Rolls-Royce Zeros in on 2008 Interim Results
Rolls-Royce made strong progress in the first half of 2008, again increasing both underlying profit and earnings per share.
The Group’s order book grew by £7.6 billion to £53.5 billion, further extending the visibility of future revenues. The profile of the order book continues to become more international, with the growing Asian and Middle East markets now accounting for over 40% of the total.
Sales in the period increased by 12% on an underlying basis to £4,211 million and underlying aftermarket sales also increased by 12%.
Underlying profit before tax increased by 8% to £410 million. This increase in profitability was achieved after the impact of a further five cent deterioration in the US dollar achieved exchange rate, increases in energy and commodity costs and a £36 million increase in restructuring charges. The increased charge for restructuring was mainly due to the program, announced in January, to reduce the number of people working on support functions by 2,300 people. In addition, a one-off charge of £16 million was taken in the civil business.
The Marine business is benefiting from high levels of activity in the oil and gas sector and has enjoyed a very strong first half with its order book rising by 17%. The oil industry is increasingly investing in deep water, offshore exploration and development, as well as in compression and transportation systems, which generate demand for high specification, bespoke vessels and equipment. This activity is opening up new opportunities for Marine in the supply of offshore ship designs and equipment.
Energy is also benefiting from increased worldwide demand in the oil and gas production sector, driven by higher oil prices and, in the land-based power generation market, by the need for increased peaking capacity. This is opening up new opportunities for the business in the supply of gas turbines and compressors for land-based and underwater pipelines, as well as for power generation on rigs and Floating Production, Storage and Offloading vessels.
The balance sheet is robust, with the Group enjoying a strong cash position and credit rating. This enables the Group to take on long-term commitments, pursue investment opportunities as they arise and deal with any short-term consequences of the current economic environment. Changes to the Group’s defined benefit pension schemes in 2007, including a £500 million cash injection and a reallocation of investments, have significantly reduced volatility in funding requirements.
The Group saw a cash outflow in the first half of £44 million (2007: cash inflow £61 million before special £132 million injection to the UK pension schemes), due to a range of factors including restructuring costs and increased inventory. However, the Group continues to expect a positive cash flow over the full year. Average net cash fell by £108 million to £265 million over the period, primarily reflecting the timing of the cash injection into the pension fund late in 2007.
Underlying earnings per share increased by 9% to 17.15p per share (2007: first half 15.72p per share). Basic earnings per share were 16.22p (2007: first half 17.12p).
An interim payment to shareholders has been declared of 5.72p per share (2007: first half: 4.04p). For the 2007 full year, the payment increased by 35% compared with 2006. This interim payment is expected to be around 40% of the full year payment for 2008.
- Order book: £1.0bn (2007: year end £0.9bn)
- Engine deliveries: 18 (2007: 9)
- Underlying sales: £324m (2007: £227m)
- Underlying aftermarket service sales: £153m (2007: £117m)
- Underlying loss before financing: £(8)m (2007: loss £(1)m)
Strong order intake in both the oil and gas and power generation sectors contributed to a 10% increase in the order book in the first half, with new orders being won for 13 industrial Trent units in a broad range of locations, including Australia, Europe, Russia and South East Asia.
Sales increased by 43%, driven by significantly increased original equipment and aftermarket sales across both the oil and gas and power generation sectors.
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