3 headcount reduction • Youngest widebody fleet of • Attractive opportunity set and consolidated footprin
Slide 30: Driving broader growth across our Group
30 Power systems Defence • Leading positions in critical back-up • Sole provider of UK submarine powerplants Driving broader power, marine & rail • #1 US transport and UK combat aero engines growth across • ~150,000 engines in service • >16,000 engines in service our Group Accelerate growth and impr
Slide 31: Long term strategy to be a global power company
31 Sustainable Aviation Fuels Small Modular Reactors (SAFs) (SMRs) Long term • Most viable route to carbon-free large • Consortium created; on grid by 2029 commercial flight strategy to be a • £18m match-funding secured, with • “Drop-in” to existing engine architecture potential further funding from
Slide 32: Summary
Entered 2020 with strong momentum Summary Acted fast to secure liquidity and drive substantial 2020 spend mitigations Largest ever restructuring of Civil Aero to create a step-change in performance Self-help actions underway to repair balance sheet position Medium term: maximising value from strong
Slide 33: Q&A
Q&A 33 2020 Half Year Results © Rolls-Royce