Rolls-Royce's Power Systems business unit senses economic recovery
Posted on August 05, 2021
- H1 2021 profit up £11 million to £41 million
- Order intake 19% ahead of H1 2020
- Looking ahead with cautious confidence as the recovery starts to take hold
Rolls-Royce's Power Systems business unit has met revenue and earnings expectations in the first half of 2021. “Our financial results are in line with our expectations,” said Louise Öfverström, CFO of Rolls-Royce Power Systems. At £1.18 billion (EUR 1.36 billion*), revenue was broadly in line with last year's comparative period (H1 2020: £1.21 billion, EUR 1.366 billion), while adjusted
profit increased by £8 million (EUR 11 million) to £41 million (EUR 47 million). Adjusted return on sales was 3.5% (comparative period: 2.7%), reflecting the economic recovery currently underway, and the 19% improvement in order intake in the first half bodes well for continued progress.
Recovery in all markets
“We responded to the pandemic with quick and decisive actions, protecting our employees from infection as best we can and continuing to run our business successfully despite adverse conditions. We have also made unswerving progress in transforming the company into a solution provider with a view to emerging even stronger from the crisis,” said Andreas Schell, CEO of Rolls-Royce Power Systems. In all end-user markets, Power Systems is benefitting from the recovery of the global economy. “The 13 market segments in which we operate are reacting at different speeds and with differing levels of response, and this is once again proving to be a stabilizing factor in our business model,” Öfverström added.
Service revenue growing
The economic upswing as the COVID-19 pandemic wanes is already driving service revenue which improved 13% as customers regained the ability to use their mtu products, consequently placing more service orders.
Growing customer’s demand
In new sales of mtu products and solutions, Rolls-Royce Power Systems is seeing an increasing investment appetite in its customer base. The Chinese market, which regained strength early on, again made a significant contribution to sales and earnings. The luxury yacht market is booming, capital investment is increasing among public sector customers, and industrial customers are placing more orders. The commercial shipping market appears to be taking more time to recover, with pandemic-related travel restrictions still inhibiting the transport sector. The strongest-performing segment in terms of sales – representing 32% of Power Systems revenue – is once again the solutions business for distributed power supplies, above all standby power systems for vulnerable facilities such as data centers and hospitals.
“We can see from the order intake that business is returning to a more normal level,” said Öfverström. At £1.4 bn (EUR 1.6 bn), the order intake was 19% higher than last time (H1 2020: £1.2 bn, EUR 1.5 bn). “This will have a favorable impact on results in the second half of the year, which at Power Systems is generally stronger than the first half,” emphasized the CFO. The highest order intake was reported by the Power Generation segment and the Marine & Government business, which grew in particular for mtu propulsion systems for yachts.
Climate protection driving transformation
Customers of distributed energy systems in particular are signaling a need for more climate-friendly solutions, and these are set to generate significant revenues in the short term. Since a comprehensive reorganization in spring 2021, development of these systems has been moved to the newly established Sustainable Power Solutions business unit. “Sustainable Power Solutions is still in a nascent stage compared to our established lines of business. That said, we're experiencing high levels of customer interest in these solutions, here as well combined with a growing order intake,” explained Andreas Schell.
Climate-friendly products already available now
The Rolls-Royce business unit has had climate-friendly products in its portfolio for some time now, with the first full-production mtu Hybrid Rail PowerPack going into operation on a rail service in the UK in July 2021, and orders for climate-friendly battery energy storage systems now coming in from
all over the world. In July, Power Systems presented its ambitious goals in moving towards climate neutrality, with new-technology products planned to cut greenhouse gas emissions by 35% of 2019's levels by 2030 and the company planning to be fully net-zero carbon in 2050 in line with Rolls-Royce's overall strategy, using science based standards. This is to be made possible by energy
solutions using fuel cells powered by sustainably produced hydrogen, and by engines certified for running on sustainable fuels. “With 'Net Zero at Power Systems' we are not only doing something proactive for climate protection, we have focused our strategy on our customer’s needs for environmentally friendly solutions for energy needs, drive power and propulsion. We already absolutely see this as a growth opportunity in the years ahead,” said Andreas Schell.
Back to 2019 levels in 2022
Rolls-Royce Power Systems expects business to continue to recover in the second half of 2021 thanks to the increased order intake. New orders are recovering at a slightly slower pace than expected, but Louise Öfverström expects Power Systems business unit to match 2019's pre-COVID figures in 2022. Daily working life is also increasingly returning to normal, with employees
coming back to the office under strict rules and divided into shifts. “We do not consider the pandemic to be over yet, and are continuing to look after our people's health, watching closely how the pandemic and our business develop,” Schell concluded.
by way of information on the basis of fixed exchange rates. The figures in
British pounds are binding. For better comparability, figures have been
adjusted to exclude business areas that are no longer part of the core business.