Record Q2 orders for Rolls-Royce Power Systems

Demand for products and solutions of Rolls-Royce’s Power Systems business remains very strong with continued record order intake in the first half, the company recently reported. Demand has been strongest for power generation with orders including mission critical backup power for data centers for very large customers worldwide, the company said.

Rolls-Royce’s Power Systems said in the coming year, the first three mtu fuel cell power units – including this a demonstrator at the company’s Friedrichshafen plant - and two hydrogen-powered combined heat and power plants will be installed at the port of Duisburg. (Photo: Rolls-Royce Power Systems)

Global supply chain challenges have continued to impact the availability of key components. This is restricting the pace of revenue recovery and drove a substantial increase in inventory in the first half.

“The good news is that demand for our products and solutions is very strong,” said Andreas Schell, CEO of Rolls-Royce Power Systems. “In order to be able to supply our customers reliably, we are already holding strategic talks with suppliers for next year. Our consistent crisis management is working.”

Order intake of £2.1 billion was 53% higher than the prior period and included the highest quarter for order intake on record with strongest growth in demand in power generation, governmental and industrial end markets. In some market segments, production capacities for 2023 are already fully utilized, the company said.

Underlying revenue of £1.4 billion was up 20%. Aftermarket services grew 17% with increased activity in both stationary and mobile solutions. OE revenue was up 21% with particularly strong sales in power generation, marine and governmental end markets.

Operating profit was £119 million, up £80 million, resulting in an operating margin of 8.7%. The 17% increase in research and development costs reflects investment in new product development and transitioning products to sustainable fuel alternatives to help customers towards net-zero emissions.

As part of Rolls-Royce’s Net Zero strategy, Power Systems aims to achieve complete climate neutrality by 2050. The company is purchasing 4 million kWh of electrical energy annually from a new solar farm in Tengen, southern Germany, and “the company’s own sustainable power generation is a key element in saving greenhouse gas emissions,” said Dr. Otto Preiss, COO and chief technology officer.

The company also has a strong focus is on its hydrogen strategy. The acquisition of 54% of the shares in the electrolysis stack specialist Hoeller Electrolyzer enables Power Systems to develop its own mtu electrolysers, which will be on the market in a few years.

Optimistic outlook for the second half

“Power Systems expects good revenue growth in 2022 supported by record order intake, partly held back by the current global supply chain constraints,” Schell said. “Operating margin is expected to be broadly flat with higher activity levels utilization offset by continued inflationary pressures and increased research and development in net zero solutions. Cash conversion is expected to improve in the second half with some of the recent inventory build unwinding but is still expected to be lower for the full year.”