Rolls-Royce Holdings plc · LSE:RR.
Rolls-Royce — Investor Day (May 2022)
50 slides from Rolls-Royce's investor day presentation, May 13, 2022
Slide 1: Civil Aerospace Investor Day
Rolls-Royce Holdings plc WE ARE CIVIL ONE Civil Aerospace Investor Day AEROSPACE 13 May 2022
Slide 2: Contents
Slide 3 May 13th Agenda Contents Slide 4 Warren East presentation Slide 7 Chris Cholerton presentation Slide 18 Dominic Horwood presentation Slide 28 Sebastian Resch presentation Slide 36 Arvind Balan presentation Slide 46 Tour summary & Safety instructions 2 2022 Civil Aerospace © Rolls-Royce
Slide 3: Agenda
10:00-10:50 PRESENTATIONS 1. Rachel Walker Senior Vice President of Services systems Agenda 2. Warren East Chief Executive Officer, Rolls-Royce 3. Chris Cholerton President, Civil Aerospace 4. Dominic Horwood Services Director, Civil Aerospace 5. Sebastian Resch Operations Director, Civil Aerospace
Slide 4: Welcome - Warren East
Welcome Warren East Chief Executive 4 2022 Civil Aerospace © Rolls-Royce
Slide 5: Civil Aerospace Leadership Team
PRESIDENT – CIVIL AEROSPACE Civil Aerospace Chris Leadership Team Cholerton CHIEF FINANCIAL SERVICES OPERATIONS OFFICER DIRECTOR DIRECTOR Arvind Dominic Sebastian Balan Horwood Resch PRODUCT CHIEF CUSTOMER BUSINESS AVIATION DEVELOPMENT OFFICER DIRECTOR AND TECHNOLOGY DIRECTOR Ewen Simon Dirk McDonal
Slide 6: Civil Aerospace Tour hosts
Civil Aerospace Tour hosts 6 2022 Civil Aerospace © Rolls-Royce
Slide 7: Civil Aerospace Overview
Civil Aerospace Overview Chris Cholerton President - Civil Aerospace 7 2022 Civil Aerospace © Rolls-Royce
Slide 8: Our route to increasing returns and a sustainable future
Leading products in growing markets Our route to increasing returns and a sustainable future Embedded value in a growing installed base Driving cost reduction, efficiency and margin expansion Investing in technologies to lead in sustainable 8 2022 Civil Aerospace aviation © Rolls-Royce
Slide 9: The foundations are in place – well positioned for market recovery
2008-2017 2018-2021 2022-2024 The foundations are in place –well positioned for market recovery • Investment in 7 new engines • Increased productivity • Margin expansion • Industrial ramp-up • Trent 1000 • Sustainable cash generation • Installed base growth – x2 • Covid-19 • Focus on five value driv
Slide 10: Leading products in growing markets
Business Aviation Portfolio In Service In Production In Flight-test In Development Leading products in growing markets © Gulfstream © Bombardier © Gulfstream © Dassault Gulfstream Bombardier Gulfstream G700 Dassault Falcon X Tay * BR710 * AE3007 G650 5500/ 6500 BR725 Pearl 15 Pearl 700 Pearl 10X Civ
Slide 11: We are well positioned to outperform market growth
Share of in Rolls-Royce Service OE Future Fleet age (# aircraft) outlook EFH potential We are well RR positioned to Legacy large 13 years 4,955 25% >40% outperform engines (Trent 700: 11 Years) Trent 700 for military MRTT only market growth Trent 700 RR New 4 years 58% >90% 1,554 generation Trent 10
Slide 12: Market recovery driving services growth
Rolls-Royce Engine Flying Hours (EFH) (indexed, 100 = 2019) forecast 150 Market recovery driving services growth 100 Business Aviation and large engine freight activity were 50 resilient in the crisis and are above 2019 levels, large engine passenger activity is expected to recover by 2024 0 19 20 2
Slide 13: Restructured cost base
Restructured cost base (2021 vs 2019) Delivered the biggest restructuring in our history – ahead of plan Implemented changes to create a leaner, more efficient, more capital light cost base Operating Cost Headcount Footprint Investments £1.2bn (35%) 8,700 (34%) 27% 46% reduction reduction reduction
Slide 14: Key drivers of value
Key drivers of value Creating value from a growing and maturing fleet as the market for international passenger travel recovers MAXIMISE BUSINESS SERVICES COST OE MARGIN INVESTMENT Retaining the operational SERVICES AVIATION efficiency and productivity REDUCTION IMPROVEMENT CYCLE RECEIPTS GROWTH gai
Slide 15: Investing in technologies to shape the future of aviation
Markets COMMUTER / BUSINESS WIDEBODY NARROWBODY REGIONAL eVTOL AVIATION Investing in Strengthen and sustain core Ambition to re-enter market Growth through new technology Disrupt with new technology Explore new market segments technologies to business shape the future of aviation Step change in effi
Slide 16: UltraFan technology demonstrator nearing first test
UltraFan technology demonstrator nearing first test 16 2022 Civil Aerospace © Rolls-Royce
Slide 17: Our route to increasing returns and a sustainable future
Leading products in growing markets Our route to increasing returns and a sustainable Embedded value in a future growing installed base Driving cost reduction, efficiency and margin expansion Investing in technologies to lead in sustainable 17 2022 Civil Aerospace aviation © Rolls-Royce
Slide 18: Civil Aerospace Services
Civil Aerospace Services Dominic Horwood Services Director - Civil Aerospace 18 2022 Civil Aerospace © Rolls-Royce
Slide 19: Maximise services receipts
Maximise services receipts Services Capture services value and drive growth Delivering the potential of the installed fleet Extend time on wing Reduce shop visit frequency and volume Reduce shop visit cost Lower the cost of restoring engine life 19 2022 Civil Aerospace © Rolls-Royce
Slide 20: Maximise services receipts: CareStore
RR powered in-service aircraft % of programme EFH % of next 5-year EFH 2022 2030 in the future covered by LTSA Maximise services receipts Trent 700 ~800 >500 >40% >85% Our journey of growth begins with a growing fleet and securing LTSAs with customers Trent 1000 Trent and Pearl fleets are Trent XWB
Slide 21: Trent 700 fleet is still young
Trent 700 fleet is still young Securing future value Maximise services A330 fleet by age (# aircraft) receipts 444 80 A330 TotalCare Trent 700 will remain a 378 extensions strong foundation for our in 2020-2022 large engine business Trent 700 is recognized as the best engine for the A330 232 >200 A3
Slide 22: Indexed engine flying hours and shop visits
Indexed engine flying hours and shop visits Maximise services receipts 150 EFH growth drives services receipts. Shop visit growth drives revenue and profit 100 EFH recovery driven by reduction of global COVID restrictions and pent up international demand 50 New generation Trent engines reach first r
Slide 23: Extend time on wing
Better durability Higher reliability Time on wing to first refurb Extend vs target (%) time on wing 140 65% less Trent XWB-84 120 delays and cancellations Extending time on wing to compared to Trent 700 reduce shop visit frequency is 100 the best way to improve LTSA margins 80 Trent XWB-84 Time on w
Slide 24: Extend time on wing: product improvements
Product High pressure 2x Trent improvements turbine blade life 1000/7000 Extend time on wing Life limited parts Trent XWB-84 +11% Intensely focused on extensions LLP lives extension delivering time on wing improvements Building on all our Trent family experience Enhancing Trent XWB-97 +8% turbine Po
Slide 25: Reduce shop visit cost
Trent XWB-84 shop visit cost First major shop visit Reduce shop visit cost 40% Trent 40% lower Trent XWB-84 Reducing shop visit cost to XWB-84 shop visit cost further improve LTSA margins in 2 years Shop visit costs are reducing Trent 700 for all new generation Trent 5-year average engines Trent XWB
Slide 26: Reduce shop visit cost: levers
Lean engine Horizontal 15% Lower overhaul overhaul method labour cost Reduce shop visit cost Trent XWB-97 $100k+ More re-use front cover plate savings per Learning from every shop of parts re-use shop visit visit and intensely focused on delivering cost reductions Applying all our Trent family exper
Slide 27: Maximise services receipts
Maximise services receipts Services Capture services value and drive growth Delivering the potential of the installed fleet Extend time on wing Reduce shop visit frequency and volume Reduce shop visit cost Lower the cost of restoring engine life 27 2022 Civil Aerospace © Rolls-Royce
Slide 28: Civil Aerospace Operations
Civil Aerospace Operations Sebastian Resch Operations Director - Civil Aerospace 28 2022 Civil Aerospace © Rolls-Royce
Slide 29: Structural cost out and strategic sourcing
Continuous push towards optimal make/buy split Make and buy for Producing most 25% Make Core make Civil Aerospace Defence make parts Turbines with Operations parts, modules 75% Buy £350m investment & engines Structural cost out Sustainable cost reductions Strategic sourcing Consolidation, performanc
Slide 30: Large engine OE margin
OE margin (Large engines, installed) -34% Large engine OE margin OE margin significantly improved 2019 2022E Strong improvements Losses reduced by >30% since across all key installed engines Volume (Large engines, installed) 2019 despite volume drop of Sustainable improvements approximately 50% desp
Slide 31: Enhance OE margins: Make
Cost rate (£/h) & production volumes Enhance OE margins: Make Breaking the link between volumes & operating cost 2022 cost rates on pre-COVID levels, whilst volumes still Higher efficiency and 30% lower productivity -30% 2022 expected cost rates back to pre-COVID levels, with 30% lower volumes £600m
Slide 32: Enhance OE margins: Make
Management structure Supply chain units (#) optimisation New operating model 7 4 -33% Enhance OE 2019 2021 margins: Make Logistics structural Consumables structural cost reduction cost reduction Indirect costs (2019 – 2021) (2019 – 2021) Digitisation to improve We have delivered on planning & cost c
Slide 33: Enhance OE margins: Buy
Concentration of spend Enhance OE with class-leading suppliers margins: Buy (2019 = 100) 400 Spend with class-leading Supply chain restructuring suppliers more than doubled 300 delivering increased since 2019 cost savings 200 Procurement excellence 100 drives costs out and increases supply chain res
Slide 34: Enhance OE margins: Buy
Long-term Pearl 700 precision agreements for high Consolidation machining conference perf. suppliers 14 Focus on class-leading suppliers suppliers £3.2bn 4 suppliers Enhance OE Pre- conference Post- conference margins: Buy Contracts digitised Digitisation Significant value New ways of sourcing gener
Slide 35: Maximizing product cost benefits
Maximizing product cost benefits Operations OE margin improvement Structural cost out Sustainable cost reductions Strategic sourcing Consolidation, performance, resilience 35 2022 Civil Aerospace © Rolls-Royce
Slide 36: Civil Aerospace Finance
Civil Aerospace Finance Arvind Balan Chief Financial Officer - Civil Aerospace 36 2022 Civil Aerospace © Rolls-Royce
Slide 37: Operational inputs, operating model and value drivers
Operational inputs OE deliveries Engine flying hours Shop visits Operating model Cost, pricing & mix Utilisation, pricing & mix Cost, shop visit scope & mix Overheads & investments Relentless focus on our value drivers to deliver material Value drivers improvement in financial outcomes Original Equi
Slide 38: Medium term: Revenue (OE)
1 Revenue 2 Margin 3 Cash flow Medium Revenue 2019 2021 term OE 729 Engine Mid deliveries teens Low teens CAGR in 309 CAGR OE revenues from 2021 • Mid teens overall delivery volume growth • Increased proportion of Business Aviation engines 30% 37% business business (lower price vs large Mix aviation
Slide 39: Medium term: Revenue (Services)
1 Revenue 2 Margin Medium 3 Cash flow 2019 2021 Revenue term Services 1,554 Low Shop visit double- 953 volumes digit High single-digit CAGR in CAGR services revenue from 2021 • Low double-digit shop visit volume growth 20% large engine 22% • Increasing mix of large large engine business 38% refurbs
Slide 40: Medium term: Total revenue
1 Revenue 2 Margin 3 Cash flow Medium Revenue 2019 2021 term Total OE £3,246m £1,611m Low teens CAGR revenue Services £4,861m £2,926m High single-digit CAGR Low double-digit overall revenue CAGR from 2021 revenue OE growth led by Business Aviation ramp-up and services led by large engine shop visit
Slide 41: Medium term: Margin
1 Revenue 2 Margin 3 Cash flow Profit progression Medium Margin 2019 2021 term Higher High single- profitability Operating margin 1% (4)% digit % Operating profit margins to reach high single-digits • Higher services profit driven by shop visit volumes HIgher shop visit volumes • OE margin improveme
Slide 42: Cash generation: entering low point of investment cycle
1 Revenue 2 Margin 3 Cash flow Cash generation 2010-2015 2016-2019 2020+ Entering low point Major investment in large Business Aviation Reduced intensity of development and investment spend and of investment cycle engine development ramp-up capex COVID-19 reductions = engine entry We have completed
Slide 43: Medium term: Cash flow and flying hour receipts
Medium 1 Revenue 2019 2021 2 Margin 3 Cash flow term 19.4m Engine flying 15.3m hour receipts Engine flying 10.3m Strong EFH recovery led by large engines hours (EFH) 4.1m 7.4m 2.9m Recovery in engine flying Large engine Business Aviation & Regional Total hours post-COVID-19, led by widebody, will ou
Slide 44: Medium term: Cash flow
Illustrative (not to scale) 1 Revenue 2 Margin 3 Cash flow Medium Cash flow 2019 2020 2021 term Driving materially Comfortably higher cash flow exceed operating profit Further cash flow High quality cash generation £0.4bn improvement led by operating profit and flying hour recovery Cash flow comfort
Slide 45: Our route to increasing returns and a sustainable future
Leading products in growing markets Our route to increasing returns and a sustainable Embedded value in a future growing installed base Driving cost reduction, efficiency and margin expansion Investing in technologies to lead in sustainable 45 2022 Civil Aerospace aviation © Rolls-Royce
Slide 46: Tours – seeing is believing
01 02 Transforming Operations Turbine Case Study Tours – seeing is believing • Re-sizing and re-shaping • How turbines are made • Lean manufacture and productivity • Viper Grind Cells • Procurement resilience • Digital data & casting Four tours: Turbine case study Transforming Operations Services ex
Slide 47: RR Life Saving Rules and HSE induction
While on site the RR Life Saving Rules should be followed at all times. HSE Induction During your visit to site your Host will be responsible for your safety at all times. Your Host will: 1. Ensure you comply with any COVID-19 controls 2. Identify any specific hazards you may encounter 3. Guide you
Slide 48: Thank you
ROLLS Thank you
Slide 49: Safe harbour statement
Safe harbour statement This announcement contains certain forward-looking statements. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. In particular, all statements that express forecasts, expectations and projections with re
Slide 50: Contacts
Contacts Isabel Green Head of Investor Relations [email protected] Elena Prentice Investor Relations & ESG Manager [email protected] Sophie Parry Investor Relations Manager [email protected] Paul Morris Investor Relations Associate [email protected] 50 2