Rolls-Royce Holdings plc · LSE:RR.
Rolls-Royce — Investor Presentation (March 2021)
56 slides from Rolls-Royce's investor presentation, March 2021
Slide 1: Rolls-Royce Investor Presentation March 2021
Rolls-Royce Investor Presentation March 2021 1 Investor Presentation © Rolls-Royce
Slide 2: Our company
1 Our company 2 Investor Presentation © Rolls-Royce
Slide 3: Who we are
Underlying revenue by business Non-core Who we are ITP Aero 6% 2% We are one of the Power world's leading industrial Civil Systems technology companies. Aerospace 22% Our purpose is to pioneer £11.8bn 41% the power that matters to connect, power and protect society. We deliver cleaner, more sustaina
Slide 4: What we do
CIVIL • Major manufacturer of aero engines for the large commercial aircraft, business aviation £5,089m 11% AEROSPACE Underlying revenue 4% and regional jet markets Large engines Business • Engineering expertise, in-depth knowledge £(2.6)bn 20% Regional and capabilities to provide through-life Under
Slide 5: Safeguarding our people and business
Safeguarding our people and business 2020 was a year of unprecedented disruption we We focused on protecting our people and our business focused on protecting our people and our business Our people Our communities Our investments We also continued to pursue Immediate actions to keep Provided practic
Slide 6: Our challenge & commitment
Our challenge & commitment Our activities have a tremendous impact on the world today – and tomorrow. We have always pursued clean, safe and competitive solutions. Now, that task is more urgent than ever. We are committed to playing a leading role in enabling the vital sectors in which we operate to
Slide 7: Our FY 2020 performance was severely impacted
Decisive and effective actions to address Well positioned for recovery and for a challenging market conditions lower-carbon future >£1bn in-year cash savings achieved in Fundamental restructuring to deliver Our FY 2020 2020 from one-off mitigating actions permanent cost efficiencies performance was
Slide 8: Positioning for recovery and creating a sustainable future
2 Positioning for recovery and creating a sustainable future 8 Investor Presentation © Rolls-Royce
Slide 9: Positioning for the recovery and creating a sustainable future
1 2 3 Positioning for the Restore financial Maximise value from Science-led innovation recovery and performance existing capabilities in sustainable power creating a sustainable future Restore performance, maximise value and focus on sustainable power • Market recovery in Power • Civil Aerospace: re
Slide 10: Despite uncertainty, prevailing views expect a GDP recovery in 2021
Global GDP Growth (%) IMF (2020 estimate, 2021-2025 forecasts) 6% There is continued optimism about Despite uncertainty, a sharp rebound in global GDP 4% prevailing views Vaccine roll-outs, testing and 2% expect a GDP ongoing government support 0% recovery in 2021 measures are supportive -2% However
Slide 11: Power Systems & Defence
Power Systems & Defence Continue to be the bedrock of financial performance and cash generation With accelerating growth Power Systems Defence potential from the middle of the decade • Revenue to return to approximately 2019 • Resilient performance through COVID-19 levels by 2022* as GDP-driven shor
Slide 12: Near term air traffic outlook is uncertain, but vaccines and testing support recovery
Modest EFH recovery in 2021, accelerating from H2 Airlines continue to favour newer aircraft Large engine LTSA EFH as % of 2019 levels Sample of engine utilisation from January 2020 100% 100% Near term air traffic Base case outlook is uncertain, ~80% ~70% but vaccines and Downside case Trent XWB tes
Slide 13: Fundamental restructuring
Operating Cost Capital prioritisation Fundamental restructuring • Total role reduction of • Subcontractor spend in • Targeting peer range of We were quick to act, more than 9,000 Civil Aero reduced to 3-4% of sales (2020: 5%) implementing a fundamental restructuring programme to <1/3 pre-COVID level
Slide 14: Illustrative Civil Aerospace cash flows
Illustrative Civil Aerospace cash flows 2019 2020 2021 2022+ Cash profile assumes base 15.3m EFH EFH 43% of 2019 ~55% >80% case recovery – outlook Cost actions 510 WB deliveries 264 WB deliveries 200-250 200-250 remains uncertain support strong cash flow when market recovers Cessation of factoring r
Slide 15: Maximising value from existing capabilities
Civil Aerospace Power Systems Defence Maximising value from existing capabilities Realising the value of our installed base, growing strategic opportunities and focusing on high-growth end • Past investment to build • Installed base >150,000 • Over £7bn estimated lifetime markets. installed base of
Slide 16: Rolls-Royce was already reaching a pivot point in Civil Aero prior to COVID-19
Rolls-Royce was already reaching a pivot point in Civil Aero prior to COVID-19 Solid Progress in Widebody Widebody Installed Base Civil Aero Transition Civil Aerospace Over the past decade, 26% 38% 55% Young Investment in new Rolls-Royce built a market share of market order average age programmes le
Slide 17: Capitalise on our strong position in Business Aviation
Capitalise on our strong position in Business Realising value in the widebody Aviation installed base Civil Aerospace #1 2 Continued growth in installed base with 31% market new flagship engines from a lower base Realising the value of our share1 by value over the last 5 years installed base Low EFH
Slide 18: Power Systems
Power Generation Marine Industrial Other Power Systems 33% of Sales 34% of Sales 22% of Sales 11% of Sales • Mission critical backup • Government focused • Oil & Gas and mining • Defence markets power for data centres, customer base with remain subdued, remain robust Varying levels of hospitals and
Slide 19: Defence
Demand for defence business’ transport, combat, submarine and naval products is driven by government defence spending Defence DoD (50%) MoD (25%) Exports (25%) ME, Korea, Japan, US UK Defence demand driven Canada and India by government defence US Defence Spending ($m) UK Defence Spending ($m) spend
Slide 20: Investing for the future
Pivoting towards Accelerating focus on low carbon Power Systems and Defence Self-funded R&D Engineering (inc. R&D) and capital spend Investing for the 4% 7% future 10% 13% 13% 32% 14% 38% 77% Targeting approx. 20% annual 73% R&D spend on low carbon Defence 64% Low carbon solutions including SMRs, Po
Slide 21: Our low carbon approach
Products Technology Operations Our low carbon approach We are committed to the decarbonisation of our core markets and will continue to invest in technologies that can accelerate this transition, whilst minimising the impacts of our business operations. Ensuring our Pioneering new Targeting net zero
Slide 22: 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 in 2021 Improving engine efficienc
Slide 23: Enabling net zero
Hydrogen • Member of European Clean Hydrogen Alliance • Exploring the fundamentals of H2 in aviation Enabling net zero • Partnership with Daimler Truck / Volvo on stationary H2-powered fuel-cell generators in finalisation • MTU Series 500 engine for power generation to be available for operation wit
Slide 24: Enabling net zero: electric aviation
Urban Air Mobility • First commercial contract for electric propulsion units to power an eVTOL vehicle (with Vertical Aerospace) Enabling net zero: electric aviation • CityAirbus eVTOL demonstrator flight test programme Focused on near-term revenue generation: technology progress leading Commuter an
Slide 25: FY 2020 Results
3 FY 2020 Results 25 Investor Presentation © Rolls-Royce
Slide 26: Our FY 2020 performance was severely impacted by the COVID-19 pandemic
Our FY 2020 performance was severely impacted Our financial performanceby wasthe COVID-19 severely pandemic impacted by the COVID-19 pandemic Group performance We responded decisively and effectively to challenging market conditions FY 2020 Results summary • Group free cash outflow of £(4.2)bn, driv
Slide 27: Group underlying results
Underlying Organic £m FY 2020 FY 2019 Change change1 Revenue 1 11,763 15,450 (3,687) (3,582) Group underlying Gross (loss) / profit 2 (512) 2,387 (2,899) (2,872) results Gross margin % (4.4)% 15.4% (19.8)%pt (19.9)%pt Operating (loss) / profit (1,972) 808 (2,780) (2,782) Operating margin % (16.8)% 5
Slide 28: Divisional performance
Underlying Underlying Organic operating Organic £m Revenue change1 (loss)/profit change1 Divisional Civil Aerospace 5,089 (3,025) (2,574) (2,612) performance Power Systems 2,745 (530) 178 (192) Defence 3,366 125 448 34 ITP Aero 705 (240) 68 (43) Material COVID-19 impact in Corporate/Eliminations (38
Slide 29: 2020 cash mitigations successfully delivered
2020 cash Pay & Benefits • 10% pay cut in 2020 for senior management mitigations • Accessed government furlough schemes successfully ~£500m • Restructuring role reductions delivered Capex • Paused non-essential capital spending from April >£1bn 2020 savings successfully • Re-phased and delayed certa
Slide 30: Free cash flow: explaining 2020 performance
1 ~£(2.8)bn Civil Aerospace impact, including: Free cash flow: ~£(3.0)bn >£(2.2)bn aftermarket: 57% fall in WB flying hours; reduced T&M and V2500 receipts Operating explaining 2020 performance ~£nil OE: WB installed OE benefit offset by lower spare & business jet deterioration ~£(0.6)bn other: prim
Slide 31: Summary funds flow: £(4.2)bn free cash outflow in 2020
£m FY 2020 FY 2019 Change Underlying operating Summary funds (loss) / profit (1,972) 808 (2,780) flow: £(4.2)bn free Depreciation, amortisation and cash outflow in impairment 951 1,068 (117) 2020 1 £(3.0)bn Civil Aero net LTSA contract Operating performance 479 754 (275) impact balance change Civil
Slide 32: Liquidity strengthened to £9.0bn
• Rights issue and additional debt utilised to create sufficient liquidity even in a “severe but plausible” downside scenario • New debt is long-dated with limited maturities before 2025 Liquidity • £5.5bn undrawn debt (£2.5bn RCF, £2.0bn (part backed by UKEF) and £1.0bn strengthened to syndicated l
Slide 33: Outlook and guidance
4 Outlook and guidance 33 Investor Presentation © Rolls-Royce
Slide 34: Group near-term 2021 cash outflow
2021 Group near-term 2021 cash outflow ~£2bn free cash outflow outcomes H1-weighted • Anticipate material H1 outflow due to working capital & low EFH H2 • Working capital timing uncertain with material concession outflows driven by timing of airframer deliveries Emerging with stronger cash • Aim to
Slide 35: Strengthening our balance sheet
Disposal proceeds and organic cash generation drive de-leveraging Net debt progression (pre-leases) Strengthening our Net cash balance sheet >£2bn £(1.5)bn Mid-term ambition 2020 FY Alongside organic cash Net Debt ~£(2)bn Organic cash generation from 2022, our generation >£2bn 2022+ disposal program
Slide 36: Fundamental restructuring
Operating Cost Capital prioritisation Fundamental restructuring • Total role reduction of • Subcontractor spend in • Targeting peer range of We were quick to act, more than 9,000 Civil Aero reduced to 3-4% of sales (2020: 5%) implementing a fundamental restructuring programme to <1/3 pre-COVID level
Slide 37: Changing the economics of Civil Aerospace
2019 Procurement Changing the Cost economics of Civil Aerospace Purchasing Leaving a business with high & other 2022 operating leverage and sustainable cash generation in Procurement Cost Reduced purchasing a smaller market • Variable reduction as load reduces • Improved processes reduce Purchasing
Slide 38: Illustrative Civil Aerospace cash flows
Illustrative Civil Aerospace cash flows 2019 2020 2021 2022+ Cash profile assumes base 15.3m EFH EFH 43% of 2019 ~55% >80% case recovery – outlook Cost actions 510 WB deliveries 264 WB deliveries 200-250 200-250 remains uncertain support strong cash flow when market recovers Cessation of factoring r
Slide 39: Key FCF drivers under Base Case
Improved cash flow supported by recovery of Civil Aerospace aftermarket, cost reduction actions, and stabilisation of working capital Key FCF drivers under Base Case 1. 2. 3. 4. 5. Working Civil Aero Cost Defence Non-repeat Capital Reduction & Power of one-offs Targeting improvement to Systems1 >£75
Slide 40: Progress on disposals
Disposals • Civil Nuclear instrumentation & control agreed (I&C) sale agreed with Framatome • Bergen engines business sale agreed with TMH International Progress on disposals • Combined 2019 revenue of ~£0.3bn; no material impact to future profit or cash flow Significant early progress with two disp
Slide 41: 2021 guidance summary
2020 2021 Civil Aerospace Drivers 2021 guidance Large engine deliveries 264 200-250 summary Large engine LTSA EFH 43% of 2019 levels ~55% of 2019 levels Significant near term uncertainty over Large engine LTSA major refurbs 272 ~250 Civil Aerospace outlook Business aviation deliveries 184 100-150 Po
Slide 42: Appendix
5 Appendix 42 Investor Presentation © Rolls-Royce
Slide 43: Understanding COVID-19 impact on Civil Aero drivers
Widebody OE WB AM Businesses, Regional Cash Margin & V2500 • 264 total installed & spare • Material reduction in WB EFH • Business jet invoiced EFH Understanding deliveries (2019: 510) receipts (57% lower EFH) receipts resilient COVID-19 impact on • £1.1m avg. installed loss (2019: • Significant red
Slide 44: Drivers of Civil LTSA balance change
P&L revenue Invoiced EFH receipts Driven by cost (e.g. shop visits) across large Reflects invoiced EFH receipts on long-term engine, business aviation and regional fleets. contracts across entire Civil LTSA-covered fleet Recognised by contract, as costs incurred, at relevant contract margins LTSA ba
Slide 45: Civil Aerospace key drivers
Original equipment Civil Aerospace Installed engines Sale to airframer key drivers Aircraft deliveries Sale to operator / lessor or Spare engines Lease to operator Aircraft go into service Aftermarket TotalCare $ per engine flying hour Aircraft in Service Time & material $ per event (e.g. shop visit
Slide 46: Civil Aerospace investment cycle
In-service Civil Aerospace Cash investment cycle generation Long investment cycles supported by: R&D Access to government 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 47: Aftermarket (LTSA) cash profit dynamics
Illustrative and simple worked example on 1 engine $m Year 1 Year 2 Year 3 Year 4 Year 5 Total Aftermarket (LTSA) cash profit Engine Flight Hours 20 20 20 20 20 dynamics Cash x $ per EFH 5 5 5 5 5 Flow EFH Receipts 100 100 100 100 100 500 Statement Change in LTSA balance must - Major Service Costs -
Slide 48: Actions taken to reduce the size of our hedge book
USD hedge book Actions taken to Actions taken to reduce the size of the hedge book by $11.8bn since the onset of reduce the size of COVID-19, to match latest demand outlook (H1: $10.3bn) our hedge book £(1,689)m total cost to close-out excess hedges, resulting in up-front underlying 2020 P&L fin
Slide 49: Trent 1000 update
• Total in-service cash costs now expected to be ~£2.1-2.2bn (previously ~£2.4bn), due to good progress on disruption (zero AOG from mid-2020) driven by low utilisation in 2020 and progress on retrofit programme Trent 1000 update • Improved outlook on small number of loss-making contracts due to red
Slide 50: Trent engine products
Trent engine Market Engines in Engines on products £m Airframe share* service order Trent 7000 Airbus A330neo 100% 90 535 Leading widebody market share Trent XWB Airbus A350 100% 658 977 Trent 1000 Boeing 787 34% 538 158 Trent 900 Airbus A380 48% 68 2 Trent 800 Boeing 777 40% 134 0 Trent 700 Airbus
Slide 51: Civil engine deliveries
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 By engine Civil engine RB211 22B 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 deliveries RB211 524 RB211 535 2 14 5 6 0 7 0 2 5 0 4 1 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 RB211 Total 16 11 7 2 5 5 1 0 0 0 0 0
Slide 52: Civil engine in-service installed fleet
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 By engine Civil engine RB211 22B 48 36 36 12 15 9 12 9 6 6 3 3 3 3 3 3 3 3 in-service installed RB211 524 RB211 535 829 1,154 815 1,192 796 1,168 791 1,174 769 1,158 706 1,102 643 1,078 638 1,056 617 1,052 530
Slide 53: Civil in-service thrust base
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Thrust per engine By engine (lbs) Civil in-service RB211 22B 60,000 3 2 2 1 1 1 1 1 0 0 0 0 0 0 0 0 0 0 thrust base RB211 524 RB211 535 60,000 40,000 50 46 49 48 48 47 47 47 46 46 42 44 39 43 38 42 37 42 32 41
Slide 54: Defence aero engine deliveries
Defence aero engine 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 deliveries Transport 265 289 305 296 239 266 286 323 311 262 211 Helicopters 343 412 438 479 418 307 278 226 213 200 133 Combat 102 103 113 108 81 69 74 38 23 27 44 Trainers/Other 0 10 8 10 6 7 23 18 13 10 9 Total 710 814 864
Slide 55: 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 56: Contacts
Contacts Isabel Green Head of Investor Relations isabel.green@rolls-royce.com Elena Prentice Investor Relations & ESG Manager elena.prentice@rolls-royce.com Georgina Ashby Investor Relations & ESG Associate georgina.ashby@rolls-royce.com 56 Investor Presentation © Rolls-Royce
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