Performing strongly in challenging conditions

Rolls-Royce continued to perform well during 2011 with our order book growing to a record £62.2 billion. Underlying profits increased 21 per cent to £1,157 million. We are proposing a final payment to shareholders of 10.6 pence per share, bringing the full year payment to 17.5 pence per share. This is an increase of nine per cent and reflects the Board’s continuing confidence in the Group’s future.

This strong performance has been achieved against a background of macro-economic weakness and uncertainty. The recovery, which many people had been expecting in Europe and North America, failed to materialise in 2011 and is still some way off. Fiscal imbalances, austerity programmes, disruption in the Eurozone and political tensions in the Middle East continue to affect world markets, undermining confidence about future macro-economic expansion even in Asia and South America. It is a tribute to everyone who works at Rolls-Royce that the Group has continued along its path of long-term growth despite these testing times.

Rolls-Royce is a long-term business which has maintained a consistent strategy over many years. We continually invest in advanced technology so that we can address both the present needs of our customers and meet their requirements for many years to come. Our power systems have life cycles that stretch over decades and we generate long-term revenue streams by servicing the products we sell. We have customers in 120 countries and we continue to broaden our customer base across the four segments in which we operate: civil aerospace, defence aerospace, marine and energy, including civil nuclear. These characteristics have combined to make Rolls-Royce an increasingly resilient business. However, we are not complacent and continue to invest for the future. In 2011, we invested £520 million from Group resources in research and development. This continuing commitment to technological innovation lies at the heart of our business model.

It is important to remember that Rolls-Royce sustains a global supply chain. Around 8,000 companies in some 70 countries, all generating employment, paying taxes and creating wealth, depend upon us and share in our success. For every person we employ, more than six jobs are generated in the broader economy. As we grow in scale and strength, these effects are multiplied. Innovation driven by Rolls-Royce has generated wider societal benefits over many years. Engineering breakthroughs pioneered by this Group have had wide applications in fields as diverse as medical research and the automotive industries. Engineers and scientists trained by Rolls-Royce have gone on to make a significant contribution across enterprise and academia, while our growth will create future employment for many of the brightest young scientists studying at schools and universities around the world today. This is why advanced economies depend so critically on successful enterprises like Rolls-Royce and why it is of such importance that their wider contribution to society is recognised. As a global business we recognise that to stay competitive we need to attract, retain and develop the best talent from the greatest range of people worldwide. Our Global Diversity Steering Group reinforces our commitment to promoting diversity and equality throughout the Group and creating an environment in which each individual has the opportunity to realise his or her full potential.

The UK Government recently outlined a number of recommendations to improve gender diversity in UK boardrooms. We support these recommendations and are committed to making demonstrable progress by 2015.

During 2011, more than 400 young graduates joined Rolls-Royce, from more than 25 countries. In addition, 295 people joined our apprentice schemes. It is a tribute to the quality of our training that around 50 per cent of our apprentices go on to achieve an honours degree and that so many of our senior managers started their working lives at Rolls-Royce as apprentices.

Continuous training and development is extremely important to our success. Over the past five years we have invested over £150 million improving the knowledge and skills of our people. In order to maintain the highest standards of ethical behaviour and business integrity, we review continually our procedures and training programmes, which are mandatory for all staff. As well as developing our own workforce we recognise our wider responsibility towards the next generation of scientists and engineers through the promotion of science, technology, engineering and maths (STEM) in schools and universities. We invest in a wide range of educational projects around the world and encourage our staff to take leadership roles as school governers and STEM ambassadors.

As part of our responsibilities to the communities in which we work, the Board is committed to reducing the environmental impact of our products and operations. Across our portfolio we can demonstrate the progress that is being made. One good example is the Boeing 787 Dreamliner that entered service in September 2011. This extraordinary aeroplane is designed to be 20 per cent more fuel efficient than the earlier generation of aircraft it replaces, thanks largely to advances in aero-engine technology. Our marine business has advanced hull designs, engines, and integrated propulsion systems that are reducing emissions dramatically. In our energy business we have continued to make good progress developing the scope of our civil nuclear capabilities.

I would like to thank my fellow directors for their great support and hard work in the past year. I would also like particularly to express my gratitude to Andrew Shilston, who retired from the Board at the year end. Andrew served Rolls-Royce as Finance Director for nine years and has done an outstanding job. I wish him well in his future endeavours. My congratulations go to Mark Morris, who succeeds Andrew and was appointed to the Board in January 2012. Mark joined Rolls-Royce as a graduate 25 years ago.

Sir John Rose, who had been with the Group for 27 years and was Chief Executive for 15 years, retired at the end of March and was succeeded by John Rishton. I have paid tribute to John Rose on a number of occasions including in last year’s Annual report. Suffice it for me to say, we owe John a huge amount for what he achieved. I am very pleased to report that John Rishton has made a tremendous start as our new Chief Executive.

Sir Peter Gregson has expressed his wish to retire as a non-executive director of Rolls-Royce at this year’s Annual General Meeting (AGM) and therefore will not be seeking re-election. Peter has made a valuable contribution during the past five years and I would like to thank him for his commitment. I am delighted to welcome both Lewis Booth and Sir Frank Chapman onto the Board as non-executive directors. Lewis Booth, who chairs the audit committee, is Executive Vice President and Chief Financial Officer of Ford Motor Company and one of the most senior leaders within the auto industry. Sir Frank has been Chief Executive at BG Group for the past 11 years. He brings an additional deep technical understanding and knowledge of advanced engineering to the Board. He has agreed to chair a new safety committee that will be formed in 2012.

We are fortunate to benefit from the advice of an International Advisory Board (IAB), comprised of some of the world’s most distinguished business and political leaders. The IAB, whose membership is detailed later, provides invaluable strategic advice about the global markets in which we operate under the able guidance of Lord Powell of Bayswater. I would like to thank its members for their time and wisdom.

Through the disciplined application of a long-term strategy, Rolls-Royce has doubled its revenues in the past decade and we are confident of doubling them again in the coming ten years. Rolls-Royce has a strong balance sheet and we intend to run our business so that we maintain a single ‘A’ credit rating. In all parts of our business we see opportunities for profitable growth, building on the firm foundations I have described above.

At the heart of our business lie our people. Our past, current and future success rests entirely with them. I believe Rolls-Royce has a highly-skilled and motivated team which is proud of its heritage and ambitious for its future. The strength of our order book demonstrates the confidence our customers have placed in us. We are focused on delivering these commitments for the long-term good of the families and communities who depend upon us and for the benefit of our customers and of our shareholders.

Image of Sir Simon Robertson, Rolls Royce Chairman; three quarter length shot
Rolls-Royce has a highly-skilled and motivated team – proud of its heritage and ambitious for its future

Sir Simon Robertson
February 8, 2012

Financial highlights

  • £62.2bn

    Order book – firm and announced +5% on 2010

  • 17.50p

    Payments to shareholders +9% on 2010

Chief Executive’s statement

Our strategy has stood the test of time and has proved itself in battle...

Finance Director’s review

Demand for our products and services remains robust.