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Part 2 Welcome to: Building Business Acumen ® Marine Civil Aerospace Energy Nuclear Defense Aerospace Rolls – Royce Engine Services Oakland RRESO.

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Presentation on theme: "Part 2 Welcome to: Building Business Acumen ® Marine Civil Aerospace Energy Nuclear Defense Aerospace Rolls – Royce Engine Services Oakland RRESO."— Presentation transcript:

1 Part 2 Welcome to: Building Business Acumen ® Marine Civil Aerospace Energy Nuclear Defense Aerospace Rolls – Royce Engine Services Oakland RRESO

2 In today’s business world, no growth means lagging behind in a world that grows every day… Investors expect it. Employees are more energized by it. Customers are generally attracted to it. Executives are measured by it. Why Grow?

3 Business in Rapid Decline… The best & brightest leave first. Productivity goes down. Morale goes down. Costs are cut, which limits the ability to grow, the company becomes less profitable. Studies Show: It usually takes 4 or 5 years for the company to recover.

4 Business in Rapid Growth… Growth attracts/retains the best & brightest! Productivity goes up, that equals more profit, which generates more cash, which provides more ability to grow! Morale is higher. You have the ability to grow in your career! Growth gets more time & attention than any of the 5 drivers - in a public company.

5 Ways we measure growth Business growth can be measured in many ways, but the most common ways: 1)Revenues 2)Award Fee percentage (Customers we supply product to) 3)Profit dollars 4)Profit percentage 5)EBIT dollars 6)EBIT percentage (Page 15)

6 Growth - Rolls-Royce

7 Growth Examples at RR

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10 Recent interview with Sir John Rose: Question: In light of the economic challenges why did Rolls-Royce do so well? Answer: Our results were strong due to: 1) A strong order book. 2) Over 52% (2009) of revenue is from service. 3) We were early in cost reduction and efficiency improvement.

11 Growth- Rolls-Royce & Benchmark Companies

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13 5 Business Drivers

14 Definition: PEOPLE Peop le The External Customer, Vendor/Re-seller, or Internal Customer that has the ability to impact the success of the business. Revenue per Employee Profit per Employee Customer Retention Employee Turnover M EASURES D EFINITION

15 People: What is more important than meeting customer expectations? Exceeding? Anticipating Customer Needs & Expectations! “If I would have asked my customer what they wanted, they would have said a faster horse!” ~Henry Ford

16 Failing to Anticipate customer needs/expectations! What companies have failed to anticipate customer expectations? What were the results? Unprepared for recession and required government bailout money. Ford secured line of credit prior and retained full ownership. Decided to move to digital product line. Polaroid did not and is no longer a serious competitor. In 1943, the CEO said the customer need for their product was approximately 5 computers for the entire world. Did not move to a digital music player and lost a significant market share to innovative companies like Apple and Motorola. GM/Ford Kodak IBM Sony

17 World Class Employees “In responding to the short-term challenges we are currently facing and in developing the business for the longer term, our people are our strongest asset. Rolls-Royce is a power and systems company, powered by the knowledge, experience and imagination of all our employees across the world. Our advantages are dependent on the contributions they make…” AR page 9 Evidence of our leadership…

18 What is the Purpose of the Annual Report? (high-level view) General Communication  Shareholders, existing/potential investors (others?)  Important, numbers, decision and strategy  Where we have been and where we are going Marketing  The what, who and how  Name, image & Branding  Colors Compliance  GAAP  IFRS Demystify the Annual Report (Page 21)

19 Financial Hi-lights ( Inside Cover) Chairman Statement ( page 2) Chief Executive Review (page 4) Management Discussion & Analysis (Part II pages ) Financial Statement Notes to the Financial Section (pages 97) Income statement (page 92) Balance Sheet (page 93) Statement of Cash Flows (page 94) Rolls-Royce’s Annual Report (Page 21)

20 What is the basic equation for each statement? What is the purpose of the statement? What are the key numbers and how are they trending? How can you impact each statement? Financial Statements  Income Statement  Balance Sheet  Statement of Cash Flows

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22 P&L Statement of Operations Earning Statement Top Line Bottom Line Equation: Revenue – Expenses = Profit (or loss) Gross Margin $11,085 - $8,885 = $2,200 $2,200 ÷ $11,0854 = 19.85% Profit Margin $543 ÷$11,085 = 4.9% Bottom Line Underlying Profit Before Taxation $955 ÷$11,085 = 8.62%

23 2009 to 2010 Variance 7.01% -3.24% 6.44% Gross Profits 4.22% -3.75% 4.37%

24 FX Hedging  Mainly a UK and Civil issue  Civil receive their UK income in USD  Costs largely in £,  Treasury transact with banks to convert the USD into £  We agree to do this well in advance  Could be up to 5 years ahead so that we know what £ we will receive  Securing this certainty is referred to as Hedging “An investment made in order to reduce the risk of adverse price movements in a security or denomination.”

25 Indicates Financial Strength Equation: Assets = Liabilities + Equity Least Liquid Most Liquid Due First Due Last Due in a year or less Becomes cash in a year or less Equity Position 24.51% Total current assets Total current liabilities 2009 to 2010 Variance Equity is up by 5.23% Assets are up by 5.21% Liabilities are up by 5.28%

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27 Strong Balance Sheet? 1) 1)Enough Cash. Also have additional “head room”, or borrowing capacity of 1.7 B. (see page 61) 2) 2)Current ratio = 1.1 (2008) to 0.96 (2009) 3) 3)Equity position at 24.52%

28 2, , ,000 10,4142,111 10, , ,422 3,782 9,08210, ,414379

29 (Page 2) 1 ½ 0 SCORING: Right answer = 1 point Somewhat close = ½ point Missed it by a ways = 0 point ~Human Histogram~

30 Competitor Reports Caterpillar GE United Technologies Keep your friends close, and your enemies closer. --Lao Tzu

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32 Raise Revenue by Manage Costs by

33 Work Team Impact on the 5 Drivers Which is better, increasing revenue by £100 or cutting costs by £100? Increasing revenue increases profit before tax by £14 Cutting costs increases profit before tax by £75 What are the other considerations of increasing revenue vs. cutting costs?

34 External Factors (page 40) How does the situation affect: Cash Profit Assets People Growth Heads Up!

35 The Role of the Stock Market 1) What role does the stock market play? 2) Who cares about a company’s stock price and why? a. Investors b. Analysts

36 Analyst Recommendations

37 The Role of the Stock Market 1) What role does the stock market play? 2) Who cares about a company’s stock price and why? a. Investors b. Analysts c. The CEO d. Employees 3) What are the benefits of a higher stock price?

38 6 Benefits of a Higher Stock Price: (Page 17) 1) Treasury stock is worth more. 2) Secondary offering brings more cash. 3) Better credit ratings = more access to cash at a cheaper rate. 4) More acquisition power. 5) Can attract talented people. 6) More expensive in a buy-out.

39 Rolls-Royce, One-Year Stock Chart

40 Total Shareholder Return

41 Rolls-Royce & FTSE One-Year Chart

42 Rolls-Royce, GE, GD & LMT, One-Year Chart

43 CEO Urgency Continuum (Page 49) URGENT NEAR TERM LONG TERM CASH PROFIT ASSETS GROWTH PEOPLE

44 Apply business acumen to better understand my internal customers business— Thus becoming a more trusted business partner. Not just doing things right but… doing the right things! Jimmy Feeny

45 95% Sets a future specific appointment with the person they committed to... 60% Commits to another… 50% Plans how to do it… 40% When they’ll do it... 25% Commits, “ I’ll do it!”... 10% “That’s a good idea”... Chances of the idea being incorporated into their life is... When a Person Says … Changing Behavior* *Based on a 1993 Brigham Young University Study

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47 People will work hard for a paycheck, harder for a person, hardest for a reason.


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