Nuclear sector is one of the segment of the energy sector that have huge significance for the nation. In the current report, detailed discussion is carried out on the Rolls Royce financials. Apart from this, in middle part of the report detail discussion is carried out on resource allocation and relationship between activities of different divisions. Along with this, in the report institutional forces that are operating in UK and discussion is carried out on industrial policy of UK after BREXIT. At end of the report, BCG matrix is applied and external environment analysis is done. In this way research work is carried out.
Rolls Royce is one of the largest company of the UK as mentioned firm is operating in number of domains like civil aerospace, defence aerospace, developing power systems, marine, nuclear and other areas. From long time firm is focusing on its nuclear division and intends to expand same. In the current report an attempt is made to identify the shape of the Nuclear division and the way it looks like. In this regard it is very important to analyse the financials of the nuclear segment of the business firm. It must be noted that due to increased in the submarine work revenue increased by the mentioned percentage in this segment. However, profit before financing declined to 37%. Relevant business firm make low R&D expenditures and low margin were earned on the product mix of Nuclear segment. Hence, it can be said that condition of this segment is not so good.
Figure 1: Nuclear submarine
Revenue only grew by 11% to £777m due to growth in varied programs like submarine business which include support for next generation dreadnought class submarines. Gross margin on nuclear segment declined at 15.6%. It can be observed from the annual report that order book declined in 2016 relative to 2015 from 2168 to 1790. On other hand, underlying revenue increased to 777 from 687 by 74 points it can be said that even order book declined profitability increase which means that due to decline in the cost of the project profitability increased in the business. It can be observed that gross margin on year basis declined by -5%. It can be said that overall performance of the firm get improved in the nuclear segment only to some extent. In the upcoming time period strong growth can be observed in the nuclear area (Annual report, 2017). It can be observed that long term outlook of the nuclear remain positive. This is because UK government at its own level confirmed that it will make investment in the dreadnought class submarine. Thus, it can be said that in the upcoming time period demand for the submarines will increase at rapid rate. Apart from this, demand for other nuclear services will also increase at rapid rate. Thus, there is expectation that in the upcoming time period demand for nuclear related products may increased at rapid rate. There are varied risks that are associated with the business and due to which profitability in the business may declined to great extent. In case firm product got failed then in that case loss of lives may happened. Apart from this, there are another risks that are associated with the current project and one of them is that there may be situation due to which civil market may failed to grow. If market does not grow at anticipation level then in that case heavy loss can be faced in the business. Thus, it is the major risk that is associated with the current business firm and this may severely affect its performance.
Rolls Royce nuclear division have some objectives like it wants to increase the growth rate of nuclear business at fast rate. Apart from this, it is also interested in focusing on growth regions that are belong current market. Enhancing geographic reach is the another objective of the business firm. Firm to some extent successfully achieve its objectives. It can be observed that in the month of April AGI (Aero Gearbox International) company was jointly established by Rolls Royce and Safran transmission systems (Safran). Under this firm name AGI a plant is proposed to be developed in 13,500 m2 area in South East Poland. Under this site accessory drive trains (ADT) will be developed for every civil aircraft engine that will be produced at plant that is proposed to be produced at Poland. It can be said that firm is focusing on on improving its services and expanding business operations. This means that it successfully achieve its objectives. It can be observed that in the current time period there are few suppliers in the market or there are few firms that are producing and supplying or making available nuclear related products or services in the market (Teräväinen, Lehtonen and Martiskainen, 2011). Hence, there is very less or no competition in the market. This means that as an independent unit Nuclear segment of the Rolls Royce can be established as separate segment by the business firm. Firm other main objective is to increase nuclear business growth rate. It successfully maintains stable growth in its business over the past years. This happened because it consistently increases its business at fast rate specially it has done lots of work on its nuclear program. This accelerate its nuclear program growth rate.
This is because both are related to aviation sector. Thus, whatever innovation and practice that is adopted for one segment can be adopted for other one. Hence, it can be said that there is significant importance of both areas for each other. There are number of resources that are used by the Rolls Royce to make decisions. One of them is the use of reports that are generated by the federations that are related to the defence sector (Bogue, 2011). In these reports several trends and patterns are revealed that are used by the Rolls Royce to identify markets that are very attractive for itself. Thus, it is the one of the main resource that any firm have in its business. Apart from this, intellectual capital is the resource that firm have in its business. With passage of time many new resources are added in the business. Strong base of intellectual capital ensured that research and development projects will be carried out in systematic manner and on time. In the current time period most of business firms are focusing on increasing research and development activities so that innovation in the product portfolio can be speed up. Every year a million of amount is spend on research and development activities by the business firms (Vats and et.al, 2010). It can be said that there is huge significance of research and development department for the business firm. In case Nuclear segment is prepared as separate company then in that case more emphasis will be given on the enhancing research and development activity at the workplace.
Over the next five years time period competition will increase in the UK. It can be observed that in the UK there is privatization of the nation economy. Hence, there is probability that in the upcoming time period some new firms can enter in to the nuclear industry. It can be observed that there are number of firms that are operating the nuclear sector of UK namely EDF energy, Horizon, NuGeneration, China general nuclear, GE Hitachi and Candu energy (Pollitt, 2010). These firms are competing with each other on various projects. In the upcoming time period this competition may increase at rapid rate in the market. Hence, it is confirmed that in the upcoming five years competition will increase at rapid rate. In order to enhance power generation capacity firm can allow foreign nations firms to open their business in the nation. Competition may increase among business firms in relevant segment in different areas like small reactor. UK government is planning to promote development of Small modular reactors (SMR) and in this regard for development of relevant reactors in the upcoming time period competition may increase amongst the business firms (Butler, Parkhill and Pidgeon, 2011). In the FY 2016 Rolls Royce state that it submit the details of design to the government for 220 MW power generation. Under this project SMR will also be developed by the business firm. It can be said that in the upcoming time period competition among the firms will increase at rapid rate because nation priority nuclear energy will keep on changing consistently. There is no specific front where there will be less competition among the business firms that are operating in the nuclear sector of the nation. It can be said that in future time period completion among the nations will become more fierce. With change in the government priorities and developments in the international market competition in new areas will increase in the UK market. Thus, it is very important for the Rolls Royce to manage its position in proper manner and to increase its core competency at rapid rate in the market. By doing so firm can maintain its dominant position in the market and can give tough competition to the rivals.
There are number of different sort of institutions that are working in the nuclear sector of the nation. Some of them are universities, reactor operators, fuel fabricates and decomposing experts. These institutions play their own roles and it can be observed that universities carry out research work time to time on nuclear related issues. Apart from this, nuclear reactor operators firms time to time carry out research and development work in order to ensure that reactors will be prepared in proper manner. Separately office for Nuclear regulation is prepared in the nation that is responsible to regulate the safety and security of 37 licensed nuclear sites in the UK (Bommer, Papaspiliou and Price, 2011). It ensured that all rules that are prepared to regulate the plants are followed by the relevant authorities. It can be said that there is significant importance of all these authorities as all of them fruitful their roles and responsibilities in proper manner. To the NME approach government approach will be positive because it wants nuclear firms to expand their business at rapid rate. Funds scarcity is the one of the big issue that is faced by the firms in their business consistently. This problem hamper growth of the firms in their business. If venture capital will make investment in the Rolls Royce then it will receive huge amount of money in its business which will be used for business expansion infrastructure up gradation for opening new plant. It can be said that government in no situation can hinder investment of venture capital firm in the business firm. There are no serious issues on investment front even BREXIT takes place. This is because firms at their own level can determine whether they have to make investment in any firm. Due to BREXIT varied items can become dearer. Like if UK purchase electricity or any other thing from the nations of the world then heavy import duty may be charged on same. This is because now UK is not part of EU and due to this reason all benefits that it was receiving because of member of EU will be not avail to the nation. Hence, it will be compelled to purchase electricity at high rate. Apart from this, UK will need to enter in to agreement and MOU with other nations of the world again in order to control its costs.
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UK politicians are very concerned about impact that BREXIT will have on the UK nuclear energy sector. Most of the politicians are agreed on the fact that decisions needs to be take very quickly in respect to development of industrial policy in order to ensure that nation is recovering from the loss that is face due to BREXIT. Some politicians have common assumption that it will take two years to UK to develop its own rules and regulations or industrial policy in respect to security of nuclear power plants. In case it happened that UK rules are highly deviating from EU rules then nation may face serious consequences.
Rolls Royce is one of the largest nuclear company in the UK. In Nuclear Rolls Royce is involved in performance of operations that are related to submarines and nuclear reactors. These are two areas on which firm is focusing to operate its nuclear segment. In product line of nuclear reactors firm is involved in design and development of nuclear reactors and provide solutions during entire lifetime of nuclear reactor (Johnstone, 2010). It is also involved in obsolescence management and plant life extension related activities. To 50% of nuclear plants across the globe firm is making available safety critical systems to the firms.
In second product line which is submarine firm is involved in development of submarines. Currently, firm is giving consultancy services to Royal Navy current operational fleet which is nuclear submarined. Thus, it can be said that firm is operating in two domains or product lines which are nuclear reactor and nuclear submarines.
Firm is spending heavy amount of money on its R&D activities in both product lines. Through this it is identifying innovative ways that are followed for performance of activities. It can be said that there is heavy importance of the R&D activities for the business firms. UK government is big to the business firm because it is the authority that prepare rules and regulations for the nuclear sector of the nation. These rules and regulations have a very high impact on the business firm. If nation government intends to increase nuclear power generation then firm will get benefited. On other hand, if nation does not want to accelerate growth of its nuclear sector then in that case it will have negative impact on the business firm.
Nuclear industry in the UK is very large in size. Currently, in the industry there are 260 firms in the supply chain. These are the small and medium size firms that are operating in the nuclear industry. Some of these firms are operating in the development of nuclear reactors and giving consultancy services. At UK nuclear projects are carried out at large scale because many of the nuclear and coal power plants become obsolete and thus, new one need to be developed. It can be said that there is huge significant of the nuclear sector of the UK. As per available statistics Nuclear power plants cover 11% of world energy needs. In the 2016 13 countries consume nuclear energy. France cover 72.53% of total nuclear energy consumption across the globe. With passage of time consistent increase is observed in development of nuclear energy. More and more nations in order to achieve target of carbon reduction are focusing on nuclear energy (Jammes and et.al., 2010). Thus, in the upcoming time period nuclear energy industry will grow at fast rate across the globe and UK. It can be said that future time period demand for nuclear energy will increase at rapid rate.
There are some risks that are associated with the nuclear industry. Safety of the nuclear reactors is one of them. Sometimes it happened that due to any disaster heavy damage caused to the nuclear reactors and due to this reason poisonous gas spread across the globe. It can be said that there is big risk that is associated with nuclear plants. One of the major risk that is associated with nuclear industry of UK is that after BREXIT its nuclear power plants may be severely affected. Stakeholders which is NIA and government authorities as well as employees of Rolls Royce are concerned about the likely negative impact that BREXIT may have on the nuclear industry of the UK in terms of trade and implement ion of safety related regulations that were easy to implement when UK was part of EU. Thus, Rolls Royce needs to take decisions after considering number of factors.
There are two approaches that can be followed to make stand-alone company. First of all firm can enter in to joint venture with nuclear firms of other nations. After BREXIT the benefits that Rolls Royce was receiving in trade will not be obtained and it will be difficult to do trade in other nations (Ashley and et.al., 2012). Competition is also increasing and it is very important to increase footprint at global level at fast pace. Thus, firm by entering to joint venture with other firm in foreign nation can easily operate its stand-alone business. Second alternative is that firm will develop separate entity of nuclear energy and considered it as singles company and operate only within UK. First alternative is viable because under this target profit of more than 10% can be achieved in two years. This will happen because in developing nations like India and other nations governments intends to increase nuclear power generation. In these nations by developing joint venture firm can easily expand its business and can achieve profit more than 10% in its business.
Rolls Royce comes in category of stars in BCG matrix because its market share is high in industry. On other hand, industry is also on growth phase. Thus, it can be said that firm comes in category of stars. Economic condition of UK is improving and political environment is supporting Rolls Royce. After BREXIT rules and regulations of UK will be redefined. However, firm compliance committee encompassed knowledgeable people. Hence, it will easily deal and comply with rules and regulations in proper manner. It can be said that external environment is in favour of the business firm.
On the basis of above discussion it is concluded that there is significant importance of the nuclear energy for any nation of the world. Any firm that is operating in the atomic sector needs to make efficient use of resources. In upcoming time period demand for nuclear energy will increase at rapid rate. Hence, there is probability that competition will increase at rapid rate across the globe. There are number of institutions that operate in the nuclear industry of the nation. All these industries contribute a lot to the nation. BREXIT lead to change in the industrial policy of the nation. There are high level of risks that are associated with nuclear industry and same need to be addressed in proper manner.
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