 Rolls-Royce Group plc 2010 half-yearly results
Group Highlights
- Order book remains strong at £58.4bn (2009 year-end £58.3bn).
- Group revenues increased to £5,421m (2009 first-half £5,142m). Revenues on an underlying basis* increased by seven per cent to £5,259m. Services revenues increased by eight per cent to £2,615m on an underlying basis.
- Profit before financing was £594m (2009 first-half £593m).
- Underlying profit before taxation* increased by four per cent to £465m (2009 first-half £445m).
- Strong financial position
- Average net cash for the period improved by £155m to £915m (2009 first-half £760m).
- Robust balance sheet with net cash of £1,388m at the period-end (2009 year-end £1,275m) after a cash inflow in the period of £113m.
- Interim payment to shareholders increased 6.7 per cent to 6.40 pence per share.
Sir John Rose, Chief Executive, said:
"Rolls-Royce delivered a robust performance despite the continuing uncertainty in the global economy.
"We continue to make progress with our development programmes and new facility construction; these investments are designed to underpin the growth embedded in our order book and achieve productivity improvements.
"We now expect underlying profit for the full-year to be modestly higher than 2009, mainly due to good cost control and a strong trading performance from our Marine business. We expect a modest cash inflow for the year and average net cash balances to remain at a similar level to the first-half.
"We are increasing the first-half payment to shareholders by 6.7 per cent".
An increasingly resilient portfolio:
The Group made progress in the first-half of 2010 despite the economic uncertainty, the disruption caused by volcanic eruptions in Iceland and the costs incurred as we invest for future growth. The order book at £58.4bn, underlying revenues of £5.3bn and underlying profit before tax of £465m all increased. The Group maintained its strong financial position with average net cash balances improving by £155m to £915m compared to the first six months of 2009.
Flight test programmes in Civil and Defence aerospace including the Boeing 787, Airbus A400M and Gulfstream G650, all made good progress in the period. The engine for the Airbus A350 XWB, which is due to enter service in 2013, ran for the first time in June. Sea trials of the Astute class submarine and the Type 45 Destroyer, HMS Daring, continued and the Littoral Combat Ship entered active duty. In April, the Marine business completed the acquisition of ODIM ASA, acquiring the remaining 67 per cent of shares for a cost of £147m, bringing the total cash investment in ODIM ASA to £218m. ODIM ASA adds capability to our strong marine systems portfolio in target markets such as seismic towing, oceanographic survey and subsea and deep-water installation systems.
Rolls-Royce continues to benefit from its global reach and ability to access the world's faster growing markets. Our success in winning new customers and orders, the breadth and mix of our product and service portfolio, and the financial performance of the Group, demonstrate the resilience of our business. Our confidence in the long-term growth prospects of the Group is reflected in the decision to increase the first-half payment to shareholders by 6.7 per cent to 6.40 pence per share.
A consistent strategy for long-term growth:
The long-term and disciplined application of our power systems strategy across the four segments has created a portfolio we believe can double revenues in the next decade.
Our success at winning business in the widebody aircraft market means Rolls-Royce expects to more than double the current number of Trent engines being delivered by the middle of this decade. To enable this step change in volume, investments in new facilities, tooling and capability have been made in the first-half of 2010 and will continue as we increase operational capacity and improve productivity.
Elsewhere in the business, the first-half saw the official opening of the new Mechanical Test and Operations Centre at Dahlewitz in Germany, and a new facility to support the Joint Strike Fighter LiftFan capability in Indianapolis, USA. Rolls-Royce also expanded the Civil aerospace repair and overhaul facility in Singapore (SAESL) increasing capacity to 250 large engines per year. Significant progress was made with the construction of new facilities at the Seletar Aerospace Park in Singapore and at Crosspointe in Virginia, USA. We continue to develop our UK footprint with additional nuclear manufacturing capacity being added at our facilities in Derby and a new disc manufacturing plant in Sunderland. In addition, we are giving significant support to the development of six advanced manufacturing research centres, four of which will be based in the UK, to improve manufacturing performance across the supply chain.
Strong financial position:
The Group benefits from a robust financial position which has been further strengthened in the first-half. Average net cash balances were £915m, an improvement of £155m over the same period in 2009, with period-end cash balances improving £113m to almost £1.4bn. The Group's debt maturities are well spread with the debt credit ratings assessed by all major rating agencies remaining strong with a stable outlook.
There were no major changes in the position of the Group's UK pension funds over the first-half. Two smaller UK funds are currently undertaking triennial actuarial valuations, and whilst the results will not be available for several months, the Group does not expect any material changes in funding requirements as a result of these reviews.
Despite challenging financing markets, financial and contingent support to customers remains modest.
The Marine business provides complex integrated power systems for a range of applications in the offshore oil and gas, specialist vessel and naval markets. It has more than 2,000 customers with equipment installed on more than thirty thousand vessels worldwide.
The Marine business performed particularly strongly in the first-half of 2010 delivering double-digit revenue growth and a 55 per cent improvement in profits despite a challenging trading environment. Cancellations of existing orders have slowed and there are early signs of a recovery in demand. While £1bn of new orders were booked in the period, these did not make up for the completion of existing orders and as a result the order book weakened to £3.2bn at the end of the first-half.
The market for specialist vessels continues to offer good opportunities, and demand from the offshore oil and gas sector remains encouraging, with continued deepwater developments in a number of major offshore locations including Brazil, West Africa and Russia. The completion of the ODIM ASA acquisition in April adds significantly to our capability. We acquired the remaining 67 per cent of the business in April, an investment of £147m in cash (£218m including the 2009 investment), bringing significant seismic, oceanographic and offshore deck handling capabilities.
New programmes achieved a number of important milestones. These included the Littoral Combat Ship (LCS) entering active duty. We now expect the selection between the competing LCS designs, which will move forward to production, to be announced by the end of 2010. Sea trials for the nuclear powered Astute class submarine and the Type 45 Destroyer, HMS Daring, are progressing well.
New service facilities around the world supported good aftermarket growth of 14 per cent in the period, a trend expected to continue through the remainder of the year.
The combination of improving revenue mix, strong operational performance, more favourable contract pricing and the non-recurrence of a number of one-off charges in 2009 contributed to strong improvement in margins and profitability.
Marine outlook
Whilst there are some improving signs for future orders, the environment remains uncertain. However, visibility of the trading profile over the second half remains good. Overall, revenue for the full-year is expected to be modestly below 2009 reflecting weaker original equipment revenues, partly offset by the contribution from ODIM ASA. Full-year profits are expected to be well ahead of 2009 with second half profits slightly lower than those achieved in the first-half of 2010.
The Energy business is a world-leading provider of power systems for onshore and offshore oil and gas applications with a growing presence in the electric power generation sector. It supplies customers in more than 120 countries. We are building a portfolio of power systems including large gas turbines, diesel and gas reciprocating engines, renewables and civil nuclear power capability.
Energy made solid progress in the period with strong revenue growth and improved operational performance. Against this, a £26m one-off charge relating to retrofit costs across the industrial Trent fleet of Dry Low Emissions (DLE) engines caused a loss for the period of £19m.
Order intake of £0.4bn kept the order book stable at £1.3bn with orders for eight industrial Trent units received in the period.
The oil and gas sector continued to move ahead with substantial investment plans, especially in Brazil, West Africa and Asia. It is too early to judge whether the Macondo well leak in the Gulf of Mexico will have implications for our business, but we have seen no significant changes in customer behaviour to date.
We reported exceptional growth of 47 per cent in original equipment revenues and double-digit service revenue growth in the period.
The Group continues to focus on improving operating performance. Investments in new assembly facilities and testbeds have helped support both improved execution and load growth.
In low carbon technology programmes, the tidal power demonstrator project in the Pentland Firth, Scotland, is expected to commence trials within the next few months. Ongoing development of the fuel cell technology programme continued with investment at a lower level than in prior years.
The Group made good progress in the civil nuclear area with the announcement of a memorandum of understanding with Larsen & Toubro in India focusing on light water reactors in India, and internationally.
Energy outlook
Further revenue growth in the second half of 2010, improving operational performance and reduced investment in new programmes will more than offset the £26m one-off charge, and we expect profits to grow strongly in 2010.
2010-07-29
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