Rolls-Royce (RR) Defence Site Visit – Indianapolis Presentation summary

Defence business overview

• Operates in stable, growing defence markets with differentiated power and propulsion solutions, serving air, naval, and submarine platforms.

• Holds strong positions in the US, UK, and other major defence markets, with a significant share of addressable budgets and long-standing customer relationships.

• Product portfolio spans transport, combat, submarines, and naval sectors, with engines and systems in service for decades and a high share in key segments.

• Lifecycle approach ensures long-term revenue from both original equipment and aftermarket services, with fleets remaining in service for decades.

• Recent iconic wins and a large orderbook provide revenue certainty and underpin future growth.

Financial performance and operating model

• Achieves strong financial returns through a mix of customer-funded R&D, predictable production volumes, and a 60% revenue share from aftermarket services.

• $600m investment in Indianapolis facilities supports operational excellence and future growth.

• Contract structures include cost-recoverable development, fixed-price, and regulated contracts, balancing flexibility and return on capital.

• Recent program wins have driven a 64% increase in customer-funded R&D in 2023, with a target of 150% growth from 2022–2027.

• Mid-term operating margin target is 14–16%, with improvement driven by efficiency, portfolio optimization, and growth in transport, combat, and submarine sectors.

Strategic growth and performance drivers

• Focuses on moving from legacy to new, funded programs and growing profitable aftermarket volumes.

• Commercial optimization through regular contract updates and prioritization of spend for strategic markets.

• Cost management initiatives target a 30% improvement in total cost of ownership/gross margin.

• Well-positioned for future growth with differentiated capabilities, proven delivery, and resilience.

• Leverages legacy and recent wins to profitably grow the core business and cultivate new opportunities with customer funding.