2016 Half Year Results
John Dawson Director, Investor Relations
Agenda for today Introductions John Dawson Highlights Warren East Financial review David Smith Transformation and business outlook Warren East 3
Notices Mobile phones Safe Safety Harbour 4
Warren East Chief Executive
Goals for 2016 With a focus on pace and simplicity … Strengthen our focus Deliver a strong start Start rebuilding trust on engineering and to our transformation and confidence in our operational excellence programme long-term growth and leveraging our prospects installed base 6
Group First half 2016 highlights FIRST HALF BROADLY IN LINE WITH EXPECTATIONS • Ahead on profit and cash but driven by timing ON TRACK TO MEET FULL YEAR EXPECTATIONS • Continued mixed market conditions Strengthen our focus on Deliver a strong start to our Start rebuilding trust and engineering and operational transformation programme confidence in our long-term excellence and leveraging our growth prospects 7 installed base
Civil Aerospace First half 2016 highlights CIVIL AEROSPACE Nuclear • Key engineering programmes Marine Trent 1000 TEN receives EASA certification Power Systems Defence Strengthen our focus on Deliver a strong start to our Start rebuilding trust and engineering and operational transformation programme confidence in our long-term excellence and leveraging our growth prospects 8 installed base
Civil Aerospace First half 2016 highlights CIVIL AEROSPACE Nuclear • Key engineering programmes • Manufacturing ramp up Marine # of large engines delivered Power Systems 100+ 100+ Defence 103 61 Q1 Q2 Q3 Q4 Strengthen our focus on Deliver a strong start to our Start rebuilding trust and engineering and operational transformation programme confidence in our long-term excellence and leveraging our growth prospects 9 installed base
Civil Aerospace First half 2016 highlights CIVIL AEROSPACE Nuclear • Key engineering programmes • Manufacturing ramp up Marine • Long-term demand remains positive Growth in Revenue Passenger Kilometres Power Systems Air traffic more than doubled in the last 15 years, and should double again in the next 15 years Financial crisis SARS Defence 9/11 2035 1980 Source: ICAO for actuals, Rolls-Royce Global Thrust Outlook 2016 for forecast Strengthen our focus on Deliver a strong start to our Start rebuilding trust and engineering and operational transformation programme confidence in our long-term excellence and leveraging our growth prospects 10 installed base
Civil Aerospace First half 2016 highlights CIVIL AEROSPACE Nuclear • Key engineering programmes • Manufacturing ramp up Marine • Long-term demand remains positive • Significant demands on engineering Power resources Systems Defence Strengthen our focus on Deliver a strong start to our Start rebuilding trust and engineering and operational transformation programme confidence in our long-term excellence and leveraging our growth prospects 11 installed base
Defence First half 2016 highlights DEFENCE AEROSPACE Nuclear • Steady first half • OE volumes remain good Marine • Positive outlook for the second half Civil Long term… Aerospace • Aftermarket services key to future Power success Systems • Making good progress capturing value from installed base with new services • R&D investments focused on next generation of transport & patrol and combat platforms Strengthen our focus on Deliver a strong start to our Start rebuilding trust and engineering and operational transformation programme confidence in our long-term excellence and leveraging our growth prospects 12 installed base
Power Systems, Marine and Nuclear First Half 2016 POWER SYSTEMS • R&D investment on new higher volume, common core engine platforms MARINE • Good progress delivering restructuring Civil plans – key to future profitability Aerospace • Creating a more balanced business with good growth opportunities NUCLEAR • Focus on delivery performance to Defence underpin strong position on new Aerospace submarine platforms Strengthen our focus on Deliver a strong start to our Start rebuilding trust and engineering and operational transformation programme confidence in our long-term excellence and leveraging our growth prospects 13 installed base
Transformation well under way Organisational hardware Organisational software Primarily fixed Right people, right conversations, costs right time Improved Governance of Senior level management systems and Pace & information processes Simplicity Corporate and Dealing with Culture change and and ambiguity Accountability divisional On track toward delivering top end of expectations Strengthen our focus on Deliver a strong start to our Start rebuilding trust and engineering and operational transformation programme confidence in our long-term excellence and leveraging our growth prospects 14 installed base
On track to deliver £150-200m annualised cost savings by end-2017 £m 2016 2017 2018 Nov 2015 Transformation Programme Initial phase c. 50 c. 50 0 Next steps 20-40 30-60 Incremental benefits c. 50 c.70-90 30-60 Cumulative savings c. 50 c.120-140 150-200 Notes: Costs of delivering the November 2015 transformation programme are expected to be Strengthen our focus on Deliver a strong start to our Start rebuilding trust and engineering and operational transformation programme confidence in our long-term excellence and leveraging our growth prospects largely taken as an exceptional charge. The charge in 2016 is expected to be towards the low 15 installed base end of the announced £75-100m range. Further exceptional costs may be taken in 2017.
Organisational hardware changes already yielding ‘software’ benefits 50%+ reduction in senior leadership group Stronger individual accountability Significant simplification of 20 % ‘committee’ structures and related time burden on management reduction in management More efficient financial population reporting Notes: Costs of delivering the November 2015 transformation programme are expected to be largely taken Strengthen our focus on Deliver a strong start to our Start rebuilding trust and engineering and operational transformation programme confidence in our long-term excellence and leveraging our growth prospects as an exceptional charge. The charge in 2016 is expected to be towards the low end of the announced £75- 16 installed base 100m range. Further exceptional costs may be taken in 2017.
Goals for 2016 With a focus on pace and simplicity … Strengthen our focus Deliver a strong start Start rebuilding trust on engineering and to our transformation and confidence in our operational excellence programme long-term growth and leveraging our prospects installed base 17
David Smith Chief Financial Officer
Results summary Underlying Revenue Gross Margin Underlying PBT £ 6.1 bn £ 1,033 m £ 104 m 5 % 26 % 80 % ‘Dividend’ per share Operating margin Free cash flow 4.6p 2.6 % £ (399) m 500 bps H1 2015: £(576)m H1 2015: 9.27p Strengthen our focus on Deliver a strong start to our Start rebuilding trust and engineering and operational transformation programme confidence in our long-term * Percentage change excellence and leveraging our growth prospects 19 installed base at constant FX
Shareholder payment halved in line with February policy 2014 2015 2016 2014 cash: £406m 2015 cash: Interim Final 9.0p 14.1p £421m Interim Final 2016 cash: 9.27p 7.10p £301m 50% lower than prior year Interim Final 4.6p tbc “We recognise the importance of a healthy ‘dividend’ to our shareholders. Subject to short-term cash needs, we intend to review the payment so that it will be rebuilt over time to an appropriate level. This reflects the Board’s long -standing confidence in the strong future cash generation of the business.” Strengthen our focus on Deliver a strong start to our Start rebuilding trust and engineering and operational transformation programme confidence in our long-term excellence and leveraging our growth prospects 20 installed base
Balance sheet Strong liquidity position – total liquidity ~£4.5 billion Revolving credit facilities increased by £0.5 billion in H1 2016 Debt Maturities (£ billion) Total Liquidity (£ billion) 6 3 4 2 2 1 0 0 2016 2018 2020 2022 2024 2026 FY 2013 FY 2014 FY 2015 H1 2016 Drawn Undrawn ‘A’ credit rating and liquidity provide confidence and flexibility for customers and suppliers. Strengthen our focus on Deliver a strong start to our Start rebuilding trust and engineering and operational transformation programme confidence in our long-term excellence and leveraging our growth prospects 21 installed base
Group revenue H1 2016 v H1 2015 7,000 6,000 (146) (150) 183 5,000 £ million -5% +3% 4,000 6,256 6,143 3,000 5,960 2,000 1,000 0 H1 15 OE Services H1 16 (excl FX) FX H1 16 Strengthen our focus on Deliver a strong start to our Start rebuilding trust and engineering and operational transformation programme confidence in our long-term excellence and leveraging our growth prospects 22 installed base
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