Rolls-Royce Power boss says unit key to group emission targets

By Sarah Young

LONDON (Reuters) - The boss of Rolls-Royce's Power Systems said the unit making engines for ships and trains was helping to drive innovation across the group, including its push to hit emission targets, after the UK firm's top shareholder said it could be sold.

Britain's best known engineering company makes engines for commercial jets and has a big defence arm. Germany-based Power Systems is its third biggest unit by revenue.

The company was hit hard during the pandemic due to reduced flying but it has stabilised this year. As it emerges from the aviation downturn, it faces a new challenge of how to respond to climate change.

Causeway Capital Management, Rolls-Royce's biggest shareholder, last month told the Financial Times the company needed new board expertise and should also consider selling Power Systems in the next three years to reduce debt.

But the division's chief executive, Andreas Schell, said it made sense for his unit to stay part of the group.

"We work together quite a bit more than people on the outside often think," he told Reuters in an interview on Wednesday.

"Power Systems, due to the shorter cycle of its business, actually, is the fastest way for Rolls-Royce to meet its carbon dioxide reduction emission target by 2050."

To survive COVID-19 Rolls-Royce took on new debt of 5.3 billion pounds ($7.3 billion) in 2020. Causeway said the sale of Power Systems would fix its balance sheet, with analysts putting a likely price tag of more than 3.5 billion pounds on it.

Schell said, however, that ignored the benefits of Power Systems to the wider group.

While in civil aerospace, new engines take eight to ten years to come to market, in Power Systems, new platforms are launched more frequently, sometimes every two years, giving the group exposure to new technologies which can be shared between the units.

Rolls-Royce plans to reach net zero emissions by 2050. In its Power Systems business, it is targeting a reduction of 35% lifetime emissions of new sold products by 2030.

"Hydrogen will make its way into our applications years before aerospace," Schell said. "I can trial technologies, I can see what works, and then we spill, we bring them over to civil aerospace and defence that's the real benefit."

Schell on Wednesday announced a deal with Ferretti Group to offer Ferretti yachts with Rolls-Royce's emission-lowering hybrid engines, as Power Systems makes progress towards its emissions goal.

($1 = 0.7271 pounds)

(Reporting by Sarah Young; editing by Kate Holton and David Evans)