JPM | European Industrials Conference: Rolls Royce CFO: Spec Quick Notes

Research evidence excerpt

JPM | European Industrials Conference: Rolls Royce CFO: Spec Quick Notes

ng demand levels. Co has increased MRO capacity - shop visits will be +12% y/y. On

pricing the Company now has a ‘value based’ pricing model. Look to be appropriately rewarded for investment and risk the

Company bears. There have been ‘robust’ discussions with customers but have not lost any contracts. Ewan McDonald (head

of Commercial) said yesterday that campaigns are as active as they have ever been. The work on improving every engine

means that discussions are no longer on durability and fleet health.

• Time on Wing: In November 2023 the target was 40% improvement - at the start of the year the target was raised to 100%

improvement for the modern Trent engines. How have you done that? It’s been a major investment program (£1bn invested).

Focus on Trent XWB. Work on the compressor blades. Examined the data from flying hours has allowed the Company to

refine the program. XWB EP has seen benefits both from time on wing and a 2% improvement in fuel burn. Still looking for

improvements but they will be more incremental.

• 23% margin target - pricing and time on wing help - is there anything else that can drive further step change? Trent 1000 to

break even will be a step change. Lots of doing work on spare engines. Business jets (where profit has doubled in the last 2

years) are also a focus. Working on both OEM and spares. That said, there is limited additional step change from work on

onerous contracts - although still some catch up. If you’re asking can we beat the margin targets there are areas where the

Company can still outperform.

• Narrow body market - re-entering? Discussed in February a £3-£6bn R&D program - when will there be clarity? Narrow body

is a very attractive market ($1.3trn TAM).