Demand for products and solutions of Rolls-Royce’s Power Systems business remains very strong with continued record order intake in the first half. Demand has been strongest for power generation with orders including mission critical backup power for data centers for very large customers worldwide. Global supply chain challenges have continued to impact the availability of key components. This is restricting the pace of revenue recovery and drove a substantial increase in inventory in the first half.
Order intake of £2.1bn was 53% higher than the prior period and included the highest quarter for order intake on record with the strongest growth in demand in power generation, governmental and industrial end markets. In some market segments, production capacities for 2023 are already fully utilized.
Underlying revenue of £1.4bn (€1.6m*) was up 20%. (H1 2021: £1.18bn / €1.36 bn). Aftermarket services grew 17% with increased activity in both stationary and mobile solutions. OE revenue was up 21% with particularly strong sales in power generation, marine and governmental end markets.
Underlying operating profit was £119m (€142m) (2021: £41m / €47m), up £80m (€95m) giving an operating margin of 8.7%. The 17% increase in research and development costs reflects investment in new product development and transitioning products to sustainable fuel alternatives to help customers towards net-zero emissions.
Trading cash outflow was £(76)m (€(90))m (2021: £71m / €82m) with a negative cash conversion as inventory increased to meet growing demand and to manage the supply chain challenges. A dedicated task force is in place to mitigate risk and accelerate OE deliveries. It also reflected the investment in a 54% stake in electrolysis stack specialist Hoeller Electrolyzer.
“The good news is that demand for our products and solutions is very strong. In order to be able to supply our customers reliably, we are already holding strategic talks with suppliers for next year. Our consistent crisis management is working.”
says Andreas Schell, CEO of Rolls-Royce Power Systems.
Expected growth in public authority business provides optimism
In order to contribute to the security of Germany and allied nations and to be able to meet the increased demand for mtu engines for military applications resulting from the turnaround in security policy, Power Systems is building up capacity. The business unit plans to hire up to around 450 additional employees over the next ten years, depending on the specific order situation. New machines are also to be procured and larger assembly lines built at the plants in Friedrichshafen.
Important milestones reached on the way to climate neutrality
The top strategic issue of climate neutrality concerns Power Systems in many ways. As part of Rolls-Royce’s Net Zero strategy, Power Systems aims to achieve complete climate neutrality by 2050. Purchasing 4 million kilowatt hours of electrical energy annually from the new solar farm in Tengen, southern Germany, saves 1,300 tonnes of CO2 annually compared to the German electricity mix.
“With ambitious interim targets for 2030, we aim to be completely climate neutral by 2050 across all global sites and areas from production to supply chains to our product portfolio, i.e. in all three recognized categories Scope 1, 2 and 3. The company’s own sustainable power generation is a key element in saving greenhouse gas emissions.”
says Dr Otto Preiss, COO and Chief Technology Officer.
The portfolio for climate-friendly products and solutions is being vigorously expanded
An important milestone was the release of the mtu series 1600 and 4000 power generation engines for sustainable and synthetic fuels. By the end of 2023, a large proportion of the engines will have been approved for this purpose in order to relieve customers’ greenhouse gas footprint. In July, the first own test bench for mtu hydrogen engines went into operation at the Augsburg site.
The business unit “Sustainable Power Solutions”, which was newly created a year ago to deal with sustainable system solutions, is continuously expanding its portfolio. One step in this direction was the complete takeover of the previous majority subsidiary Rolls-Royce Solutions Berlin GmbH (formerly Qinous), which forms the core of the Microgrid Competence Centre. A strong focus is on the hydrogen strategy. The acquisition of 54 per cent of the shares in the electrolysis stack specialist Hoeller Electrolyzer enables Power Systems to develop its own mtu electrolyzers, which will be on the market in a few years. With them, customers will be able to produce “green” hydrogen with electrical energy from renewable sources. And as part of a lighthouse project for the future container terminal in the port of Duisburg funded by the German Ministry of Economics, Power Systems is providing the first hydrogen-powered mtu energy supply systems: three mtu fuel cell systems and two hydrogen-fuelled mtu combined heat and power plants to supply CO2-free energy from 2023.
New Work concept sets standards in the industry
With the relaxation of the legal Corona rules, the Power Systems business division launched its pioneering New Work model in the first half of 2022.
“New Work allows all employees worldwide a combination of up to twelve days of mobile work per month and on-site presence at the respective location – provided they can perform their work independently of location. We have received a lot of encouragement from the workforce for our holistic concept, which sets standards in the industry. We are thus positioning ourselves as an attractive employer vis-à-vis the competition and are putting Power Systems on an efficient and future-proof footing.”
says Chief People Officer and Labor Director Dr. Thelse Godewerth.
Optimistic outlook for the second half of the year
“Power Systems expects good revenue growth in 2022 supported by record order intake, partly held back by the current global supply chain constraints. Operating margin is expected to be broadly flat with higher activity levels utilisation offset by continued inflationary pressures and increased research and development in net zero solutions. Cash conversion is expected to improve in the second half with some of the recent inventory build unwinding, but is still expected to be lower for the full year.”
says Andreas Schell.