Rolls-Royce Plcannual Report 1999 Reliability Integrity Innovation
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Rolls-Royce plc Annual Report 1999 Reliability Integrity Innovation 1 Corporate profile Group financial highlights for the year ended December 31, 1999 2 Chairman’s statement 4 Picture spreads 1999 1998 8 Chief Executive’s review Group turnover £4,744m £4,496m 20 Finance Director’s review Profit before taxation £360m £325m 26 Board of directors Order book £11.5bn £10.4bn 27 Report of the directors Return on capital employed 17.0% 15.8% 32 Remuneration report Equity shareholders’ funds £1,988m £1,705m 40 Financial statements 69 Principal subsidiary undertakings Earnings per ordinary share: 71 Principal joint ventures Underlying 19.52p 16.91p 72 Joint arrangements that are not entities Basic 18.86p 17.25p 73 Directors’ responsibilities for the Dividend per ordinary share 7.25p 6.55p financial statements 73 Report of the auditors 74 Group five year review 76 Shareholders’ information Rolls-Royce plc Registered office: 65 Buckingham Gate London SW1E 6AT Telephone: 020 7222 9020 Company number: 1003142 Rolls-Royce is a global company providing power on land, sea and air. To deliver shareholder value and to meet customers’ requirements, thereby becoming their preferred supplier, the Group is continuously improving performance and is investing to secure leadership in our key markets of civil aerospace, defence, marine and energy. 1 Rolls-Royce plc 1999 1999 was a successful year for Rolls-Royce in challenging conditions. We again achieved our financial target of double-digit earnings growth and continued to invest in improved efficiency and new products and services to ensure long-term growth. We have transformed our business over the last decade. During this period Rolls-Royce has invested more than £5 billion in research and development and £1.5 billion in capital expenditure to establish a leading position in civil aerospace, Sir Ralph Robins Chairman defence, marine and energy. These are growing markets in which we are gaining market share. In 1999, the company invested a further £1 billion in significantly through acquisition and partnerships leading to acquisitions to strengthen its position in these markets. a trebling of sales over the last four years. In aerospace, the agreement to take full control of Each of these acquisitions has added routes to market and BMW Rolls-Royce, now Rolls-Royce Deutschland, enhances new products and services. We have also increased investment our leading position in the corporate and regional airline in research and development to create new products. sector. BMW increased its shareholding in Rolls-Royce to over The Trent 500 aero engine, under development for the ten per cent. Airbus Industrie A340-500/600 aircraft, ran for the first time With the acquisition of Vickers, we have become a world in June achieving its certification thrust. leader in marine propulsion and we expect to achieve strong The EJ200 engine for Eurofighter Typhoon will enter growth in this market. production this year and we are making good progress with In the energy sector, the acquisition of the rotating compressor our participation in the US Joint Strike Fighter programme. business of Cooper Cameron creates new opportunities for us, The WR-21 engine completed endurance testing in enhancing our position in the oil and gas industry. December. It is the only advanced-cycle marine gas turbine The acquisition of National Airmotive further strengthened under development in the world today. our repair and overhaul business, which has developed New products for energy markets include the Allen 5016 2 Rolls-Royce plc 1999 diesel and the industrial Trent, which has now accumulated opportunities for gas turbines in the commercial sector and 20,000 service hours. from the company’s ability to offer fully integrated power At the end of 1999 the company had a record order book of systems to customers in commercial and naval markets. £11.5 billion, with a further £1.7 billion of business announced We continue to invest in our energy business. Growing but not yet signed. demand for distributed power provides the opportunity for Our improvement initiative, Better Performance Faster, growth. The industrial Trent is uniquely positioned in this progressed from a net investment to a net saving during the market. Whilst its development has taken longer than year. During 2000 we will be implementing new Enterprise originally anticipated, market interest remains strong. Resource Planning systems to improve efficiency. Increasingly our customers are seeking a full spectrum of I extend my thanks to all our employees for their contribution services and support and we have developed innovative to the company’s progress and congratulate Julia King, who solutions to serve the customer through the long life-cycle of received a CBE in the Queen’s Birthday Honours List. our products. I would particularly like to thank Sir Gordon Higginson and 2000 will be as challenging as 1999, against a background of Mike Townsend, both of whom retired from the Board in 1999. the continuing cost of restructuring, the possibility of adverse Paul Heiden, an existing Board member, has been appointed exchange rates and reduced large engine deliveries. 2000 also Finance Director. I also welcome Carl Symon to the Board. He presents significant opportunities arising from the company’s became a non-executive director in June. broad product portfolio, new risk and revenue sharing partners, the continuing drive to reduce costs and the growth Prospects potential created by the newly acquired businesses. We continue The long-term prospects for all of our businesses are strong to target double-digit earnings growth. as we continue to improve our position in growing markets. In civil aerospace, we have won 30 per cent of engine orders Your Board has recommended a final dividend of 4.55p per over the past three years and, in 1999, delivered a record share, making a total for the year of 7.25p, an increase of 1,080 civil engines. As more engines enter service, we create 11 per cent over 1998. embedded value for the future, as we increase the opportunities for our service activities. We expect defence aerospace markets to grow over the next decade and are well positioned on all the major new programmes. Our marine systems business is a world leader. Future growth will arise from recovery in the oil and gas market, new Sir Ralph Robins Chairman, March 1, 2000 3 Rolls-Royce plc 1999 Rolls-Royce is now the world's leading single source for the supply of integrated ship systems. New products and services offered include propellers, thrusters, water jets, pods, ship design, deck machinery and stabilisers. The Trent is the market-leading engine on the new generation of widebody twin-engined aircraft. During 1999, nine new Trent 700 customers took delivery of A330 aircraft. Rolls-Royce has delivered 300 AE2100 engines to Lockheed Martin to power the new C-130J airlifter. The first RAF C-130J aircraft entered service during 1999. In the Slovak Republic, highly efficient RB211 gas generators with dry low emissions technology, provide power for vital pipelines bringing gas from Siberia into western Europe. 1999 was a significant and successful year for Rolls-Royce. The company made continued progress with its consistent, long-term strategy of building shareholder value by increasing its share of clearly defined growth markets, both through organic growth and acquisitions. The development of leading positions in civil aerospace, defence, marine and energy markets, enables the company to John E V Rose Chief Executive apply generic skills and capabilities across a broad market base. We have complemented our core gas turbine technology with a range of associated products and services, improving our market prospects in each sector. We have continued to benefit from our customer-facing organisation, which we implemented in 1998. The strong focus on meeting customers’ needs in each of our markets has highlighted new business opportunities. In 2000 we will be presenting the full segmental analysis of our financial results to reflect the major market sectors which the company serves. The acquisition of Vickers during the year has more than doubled the company’s marine business. Rolls-Royce will benefit from being the first company to anticipate the changing needs of the marine market. We have become a world leader in marine propulsion systems, with the ability to offer fully integrated power systems across naval and commercial markets. We also strengthened our leading position in the corporate 8 Rolls-Royce plc 1999 Underlying earnings per share pence Order book – £13.2 billion firm and announced £bn 1995 7.94 Civil aerospace 8.9 1996 12.70 Defence 2.5 1997 15.16 Marine 1.4 1998 16.91 Energy 0.4 1999 19.52 and regional airlines sector with the assumption of full control of BMW Rolls-Royce, which had previously operated as a joint venture. We attracted new risk and revenue sharing partners to our programmes. These partners typically bring additional financial and engineering resource and share the costs and potential rewards of developing new products for growing markets. Their participation demonstrates their confidence in the future embedded value we have created from products which will have market lives measured in decades. In 1999, some 40 per cent of sales came from services and aftermarket activities. We have developed successful businesses offering financial and aftermarket services in 9.1 Trent 700 9.2 Industrial RB211 – Spain response to the rapid growth of our customer base, the 9.3 Trent 800-powered Boeing 777 growing number of products in service and the increasing 9.4 Ulstein-designed offshore vessel 9.5 BR710-powered Bombardier requirement from customers for through-life support. Global Express We continue to drive for improved productivity and efficiency. The Better Performance Faster programme moved from net investment to net saving in 1999, as the benefits of investment were realised.