Delivering for customers and investing in the business

Demand for our products and services in 2011 remained strong. Despite the global economic turbulence of recent years, Rolls-Royce has continued to grow.

In my first year as Chief Executive, I have spent much of my time visiting Rolls-Royce sites around the world to meet employees, customers, suppliers and investors to hear what they have to say about your company. Without exception, the employees I have met are dedicated, professional and committed to delivering our brand promise – ‘trusted to deliver excellence’. Our customers are supportive and enthusiastic about our technology and, of course, they want even better performance both from our products and our team. Our suppliers are excited by the opportunity for growth and understand our requirement for better quality, on time delivery and lower cost. Investors express support for our strategy and naturally share our desire for still better financial performance in the future.

At the 2011 AGM, I confirmed that we will continue to follow the strategy that has been in place for many years, and can be summarised as:

  1. addressing four global markets: civil aerospace, defence aerospace, marine and energy;
  2. investing in technology, capability and infrastructure;
  3. developing a competitive portfolio of products and services;
  4. focusing on growing market share and our installed product base; and
  5. adding value for our customers through product-related services.

This strategy has stood the test of time and has proved itself in battle. Since 2007, and despite the turbulence of recent years, Rolls-Royce has grown underlying revenue by 44 per cent, underlying profits by 45 per cent and payments to shareholders by 35 per cent. We have doubled our revenues in the past decade and, through organic growth alone, we are confident that we will do the same in the decade ahead.

While we continue to follow this strategy, in the coming years, I see three main priorities:

1. Delivering the promises we have made

With a record order book of £62.2 billion, our customers have placed a huge amount of trust in us and it is essential we meet our commitments. This will require a very significant increase in capacity. To put this growth into perspective, since we started building Trent engines 18 years ago we have delivered just over 2,000 units. We will deliver the next 2,000 in just five years which means more than doubling our current rate of production. To achieve this we continue to invest in new facilities around the world. These investments include our new plants at Crosspointe in Virginia, USA where we are making discs for civil jet engines and Seletar, in Singapore, where we will make wide-chord fan blades and assemble and test Trent engines. We are also expanding and renewing our facilities in the UK where we still invest half of our capital expenditure and more than half of our research and development budget. As well as investing in our own facilities, we are working hard with our suppliers and partners to make sure our global supply chain can support our growth and keep pace with demand.

2. Deciding where we invest for future growth

We can see opportunity in all areas of our business but we need to concentrate our resources and decide which opportunities we are going to pursue and which we are not.

3. Continuing to improve the financial performance of the business

Although we are subject to inflationary pressures and tough competition we will benefit from the growth of the business, from investments that will improve efficiency and from an increasing focus on cost performance and cash conversion.

In support of our strategy, during 2011 we made three very important decisions for the future.

The first was our acquisition of the German industrial engines group Tognum, our biggest acquisition, that we made in a joint offer with Daimler. It will bring together highly complementary product and technology portfolios and creates significant new opportunities for our marine and energy businesses.

Second, we signed an exclusive deal with Airbus to power the long-range Airbus A350-1000 aircraft, for which we will develop an enhanced Trent XWB engine.

Third, we agreed to sell our equity stake in International Aero Engines (IAE) to Pratt & Whitney, at the same time announcing our intention to form a new joint venture to develop engines for the next generation of mid-size aircraft. This agreement builds on a long and successful partnership with Pratt & Whitney, and charts a clear course for our future in this important market segment.

In addition, we have continued to extend our portfolio and have advanced a number of important programmes. These are described in greater detail later in this Annual report, but it is encouraging to note progress in each of our customer facing businesses.

In civil aerospace, we celebrated the first commercial flight of the Boeing 787 Dreamliner, operated by All Nippon Airways (ANA) and powered by Trent 1000 engines. The Trent XWB engine programme for the Airbus A350 XWB is progressing well with over 1,500 test hours completed. Our BR725 engine, developed for Gulfstream’s new flagship executive jet, the G650, is due to enter service later this year.

In defence, our LiftFan™ system for the Joint Strike Fighter has performed well during intensive flight tests that included more than 70 short take-offs and vertical landings on board the aircraft carrier USS Wasp. The TP400 engine for the Airbus A400M is on course to enter service in 2013, further strengthening our position in the military transport market.

In our marine business, we have secured the first orders for our award-winning Environship, a cargo vessel powered by liquid natural gas that substantially increases fuel efficiency through a combination of innovative hull design and power systems. In May 2011, the UK Government awarded Rolls-Royce the contract to develop a new propulsion system for the next generation of nuclear-powered submarines.

Our energy business signed its biggest ever single contract to supply Petrobras, Brazil’s leading oil company, with 32 gas turbine generation packages to support its offshore operations. Within our civil nuclear business we have continued to expand our instrumentation and controls business while strategic relationships with reactor vendors and utility operators were further strengthened during 2011 through a number of cooperation agreements.

In 2011, Rolls-Royce performed well in difficult market conditions. We have a £62.2 billion order book, underlying revenue has grown to £11.3 billion and underlying profit has increased 21 per cent to £1.2 billion. This success is due to the extraordinary team of over 40,000 people that work for Rolls-Royce. I thank all of them for their support and effort in 2011. Their skills, the breadth of our portfolio, the strength of our order book and the access we have to parts of the world where demand for our products and services remain strong, make your company increasingly resilient.

Image of Sir John Rishton, Rolls Royce Chief Executive
Our strategy has stood the test of time and has proved itself in battle.

John Rishton
Chief Executive
February 8, 2012

Financial highlights

  • £62.2bn

    Order book – firm and announced +5% on 2010

  • 17.50p

    Payments to shareholders +9% on 2010

Chairman’s statement

Rolls-Royce has a highly skilled and motivated team – proud of its heritage and ambitious for its future...

Finance Director’s review

Demand for our products and services remains robust.