ROLLS-ROYCE HOLDINGS RELEASE 2017 RESULTS
Rolls-Royce Holdings plc has released its 2017 full year results, reporting revenue of £16,307m.
• The report underlies profit before tax up 25% to £1,071m. According to the report, the free cash flow improvement has been driven by improved profits and good working capital management. The 2016-17 transformation program achieved £200m run-rate savings. Strong recovery in Power Systems has been observed under new leadership, indicated by revenue growth, significant cost savings and strong cash generation.
• Rolls-Royce’s large engine fleet has continued to grow, with over 4,400 engines in active service at the end of 2017, up 7%, on 2016. Invoiced flying hours increased by 12% compared with growth of 4% in 2016. The Trent XWB-84 was a strong contributor to this growth. This engine now represents 6% of our in-service widebody fleet and has achieved over 1.2 million flying hours with unparalleled levels of reliability. It is expected that the Trent XWB-84 fleet will grow to around 1,000 engines over the next five years. The Trent 700 (36% of our total widebody fleet) continued to perform well in service, and achieved a dispatch reliability of 99.9%. The RB211, Trent 500 and Trent 800 comprise 39% of the widebody fleet and are also performing well in service.
The company has, however, experienced an increased level of activity managing significant in-service engine issues on two engine programs in 2017. This has principally been due to lower than expected durability of a small number of parts for the Trent 1000 (11% of our total widebody fleet) and the Trent 900 (8% of our total widebody fleet).
• Based on the current estimates, in 2018 the anticipated annual cash impact in respect of both the Trent 1000 and the Trent 900 is expected to broadly double from the total cash cost in 2017 of £170m and reach a peak in 2018, as maintenance activity intensifies. It is then expected to fall by around £100m in 2019. The majority of the work will be undertaken in 2018 and 2019 although it is expected to be fully complete by 2022.
Commenting on the results, Warren East, chief executive, said: “Rolls-Royce made good progress in 2017. Financial results were ahead of our expectations and we achieved a number of important operational and technological milestones, but were impacted by the increasing cost and challenge of managing significant in-service engine issues. The business unit simplification and restructuring program that we announced this January will drive further rationalization and is a fundamental step in the journey started two years ago to bring Rolls-Royce closer to its full potential both operationally and financially.
We are encouraged by the improving financial performance in 2017 with growing revenues contributing to improved profitability and cash generation. Looking forward, sustaining this improvement and delivering increasing cash flow generation will strengthen our position as one of the world’s leading industrial technology companies.”
Rolls-Royce plans to hold a Capital Markets event based in London on 15 June 2018 at which it will be in a position to provide information on the expected nature, financial benefits and exceptional restructuring costs of the simplification and restructuring program together with more detailed insights into its capital allocation strategy and longer-term KPIs for the business.
2017 Business Unit Highlights
• Civil Aerospace – underlying revenue of £8,023m, underlying operating profit of £520m
• Underlying revenue and underlying operating profit growth of 12% and 34% respectively, driven by 35% increase in large engine delivery volumes and a 12% increase in invoiced flying hours
• Underlying services revenue grew by 12%
• Unit cost reductions and pricing improvements; 37% reduction in Trent XWB-84 cash deficit; overall OE cash deficit stable at £1.6m, as expected given the change in production mix
• Good progress on new engine programs during 2017: Trent 1000 TEN entering into service, Trent XWB-97 achieving certification, and Trent 7000 powering Airbus A330neo first flight
• Significant in-service engine issues on Trent 1000 and Trent 900; principally due to lower than expected durability of certain turbine and compressor rotor blade parts (see page 14); focus to mitigate disruption to customers, current year £227m income statement charge and £170m impact to cash flow
• Change in R&D policy application: £83m of the £243m increase in R&D capitalization in year.