John Rishton, Chief Executive, said:
“In the second half of the year, revenue growth increased as we delivered 23 per cent more engines than in the first half. Margins improved, reflecting volume, mix, cost control and the IAE transaction.
“In the full year, underlying profits increased for the tenth consecutive year. We have established this record of consistent delivery while continuing to invest in people, technology and facilities.
“The strength of our order book demonstrates the confidence our customers have in our products and services. Our priorities remain: delivering on the promises we have made; deciding where to grow and where not to; and improving financial performance.
“In 2013, we expect modest growth in underlying revenue and good growth in underlying profit with cash flow around break even as we continue to invest for the future.
“Sir Simon Robertson today announced his intention to retire as Chairman ofRolls-Royce at this year’s Annual General Meeting. Simon has made an exceptional contribution over the past eight years. He has worked tirelessly on behalf of the company and his energy and enthusiasm have been an example to us all. I am delighted to welcome Ian Davis as our new Chairman and look forward to working closely with him”.
In 2012, the order book increased by four per cent, underlying revenue by eight per cent and underlying profit by 24 per cent. We delivered a record number of power systems that, typically, produce decades of aftermarket services revenue.
The priorities for the business remain the same as last year:
- Deliver on the promises we have made.
- Decide where to grow and where not to.
- Improve financial performance.
In 2012 we have made progress towards these objectives:
1. Deliver on the promises we have made
The quality of the products and services we supply is measured across the Group and has shown steady improvement. Increased focus on delivery has led to significant improvement in wide-body engines in Civil Aerospace and in our Marine products. Across the Group, we are investing in a wide range of projects that will improve operational performance and reduce cost. This includes continuing investment in modernising our IT infrastructure that is a key enabler for our business.
Significant milestones have been achieved in our major programmes.
- In Civil Aerospace, the certification of the Trent XWB engine (in February 2013) that will power the Airbus A350, the launch of the Trent 1000-TEN that will power Boeing 787s entering service from 2016 and the entry into service of the BR725 engine powering the new Gulfstream G650 corporate jet.
- In Defence Aerospace, the Short Take Off and Vertical Landing (STOVL) variant of the F35B Lightning II Joint Strike Fighter entered service with the US Marine Corps and deliveries were made to the UK MoD.
- In Marine, gas turbine power and propulsion equipment was delivered for the US Navy’s Littoral Combat Ship and the UK’s Queen Elizabeth class aircraft carriers.
- In Energy, we expanded our fleet of gas turbine compressor units through contracts for China’s West East Pipeline Project (WEPP) and the Uzbekistan section of the Asia Trans Gas (ATG) pipeline.
2. Decide where to grow and where not to
We continue to invest in capacity to fulfil our order book and in technology to expand our portfolio.
In Civil Aerospace, we are committed to investing in the wide-body, narrow-body and corporate market segments. In Defence Aerospace, we continue to see opportunities both in developing economies and in our traditional markets, despite the pressure on government spending. In Marine, offshore oil and gas remains a fast growing market and, in Energy, we continue to invest in our Civil Nuclear business where we believe Rolls-Royce can play an important part supporting both existing and new build nuclear capacity.
Areas where we have decided not to invest include the sale of our tidal power generation business to Alstom in January 2013 and the sale of a 51 per cent stake in our fuel cell business to LG.
3. Improve financial performance
We continue to focus on margin progression. In 2012, margins at Group level improved to 12.2 per cent (10.7 per cent 2011). The Tognum and the IAE restructuring together contributed 1.1 percentage points, with 0.4 percentage points improvement coming from the underlying business. Overall, profits grew by 24 per cent enabling us to raise our full year distribution to shareholders to 19.5 pence, an 11 per cent increase.
Margin progression, cost reduction and cash generation remain areas of intense focus for the Group, as we seek to improve quality, on-time delivery and working capital, while continuing to invest to meet the rising load. Around £50m of unit cost improvements were realised in 2012.
Our cash inflow of £137m, prior to acquisitions and disposals, was delivered after a heavy year of investment in technology, capability and infrastructure.
During 2012, we made a number of important announcements:
We completed the sale of our equity holding in International Aero Engines (IAE) to Pratt & Whitney. We remain a major supplier to IAE and will receive an agreed payment for each hour flown by the current installed fleet of V2500-powered aircraft for the next fifteen years.
Engine Holding (EH), the collaboration we formed with Daimler in 2011, assumed full management control of Tognum. We will fully consolidate the results of EH, including Tognum, from 1 January 2013.
We acquired the 50 per cent of the shares we did not already own in Aero Engine Controls (AEC) from Goodrich Corporation. Engine control systems play an increasingly important part in enhancing the fuel efficiency and overall performance of modern jet engines.
We have passed information to the Serious Fraud Office (SFO) relating to concerns about bribery and corruption involving intermediaries in overseas markets. This follows a request for information from the SFO about allegations of malpractice in Indonesia and China. We have significantly strengthened our compliance procedures in recent years, including new policies for Global Ethics and Intermediaries. We have also expanded the Compliance function. As a further measure, we have appointed Lord Gold to lead a review of current procedures and report to the Ethics Committee of the Board.