2011 was a record breaking year on many fronts for Rolls-Royce, the power systems developer, but it thinks it can do better in 2012, with the Civil Aerospace division driving growth.
"Rolls-Royce performed well in 2011, and at the year-end had a record order book, record underlying revenue and record underlying profit," revealed John Rishton, Chief Executive of the group.
Underlying profit before tax grew much faster than revenue, rising 21% to £1,157m from £955m the year before; underlying revenue edged up just 4% to £11,277m from £10,866m in 2010.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
The group said that it saw 9% growth in services revenue, which offset a 1% fall in revenue from the sale of original equipment (OE).
Profits grew faster than revenue due to a better mix between OE and services, an improvement in productivity plus a bit of help (£54m) from favourable exchange rate movements. In addition there was a benefit of £30m from Tognum net of the costs of the acquisition and
a £60m benefit from the contract termination settlements resulting from the Strategic Defence and Security Review (SDSR) of the UK Ministry of Defence.
Underlying earnings per share rose 25% to 48.54p from 38.73p in 2010. A final dividend of 10.6p has been proposed, taking the full year pay-out to 17.5p.
The order book finished the year 5% higher at £62,201m. "Our order book gives us good visibility of future revenues and demonstrates the confidence our customers have in us," claimed Rishton.
The group said that progress was evident in each of its business segments last year. Civil Aerospace enjoyed good order intake along with strong growth in underlying revenue and profit, while the Defence Aerospace unit bore up well despite pressure on defence spending in the USA and Europe.
As for the Marine business, its underlying profit was broadly unchanged from the year before as some offshore customers put off investment decisions.
The Energy division's underlying profit fell, largely due to the group's investment in Civil Nuclear, and revenues declined, reflecting weak demand for gas turbine power generation. On the bright side, strong demand from the oil and gas industry drove a significant increase in the order book.
The reported net cash position at the end of 2011 was £223m after the impact of the acquisition of Tognum and R Brooks Associates totalling £1.5bn. Excluding these acquisitions and foreign exchange translation there was a cash inflow of £210m. The group said it retains a strong balance sheet with debt maturities well spread and total liquidity of £2.5bn.
In 2012 the group expects to see good growth in underlying revenue and underlying profit with a cash flow around break-even as we continue to invest
for future growth, excluding the impact of the Tognum acquisition and the proposed sale of its 32.55 stake in International Aero Engines.
"We see opportunities for profitable growth across our portfolio. In particular, the acquisition of Tognum, that we have made in partnership with Daimler, adds significantly to the breadth of our portfolio and will accelerate growth," Rishton said.
In Civil Aerospace, the group expects good growth in underlying revenue and strong growth in underlying profit. In Defence Aerospace growth in underlying revenue and profit is expected to be more modest, while
underlying revenue growth in Marine is expected to be steady, with underlying profit broadly flat. The Energy division is seen achieving growth in underlying revenue and some improvement in underlying profit.
jh
