OREANDA-NEWS. July 29, 2016. Commenting on the results, Warren East, Chief Executive, said: “In the first half of 2016 Rolls-Royce performed broadly in line with expectations, delivering a result a little better than breakeven; and the outlook for the rest of the year remains unchanged. Order intake has been good and, although known headwinds constrained revenue and profit in the first half, the business remains well positioned to deliver a solid second half performance supported by growth in engine deliveries, stronger aftermarket revenues and incremental benefits from our ongoing restructuring programmes.”
  Reported Underlying
Half year to 30 June 2016 2015 Change* 2016 2015 Change*
Revenue (?m) 6,462 6,370 -1% 6,143 6,256 - 5%
Profit before tax (?m) (2,150) 310 - 104 439 - 80%
Earnings per share (p) (96.72)p 19.51p - 4.20p 18.30p -81%
        2016 2015 Change**
Net funds (?m)       (712) (643) -69
Free cash flow (?m)***       (399) (576) +177

Underlying: for definition see note 2 on page 32; * translated at constant exchange rates; ** translated at actual exchange rates; *** free cash flow defined as operating cash after capital expenditure, pensions and taxes, before payments to shareholders, foreign exchange and acquisitions & disposals. The derivation of free cash flow from the cash flow statement is shown on page 44.

H1 highlights

  • Reported revenue down 1% at constant exchange rates; reported loss reflects a non-cash impact of ?2.2bn period-end mark-to-market revaluation of our derivatives
  • Underlying revenue down 5% at constant exchange rates, led by Civil Aerospace and Marine
  • Underlying profit before tax at ?104m, down 80% at constant exchange rates
  • As set out in February 2016, interim payment to shareholders reduced to 4.60 pence per share (2015 interim: 9.27 pence)

Transformation programme

  • 2016 programme well underway, good progress on actions to date
  • ?50m benefit expected in 2016
  • Over ?100m of annualised savings already identified; on track for ?150-200m by end 2017

Looking forward

  • Trading outlook for 2016 unchanged
  • €720m acquisition of outstanding ITP stake announced 11 July; expected completion early 2017
  • Greater clarity on principles of IFRS 15; further work required in order to assess likely impacts

Warren East added: “We have taken some positive first steps on the journey that will lead Rolls-Royce to profitable and highly cash generative growth. Our strategic advantages lie in our focus on engineering excellence, operational excellence and capturing value in the aftermarket. In the first six months, we have made progress with our business transformation; introducing the greater pace and simplicity required to make Rolls-Royce a more resilient company.”

2016 Half Year Business Highlights

Percentage or absolute change figures in this document are on a constant translational currency (‘constant currency’) basis unless otherwise stated

  % of Group
revenues*		 Closing order
book
 Underlying revenue Underlying profit before financing
?bn ?m   ?m  
  H1 2016 % change H1 2016 % change
Civil Aerospace 51% 70.5 3,171 -5% 31 -91%
Defence Aerospace 16% 4.2 1,002 -1% 128 -33%
Power Systems 18% 2.0 1,084 -3% 13 -35%
Marine 9% 1.0 548 -25% (13) n/a
Nuclear 6% 2.0 356 +14% 18 -15%
Eliminations/other/central   (0.2) (18)   (19)  
Total Group   79.5 6,143 -5% 158 -70%

* Based on gross revenues prior to intra-group eliminations

Civil Aerospace

  • Underlying revenue down 5% and lower gross margins, principally due to:
    • Original equipment (OE): increased deliveries of newer Trent engines but lower link-accounted Trent 700 and business aviation sales
    • Services: growth from in-production fleet, but declining regional and other large engine fleet aftermarket revenues; increase in technical costs for large engines, including the Trent 1000 but some offsetting foreign exchange benefits
  • ?3.4bn order book growth; includes over ?2bn foreign exchange benefit from long-term US dollar planning rate change
  • Good progress on new engine programmes: launch of the Trent XWB-84 EP with Singapore Airlines in February and Trent 1000 TEN receiving EASA certification in early July
  • Supply chain modernisation reducing costs and increasing capacity for Trent XWB ramp up
  • H2 outlook: increasing deliveries driving OE growth and further targeted lifecycle cost savings on large engine installed base

Defence Aerospace

  • Underlying revenue 1% lower; growth in OE revenues offset by reduction in service revenues
  • Underlying profit before financing down 33%; reflecting adverse product mix and ?31m costs supporting TP400 programme
  • Roll-out of further Service Delivery Centres set to enhance aftermarket service offering
  • H2 outlook: supported by higher engine deliveries, particularly in transport & patrol; actions underway to mitigate TP400 costs

Power Systems

  • Underlying revenue 3% lower; led by weaker OE sales
  • Underlying profit before financing 35% lower; reflecting lower volume and changes in mix
  • R&D investment focus on higher volume engine applications
  • H2 outlook: challenging market environment; healthy closing order book for OE in a number of key market segments; cautious but positive outlook

Marine

  • Underlying revenue down 25%; weak offshore markets impacting OE and service revenues
  • Underlying profit before financing negative; lower volumes and reduced overhead absorption from weak offshore performance with some offset from non-repeat of contract provision in 2015
  • Net restructuring benefits from legacy programmes starting to benefit performance
  • H2 outlook: continuing challenging offshore market for OE and services; naval and merchant focus on operational execution and ongoing cost reduction

Nuclear

  • Underlying revenue 14% higher; strong revenues led by increased submarine work
  • Underlying profit before financing 15% lower, adverse margin mix in submarine projects
  • H2 outlook: steady – focus on improving delivery performance

This announcement has been determined to contain inside information.

Enquiries

Investors:  
John Dawson +44 20 7227 9087
Helen Harman +44 20 7227 9339
Ross Hawley +44 20 7227 9282
Media:  
Richard Wray +44 20 7227 9163

Photographs and broadcast-standard video are available at www.rolls-royce.com.
A PDF copy of this report can be downloaded from www.rolls-royce.com/investors.

This Half Year Results Announcement contains forward-looking statements. Any statements that express forecasts, expectations and projections are not guarantees of future performance and will not be updated. By their nature, these statements involve risk and uncertainty, and a number of factors could cause material differences to the actual results or developments. This report is intended to provide information to shareholders, is not designed to be relied upon by any other party, or for any other purpose and the Company and its directors accept no liability to any other person other than under English law.