Robert K. (Kelly) Ortberg
Chairman, President and Chief Executive Officer
Last year I was pleased to announce Rockwell Collins’ return to growth after several years of challenging market dynamics.
In fiscal year 2015 we capitalized on that momentum, executing according to plan across our three businesses and accelerating growth in ways that continue to enhance our long-term outlook.
This fiscal year Rockwell Collins reached a new high, with total revenue growing by 5 percent to $5.24 billion. We also demonstrated outstanding operating performance: Earnings per share from continuing operations grew 15 percent to $5.19, compared with $4.52 in the prior year, while operating cash flow increased by $89 million, or 13 percent, to $749 million. Profitability remained strong, with total segment operating margins of 21.1 percent.
Contributing to our overall topline growth, Commercial Systems sales increased 6 percent to more than $2.4 billion, due to 9 percent growth in original equipment manufacturer (OEM) sales and 3 percent growth in aftermarket sales.
On a pro-forma basis, revenue for our Information Management Services business grew 8 percent to $623 million, driven by double-digit sales growth in commercial and business aviation services.
Sales for Government Systems declined 1 percent on an as-reported basis to $2.2 billion. While we benefited from strong sales growth in both tanker/transport and in rotary wing systems, unfavorable currency impacts related to a strong U.S. dollar reversed what otherwise would have been a slight gain year over year.
Looking ahead, we believe the fundamentals and trends in most of our markets continue to remain positive over the long term.
The air transport segment remains in a sustained up-cycle, and the travel needs of an increasingly global economy and growing middle class worldwide should help continue that momentum.
Similarly, we foresee increasing demand for information management and connectivity solutions across air transport, business aviation and government/military segments, driven by the need for enhanced safety, operational efficiency and a desire for continuous high-speed connectivity.
In the government and military sector, indicators show the industry is beginning to improve after a long down-cycle, due to greater U.S. budget stability along with international growth from countries investing in defense and border security solutions.
While each of those segments shows positive prospects, the business aviation marketplace continues to experience economic uncertainty, leading to weaker-than-expected demand. Additionally, some OEM production cuts are expected to impact our revenues in the coming months.
What do these trends mean to Rockwell Collins? In the near term, the strengths of most segments will drive growth in fiscal year 2016, despite business aviation’s challenges.
Longer-term, I continue to be confident that our outlook for accelerating growth remains positive for these three reasons: Our strong market positions, our ability to capitalize on aviation’s information age and our prospects for global growth.
Through our innovation, close partnerships and proven reliability, Rockwell Collins has become a partner of choice for aircraft manufacturers and others throughout the industry. This drives long-term revenue from committed programs and sets the path for sustained growth far into the future.
For instance, with its selection of Rockwell Collins to provide avionics for the 777X, we now have flight deck positions on Boeing’s entire fleet of next-generation airplanes. And the A350’s debut marked the most Rockwell Collins content ever on an Airbus platform. Together, those crucial wins pave the way for substantial revenue opportunities for years to come.
That also applies to business aviation, where our Pro Line Fusion® integrated avionics system remains a segment leader. With Textron’s selection of the system for its Beechcraft King Air family, Pro Line Fusion is now the avionics system of choice for 18 announced new platforms — including business, rotary wing and military tanker transport aircraft — either currently in service or scheduled to enter service. And we are pleased that Dassault chose our cabin management and entertainment system for the new Falcon Jet 5X and 8X, preserving our role as its sole cabin management system supplier.
Pro Line Fusion is now the avionics system of choice for 18 announced new platforms.
The same traits that led to our strong commercial aircraft manufacturer positions — innovation, collaboration and reliability — are also helping us win additional government and military business. For instance, in fiscal year 2015 we secured a four-year contract to provide ARC-210 advanced airborne software-defined radios to Naval Air Systems Command; an agreement with Sikorsky to provide avionics and mission equipment for the U.S. Air Force Combat Rescue Helicopter; and a new FAA contract for oceanic data link services — all wins based in part on our previous superior performance.
Today we are in the midst of aviation’s information age, where the delivery of the right information at the right time is more critical than ever. Rockwell Collins’ growing portfolio of systems and services makes us a leader in information management, providing enhanced efficiency and safety to our customers and their passengers.
At the heart of this portfolio are our powerful and secure air-to-ground and ground-to-ground networks, which convey millions of mission-critical messages every day. Today we’re strengthening those networks through increased capacity, enhanced security and a broader global footprint. We are also driving new uses: This year we unveiled our ARINC MultiLinkSM flight tracking service, offering airlines a comprehensive and cost-effective global flight tracking solution. And in February, Hong Kong Airlines turned to us to enable live credit card authorizations, significantly reducing the danger of credit card fraud.
But it’s not just flight crews and airlines that require constant connectivity. Passengers expect a connected experience in the air that is as fast and powerful as the one they have on the ground. Inmarsat’s imminent launch of its new Global Xpress® high-speed network is expected to meet that need, opening significant revenue streams for Rockwell Collins as a value-added reseller.
High-speed connectivity has even broader impact to our portfolios. Those broadband speeds are matched by faster and smarter connectivity solutions in both the cabin and flight deck — empowered in part by our acquisition of the International Communications Group (ICG). In air transport, we are offering airlines a whole new level of passenger engagement by pairing faster speed with the enhanced wireless capabilities we gained from our acquisition of Pacific Avionics. And in business aviation, those speeds will enhance customers’ Internet access throughout their journeys.
Early this decade we set our goal to increase international sales to roughly 50 percent of our total revenues by 2020, and we continue to make good progress toward that goal across all three of our businesses. In fiscal year 2015, 43 percent of our sales were to customers outside the United States — 12 points higher than fiscal year 2010.
This year those sales included the selection of Rockwell Collins avionics for a wide variety of airlines — including carriers in Kuwait and India — and six different Chinese airlines, and cabin solutions for customers in France and the Middle East. We also welcomed contracts for our border management solution in the Dominican Republic, Vietnam and Colombia and new airport systems for Hong Kong, Rwanda and beyond.
Much of our projected growth in Government Systems sales will come internationally, and we have positioned our portfolios accordingly. For example, our successful implementation of Pro Line Fusion on the KC-390 tanker/transport — which celebrated its first flight in February — led Brazil’s Embraer to also select Rockwell Collins for a critical cargo handling and aerial delivery control system for the same aircraft.
Additionally, as part of our long-term growth strategy, we also continue to make significant investments in military solutions tailored for international audiences, including this year’s announcement of our integrated TruNet™ networked communications solution and a new, wearable version of our FireStorm™ integrated targeting system.
Finally, we continue to seek cooperative relationships that deepen our insights into the countries and customers we serve, including this year’s simulation and training alliance with India’s Zen Technologies and our memorandum of agreement with Advanced Military Maintenance Repair and Overhaul Center (AMMROC) to collaborate on services for military avionics across the Middle East, South Asia and North Africa.
Today when I meet employees in the hallways of our facilities or in my travels around the world, there’s a clear sense of excitement: They know we are heading in the right direction.
That’s because opportunities for innovation and long-term growth are all around us — and through insightful strategy, a dedication to quality and a passion for innovation, we are ready to make the most of those opportunities at every turn.
And ultimately, through that insight, dedication and passion, we will drive increased revenue and enhanced shareowner value far into the future.
Kelly Ortberg
Chairman, President and Chief Executive Officer
