Release Date: February 27, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Rolls-Royce Holdings PLC (RLLCF.PFD, Financial) achieved a significant increase in group operating profit, rising almost four times from 650 million in 2022 to 2.5 billion in 2024.
- The company reinstated its dividend and announced a 1 billion pounds share buyback, the first in a decade, demonstrating a commitment to growing shareholder returns.
- Rolls-Royce Holdings PLC (RLLCF.PFD) has a strong balance sheet with an investment-grade rating from all three agencies.
- The company has made substantial progress in improving its LTSA margins, with a 20% point improvement expected over the period from 2022 to 2028.
- Rolls-Royce Holdings PLC (RLLCF.PFD) is investing in future growth, with net investments rising by around 500 million since 2022, which will drive profitable growth to the midterm and beyond.
Negative Points
- The supply chain environment remains challenging, impacting the company's operations and financial performance.
- Despite improvements, the company still faces significant costs related to onerous contracts and supply chain challenges, with a charge of 382 million pounds in 2024.
- The certification of the Trent 1,000 engine has been delayed to Q2 due to external factors such as Boeing's strike.
- The company's LTSA balance growth is expected to be at the lower end of the guided range due to higher shop visits and continued supply chain impacts.
- Rolls-Royce Holdings PLC (RLLCF.PFD) faces ongoing challenges in achieving higher LTSA margins, which are still lower than the aftermarket margins of its peers.
Q & A Highlights
Q: Can you clarify the transition from TNM to TMM in your contracts?
A: We have been unbundling LLPs to provide more flexibility with commercial optimization. Currently, 60% of our contracts are unbundled. (Unidentified_2, CEO)
Q: With the Trent 1,000 time on wing improvements, can you regain market share?
A: Yes, we are making the Trent 1,000 a competitive engine in terms of time on wing, aiming to increase our share in the 787 market. (Unidentified_2, CEO)
Q: Could you break down the 17-point contract margin improvement from 2022 to 2028?
A: The improvement is driven by new contracts with better margins, renegotiated contracts, and time on wing improvements. Shop visit cost reductions will also contribute more in the next period. (Unidentified_2, CEO)
Q: Is it reasonable to expect ongoing share buybacks given the cash generation?
A: We will assess options for additional distributions, including buybacks, based on strategic fit and shareholder value. (Unidentified_3, CFO)
Q: What is driving the significant improvement in time on wing from 40% to 80%?
A: The improvement is mainly due to modifications on the XWB 84 compressor blade and enhanced data analysis, which increase the cyclic limit of critical parts. (Unidentified_2, CEO)
Q: What is your target capital structure or gearing ratio?
A: We aim for a strong investment-grade rating, which equates to a leverage of up to 1 to 1.5. We will be deliberate in any decision to increase leverage. (Unidentified_3, CFO)
Q: What are the supply chain charges of 382 million in civil aerospace?
A: These charges reflect our best estimate of the impact on the cost to complete existing contracts, primarily due to part supply availability and casting and forging challenges. (Unidentified_3, CFO)
Q: When do you expect a decision on SMRs from the UK government?
A: We expect the UK government to select technologies towards the end of 2022. Meanwhile, we are working with other countries to develop options and unlock potential. (Unidentified_2, CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
