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Rolls-Royce (LSE: RR).

Head Office

65 Buckingham Gate

London, SW1E 6AT England

Tel: +44 (0) 20 7222 9020

Fax: +44 (0) 20 7227 9170


The Company

Rolls-Royce Holdings plc is a British multinational public holding company that through its subsidiaries, designs, manufactures and distributes power systems. For more than a hundred years Rolls-Royce has provided power for aircraft, ships and land applications. Rolls-Royce is best known for its aero engines but it produces also low--emission power systems for ships, power systems for a wide array of land vehicles: ranging from trains to combine harvesters, and builds engines which can generate electricity. Approximately half of Rolls-Royce's revenues come from servicing power systems.

Rolls-Royce remains the second largest provider of defence aero-engine products and services globally with 16,000 engines in the service of 160 customers in 103 countries. Rolls-Royce engines power aircraft in every major sector including: transport; combat; patrol; trainers; helicopters; and unmanned aerial vehicles (UAVs).

Rolls-Royce has customers in over 150 countries and operates in more than 50 countries worldwide.

28 February 2019

Rolls-Royce Holdings Plc 2018 Full Year Results

Warren East, Chief Executive commented: "Despite the challenges we faced on Trent 1000 in-service issues, solid progress has been made realising our ambition to make 2018 a breakthrough year, both strategically and financially.

Underlying financial results are ahead of expectations, with good growth in profit and cash flow. Following the restructuring we announced in June last year we are starting to see the crucial behavioural changes needed to sustain our momentum.

"We identified and are implementing the fixes to improve the health of the Trent 1000 fleet. Overall our Civil Aerospace large engine fleet performance is getting stronger, especially the Trent XWB-84, which surpassed three million flying hours continuing its exceptional entry into service record.

After a decade of significant investment we remain committed to delivering improved returns while continuing to invest in the innovation needed to realise our long-term aspiration to be the world's leading industrial technology company."

* Strong underlying revenue growth; core revenue up 10%. Reported revenue up 7%

* Core free cash flow more than doubled to [pounds sterling]641m, ahead of expectations

* Material improvement in net funds, year-end net cash balance of [pounds sterling]611m

* Group underlying operating profit of [pounds sterling]616m; group reported operating loss of [pounds sterling](1,161)m

* Trent 1000 fixes in place; in-year cash cost of [pounds sterling]431m; total costs increased by [pounds sterling]100m

* Exceptional Half Year charge of [pounds sterling]554m on Trent 1000 increased to Full Year [pounds sterling]790m

* Large engine flying hour growth of 14%, OE unit losses reduced by 13% to [pounds sterling]1.4m

* Restructuring on track, c.1,300 net headcount reduction, [pounds sterling]400m run-rate savings end 2020

* Decision to withdraw from New Midsize Airplane platform competition

* Positive outlook; at least [pounds sterling]1bn free cash flow by 2020; mid-term ambition of > [pounds sterling]1 CPS
                           Underlying Group (1)
Year to 31 December   2018       2017 (3)   Organic
                                            Change (4)

Revenue               15,067     13,671      +8%
([pounds sterling]m)
Operating profit         616        306     253
([pounds sterling]m)
Earnings per share        16.0p       2.3p  +10.2p
Reported Group

                           Underlying Core (1,2)
Year to 31 December   2018       2017 (3)   Organic
                                            Change (4)

Revenue               14,336     12,786     +10%
([pounds sterling]m)
Operating profit         633        317     +71%
([pounds sterling]m)
Earnings per share        17.4p       4.4p   +8.7p
Reported Group

                              2018        2017 (3)   Change

Revenue ([pounds sterling]m)  15,729      14,747       +7%
Operating (loss)/profit       (1,161)        366     -417%
([pounds sterling]m)
Earnings per share              (129.2)p     184.4p  (313.6)p
Group free cash flow             568         259      309
([pounds sterling]m) (5)
Core free cash flow              641         318      323
([pounds sterling]m)
Cash/(net debt)                  611        (305)     916
([pounds sterling]m)
Payment per share                 11.7p       11.7p   n/a

2018 Group highlights


* Group underlying revenue of [pounds sterling]15,067m up 8%; reported revenue [pounds sterling]15,729m up 7%. Underlying Civil Aerospace revenue up 12%, Power Systems up 15%, Defence flat and ITP Aero up 6%

* Group underlying operating profit up [pounds sterling]253m to [pounds sterling]616m; good growth in Power Systems. Significant improvement in Civil Aerospace despite [pounds sterling]127m increase in negative contract accounting adjustments (to [pounds sterling]276m) offset by [pounds sterling]188m higher net R&D capitalisation. Reported operating loss of [pounds sterling](1,161)m down [pounds sterling]1,527m reflecting exceptional items

* Group free cash flow improvement of [pounds sterling]309m to [pounds sterling]568m driven by Core free cash flow of [pounds sterling]641m (2017: [pounds sterling]318m). Continued improvement in Civil Aerospace engine flying hour receipts, better deposit inflows in Defence and actions taken to standardise supplier payment terms

* Core free cash flow per share of 34.5p (2017: 17.3p); Group CROIC of 12% (2017: 13%)

* Net funds improved from a net debt position of [pounds sterling]305m in 2017 to a net cash position of [pounds sterling]611m, largely due to receipt of [euro]673m proceeds from the disposal of L'Orange


* Civil Aerospace: 469 large engines invoiced, with an additional 11 shipped to OEMs; further good progress in reducing large engine OE losses, down by 13% to [pounds sterling]1.4m per engine, growth in large engine installed fleet of 8%, now at 4,757 installed engines driving engine flying hour growth of 14%; new product milestones with Pearl 15 launched for business aviation, Trent XWB-97 entered service on Airbus A350-1000 and Trent 7000 entered service on A330neo

* Power Systems: excellent progress driven by strength across key markets and growth in service revenues; increased long-term service agreement orders; growing success in hybrid rail

* Defence: increase in R&D investment; 17% increase in order backlog; orders for F-35 LiftSystem and EJ200 engines, MT30 continued success in naval, pivotal role in Team Tempest

* Restructuring announced in June 2018 on track: group structure changed; embedding new behaviours and values needed for cultural change; non-manufacturing headcount6 reduced by a net c.1,300; remain on track for 4,600 net headcount reduction, related exceptional charge of [pounds sterling]223m taken to the income statement; [pounds sterling]70m cash costs, excluded from free cash flow

Trent 1000:

* Good progress with technical fixes on Trent 1000: certification of newly designed Package C compressor blade achieved and roll-out of this into fleet commenced; Trent 1000-TEN moved from hard life to less onerous inspection regime

* Trent 1000 exceptional charge increased from [pounds sterling]554m at the Half Year to [pounds sterling]790m for Full Year. This [pounds sterling]236m increase reflects a contribution to customer disruption costs greater than those anticipated at the Half Year. Total cash costs (2017-2022) to resolve Trent 1000 issues [pounds sterling]100m higher than earlier estimates; higher disruption partly mitigated by good progress on reducing shop visit costs

* Civil Aerospace incurred cash costs of [pounds sterling]431m in 2018 (2017: [pounds sterling]119m) in line with Half Year guidance. 2019 Full Year cash impact on Civil Aerospace expected to be around [pounds sterling]450m for Trent 1000, before declining by at least [pounds sterling]100m in 2020, and reducing materially thereafter

Trent 900:

* Exceptional item of [pounds sterling]186m following Airbus' decision to close the A380 production line

Investment for the future:

* Encouraging progress in innovation: Full Year net R&D spend of [pounds sterling]1.1bn; continued good progress with UltraFan programme; developments in both small scale full-electric and hybrid-electric flight; micro-grid offering launched; 892 patents approved for filing, a new record for Rolls-Royce
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Title Annotation:Leading Companies in the Industry
Publication:United Kingdom Armaments
Date:Jul 24, 2019
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