First-half financial results at Rolls-Royce's Power Systems division have been significantly impacted by the global Covid-19 pandemic, with adjusted revenue down 11% to £1.25 billion (1,43 billion €*). The division remains in the black, having generated £22 million (25 million €*) (down 79%) of underlying profit. At the same time, Power Systems has been continuing to work hard on reinventing itself as a provider of sustainable, integrated total solutions for drive-power and energy needs, and is increasingly developing net-zero-carbon products.
“Despite the unprecedented scenario in which the global economy finds itself due to Covid-19, we have actively managed the economic impact on Power Systems in the first six months of 2020. We identified this problem at an early stage and took a number of countermeasures. The challenge of focusing effort on shielding our employees from infection while continuing to serve customers to the best of our abilities has been met despite the prevailing headwinds,” said Andreas Schell, CEO of Rolls-Royce Power Systems.
Markets reacting differently – diversified positioning pays off
Looking back over the first half of 2020, Louise Öfverström, Chief Financial Officer of Rolls-Royce Power Systems, commented: “The drop in revenue is due to noticeable reluctance on the part of customers to invest in new equipment, although the falls varied from application to application. Our diversified positioning across a range of applications covering 13 markets has once again proven to be the right one and has had a stabilizing effect on our business.”
Sales in the power generation market remained stable due to increased investments of data center customers safeguarding their electrical power systems against unexpected outages. “The lockdowns have made us all keenly aware of the primary importance of keeping data flowing. Our systems help secure power supplies to many safety-critical facilities such as data centers, server parks, and hospitals too,” explained Andreas Schell. The defense sector remained stable and was not influenced by the pandemic.
Equipment destined for the oil and gas sector, industrial powertrains and propulsion systems for passenger ships and yachts were all hit by declining sales. As a great many vehicles, machines and systems were halted during lockdown, service revenues fell by around 12%, as was expected.
Crisis management keeps production going
“In some areas, we have adjusted production to this lower demand scenario, using measures such as short time work at German sites. However, at no point did operations have to come to a halt, despite challenges in our global supply chains. Thanks to intelligent crisis management and good relations with our supply partners, we've been able to deliver all orders despite the difficult environment. This too has helped reduce the consequences for our business,” stressed Schell.
In order to mitigate the financial impact of the pandemic, Power Systems has taken a number of measures aimed at preserving cash. A ban on all non-critical business trips and a review of ongoing projects, pausing them where necessary, are just some examples. In order to reduce personnel costs, managers are waiving parts of their salary, or postponing remittance. Other cost measures include a hiring freeze, postponement of salary increases this financial year, and a three-week unpaid production break at US plants. “We are doing all we can to mitigate the financial risks arising from the current situation,” explained CFO Louise Öfverström. “Cost discipline and safeguarding cash flow continue to be top priority,” she continued.
Cautiously optimistic outlook at present
Signs of recovery are now emerging in some applications and markets, for example in China. “State rescue programs and the easing of Covid restrictions, where feasible, will help bring about recovery. That said, whether and to what extent a recovery will occur also depends on what happens to the infection rate, and how that impacts the economy,” said Schell. From today's perspective, Power Systems’ end markets are expected to return to pre-Covid levels by the end of 2021.
New tech powering transformation
“We want to emerge from this crisis stronger, so we're using the time to press ahead with our transformation even more keenly than before," said Schell. Even in these days of Covid-19, Power Systems is continuing to implement its PS 2030 corporate strategy: To become a provider of integrated, net-zero-carbon solutions, and to assist customers throughout the entire product lifecycle, aided by a strong core business. Electrification, digitalization and decarbonization are the key watchwords.
“The announcement of our collaboration with Daimler and its partner Volvo in using commercial vehicle fuel cells in distributed power supply systems has made our customers and the industry sit up and take notice,” said Schell. Work is already underway on a demo system due to go into operation in early 2021. “This will be a real alternative for many, especially if the fuel cells run on green hydrogen produced from renewable energy sources,” added Schell, looking to the future.
Integration of two new subsidiaries
Back in January, Rolls-Royce acquired a majority stake in Berlin start-up Qinous, renaming it Rolls-Royce Solutions Berlin. The battery storage specialist is the heart of the new Microgrid Solutions business unit at Power Systems, pulling together all activities associated with local, intelligent power grids. Its portfolio ranges from individual components to fully featured microgrids that combine renewable energies, battery storage and conventional power generation. A separate production bay at the company's Bavarian facility in Ruhstorf is currently being readied for equipping battery containers with battery modules and peripherals.
Power Systems is also reinforcing its core business with the addition of Belgian company Kinolt, a specialist in uninterruptible power supplies, which was acquired in July. This move sees Power Systems grow its line-up of integrated total solutions for emergency power supplies used in safety-critical environments such as data centers and industrial facilities housing sensitive production processes. The company, with almost 300 employees in Liège (Belgium), Willich (Germany) and other locations across the world, is to be merged fully into the business unit, with its products joining the MTU product range.
Communiqué de RRPS