REG - Rolls-Royce Holdings - Trading Statement

Rolls-Royce HoldingsAnnouncement

03/11/2022 07:01

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RNS Number : 1399F  Rolls-Royce Holdings plc  03 November 2022

03 November 2022

ROLLS-ROYCE HOLDINGS PLC TRADING UPDATE

 

Rolls-Royce Holdings plc announced today its trading update to 31 October
2022.

 

·       Continued recovery: record order intake in Power Systems, large
engine flying hours at 65% of 2019 levels in the four months to the end of
October and up 36% year to date

·       Two 5-year contracts renewed in Defence securing $1.8bn of
continued aftermarket services

·       Completed ITP Aero disposal and used proceeds to repay £2bn
2025 floating rate loan

·       Group FY22 guidance unchanged with a focus on operational and
contractual discipline in an inflationary environment

 

Chief Executive Warren East said: "The continued recovery in large engine
flying hours, record order intake in Power Systems and a resilience in the
Defence business give us confidence in the future. Our more agile operations
and sustainably lower cost base position us well for the uncertain pace of the
recovery from the pandemic, market volatility and changes in economic
conditions. We continue to focus on operational execution and delivering on
our commitments and we have maintained our Group financial guidance for 2022.
Our expertise and strong positions in established markets and investment in
New Markets place us well to pursue decarbonisation, net zero and evolutionary
technologies that can create substantial long-term economic and social value.
Disciplined capital allocation will continue to be pivotal in our New Markets
ventures as we invest in the technologies of the future. The completion of our
disposal programme with the sale of ITP Aero has enabled us to repay £2bn of
debt. This marks a milestone recovery in the strength of our balance sheet,
and a clear step on our path back to investment grade in the medium term."

 

Group performance and Full Year 2022 outlook

In September, we completed our £2bn programme of disposals with the sale of
ITP Aero for €1.6bn and immediately repaid our £2bn UK Export Finance
backed loan due in 2025. We subsequently have approximately £4bn of drawn
debt outstanding, of which approximately £0.5bn matures in 2024, £0.7bn in
2025, £2.8bn due across 2026 to 2028. We have £2.0bn of cash and £5.5bn in
undrawn committed facilities including a £1bn 5-year sustainability-linked
loan, supported by an 80% guarantee from UK Export Finance, entered into in
September. We aim to return to an investment grade credit profile in the
medium term supported by free cash flow generation. Maintaining strong
liquidity remains important to us.

 

The recent volatility in interest rates and foreign exchange rates have not
had a material impact on our underlying cash flows or FY22 Group guidance,
which is unchanged. All drawn debt is on fixed interest rate terms and hedged
into GBP executed in 2019 and 2020 during the low interest rate environment.
We do not anticipate raising drawn debt for near term loan refinancing. Our
transactional foreign exchange exposure is fully covered by our hedge book in
the medium term and our UK defined benefit pension scheme is well funded,
hedged and collateralised and we do not anticipate making any cash
contributions to the scheme in the foreseeable future.

 

Many of our long-term contracts contain inflation-linked pricing clauses based
on standard indices for energy, materials and wages that help to mitigate cost
increases. We continue to manage the current energy and raw material inflation
risks through supplier agreements and hedging policies. In October we agreed a
6.5% wage increase and additional £1,500 payment with UK represented staff,
reflecting the substantial cost of living increases our people are
experiencing. We aim to recover cost inflation though operational efficiencies
as well as increased pricing. Supply chain pressures have led to higher levels
of inventory, but we do not expect this to affect our ability to meet guidance
and remain focused on delivering good cash conversion.

 

Business Performance summary

In Civil Aerospace, large engine flying hours continued to recover and were
65% of 2019 levels in the four months to the end of October and 62% year to
date. The 36% growth year to date compared to the prior year reflects uneven
recovery around the world, with stronger recovery in the US and Europe but
lower travel in China and Asia due to ongoing Covid measures. Engine flying
hours in Business Aviation remained strong and above the 2019 level year to
date. Regulatory clearance for Boeing's 787 aircraft has enabled aircraft
deliveries to resume, and our related concession balance is starting to unwind
as expected. The recovery in our flying hours and planned increase in spare
engine sales will drive strong cash conversion, with operational cash expected
to comfortably exceed operating profit in the medium term, as outlined in our
Civil Aerospace investor day in May. Year to date shop visits volumes and
original equipment (OE) deliveries are higher year on year but at the lower
end of the expected range for this year. We are planning a higher volume of
large spare engine sales in 2022 and for the next few years, versus the
typical range of 10-15% of total OE deliveries, as we grow the pool of spare
engines to underpin fleet health and improve resilience.  Inflation linked
customer contracts and procurement agreements are supporting long term service
agreement (LTSA) margins, improving profitability in Civil Aerospace. This
creates a positive contribution from contract catch-ups in 2022.

 

In Defence, we continue to see robust demand from our customers with $1.8bn in
contract renewals and repricing relating to the next five years, to support
engines in service, including those with the U.S. DoD powering the C-130J. As
indicated at our first half results, we expect a low double digit percentage
operating margin in Defence in 2022 and into the medium term, reflecting the
planned increased investment in new defence programmes. Revenue growth in 2022
is expected to be modest due to the non-repeat of legacy spare parts sales
that took place in 2021 with no material benefit from the increase in
government defence budgets in the near term due to our long product cycle. We
remain positive in the long-term outlook supported by recent awards including
MT30 engines for UK and Australian frigate programmes and the B-52 reengining
programme in the US. Active prospects include the US Army's FLRAA programme
which is due to announce selection shortly.

 

In Power Systems, the continued high levels of demand in many of our end
markets is driving an exceptionally strong order book, with a record order
intake year to date in 2022 and good revenue cover for 2023 and beyond. Order
intake included an order for more than 500 mtu engines for the UK's Boxer
armoured vehicle and 16 gensets for four new frigates for the German Navy.
This strong performance in part reflects pent-up demand as our end markets
recover. Due to the shorter cycle nature of the Power Systems division, it has
greater exposure to the current global supply chain disruptions than Civil
Aerospace and Defence. As a result, there is a greater degree of inventory
build in the Power Systems business. We continue to address supply chain
challenges and we have started to see some improvement in working capital
levels in recent weeks.

 

In New Markets, we continue to invest in technology to deliver on our
transition to net zero. In our Electrical business, we welcomed the decision
by European Union's Clean Aviation programme to proceed with over €700m of
funding for 20 aviation research and innovation programmes from across the
industry. We will be a partner in six of these. In our SMR business, we
entered into a memorandum of understanding with Czech nuclear engineering and
manufacturing firm Škoda JS to explore deployment potential in the Czech
Republic and broader central European regions.

 

Our Full Year 2022 results will be announced on 23 February 2023.

 

There is no conference call today. For further information, please contact:

 

Investors

Isabel Green

Head of Investor Relations, Rolls-Royce plc

Tel +44 (0) 7880 160976

Isabel.Green@Rolls-Royce.com

www.Rolls-Royce.com (http://www.Rolls-Royce.com)

 
Media

Richard Wray

Director of External Communications & Brand, Rolls-Royce plc

Tel +44 (0) 7810 850055

Richard.Wray@Rolls-Royce.com

 

 

About Rolls-Royce Holdings plc

 

1.       Rolls-Royce pioneers the power that matters to connect, power
and protect society. We have pledged to achieve net zero greenhouse gas
emissions in our operations by 2030 (excluding product testing) and joined the
UN Race to Zero campaign in 2020, affirming our ambition to play a fundamental
role in enabling the sectors in which we operate achieve net zero carbon by
2050.

2.       Rolls-Royce has customers in more than 150 countries,
comprising more than 400 airlines and leasing customers, 160 armed forces and
navies, and more than 5,000 power and nuclear customers.

3.       Annual underlying revenue was £10.95 billion in 2021,
underlying operating profit was £414m and we invested £1.18 billion on
research and development. We also support a global network of 28 University
Technology Centres, which position Rolls-Royce engineers at the forefront of
scientific research.

4.         Rolls-Royce Holdings plc is publicly traded company (LSE:
RR., ADR: RYCEY, LEI: 213800EC7997ZBLZJH69)

 

 

Note on forward-looking statements

This press release may contain projections and forward-looking statements. The
words "believe", "expect", "anticipate", "intend" and "plan" and similar
expressions identify forward-looking statements. All statements other than
statements of historical facts included in this press release, including,
without limitation, those regarding the Company's financial position,
potential business strategy, potential plans and potential objectives, are
forward-looking statements. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the Company's
actual results, performance or achievements to be materially different from
any future results, performance or achievements expressed or implied by such
forward-looking statements. Such forward-looking statements are based on
numerous assumptions regarding the Company's present and future business
strategies and the environment in which the Company will operate in the
future. Further, certain forward-looking statements are based upon assumptions
of future events which may not prove to be accurate. The forward-looking
statements in this press release speak only as at the date of this press
release and the Company assumes no obligation to update or provide any
additional information in relation to such forward-looking statements.

 

The merits or suitability of investing in any securities previously issued or
issued in future by the Company for any investor's particular situation should
be independently determined by such investor. Any such determination should
involve, inter alia, an assessment of the legal, tax, accounting, regulatory,
financial, credit and other related aspects of the transaction in question.

 

 

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