Dividend Decision at Rolls-Royce (Part A)

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EXCERPTS

FINANCIAL PREDICAMENT

Rishton, the CEO between 2011 and 2015, enjoyed a bull run in revenues of Rolls-Royce between 2011 and 2013. Under his leadership, the company made investments in new plants in Crosspointe, Virginia, USA, for civil jet engines and Seletar, Singapore, for wide-chord fan blades and assembly of the Trent engines. The investments in Research and Development continued to increase and reached more than £1 billion in 2012. Rishton led the company to develop an enhanced Trent XWB engine to power long-range Airbus A350-1000 aircraft. Some of his other important decisions were sale of the Energy gas turbines and compressor business to Siemens for £1 billion and acquisition of Daimler’s stake for £1.94 billion. ..

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STOCK PRICE HISTORY

Rolls-Royce’s stock price saw a steady rise between March 2003 and December 2007. Profits grew by almost 6 times during the period, which marked it as a golden period for the company. After a temporary fall for two years owing to the 2007-08 financial crisis, the meteoric rise of the share price began in March 2009 and the rally continued till February 2014...

SEGMENT-WISE PERFORMANCE

Civil and Defense Aerospace contributed to 46 and 14 percent of the revenues of Rolls-Royce respectively in 2014 (Refer to Exhibit III A). Civil Aerospace, which contributed to a major part of the business done by the company, had reinvented its products at regular intervals with more efficient engines...

MARKET OUTLOOK

According to Rolls-Royce’s estimates for the 20 years from 2014 to 2034, business in the Aerospace division would be worth $2300 billion, the global civil engine market would be worth $1900 billion and the defense market $400 billion. The market in the Land and Sea segments would be worth $1300 billion...

INNOVATION AND TECHNOLOGY (R&D)

Rolls-Royce tied up with 31 universities to create University Technology Centers (UTCs) to build the next generation of products. The company expected to reach 600 million people through the Rolls-Royce STEM education programs and activities by 2020...

DIVIDEND POLICY

Rolls-Royce adjusted its dividend payment according to the funds required for growth opportunities. Since 1992, the company had maintained consistent dividend payments to its shareholders and had no record of reducing dividends...

LOOKING AHEAD

Managing Rolls-Royce during the time of crisis was a challenging task. East believed that the fundamentals of the company were still strong and that Rolls-Royce had good prospects in the long run...

EXHIBITS

Exhibit I (A)Income Statement (Consolidated)

Exhibit I (B)Balance Sheet (Consolidated)

Exhibit II Employee Information

Exhibit III (A) Segment-wise Contribution to Revenue

Exhibit III (B)Segment-wise Contribution to Profit (Net)

Exhibit IV Dividend (Final) Trend of Rolls Royce

Exhibit V Dividend Payout Ratio of Rolls-Royce

Exhibit VI Segment-wise contribution to revenue in 2014

Exhibit VII The Group’s Revenue in 2014 by Destination from Continuing Operations