Rolls-Royce Power Systems achieves record result in 2022, focusing on further profitable growth in 2023
Posted on February 27, 2023
- Underlying revenue 22% higher at £ 3.3 billion (€ 3.9 billion)
- Underlying profit grew to £ 281 million (€ 332 million).
- Profitable growth and focused transformation as strategic priorities for 2023
Rolls-Royce's Power Systems business unit closed the 2022 financial year with strong growth and with order intake and underlying revenue at record levels. Dr Jörg Stratmann, CEO of Rolls-Royce Power Systems since November 2022, said: “We have strong products in our mtu portfolio and are on a transformation programme that is being well received by our customers, as evidenced by the high demand. We are now focussed and embarking on a profitable growth trajectory to safeguard our options as we lead Power Systems and Rolls-Royce forward into a successful future.”
Solid financial result in a challenging environment
Order intake in Power Systems was £4.3bn (€5,2bn), 34% higher than the prior year, a record level for the business. We saw strong demand in many of our end markets, notably Power Generation including mission critical backup power, and for our engine systems and services. As a result, the order cover for 2023 is now 76%.
Underlying revenue was £3.3bn (€3,9bn), up 23% and above the previous peak in 2019. Services revenues grew 16% as product utilisation increased in our end markets, and OE revenue rose by 26%. Sales were strongest in the industrial and power generation end markets, partly offset by lower activity in China.
Reflecting on 2022, Dr Thelse Godewerth, Chief People Officer and HR Director, said: “Our 9,500+ employees around the world have once again done a great job in reliably meeting our customers' enquiries, even against the backdrop of the challenges which 2022 brought both at work and away from work. Their commitment and hard work are crucial to our success, and for that we extend our heartfelt thanks.”
Operating profit was £281m (€330m) (8.4% margin) versus £242m (€282m) (8.8% margin) in the prior year. The lower margin versus the prior year reflects higher costs associated with inflation and supply chain disruption, increased self-funded R&D, one-off charges including intangible asset impairments and write-downs of assets due to the Russia-Ukraine conflict, partly offset by the benefit of higher volumes.
Similarly, cash generation shows the need for improved performance, with trading cash flow of £158m (€178m) representing a conversion ratio of 56% compared with 90% in the previous year. The lower conversion year on year reflects a higher level of inventories due to supply chain disruption and the pace of revenue growth, partly offset by increased customer advance payments.
The focus of 2023 is on further performance improvements in Power Systems in order for the business to be able to deliver on its potential. This work is part of an overall transformation programme across Rolls-Royce. CEO Jörg Stratmann said: “The optimisation of our processes and operations will help us improve profitability and make us more resilient in the face of economic uncertainties. We are tackling this task together with the entire Rolls-Royce Group and new CEO Tufan Erginbilgic. We have the clear potential to improve – and we want to leverage that in 2023. Growing our profitability in turn gives us the freedom we need to make the required investments in our transformation. This is how we are shaping a secure future for our company.”
Jörg Stratmann added: “Despite ongoing challenges such as the uncertain geopolitical situation, disrupted supply chains, the energy crisis, high commodity prices and rising inflation, we are focusing on further profitable growth in 2023. We're going to reduce inventories steadily, improving cash flow. We're continuing to invest in research and development in a disciplined way, with plans in place for investment in new construction and refurbishment work in production and manufacturing. This puts us at the same level as in 2022 when, for example, we built the new engine assembly facility at the Kluftern Materials Management Centre near Friedrichshafen to refurbish existing production bays. These investments also underline the importance of combustion technology as an essential element of the green energy transition.”
Planned investments in 2023 include hydrogen infrastructure in Friedrichshafen for testing new technologies. We are also planning to expand production capacity for specialist military land vehicle engines, subject to definite orders being received. “We continue to stand by our commitment to contribute to national security. We are and will remain a reliable partner to our customers,” added Thelse Godewerth.
About Rolls-Royce Holdings plc
- Rolls-Royce develops and delivers complex power and propulsion solutions for safety-critical applications in the air, at sea and on land. Our products and service packages enable our customers to connect people, societies, cultures and economies together; they meet the growing need for power generation across multiple industries; and enable governments to equip their armed forces with the power required to protect their citizens.
- Rolls-Royce has customers in more than 150 countries, comprising more than 400 airlines and leasing customers, 160 armed forces and navies, and more than 5,000 power and nuclear customers. To meet customer demand for more sustainable solutions, we are committed to making our products compatible with net zero carbon emissions.
- Annual underlying revenue was £12.69bn in 2022 and underlying operating profit was £652m.
- Rolls-Royce Holdings plc is a publicly traded company (LSE: RR., ADR: RYCEY, LEI: 213800EC7997ZBLZJH69)
- Rolls-Royce Power Systems is headquartered in Friedrichshafen in southern Germany and employs more than 9,500 people. The product portfolio includes mtu-brand high-speed engines and propulsion systems for ships, power generation, heavy land, rail and defence vehicles and for the oil and gas industry as well as diesel and gas systems and battery containers for missioncritical, standby and continuous power, combined generation of heat and power, and microgrids and is intensively engaged in the development of climate-neutral solutions.