preliminary results 2007 sir john rose andrew shilston mike terrett...
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Preliminary Results 2007
Sir John RoseAndrew ShilstonMike Terrett
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Financial highlightsOrder book− Firm and announced order book up 76% to £45.9bn in 2007
Revenue −Sales £7.8bn - 6% underlying growth −Services revenues £4.3bn - 9% underlying growth
Profit−Underlying PBT £800m - 13% growth−Underlying EPS 34.06p - 14% growth
Average net cash £350m (2006: £150m)−Cash inflow £62m, after £500m pensions (2006: £491m inflow)−Net cash balance £888m (2006: £826m)
Shareholder payments−Rebased shareholder payments up by 35% to 13p for 2007
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Financial performance
Andrew Shilston
Underlying profit is a non-IFRS measure. Definitions and reconciliations of underlying profits and additional disclosures and provided in the Group’s press release dated 7 February 2008
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Components of profit growth – 2007
2006UPBT
OperatingMargin
2007UPBT
705
800
600
£m
187
R&DInvestment
800
700
11
FinanceCosts
(11)
FXUSD
(92)
900
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Civil aerospace
Strong order activity across all programmesExpanding the portfolio and capabilities Flying hours – up 5%, with services revenues up 11%Services revenues represent 63% of salesManaging significant headwinds on currency and material costs
2006 £m
2007£m
564 519
2006 £m
2007£m
4,038 3,907
Sales * Profit *
*Underlying sales and profit before financing costs
2006 £bn
2007£bn
Order Book
35.9 20.0
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Defence aerospace
Extending access to international programmes−AE2100, ADVENT & HEETE
Strong order book providing revenue visibilityGood balance of development, production and services programmesServices revenues represent 52% of sales
2006 £m
2007£m
199 193
2006 £m
2007£m
1,673 1,601
Sales * Profit *
* Underlying sales and profit before financing costs
Order Book2006 £bn
2007£bn
4.4 3.2
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Marine
Commercial and offshore order intake remains robust Strong revenue growth across products and servicesNaval business stable – accessing global programmesMargins lower in H2 as a result of programme provisions Services revenues represent 35% of sales
2006 £m
2007£m
113 101
2006 £m
2007£m
1,548 1,299
Sales * Profit *
* Underlying sales and profit before financing costs
2006 £bn
2007£bn
4.7 2.4
Order Book
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Energy
Oil & gas markets remain strongIndustrial Trent gaining position in Power GenerationFee income - £18m benefit Fuel Cells - £25m spend, key milestone in 2008Services revenues represent 52% of sales
2006 £m
2007£m
5 (18)
2006 £m
2007£m
558 546
Sales * Profit *
* Underlying sales and profit before financing costs
2006 £bn
2007£bn
0.9 0.5
Order Book
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Underlying financing costs
Interest
Financial RRSPs
Other
Underlying financing costs
(18)
(27)
2
(43)
2006£m
2007£m
(6)
(26)
-
(32)
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Cash flow
Trading cash generationCapital/intangible expenditureWorking CapitalCustomer DepositsTax PaymentsPayments to shareholdersCash flow (Before Pensions)Additional pensions contributionCash inflowNet Cash at 1 JanNet Cash at 31 DecAverage Net Cash
2007£m
870(517)(40)296 (25)(93)491
-491335 826150
2006£m
1,037(598)(41)332(71)(97)562
(500) 62
826 888350
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Strategic Financial ReviewPension scheme restructuring completed
- increased annual funding in 2008
Business model continues to be cash generative
Resilient balance sheet is crucial
Flexibility to respond to investment opportunities
Shareholder payments for 2007 35% higher that 2006
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Operational performance
Mike Terrett
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Operations – 2007 reviewContinued strong load growth across all businesses− Driven by changing mix and increasing services− Ramp-up on Trent 900 and Trent 1000
Product costs increased by almost 7%− Increasing commodity costs− Escalation of cost in the external supply chain− Facility disruption
Improving productivity and focus on support costs
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Global operationsDomestic operations− UK facility modernisation complete− Modern Working Practices established at all UK facilities− USA and Singapore – enabling future growth and “dollarisation”− Continuing to focus on make-buy strategy
Supply chain simplification− Providing greatly simplified supplier interfaces− Now fully aligned to commodity− Significant new IT implementation− Moving to global purchasing
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Sales per employee
£000
106.5113.3
125.8
146.1 147.7
160.4
172.7
190.1
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
160.0
180.0
200.0
1998 1999 2000 2001 2002 2003 2004 2005
Sales at constant currency
Compound growth of 7.4% pa over past 10 years196.9
2006
201.8
2007
220.0
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Operations summary
Further impact from increased material costs and disruption from facility
restructuring incurred in 2007.
Continued progress with SAP implementation in the year creates
opportunities for improving productivity.
Evolution of our supply chain to deliver improved productivity will
continue.
Optimisation of global support functions in 2008.
Challenges within supply chain reducing - not eliminated.
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Summary
Sir John Rose
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Resilience in a challenging environment
Strong market positions and improving market share
Extending our product and service portfolio
Developing our global footprint
Focus on improved productivity and reducing costs
Continued profitable growth despite challenges
Outcome of financial review reflects our confidence
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Addressing four global markets
A global 20 year market opportunity for products and services worth around US$2 trillion
Defence Aerospace(US$480 billion)
Energy(US$120 billion)
Marine(US$350 billion)
Civil Aerospace(US$1,250 billion)
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Investing in technology and capability and infrastructure£11 billion over 10 years
Capex and IT
Intangibles
£0.91bn
£1.07bn £1.07bn
£0.90bn
£1.02bn
£0.88bn £0.93bn
£1.05bn
£1.30bn
£1.45bnTraining
Gross R&D
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
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Rolls-Royce is privatised
Bergen Diesels
F136 for JSF
AE 2100
LiftFan for JJF
Trent 500
AE 3007
TP400
Trent 900
MT30
Tay 611C Trent 1000
AE 1107C
Trent XWB
RB282
RR300
1987
2007
Broadening our portfolio
Trent 700
Trent 800
BR710
Industrial Trent
BR715
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1998 2007 1998 2007 1998 2007
£5.0bn
£12.7bn
£4.7bn
£12.9bn
£2.9bn
£20.3bn
Americas Asia and Middle EastEurope
Growing our market share and installed base globally
11% Compound
growth
Europe
12%Compound
growth
Americas
24%Compound
growth
Asia and Middle East
Compound growth of order book 15% and increased global reach
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CHENGDU●
●●●
●XIAMEN
GUANGZHOUKUNMING
ACI: 13 x Boeing 757
CYH: 3 x Boeing 767
CSN: 20 x Boeing 757
CXA: 5 x Boeing 757
Improved Market Access: Rolls-Royce Powered Aircraft in China - 1997
Total: 41 Aircraft
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● URUMQI
CHENGDU●
BEIJING●
●●
●●●
●SHANGHAI
NANJING
XIAMEN
GUANGZHOU
KUNMING
WUHAN
CXJ: 13 x Boeing 757
CAA: 13 x Boeing 757
CYH: 3 x Boeing 767 –
CSN: 16 x Boeing 757CSN: 24 x A330 CSN: 6 x Emb 145
CXA: 9 x Boeing 757
CKK: 2 x Tu204
CES: 10 x Emb 145
CKK: 3 x Tu204CAA: 14 x A330
CES: 5 X A340-600
CSN: 5 x A380
CSC: 5 x Emb 145
CHH: 7 x A330
CES: 20 x A330
●XIAN
TIANJIN ●CHH: 50 x Emb 145
CAA: 15 x Boeing 787
Total: 504 Aircraft
CAA: 6 x A330
CAA: 13 x A320
CSN: 127 x A320
CSC: 40 x A320
CSN: 13 x MD90
CES: 9 x MD90
Rolls-Royce Powered Aircraft in China - 2010
CHH(HK): 20 x A330
CHH: 3 X A340-600
●CHONGQING
CGQ: 3 x A320
CES: 30 x A320
CHH: 20 x A319
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1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Adding value for customers through product related services
£1.8bn £1.9bn£2.2bn
£2.4bn £2.5bn£2.8bn
£3.3bn£3.5bn
£3.9bn
£4.3bn
• Changed business model (TCA, MRMS, LTSA)
• Intelligent services – engine health monitoring, predictive maintenance
• Adding value to customers and Rolls-Royce
10% Compound growth of services revenues
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• Our consistent investment in technology and capability has created value, global market access and options for the Group
• Our confidence in the future reflected in the 35% increase in payments to shareholders
• For 2008, we expect underlying profit growth and positive cash flow generation
Future
4.3
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Summary
Sir John Rose
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Rolls-Royce Group plc (the “Group”) is providing the following cautionary statement. This document contains certain statements that are or may be forward-looking with respect to the financial condition, results or operations and business of the Group. These statements are sometimes, but not always, identified by the words ‘may’, ‘anticipates’, ‘believes’, ‘expects’ or ‘estimates’. By their nature forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by such forward-looking statements. These factors include, but are not limited to (i) changes to the current outlook for global power systems markets, (ii) changes in tax laws and regulations, (iii) the risks associated with the introduction of new products and services, (iv) significant global disturbances such as terrorism or prolonged healthcare concerns, (v) the termination or delay of key contracts and (vi) long-term fluctuations in exchange rates, (vii) regulatory and shareholder approvals, (viii) unanticipated liabilities and (ix) actions of competitors.
Subject to the Listing Rules of the UK Listing Authority, Rolls-Royce Group plc assumes no responsibility to update any of the forward looking statements herein.
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Supplementary data
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Consistent strategy
Addressing four global markets
Investing in technology, capability and infrastructure
Developing a competitive product portfolio
Growing market share / installed base
Adding value for our customers through the provision of product-related services
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Balanced business portfolio
Civil: 19%Marine: 13%
Defence: 10%
Energy: 3%
Aftermarket services: 55%(£4.3 bn)
Original equipment: 45%(£3.5bn)
Total sales: £7.8bn
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Rolls-Royce
4.32.5 1.00.3Aftermarket sales £bn
888(501)18(300)Net cash £m
55403020% Aftermarket
40435756Employees 000
7.86.3 3.51.4Sales £bn
461773Order book £bn
2007200119911981
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Research & Development
Gross spendFunded externally
Net R&D spend*
* Net R&D spend % Sales
CapitalisedAmortised
R&D Charged to Income Statement
2007£m
(824)370
(454)
5.8%
91(18)
(381)
2006£m
(747)352
(395)
5.4%
41(16)
(370)
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Cash flow
Cashflow from operating activitiesSpecial Pension injectionForeign ExchangeWorking Capital Net Investment in businessesOther
Trading Cash Generation
2007£m
1,072-
(49)(256)
4855
870
2006£m
705500 41
(291) 26 56
1,037
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Foreign exchange management
Forward cover of $9.4bn with an average rate £~$1.83
Opening spot rate £~$1.96
Average spot rate £~$2.00
Closing spot rate £~$1.99
Hedging policy offers visibility of £~$ rate allowing planned transition
Managing exposure through
−Utilisation of hedge book
−Dollarisation of supply chain
−Cost reduction
Coverage – 2008 and 2009 ~ 100%, 2010 ~ 60%
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2007 Shareholder Payments2007 payments increased to 13p/share, increased by
35.5% over 2006
2007 Interim payment of 4.04p/share
2007 Final payment of 8.96p/share – increased by 51%
Elimination of scrip option following 2007 final payment
New C class shares issued – redeemable for cash
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The broadest civil product range
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Civil engine deliveriesUnits
0
200
400
600
800
1000
1200
1400
1600
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Corporate & Regional engines Airlines engines
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Civil engine (Millions/lbs of delivered thrust)
-
5
10
15
20
25
30
35
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Corporate & Regional engines Airlines engines
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Installed engine fleet 1986-2007
0
2000
4000
6000
8000
10000
12000
14000
16000
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
AE 3007
Tay
Spey
BR700
V2500 (@100%)
Trent
RB211
Other
31/12/04:12054 installed engines31/12/05:12680 installed engines31/12/06:13268 installed engines31/12/07:13857 installed engines
V2500 @ 100%
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Installed engine fleet 1986-2007
0
2000
4000
6000
8000
10000
12000
14000
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
AE 3007
Tay
Spey
BR700
V2500 (@50%)
Trent
RB211
Other
31/12/04:10974 installed engines31/12/05:11463 installed engines31/12/06:11907 installed engines31/12/07:12361 installed engines
V2500 @ 50%
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Engine Flying Hours and Service Revenues
80
100
120
140
160
180
Rolls-Royce engine flying hours
* 6-month moving average – ATA+AEA+AAPA airlines
World capacity *
2001 2002 2003 2004 2005 2006 2007
Index (Jan 2001=100)
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A competitive portfolio – Defence aerospace
12
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Defence engine deliveries
0
100
200
300
400
500
600
700
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Helicopters Fixed wing aircraft
Units
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The widest range of marine products and services from a single supplier
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Energy Portfolio
Oil & Gas production(onshore and offshore)− Oil production− Gas production− Oil transmission− Gas gathering− Secondary oil/gas
recoveryGas transmission− Gas pipelines− Gas storage
Power Generation
− Industrial− Commercial− Municipal
501s and RB211s provide 4 -32 MW of power
Trent 60 provides up to 58 MW of power
Developing a 1MW Fuel Cell