Rolls-Royce's Power Systems division ends COVID year in the black

• Relatively resilient performance for Power Systems
• Revenue falls by 17% year-on-year to £2.745 billion
• Underlying profit of £178 million
• Millions invested in climate-friendly technologies and locations

Rolls-Royce's Power Systems division has ended the 2020 financial year with an underlying operating profit of £178 million (€200 million) (2019: £367 million, €418 million), despite suffering a 17% drop in underlying revenue to £2,745 million (€3,088 million) (2019: £3,184 million, €3,630 million). This corresponds to an underlying operating margin of 6.5% (2019: 11.5%). As a result, Power Systems, with its product and solutions brand mtu, remained well in the black during the 2020 pandemic year.

Power Systems is taking advantage of the crisis to prepare for a shift in its business model towards integrated solutions for drive-power and energy needs in the post-COVID era – with special focus on sustainable, climate-friendly technologies. This is being aided by an reorganization featuring special business units for “Sustainable Power Solutions” and for China as well as investments in new technologies and site facilities.

Profitable despite revenue hit

“The COVID-19 crisis hit us hard, but we are still profitable, albeit not as profitable as in previous years. However, this is proof positive of the resilient nature of our business,” said Andreas Schell, CEO of Rolls-Royce Power Systems. Profit in the commercial marine segment was adversely affected by the pandemic-related collapse in tourism, among other factors. Shipyards closed down temporarily, hitting the yacht business, and economic uncertainty in many sectors of the economy led to a slowdown in capital investment and, in particular, shelving of plans to purchase power generation solutions. Public sector sales remained stable.

“The relatively good result for the year is largely down to a strict cost and liquidity management regime which we have applied throughout to mitigate the impact of the drop in revenue,” emphasized CFO Louise Öfverström. The company says it saw signs of an initial recovery in the second half of the year, however extensive lockdowns in many parts of the world since then continue to dampen customers' willingness to invest. Öfverström continued: “We expect an improvement in order intake during the first half of 2021, converting into a recovery in sales from the second half of the year with revenues returning to approximately 2019 levels in 2022.

Impact of the pandemic well under control

Ensuring employee health while maintaining production so that customer orders can be fulfilled was one of the key challenges in this pandemic year.. “We managed this very well without having to stray off our chosen transformation path,” said CEO Andreas Schell.

Three acquisitions drive activities as solution provider

Despite the financial challenges presented by COVID, Power Systems acquired three businesses last year in order to be able to ramp up activities as a solution provider to customers in a variety of markets. In 2020, Power Systems acquired Kinolt, a Belgian company making uninterruptible power supply systems using rotating flywheels, and Servowatch, a British ship automation manufacturer, as well as taking a majority stake in Qinous, now Power Systems’ microgrid competence center.

The companies are being integrated into the Power Systems division. “The Rolls-Royce Group enabled us to make these investments in our future in 2020 despite exceedingly difficult economic conditions. This illustrates the great confidence the Group has in us, particularly with regard to climate-friendly and environmentally friendly solutions,” continued Schell.

Major investment – from fuel cells to production facilities

The company will be continuing down its transformation path in 2021 with selective investment in climate-friendly products, fully integrated solutions and existing site facilities, as well as continuing to drive the company's established lines of business. “This year and last year, the larger-scale investments we made alone in extending our production sites up to a high double-digit-million amount. This is another way we are using the time of crisis to emerge stronger,",” said Dr. Otto Preiss, member of the board for R&D and operations.

Production of the mtu EnergyPack battery storage containers is being expanded to over 50 containers per year at the company's Ruhstorf facility in Lower Bavaria. In just twelve months, Power Systems has already made its mark on the market for renewable and smart energy solutions with interesting orders, for example in the South Pacific, Costa Rica, Australia and Norway.

Hydrogen, the fuel of the future

In Friedrichshafen, the company is working hard on ways to exploit hydrogen as the fuel of the future: “We're convinced that hydrogen has a key role to play in the green energy revolution,” stressed Schell. A demonstration emergency power generator using fuel cell technology is expected to go live in the first half of the year. Developers are also working on hydrogen engines and engines using methanol based on climate-neutrally produced hydrogen.

Millions being invested in core business

“These major investments in our future are being funded by proceeds from today’s core business. It is the mainstay of our division, which is why we continue to invest heavily in it,” said Schell. The materials management center in Kluftern near Friedrichshafen will be expanded this year and next. Among other things, the Friedrichshafen assembly line for mtu Series 2000 engines is to be moved temporarily to the 10,000 sqm facility, which has already been approved, to allow refurbishment of the existing plant. Other major investments include a machining center for large engine housings, completion of the plant expansion in Mankato, and the microgrid at the Aiken plant (both in the US), hydrogen infrastructure for the Friedrichshafen and Augsburg plants, and test stand refurbishments.

Newly positioned for customer proximity, the green energy revolution, and new markets

The fundamental strategic course of Power Systems division is also reflected in its reorganization, which will take effect on 31 March. “Our transformation to a solution provider requires us to be even closer to customers so that we can make it clear to them what benefits we can now offer them. After all, we're already so much more than an engine maker,” Schell continued.

The core business featuring propulsion and drive solutions for vehicles – from combine harvesters to mining machines – and ships is to be pulled together under Mobile Power Solutions. All activities involving diesel and gas engine-powered power plants, from combined heat and power plants to emergency power supplies for safety-critical facilities, will come under Stationary Power Solutions.

The Sustainable Power Solutions unit is of particular importance. It will manage closely all existing and future innovative solutions for more climate-friendly and more environmentally friendly drive power, propulsion and electrical power supplies. These will range from energy storage containers and fuel cells to the production and use of synthetic fuels. It will promote the use of new technologies for the green energy revolution across all areas of application and ensure that switching to new, climate-friendly solutions is as easy as possible for the company's customers.

The task of a unit entitled 'Power Solutions for Greater China' will be to continue to develop the growing markets in China. “We have been positioning ourselves increasingly well in China recently, and just at the end of the year we signed a sensational contract there for 1,000 engines. We want to become even more successful in this fast-growing market, but the Chinese market requires a special approach. That's why we need an independent business unit there that can meet Chinese requirements specifically and individually,” said Schell, explaining this move.

“The new organization is the next logical step in implementing our PS 2030 strategy,” he added, emphasizing: “2021 is the year we're going to transform into a solution provider.”

*Euro figures 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.

Press photos are available for download from: http://bit.ly/2PNUZhH

About Rolls-Royce Holdings plc

1. Rolls-Royce pioneers cutting-edge technologies that deliver clean, safe and competitive solutions to meet our planet’s vital power needs.
2. Rolls-Royce Power Systems is headquartered in Friedrichshafen in southern Germany and employs around 10,000 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 mission critical, standby and continuous power, combined generation of heat and power, and microgrids.
3. Rolls-Royce has customers in more than 150 countries, comprising more than 400 airlines and leasing customers, 160 armed forces, 70 navies, and more than 5,000 power and nuclear customers.
4. Annual underlying revenue was £15.45 billion in 2019, around half of which came from the provision of aftermarket services.
5. In 2019, Rolls-Royce invested £1.46 billion on research and development. We also support a global network of 29 University Technology Centres, which position Rolls-Royce engineers at the forefront of scientific research.