Download the full Results presentation - Rolls-Royce

2008 Interim results
Sir John Rose
Mike Terrett
Andrew Shilston

Financial highlights
Order book
− Firm and announced order book up 17% to £53.5bn in H1.
Revenue
− Sales £4.2bn - 12% underlying growth.
− Services revenues £2.2bn - 12% underlying growth.
Profit
− Underlying PBT £410m - 8% growth.
− Underlying EPS 17.15p - 9% growth.
Average net cash £265m (2007 H1: £373m)
− Cash outflow £44m, (2007 H1: £61m inflow before pensions injection).
− Net cash balance £844m (2007 year end: £888m).
Shareholder payments
− Shareholder payment of 5.72p for the first half.
Full year guidance maintained

A strong power systems company
Consistent strategy has created a robust power systems
business.
Delivering revenue and profit growth.
Early action taken on cost reduction and performance
improvement.
Underpinned by strong financial position.

Rolls-Royce portfolio mitigates challenges in
civil aviation
Civil Aviation is not immune from the impact of high oil prices,
financing constraints and economic slow down.
The impact on our business should be mitigated by:
− Youth and fuel efficiency of the Rolls-Royce fleet.
− Resilience of wide body and corporate sector.
− Scale and geographical diversity of the Rolls-Royce installed
base and order book.

Rolls-Royce Fleet – Modern and fuel efficient
300
250
2001 2008 2013 2001 2008 2013 2001 2008 2013
C&R
200
150
100
50
Narrowbody
Widebody
Corporate & Regional
Single Aisle
Widebody
0
Unit: Million Lbs thrust
'0-10 Age of Aircraft '11-20 >20
Assumes V2500 000411 @ 50%

Parked aircraft announcements (March – July 2008)
250
200
PW
GE
R-R
150
100
50
0
737 Classic
MD80
EMB135
CRJ
737 NG
A300
A320 fam
757
767
CRJ700
747
EMB145
A340-500
777
DC10
F100

40
£bn
30
Civil Aerospace order book
- providing visibility of future revenue growth
Europe Americas Asia/Middle East
20
10
0
2002 0 2003 2004 2005 2006 2007 2008 H1
Firm and announced

A broadly based business
- Non-civil becoming more material
150%
Group Sales
5.5% CAGR
50%
100%
Non
Civil
45%
Civil
55%
50%
2001 2008

Global changes create opportunities
as well as challenges
across all sectors
Changing customer demands
Our technology creates new
opportunities for the Group

Technology creates opportunities – Civil
Trent XWB addressing a market opportunity of $186bn over
next 20 years, with orders taken for over 700 engines.
BR725 selected for the G650, addressing a sector worth
$14bn over the next 20 years.

Technology creates opportunities – Defence
AE2100 for the C130J
AE1107C for the V22 Osprey
AE2100 for the C27J
AE3007 on the Global Hawk
Strong demand in the military transport sector(15% CAGR).
AE common core powering seven applications across
transport, business jets and UAV’s.
Significant opportunity in long-term: A400M, JSF, FSTA.

Technology creates opportunities - Marine
Commercial
− O&G investment driving
demand for support vessels
− Number of support vessels
worldwide will double in a
decade
− Global trade supporting
merchant growth
Submarines
− Exclusive provider of
nuclear steam raising
plant to UK RN
− Long-term visibility
− Nuclear capability
creates options for
Energy expansion
Surface - Naval
− Supporting 70 navies
around the world
− MT30 creating new
positions with US Navy

Technology creates opportunities - Energy
Nuclear
− 2000 employees in
UK, France and US
− Targeting UK new
build
− Global
opportunities
Tidal Power
− Equity stake in
TGL
− Deep water trials
Q1 2009
Fuel Cells
− 100 hour test
planned H2 2008

Financial performance
Andrew Shilston
Underlying profit is a non-IFRS measure.
Definitions and reconciliations of underlying profits and additional disclosures and provided in the Group’s press release dated 24 July 2008

Components of profit growth – H1 2008
500
£m
(32)
113
(22)
450
(32)
(16)
18
400
427
398
350
2007 H1
UPBFC
Trading
FX
USD
Functional
Restructuring
Other
Income
Provisions
R&D
2008 H1
UPBFC

Civil Aerospace
2008
£m
Sales * Profit *
2007 2008
£m £m
2007
£m
Order Book
2008 2007
£bn £bn
2,102 2,011
272 261
42.1 35.9
Strong progress across all programmes.
Flying hours up 4% in H1; Services revenues up 10%.
£16m customer charge in H1.
Continuing cost and FX headwinds.
Strong OE growth in H2 led by deliveries for widebody.
*Underlying sales and profit before financing costs

Defence Aerospace
2008
£m
Sales * Profit *
2007 2008
£m £m
2007
£m
Order Book
2008 2007
£bn £bn
769 808
104 106
4.9 4.4
Strong positions on major programmes~growing order book.
Improvement in sales in second half.
Phasing of restructuring charges and R&D held back first half.
Well balanced business
− development, production and services.
* Underlying sales and profit before financing costs

Marine
2008
£m
Sales * Profit *
2007 2008
£m £m
2007
£m
Order Book
2008 2007
£bn £bn
1,016 700
87 58
5.5 4.7
Increasingly broad portfolio
− Extending capability through the acquisition of SEH.
Strong market positions in naval and commercial.
Investing in increased capacity.
Strong first half trading performance with positive outlook.
* Underlying sales and profit before financing costs

Energy
Fuel cells
2008
£m
Sales * Profit *
2007 2008
£m £m
2007
£m
Order Book
2008 2007
£bn £bn
324 227
(8) (1)
1.0 0.9
Benefiting from increased O&G activity.
Power Generation making good progress
− Record order intake for industrial Trent.
Further fuel cells tests planned.
H1 trading held back by restructuring and one-off
£18m technology fees in H1 2007.
* Underlying sales and profit before financing costs

Underlying financing costs
Interest
Financial RRSPs
Other
2008 H1
£m
(5)
(12)
-
2007 H1
£m
(6)
(13)
1
Underlying financing costs
(17)
(18)

Cash flow
Gross cash generation
Capital/intangible expenditure
Inventory
Other working capital
Shareholder Payments
Taxation
Cash (outflow)/inflow
Pensions – special injection
Cash outflow - period
Net Cash at 1 Jan
Net Cash at 30 June
Average Net Cash
2008 H1
£m
607
(227)
(250)
(84)
(58)
(32)
(44)
-
(44)
888
844
265
2007 H1
£m
419
(179)
(236)
136
(56)
(23)
61
(132)
(71)
826
755
373

Customer Finance
Supporting civil aerospace customers
− AVGs and credit guarantees.
− Good track record of recycling.
− Visibility of future commitments.
Modest near term exposures.

Strong financial position
Cash generative business model.
Flexibility to respond to investment opportunities.
Robust credit rating.
Reduced volatility in UK pension schemes.
Increased payment to shareholders confirms positive
outlook.

Operational performance
Mike Terrett

Continuing to deliver significant growth
Continued strong growth across all businesses
− Marine business delivering substantial growth.
− Services continue to grow.
Future investment to deliver incremental growth.
UK facility programme making good progress.
Focus on make buy at each stage of new
programmes.

Investing to deliver productivity and growth
Targeted investment to deliver capacity
− Singapore and USA.
Expanding international footprint of our own
operations
− Low cost environments.
− Continued dollarisation.
Good progress on restructuring support functions
− 80% complete in H1 – complete in 2008.
− Self funding in 2008.
Developing a more flexible and capable cost base.

Managing the challenges
Supply chain improving but still challenged in some
areas.
Programme delays contribute to the challenges
− Managing operational base and costs.
− Additional stresses on inventory levels.
Unit costs up 2% ~ 4% in 2008.

Operations summary
Increasingly global footprint will drive long term
improvements.
Managing the effects of increasing costs and programme
delays.
Good progress in H1 despite ongoing challenges.
Restructuring of support functions going well and will deliver
benefits this year.
Significant further load growth over the near term.
Developing a more flexible and capable cost base.

Summary
Sir John Rose

Growth in a challenging environment
A high technology power systems company, with a broad portfolio,
geographically diverse customer base and order book.
Consistent focus on cost reduction and performance improvement.
Civil portfolio mitigates aviation sector challenges.
Non-civil businesses growing and increasingly material.
For 2008 continuing growth in underlying profits and positive cash
generation.

Rolls-Royce Group plc (the “Group”) is providing the following cautionary
statement. This document contains certain statements that are or may be
forward-looking with respect to the financial condition, results or operations
and business of the Group. These statements are sometimes, but not always,
identified by the words ‘may’, ‘anticipates’, ‘believes’, ‘expects’ or ‘estimates’.
By their nature forward-looking statements involve risk and uncertainty
because they relate to events and depend on circumstances that will occur in
the future. There are a number of factors that could cause actual results and
developments to differ materially from those expressed or implied by such
forward-looking statements. These factors include, but are not limited to (i)
changes to the current outlook for global power systems markets, (ii) changes
in tax laws and regulations, (iii) the risks associated with the introduction of
new products and services, (iv) significant global disturbances such as
terrorism or prolonged healthcare concerns, (v) the termination or delay of key
contracts and (vi) long-term fluctuations in exchange rates, (vii) regulatory and
shareholder approvals, (viii) unanticipated liabilities and (ix) actions of
competitors.
Subject to the Listing Rules of the UK Listing Authority, Rolls-Royce Group plc
assumes no responsibility to update any of the forward looking statements
herein.

Balanced business portfolio – 2008 H1
Total sales: £4.2bn
Aftermarket services: 53%
£2.2 bn
Energy: 4%
Marine: 16%
Defence: 8%
Civil: 19%
Original equipment: 47%
£2.0bn

Research & Development – H1
2008
£m
2007
£m
Gross spend
Funded externally
Net R&D spend*
* Net R&D spend % Sales
Capitalised
Amortised
R&D Charged to Income Statement
(399)
177
(222)
5.3%
57
(12)
(177)
(373)
169
(204)
5.4%
17
(8)
(195)

Cash flow
Cashflow from operating activities
Pensions – special injection
Foreign Exchange
Working Capital
Other
2008 H1
£m
211
0
48
334
14
2007 H1
£m
217
132
(10)
100
(20)
Gross Cash Generation
607
419

60
50
£bn
40
Rolls-Royce order book
Europe Americas Asia/Middle East
30
20
10
0
2002 2003 2004 2005 2006 2007 2008
H1
0
Firm and announced

Foreign exchange management
Forward cover of $9.1bn with an average rate £~$1.87
Opening spot rate £~$1.99
Average spot rate £~$1.97
Closing spot rate £~$1.99
Hedging policy offers visibility of £~$ rate allowing planned transition
Managing exposure through
− Utilisation of hedge book
− Dollarisation of supply chain
− Cost reduction

The broadest Civil product range

Rolls-Royce Fleet – Modern and fuel efficient
300
250
200
Dec-01
Jun-08
Dec-13
150
100
50
0
Unit: Million Lbs thrust
'0-10 Age of Aircraft '11-20 >20
Assumes V2500 000411 @ 50%

Rolls-Royce Fleet – Installed Thrust - 2001
140
120
100
80
60
40
20
241 m lbs installed thrust:
- 65% RB211/Trent, 9% V2500, 26% C&R
- More than 85% of thrust less than 20 years old
C&RA
V2500 (@ 50%)
RB211/Trent
0
Unit: Million Lbs thrust
'0-10 Age of Aircraft '11-20 >20
Assumes V2500 000411 @ 50%

Rolls-Royce Fleet – Installed Thrust – 6/2008
140
120
100
80
60
40
341 m lbs installed thrust:
- 62% RB211/Trent, 13% V2500, 25% C&R
- More than 85% of thrust less than 20 years old
C&RA
V2500 (@ 50%)
RB211/Trent
20
0
Unit: Million Lbs thrust
'0-10 Age of Aircraft '11-20 >20
Assumes V2500 000411 @ 50%

Rolls-Royce Fleet – Installed Thrust - 2013
200
180
160
140
120
100
80
60
40
20
0
Unit: Million Lbs thrust
499 m lbs installed thrust:
- 63% RB211/Trent, 14% V2500, 23% C&R
- More than 85% of thrust less than 20 years old
C&RA
'0-10 Age of Aircraft '11-20 >20
V2500 (@ 50%)
RB211/Trent
Assumes V2500 000411 @ 50%

Installed Engine Fleet by Thrust – 2013 (V2500 @ 50%)
Unit: Lbs Million Thrust
600
500
Expected to grow at 7%
CAGR to 2013
400
300
Installed thrust up 45% since 2001
C&RA
V2500
200
100
0
RB211
Trent
1 9 86
1 9 9 1
1996
2 0 0 1
2006
2011
000422

Contingent Liabilities - Sales Finance Support
Contingent liabilities include
− Asset value guarantees
− Credit guarantees
At 30 June: AVG Credit Total
− Gross contingent liabilities $666m $532m $1,198m
− Net contingent liabilities $80m $161m $241m
− Net stressed contingent liabilities $207m $194m $401m

A competitive portfolio–Defence Aerospace

The widest range of marine products and
services from a single supplier

Energy Portfolio
Oil & Gas production Civil Nuclear Tidal Power
(onshore and offshore) − 50 years experience
− Oil and Gas production with the UK RN
Submarine fleet
− Oil transmission
− Integrated design,
− Gas gathering
supply and services
−
Secondary oil/gas
recovery
Gas transmission
−
−
Gas pipelines
Gas storage
− Instrumentation and
control for all French
reactors
− World class
expertise
− Leveraging marine
experience and
capabilities
− Investing in tidal
demonstrator
− Offshore trials in
Q1 2009
Power Generation
−
−
−
Industrial
Commercial
Municipal
501s and RB211s
provide 4 - 32 MW of
power
Trent 60 provides up to
58 MW of power
Developing a 1MW Fuel
Cell