Rolls-Royce Hldgs EBITDA dropped on 55.7% in 2016 and EBITDA Margin decreased on 9.6 pp from 16.1% to 6.5%

14 Feb 2017 • About Rolls-Royce Hldgs ($RR.) • By InTwits

Rolls-Royce Hldgs reported 2016 financial results today. Overall the company's long term financial model is characterised by the following facts:

Rolls-Royce Hldgs doesn't have a profitable business model yet: 2016 ROIC is -1.1%
Rolls-Royce Hldgs has low CAPEX intensity: 5 year average CAPEX/Revenue was 4.1%. At the same time it's a lot of higher than industry average of 3.2%.
CAPEX is quite volatile: 362 in 2016, 252 in 2015, 735 in 2014, 1,528 in 2013, 457 in 2012
The company has unprofitable business model: ROIC is at -1.1%
It operates with high leverage: Net Debt/EBITDA is 0.6x while industry average is 0.0x

Below you can find a comprehensive analysis of the key data driving the company's performance and stock price.

Rolls-Royce Hldgs ($RR.) key annual financial indicators

mln. £	2012	2013	2014	2015	2016	2016/2015
P&L
Revenue	12,161	14,642	13,736	13,725	14,955	9.0%
Gross Profit	2,729	3,160	3,203	3,266	3,048	-6.7%
SG&A	993	1,237	1,124	1,059	2,208	108.5%
EBITDA	1,692	2,130	2,038	2,209	978	-55.7%
Net Income	2,321	1,367	69	83	-4,032	-4,957.8%
Balance Sheet
Cash	2,585	3,990	2,862	3,176	2,771	-12.8%
Short Term Debt	149	207	68	419	172	-58.9%
Long Term Debt	1,234	2,164	2,193	2,883	3,185	10.5%
Cash flow
Capex	435	669	648	487	585	20.1%
Ratios
Revenue growth	9.3%	20.4%	-6.2%	-0.1%	9.0%
EBITDA growth	14.3%	25.9%	-4.3%	8.4%	-55.7%
Gross Margin	22.4%	21.6%	23.3%	23.8%	20.4%	-3.4%
EBITDA Margin	13.9%	14.5%	14.8%	16.1%	6.5%	-9.6%
Net Income Margin	19.1%	9.3%	0.5%	0.6%	-27.0%	-27.6%
SG&A, % of revenue	8.2%	8.4%	8.2%	7.7%	14.8%	7.0%
CAPEX, % of revenue	3.6%	4.6%	4.7%	3.5%	3.9%	0.4%
ROIC	18.0%	15.8%	13.8%	15.3%	-1.1%	-16.3%
ROE	44.2%	23.6%	1.2%	1.5%	-117.3%	-118.7%
Net Debt/EBITDA	-0.7x	-0.8x	-0.3x	0.1x	0.6x	0.5x

Revenue and profitability

Rolls-Royce Hldgs's Revenue increased on 9.0% in 2016. Revenue growth was financed by EBITDA margin decline. EBITDA Margin decreased on 9.6 pp from 16.1% to 6.5% in 2016.

Gross Margin decreased on 3.4 pp from 23.8% to 20.4% in 2016. SG&A as a % of Revenue increased on 7.0 pp from 7.7% to 14.8% in 2016.

Net Income marign dropped on 27.6 pp from 0.60% to -27.0% in 2016.

Capital expenditures (CAPEX) and working capital investments

In 2016 the company had CAPEX/Revenue of 3.9%. CAPEX/Revenue decreased slightly on 0.66 pp from 4.6% in 2013 to 3.9% in 2016. For the last three years the average CAPEX/Revenue was 4.1%.The company maintained rich investment policy and has spent a big chunk of EBITDA (59.8%) to CAPEX.

Return on investment

The company operates at negative ROIC (-1.09%) and ROE (-117.28%). ROIC dropped on 16.3 pp from 15.3% to -1.1% in 2016. ROE dropped on 119 pp from 1.5% to -117% in 2016.

Leverage (Debt)

Company's Net Debt / EBITDA is 0.6x and Debt / EBITDA is 3.4x. Net Debt / EBITDA surged on 0.5x from 0.1x to 0.6x in 2016. Debt increased slightly on 1.7% in 2016 while cash dropped on 12.8% in 2016.

Appendix 1: Peers in Aerospace & Defense

Below you can find Rolls-Royce Hldgs benchmarking vs. other companies in Aerospace & Defense industry. It's shown for the period of 5 years for the key financial metrics. Each table has median value for all the companies in the industry together with individual financial data of the top-5 companies in the industry by particular financial metric.

Top companies by Revenue growth, %


Top	FY2012	FY2013	FY2014	FY2015	FY2016
Chemring Group ($BC88)		-36.2%	-14.7%	-6.4%	26.5%
Qinetiq Group ($QQ.)		-9.6%	-41.1%	-2.4%	-1.1%
Boeing Co ($BOE)		6.0%	4.8%	5.9%	-1.6%
Cobham ($85GU)		2.3%	3.5%	11.9%	-6.2%
Median (4 companies)	-7.2%	-0.3%	-3.7%	0.9%	-1.3%
Rolls-Royce Hldgs ($RR.)		20.4%	-6.2%	-0.1%	9.0%

Top companies by Gross margin, %


Top	FY2012	FY2013	FY2014	FY2015	FY2016
Chemring Group ($BC88)	25.4%	31.1%	31.4%	27.8%	25.9%
Cobham ($85GU)	32.9%	31.8%	30.3%	32.0%	19.4%
Boeing Co ($BOE)	16.0%	15.4%	15.4%	14.6%	14.6%
Median (3 companies)	25.4%	31.1%	30.3%	27.8%	19.4%
Rolls-Royce Hldgs ($RR.)	22.4%	21.6%	23.3%	23.8%	20.4%

Top companies by EBITDA margin, %


Top	FY2012	FY2013	FY2014	FY2015	FY2016
Chemring Group ($BC88)	11.1%	-0.4%	16.1%	11.4%	14.6%
Qinetiq Group ($QQ.)	28.8%	-5.4%	16.8%	17.9%	13.6%
Boeing Co ($BOE)	9.9%	9.7%	10.3%	9.7%	8.2%
Cobham ($85GU)	20.5%	21.8%	13.4%	12.9%	-27.3%
Median (4 companies)	13.1%	9.7%	13.4%	11.4%	10.9%
Rolls-Royce Hldgs ($RR.)	13.9%	14.5%	14.8%	16.1%	6.5%

Top companies by CAPEX/Revenue, %


Top	FY2012	FY2013	FY2014	FY2015	FY2016
Cobham ($85GU)	2.8%	3.2%	3.4%	4.7%	4.3%
Qinetiq Group ($QQ.)	1.5%	2.0%	3.1%	3.2%	3.8%
Boeing Co ($BOE)	2.1%	2.4%	2.5%	2.5%	2.8%
Chemring Group ($BC88)	4.1%	2.6%	2.7%	2.2%	2.2%
Median (4 companies)	2.2%	2.4%	2.7%	2.5%	3.3%
Rolls-Royce Hldgs ($RR.)	3.6%	4.6%	4.7%	3.5%	3.9%

Top companies by ROIC, %


Top	FY2012	FY2013	FY2014	FY2015	FY2016
Boeing Co ($BOE)	31.8%	25.4%	29.5%	38.9%	38.5%
Qinetiq Group ($QQ.)	44.3%	-17.2%	17.4%	26.8%	24.7%
Chemring Group ($BC88)	4.9%	-6.3%	4.4%	1.4%	5.8%
Cobham ($85GU)	13.9%	9.0%	2.6%	0.5%	-36.7%
Median (4 companies)	26.3%	9.0%	17.4%	26.8%	15.3%
Rolls-Royce Hldgs ($RR.)	18.0%	15.8%	13.8%	15.3%	-1.1%

Top companies by Net Debt / EBITDA


Top 5	FY2012	FY2013	FY2014	FY2015	FY2016
Cobham ($85GU)	1.0x	1.2x	4.9x	4.5x
Chemring Group ($BC88)	3.0x		2.1x	3.6x	1.3x
Bae Systems ($BA.)	-0.2x	0.4x	0.5x	0.8x
Boeing Co ($BOE)	0.0x	0.1x	-0.3x	-0.1x	0.1x
Qinetiq Group ($QQ.)	0.3x		-1.3x	-1.3x	-2.6x
Median (5 companies)	0.3x	0.4x	0.5x	0.8x	0.1x
Rolls-Royce Hldgs ($RR.)	-0.7x	-0.8x	-0.3x	0.1x	0.6x

Rolls-Royce Hldgs stock price chart

Rolls-Royce Hldgs financials

mln.	FY2010	FY2011	FY2012

Revenue	11,085	11,124	12,161
EBITDA	1,404	1,480	1,692
Net income	539.0	850.0	2,321
CAPEX	354.0	412.0	435.0
Debt	1,852	1,204	1,383
Cash	2,859	1,310	2,585

About Rolls-Royce Hldgs

Rolls-Royce Holdings plc, together with its subsidiaries, designs, develops, manufactures, and services integrated power systems in the United Kingdom and internationally. The company operates through Civil, Defence, Power Systems, Marine, and Nuclear segments. The Civil segment provides commercial aero engines for various sectors of the airliner and corporate jet market, including civil large, small aircraft, and helicopter engines; and provides aftermarket services. The Defence segment offers military aero engines for combat jets, helicopters, transporters, trainers, tactical aircraft, and unmanned aerial vehicles, as well as offers aftermarket services. The Power Systems segment provides high-speed engines and propulsion systems for ships; heavy land, rail, and defense vehicles; and the oil and gas industry under the MTU brand. This segment also provides diesel gensets for emergency, base load, and peak load applications, as well as for cogeneration plants for the generation of combined heat and power based on gas engines or gas turbines under the MTU Onsite Energy brand; medium-speed engines for marine and power generation applications; and fuel injection systems for large engines. The Marine segment offers marine-power propulsion systems and aftermarket services. Its products include ship design and integrated ship systems, marine engine and propulsion systems, gas turbines, propulsors, bearings and seals, reduction gears, stabilization and manoeuvring products, deck machinery, automation and control products, and electrical power systems. The Nuclear segment provides nuclear systems for civil power generation and naval propulsion systems. Rolls-Royce Holdings plc was founded in 1971 and is headquartered in London, the United Kingdom.