Rolls-Royce Power Systems Increases Revenue and Profit

Rolls-Royce business unit Power Systems overcame difficult market conditions in 2019 and again succeeded in growing against the trend to deliver a strong full-year result. Underlying revenue increased by 4% to £3.55bn (€4.04bn, all € figures are based on fixed exchange rates), coming in above the 4-billion-euro mark for the first time. Underlying operating profit grew by 15% to £357m (€407m), corresponding to an adjusted return on sales of 10.1% (up from 9.2% in 2018). Now generating 23% of overall revenue at British technology group Rolls-Royce, Power Systems remains its second largest business unit.

“What stands out is that we have once again managed to strengthen the position of our MTU-brand products and solutions on a deteriorating market. That gives us a solid basis for further enhancing our profile as a provider of climate- and eco-friendly integrated drive and energy solutions. With them, we’re not only accelerating the energy turnaround, but consistently implementing our PS 2030 vision,” said Andreas Schell, CEO of Rolls-Royce Power Systems.

Power generation becomes main source of revenue; marine revenue posts slight increase

The rise in the global energy demand highlights more than anything else the urgent need for eco- and climate-friendly power generation. In 2019, energy solutions became the strongest revenue segment for the first time, accounting for 35% of adjusted sales (up from 30% in 2018). Marine sales posted only a slight increase, causing their share of total revenue to drop to 28% (from 29% in 2018). The share of revenue of drives for agricultural and construction machinery and rail applications decreased from 31 to 25%, with customers in 2019 using the engine stocks built up in 2018 prior to arrival of new emissions legislations. Defence technology business and other products account for 12% of revenue. New products are being increasingly demanded by customers in the context of complete system packages. “That shows that we’re on the right track with our strategic transformation from engine-maker to complete solutions provider,” pointed out Schell.

Revenue from service activities and products increased by 4% across all segments, contributing some 33% of total revenue in the business unit.

“All our financial figures point to a healthy business unit that has achieved profitable growth for three years in a row. With adjusted revenue passing the 4-billion-euro mark for the first time and the competitive edge we’ve gained, we can safely say that 2019 was a very good year for the business,” summed up CFO Louise Öfverström.

The order book was £2.93bn (€3.44bn) at the end of 2019, just 5.6% below last year’s level. Among the drivers were major contracts sealed in the Far East, where Power Systems has entered into new markets.

In 2020, growth of the Power Systems business unit is expected to be on the moderate side. The faltering economic conditions that defined the second half of 2019 will continue to be felt in the first half of this year and may still deteriorate – largely due to the consequences of the Covid-19 disease. Economic recovery in the second half of the year is still a possibility, however. “But achieving the business outcomes we want in 2020 is going to be a big challenge,” concluded Öfverström.

Several measures are being enacted by the company to counteract the effects of weaker demand – increased use of instruments to make working time more flexible, stringent cost control and efficient management of current assets.

FIT2X program for the future launched; location and employment guarantees extended to 2023

A longer-term project is the ‘FIT2X’ program for the future, which prepares Power Systems for its new responsibilities as it continues to evolve as a provider of integrated solutions.  “We find ourselves having to strike a balance between dealing with a deteriorating marketplace and achieving our breakthrough into new technologies,” said Louise Öfverström, who is responsible for the program. FIT2X is designed to facilitate both profitable growth and greater process efficiency, for example through digitalization. The flexible framework that needs is provided by the location and employment guarantees agreed in 2019 for the sites in Friedrichshafen. Another goal of FIT2X is to foster agility and a stronger sense of personal responsibility among staff in the business unit.

Strategic review of Bergen Engines

Ensuring the ongoing development of the Power Systems business unit also involves constantly aligning its product portfolio and strategy. That is why the Bergen Engines subsidiary, which produces medium-speed gas and diesel engines for marine applications and power generation, is undergoing a strategic review. “We’ve arrived at the conclusion that Bergen Engines, with its highly attractive product portfolio, would develop more advantageously in a different setting to the Rolls-Royce Power Systems business unit,” explained Andreas Schell. From financial year 2020, Power Systems business results shall no longer include the figures for Bergen Engines.   

Energy turnaround and climate change solutions

The new emphasis on eco-friendliness and climate neutrality will soon be reflected in the MTU product and solutions portfolio. “We’re taking an undogmatic approach to addressing the challenges of the energy turnaround and climate change and in doing so we’re open to all technologies,” emphasized Schell. “We’re developing an array of technologies that are preserving the environment and slow down global warming. We’ll also be combining them within our integrated solutions to make the drive power and energy that come from our systems as climate-neutral and eco-friendly as possible. We’re really stepping up our efforts here, and 2020 will be the first year in which the products we supply are not just powered by combustion fuels.” This summer shall see delivery of the very first battery container to a solar park in Brandenburg. 

Microgrid Centre of Excellence in Berlin

Berlin-based Qinous, in which the company recently acquired a majority stake, is to become a Centre of Excellence for microgrids where staff from Berlin, Friedrichshafen, Augsburg and Ruhstorf unite all the expertise associated with the independent, eco-friendly power grids. Negotiations are already in progress with potential customers for microgrids, which integrate renewable energy sources and conventional on-site power generation with battery storage and smart control.

Ecological hybrid and gas drives enter service

Examples of climate-friendly products that are now commercially available are hybrid drive systems and gas engines. The MTU Hybrid PowerPack for railcars can harness the energy that is normally emitted into the environment during braking, store it in batteries and re-use it as drive energy. Fuel savings of up to 25% are possible, with quiet, emission-free travel possible in urban areas. The first series-produced system is scheduled for delivery to a customer in the United Kingdom in May.

The first passenger ferry powered by MTU gas engines is to go into service on the Wadden Sea in Holland in May. And the first inland waterway ferry to be powered by an MTU gas engine is currently being assembled on Lake Constance for the City of Constance public utility company. Mobile gas engines boast zero particulate emissions and 80% lower NOx emissions than diesel engines. 

Research into hydrogen for Power-to-X

Hydrogen technology occupies a central position in possible future scenarios for the business. “We firmly believe that hydrogen is one of the keys to the energy turnaround,” said Schell. It is vital, however, that the hydrogen is manufactured in a climate-friendly manner using renewable energy sources. Thus the company is engaged with partners on several projects for the climate-neutral manufacture of hydrogen as a basis for producing energy or synthetic gaseous or liquid fuels, also known as Power-to-X. “With these fuels, we can make diesel engine operation virtually climate-neutral and save resources at the same time,” said Schell.

The direct use of hydrogen as a fuel is also a research and develoment topic at Rolls-Royce, with the Power Systems business unit currently examining applications for hydrogen fuel cells. A demonstrator equipped with several fuel cells derived from a cooperation with Daimler is being constructed on the Friedrichshafen site and is scheduled for completion by the end of 2020.