Rolls-Royce reports record year – Suppliers Share Wrap

Civil aerospace, the company's largest business component, made "considerable progress over 2009", although Rolls-Royce noted that volatile trading conditions and the continuing effects of major programme delays, including the A380, B787 and A400M, impacted performance. Original equipment revenue was up marginally, while services revenue was down, keeping overall civil aerospace revenue "stable" at GBP4.5 billion. All other business segments reported growth, with defence aerospace up 19.3% to GBP2 billion, the marine business growing 17.5% to GBP2.6 billion and the energy unit revenue up 36.2% to GBP1 billion.

Civil aerospace resilient in tough market

Civil aerospace orders totaled GBP9.4 billion for the year, demonstrating the company's resilience despite the tough trading environment. Rolls-Royce noted reduced flying hours, deferred support requirements by customers and the continuing effects of delays to major new airframe programmes as impacting the aerospace market. The total order intake in the year was GBP13.4 billion.

Rolls-Royce reported lower civil aerospace margins and profits in the period, down from GBP566 million in 2008 to GBP493 million in 2009. Reduced R&D charges, increased fee income from risk/revenue sharing partners and favourable foreign exchange effects were "more than offset" by a weaker original equipment mix, reduced services revenues and increased unit costs. Underlying profit for the year rose 9.8% to GBP728 million, with stronger defence, marine and energy profitability.

Total engine deliveries for the year were 844, some 143 lower than in 2008, but there was a shift towards deliveries for widebody aircraft engines, away from corporate and regional aircraft, supported by an 4% increase in original equipment revenues. Narrowbody engine deliveries were similar to 2008, at 347 units. Corporate and regional deliveries were 39% lower at 272 engines.

The total number of parked aircraft remained stable over 2009 at around 2,700.

An increasing proportion of new engine deliveries include long-term service contracts, an important driver of long-term service revenue growth. The programmes also give Rolls-Royce greater visibility of future workloads.

2010 outlook

2010 underlying revenues and profits are expected to be "broadly similar to those achieved in 2009" according to CEO, Sir John Rose. The company intends to continue to reduce its exposure to North American and European markets (which represent 66% of revenues). Almost 50% of the company's order book is now for business related to Asia, the Middle East and South America. Rolls-Royce expects to benefit from its ability to access the world's faster growing markets where there continues to be demand for investment in transport and infrastructure.

In civil aerospace, Rolls-Royce expects underlying profits are expected to be modestly lower in 2010 than in 2009. The company sees some improvement in air travel and airfreight traffic from subdued levels, although the sustainability of these trends is "uncertain".

The manufacturer anticipates "further detrimental mix changes in revenues", with launch costs for new programmes having an impact. Increased charges from R&D are expected due to increased activity associated with these early phase programmes, such as the Trent XWB. Services revenues are expected to increase by approximately 10% cent in 2010, partly benefiting from improved foreign exchange achieved rates. Improved GBP to USD rates will help mitigate some of these effects, according to Rolls-Royce.

Investors welcomed the earnings report, with Rolls-Royce shares gaining 6.5% yesterday.

Elsewhere, German engine manufacturer, MTU Aero Engines, slipped 0.2% yesterday.

Selected Aviation suppliers' daily share price movements (% change): 11-Feb-2010

Source: Centre for Asia Pacific Aviation & Yahoo! Finance