TIDMRR.
RNS Number : 8450X
Rolls-Royce Holdings PLC
14 February 2013
14 February, 2013
ROLLS-ROYCE HOLDINGS PLC
2012 FULL YEAR RESULTS
Group Highlights
-- Order book of GBP60.1bn, up four per cent.
-- Underlying revenue of GBP12.2bn, up eight per cent.
-- Underlying profit before tax of GBP1.4bn, up 24 per cent.
-- Payment to shareholders of 19.5 pence per share, up 11 per cent.
GBP millions 2012 2011 Change
Order book* 60,146 57,630 4%
Underlying revenue** 12,209 11,277 8%
Underlying profit before tax** 1,429 1,157 24%
Return on sales*** 12.2% 10.7% 1.5pp
Underlying earnings per share 59.27p 48.54p 22%
Full year payment to shareholders 19.5p 17.5p 11%
Reported revenue 12,161 11,124 9%
Reported profit before financing 2,072 1,189 74%
Net cash 1,317 223 1,094
Average net (debt)/cash (145) 320 -465
----------------------------------- ------- ------- -------
* Restated 2011 year-end data excluding IAE order book of GBP4,571m
** See Note 2 on p.20 for explanation
*** By reference to underlying profit before financing costs and tax
John Rishton, Chief Executive, said:
"In the second half of the year, revenue growth increased as we
delivered 23 per cent more engines than in the first half. Margins
improved, reflecting volume, mix, cost control and the IAE
transaction.
"In the full year, underlying profits increased for the tenth
consecutive year. We have established this record of consistent
delivery while continuing to invest in people, technology and
facilities.
"The strength of our order book demonstrates the confidence our
customers have in our products and services. Our priorities remain:
delivering on the promises we have made; deciding where to grow and
where not to; and improving financial performance.
"In 2013, we expect modest growth in underlying revenue and good
growth in underlying profit with cash flow around break even as we
continue to invest for the future.
"Sir Simon Robertson today announced his intention to retire as
Chairman of Rolls-Royce at this year's Annual General Meeting.
Simon has made an exceptional contribution over the past eight
years. He has worked tirelessly on behalf of the company and his
energy and enthusiasm have been an example to us all. I am
delighted to welcome Ian Davis as our new Chairman and look forward
to working closely with him".
Group Overview
In 2012, the order book increased by four per cent, underlying
revenue by eight per cent and underlying profit by 24 per cent. We
delivered a record number of power systems that, typically, produce
decades of aftermarket services revenue.
The priorities for the business remain the same as last
year:
1. Deliver on the promises we have made.
2. Decide where to grow and where not to.
3. Improve financial performance.
In 2012 we have made progress towards these objectives:
1. Deliver on the promises we have made
The quality of the products and services we supply is measured
across the Group and has shown steady improvement. Increased focus
on delivery has led to significant improvement in wide-body engines
in Civil Aerospace and in our Marine products. Across the Group, we
are investing in a wide range of projects that will improve
operational performance and reduce cost. This includes continuing
investment in modernising our IT infrastructure that is a key
enabler for our business.
Significant milestones have been achieved in our major
programmes.
These include:
-- In Civil Aerospace, the certification of the Trent XWB engine
(in February 2013) that will power the Airbus A350, the launch of
the Trent 1000-TEN that will power Boeing 787s entering service
from 2016 and the entry into service of the BR725 engine powering
the new Gulfstream G650 corporate jet.
-- In Defence Aerospace, the Short Take Off and Vertical Landing
(STOVL) variant of the F35B Lightning II Joint Strike Fighter
entered service with the US Marine Corps and deliveries were made
to the UK MoD.
-- In Marine, gas turbine power and propulsion equipment was
delivered for the US Navy's Littoral Combat Ship and the UK's Queen
Elizabeth class aircraft carriers.
-- In Energy, we expanded our fleet of gas turbine compressor
units through contracts for China's West East Pipeline Project
(WEPP) and the Uzbekistan section of the Asia Trans Gas (ATG)
pipeline.
2. Decide where to grow and where not to
We continue to invest in capacity to fulfil our order book and
in technology to expand our portfolio.
In Civil Aerospace, we are committed to investing in the
wide-body, narrow-body and corporate market segments. In Defence
Aerospace, we continue to see opportunities both in developing
economies and in our traditional markets, despite the pressure on
government spending. In Marine, offshore oil and gas remains a fast
growing market and, in Energy, we continue to invest in our Civil
Nuclear business where we believe Rolls-Royce can play an important
part supporting both existing and new build nuclear capacity.
Areas where we have decided not to invest include the sale of
our tidal power generation business to Alstom in January 2013 and
the sale of a 51 per cent stake in our fuel cell business to
LG.
3. Improve financial performance
We continue to focus on margin progression. In 2012, margins at
Group level improved to 12.2 per cent (10.7 per cent 2011). The
Tognum and the IAE restructuring together contributed 1.1
percentage points, with 0.4 percentage points improvement coming
from the underlying business. Overall, profits grew by 24 per cent
enabling us to raise our full year distribution to shareholders to
19.5 pence, an 11 per cent increase.
Margin progression, cost reduction and cash generation remain
areas of intense focus for the Group, as we seek to improve
quality, on-time delivery and working capital, while continuing to
invest to meet the rising load. Around GBP50m of unit cost
improvements were realised in 2012.
Our cash inflow of GBP137m, prior to acquisitions and disposals,
was delivered after a heavy year of investment in technology,
capability and infrastructure.
During 2012, we made a number of important announcements:
We completed the sale of our equity holding in International
Aero Engines (IAE) to Pratt & Whitney. We remain a major
supplier to IAE and will receive an agreed payment for each hour
flown by the current installed fleet of V2500-powered aircraft for
the next fifteen years.
Engine Holding (EH), the collaboration we formed with Daimler in
2011, assumed full management control of Tognum. We will fully
consolidate the results of EH, including Tognum, from 1 January
2013.
We acquired the 50 per cent of the shares we did not already own
in Aero Engine Controls (AEC) from Goodrich Corporation. Engine
control systems play an increasingly important part in enhancing
the fuel efficiency and overall performance of modern jet
engines.
We have passed information to the Serious Fraud Office (SFO)
relating to concerns about bribery and corruption involving
intermediaries in overseas markets. This follows a request for
information from the SFO about allegations of malpractice in
Indonesia and China. We have significantly strengthened our
compliance procedures in recent years, including new policies for
Global Ethics and Intermediaries. We have also expanded the
Compliance function. As a further measure, we have appointed Lord
Gold to lead a review of current procedures and report to the
Ethics Committee of the Board.
Group Trading Summary
GBP millions 2012 2011 Change
Order book* 60,146 57,630 4%
Underlying revenue** 12,209 11,277 8%
Underlying OE revenue 5,893 5,258 12%
Underlying services revenue 6,316 6,019 5%
Underlying profit before tax** 1,429 1,157 24%
Return on sales*** 12.2% 10.7% 1.5pp
Net cash 1,317 223 1,094
Average net (debt)/cash (145) 320 -465
-------------------------------- ------- ------- -------
* Restated 2011 year-end data excluding IAE order book of GBP4,571m
** See Note 2 on p.20 for explanation
*** By reference to underlying profit before financing costs and tax
Order Book
-- The order book increased four per cent to GBP60.1bn, adjusted
for the IAE disposal. Order intake of GBP16.1bn included new orders
of GBP10.3bn in Civil Aerospace, GBP1.6bn in Defence Aerospace,
GBP3.3bn in Marine, GBP0.8bn in Energy and GBP0.4bn in EH.
Income Statement
-- Underlying revenue increased eight per cent to GBP12.2bn,
including 12 per cent growth in underlying OE revenue (GBP5.9bn)
and five per cent growth in underlying services revenue
(GBP6.3bn).
-- Underlying OE revenue growth included a 23 per cent increase
in deliveries of Trent and corporate engines in Civil Aerospace and
a six per cent increase in military transport, combat, UAV and
civil helicopter engines in Defence Aerospace. Growth was offset by
the reduction in OE revenue in Marine (down three per cent), and in
Energy and in Bergen's contribution to EH (both down 35 per
cent).
-- Underlying services revenue growth included an increase of
five per cent in Civil Aerospace, in line with growth in the
installed base, and five per cent in Defence Aerospace. Energy and
EH also saw good growth. Marine was up one per cent reflecting
increased maintenance activity by customers and higher spares spend
in the second half.
-- Underlying profit before tax increased 24 per cent to
GBP1.4bn, reflecting revenue growth, improved revenue mix, unit
cost reduction and net trading contributions of GBP77m from Tognum
and GBP92m related to the IAE restructuring. These benefits were
partially offset in Civil Aerospace by higher R&D charges and
lower entry fees associated with major new programmes, and in
Defence Aerospace by the non recurrence of the GBP60m Strategic
Defence Security Review (SDSR) settlement. Underlying earnings per
share (UEPS) improved 22 per cent.
Balance Sheet
-- The year-end cash position of GBP1.3bn (GBP223m in 2011)
includes the contributions of GBP942m for IAE and GBP167m for
Bergen. The average net debt in 2012 of GBP145m (average net cash
of GBP320m in 2011) reflects the timing of the acquisition of
Tognum in 2011 and the sale of our interest in IAE in 2012.
Excluding the effects of acquisitions and disposals, average net
cash of GBP725m in 2012 compared with GBP805m in 2011.
-- In April, Standard & Poor's Ratings Services raised its
long- and short-term corporate credit ratings for the Group to
'A/A-1' from 'A-/A-2'.
-- The Group continued to have good liquidity with GBP3.6bn of
cash and committed facilities. Debt maturities remain well spread
through to 2019.
-- Pension liabilities increased by GBP148m on an accounting
basis, largely due to a reduction in the discount rate. On an
economic basis, funding requirements remain stable following the
series of measures taken in recent years to achieve greater
certainty for our major UK schemes.
Cash Flow
-- A cash inflow of GBP1.1bn during 2012 included GBP942m from
the disposal of IAE and GBP167m for the contribution of Bergen to
EH. Excluding acquisitions, disposals and foreign exchange, the
inflow of GBP137m reflects the continued investment programme in
future growth and the increase in net working capital required
ahead of OE volume growth, predominantly in Civil Aerospace.
Group Prospects
Full year 2013 Group guidance excluding Engine Holding:
For the full year 2013, we expect the Group to see modest growth
in underlying revenue and good growth in underlying profit, with
cash flow around breakeven as we continue to invest for future
growth.
This guidance excludes the impact of Engine Holding, for which
further information is given below.
Full year 2013 segmental guidance:
For the full year 2013, we expect underlying revenue and
underlying profit for our business segments as follows:
In Civil Aerospace, we anticipate modest growth in revenue and
strong growth in profit. In Defence Aerospace we expect modest
growth in revenue and a modest reduction in profit. In Marine we
expect modest growth in revenue and profit. And in Energy we expect
some improvement in revenue and profit.
The implications of Engine Holding on 2013 performance:
Engine Holding comprises Bergen and Tognum. The Group cannot
provide financial guidance for Tognum while it is still listed.
Tognum also reports its 2012 results today. These can be accessed
at www.tognum.de/investors.
Enquiries:
Investors: Media:
Simon Goodson Josh Rosenstock
Director - Investor Relations Director of External
Communications
Rolls-Royce plc Rolls-Royce plc
Tel: +44 (0)20 7227 9237 Tel: +44 (0)20 7227 9163
simon.goodson@rolls-royce.com josh.rosenstock@rolls-royce.com
Photographs and broadcast-standard video are available at
www.rolls-royce.com.
A PDF copy of this report can be downloaded from
www.rolls-royce.com/investors.
This Full Year Results Announcement contains forward-looking
statements. Any statements that express forecasts, expectations and
projections are not guarantees of future performance and will not
be updated. By their nature, these statements involve risk and
uncertainty, and a number of factors could cause material
differences to the actual results or developments. This report is
intended to provide information to shareholders, is not designed to
be relied upon by any other party, or for any other purpose and the
Company and its directors accept no liability to any other person
other than under English law.
Business Segment Reviews
Civil Aerospace
GBP millions 2012 2011 Change
Order book* 49,608 47,370 5%
Engine deliveries* 668 544 23%
Underlying revenue 6,437 5,572 16%
Underlying OE revenue 2,934 2,232 31%
Underlying services revenue 3,503 3,340 5%
Underlying profit before financing 727 499 46%
Return on sales** 11.3% 9.0% 2.3pp
------------------------------------ ------- ------- -------
* Restated 2011 year-end data excluding IAE order book of GBP4,571m and 418 V2500 deliveries
** By reference to underlying profit before financing costs and tax
Financial
-- The order book increased by five per cent including new
orders of GBP10.3bn (GBP11.0bn in 2011). We continue to grow our
wide-body market share, with Trent engines making up around 75 per
cent of our order book. We remain committed to the mid-size market
both as a supplier to IAE and via our planned joint venture with
the IAE partners to develop the next generation of engines for this
market segment. Our continued success in the corporate market is
being driven primarily by our BR700 series of engines for large
cabin Gulfstream and Bombardier aircraft.
Significant orders in 2012 included:
o Trent 700 engines and TotalCare for 54 Airbus A330s for China
Eastern, Etihad, Avianca, Synergy, Garuda Indonesia, Air Pacific
and Skymark.
o Trent 900 engines and TotalCare for 11 A380s for Singapore
Airlines and Skymark.
o Trent 1000 engines and TotalCare for five Boeing 787s for
Avianca and Air New Zealand.
o Trent XWB engines and TotalCare for 30 A350s for Cathay
Pacific and Singapore Airlines.
-- Revenue increased by 16 per cent. There was a 31 per cent
growth in OE revenue, primarily reflecting higher deliveries of
Trent and corporate engines. Services revenue grew by five per cent
consistent with growth in the installed base of thrust.
-- Profit increased by 46 per cent, including GBP92m related to
the restructured trading arrangements with IAE. Excluding these,
profit increased by 27 per cent due to increased OE volume, better
OE mix, services growth and unit cost improvements. This growth was
tempered by a higher R&D charge due to higher spend and lower
capitalisation related to major new programme activity, and by
lower entry fees related to the current maturity of the Trent XWB
programme.
Portfolio
-- The Trent XWB gained certification in February 2013 following
a successful flight test programme on an Airbus A380 test aircraft.
The Trent XWB is the world's most efficient large jet engine and is
the fastest-selling Trent engine, with orders for more than 1,200
engines already received.
-- We launched the Trent 1000-TEN that is due to enter service
in 2016. This engine, which incorporates proven next generation
technology from the Trent XWB, will be capable of powering all
versions of the Boeing 787.
-- The BR725-powered Gulfstream G650 entered service early in
2013, and the AE3007C-powered Cessna Citation TEN is due to enter
service later this year.
Defence Aerospace
GBP millions 2012 2011 Change
Order book 5,157 6,035 -15%
Engine deliveries 864 814 6%
Underlying revenue 2,417 2,235 8%
Underlying OE revenue 1,231 1,102 12%
Underlying services revenue 1,186 1,133 5%
Underlying profit before financing 404 376 7%
Return on sales* 16.7% 16.8% -0.1pp
------------------------------------ ------ ------ -------
* By reference to underlying profit before financing costs and tax
Financial
-- The order book contracted by 15 per cent reflecting the
budgetary pressures on our major customers in Europe and North
America. The net order intake of GBP1.6bn (GBP1.8bn in 2011)
includes cancellations of GBP0.4bn, principally the proposed
cancellations of a number of contracts for C-27J aircraft,
including those by the US Department of Defense (DoD). Despite the
challenging environment, we continue to see opportunities both in
our traditional markets and the developing economies.
Significant orders in 2012 included:
o US$1bn of contracts for OE and services for military
transport, trainer and helicopter engines for the US Army, US Air
Force, US Marine Corps and US Navy.
o A US$315m contract from Pratt & Whitney for 17 LiftSystem
sets for the F-35B STOVL variant of the Lightning II Joint Strike
Fighter.
o A GBP100m contract extension to maintain the engines for the
UK MoD's fleets of C-130 military transport and VC10 tanker
aircraft.
o A contract with the Royal Australian Air Force to help improve
the fuel efficiency of its C-130 military transport aircraft.
-- Revenue increased by eight per cent, reflecting a 12 per cent
increase in OE revenue and a five per cent increase in services
revenue. However, adjusted for the non-recurrence of the GBP60m
SDSR benefit in 2011, services revenue increased by 11 per cent.
This highlights how our large installed base continues to provide
services opportunities as customers seek to optimise the efficiency
of their aircraft.
-- Profit increased by seven per cent. Adjusted for the SDSR
benefit in 2011, profit increased by 28 per cent due to increased
OE volumes and mix, growth in services, unit cost improvements and
a lower R&D charge.
Portfolio
-- The F-35B STOVL variant of the JSF entered service with the
US and the first deliveries were made to the UK MoD. This followed
a successful flight test programme for the F-35B that included over
500 short take-offs and landings.
-- Engine deliveries for the first production Airbus A400M
transport aircraft began in 2012 ahead of entry into service in
2013.
-- Flight testing completed successfully with the US Air Force
of the Series 3.5 enhanced T56 engine. The reduced fuel consumption
and reliability improvements will enable the US Air Force to
operate its C130H military transport aircraft until 2040, with
improved performance, reduced emissions and significant cost
savings.
Marine
GBP millions 2012 2011* Change
Order book 3,954 2,737 44%
Underlying revenue 2,249 2,271 -1%
Underlying OE revenue 1,288 1,322 -3%
Underlying services revenue 961 949 1%
Underlying profit before financing 294 287 2%
Return on sales** 13.1% 12.6% 0.5pp
------------------------------------ ------ ------ -------
* 2011 restated due to the transfer of Bergen to Engine Holding
on 2 January as per Note 2 on p.20
** By reference to underlying profit before financing costs and tax
Financial
-- The order book increased 44 per cent including new orders of
GBP3.3bn (GBP2.1bn in 2011). These include the GBP1.1bn order by
the UK MoD to deliver reactor cores for its future fleet of
nuclear-powered submarines. Offshore orders reflected improved
demand in the Oil & Gas sector, especially for drillships and
support vessels in Brazil. This was partially offset by continued
weak order flow in the Merchant sector.
Significant orders in 2012 also included:
o GBP147m of contracts in Brazil to design and equip 18
drillships, Offshore Supply Vessels (OSVs) and Platform Supply
Vessels (PSVs) for Atlantico Sul on behalf of Petrobras, Navegação
São Miguel and Bravante Group.
o GBP119m of contracts to design and equip 10 OSVs for Norway's
Farstad Shipping, China's COSCO and Korea's Hyundai.
o A contract for MT7 gas turbine engines to power the US Navy's
future fleet of up to 73 hovercraft, known as the Ship-to-Shore
Connector, working with Textron.
o A contract with the US Navy to supply MT30 gas turbines and
propulsion systems for the two latest vessels in the Littoral
Combat Ship programme.
o A contract with the Republic of Korea's Navy to supply the
MT30 to power a new FFX frigate. This is the first order for the
MT30 in Asia.
-- Revenue reduced by one per cent, reflecting increased pricing
pressure and adverse foreign exchange movements. Both OE and
services revenue improved in the second half reflecting improvement
in the offshore sector and better capture of the services market
resulting from the recent expansion of our global network of
services centres.
-- Profit increased by two per cent due to better revenue mix
and cost reduction, partially offset by pricing pressures and
adverse foreign exchange movement.
Portfolio
-- The reactor core contract with the UK MoD includes the
regeneration of the manufacturing facility in Derby. The phased
re-build will provide a leading-edge manufacturing facility with
the highest standards of safety to support future programme
needs.
-- Our innovative commercial ship design capability was extended
with a new team formed to design ships for navies, coastguards and
other maritime agencies. Ship design enhances our ability to offer
integrated systems solutions.
-- Our market leading LNG-fuelled C engine was approved for sale
in the US by the Environmental Protection Agency (EPA). The C
engine positions us well for opportunities that will arise from
stricter environmental standards from 2016.
Energy
GBP millions 2012 2011* Change
Order book 1,290 1,420 -9%
Underlying revenue 962 1,083 -11%
Underlying OE revenue 344 527 -35%
Underlying services revenue 618 556 11%
Underlying profit before financing 21 16 31%
Return on sales** 2.2% 1.5% 0.7pp
------------------------------------ ------ ------ -------
* 2011 restated due to the transfer of Bergen to Engine Holding
on 2 January as per Note 2 on p.20
** By reference to underlying profit before financing costs and tax
Financial
-- The order book reduced by nine per cent, with new orders of
GBP0.8bn (GBP1.3bn in 2011). In the oil & gas market, high oil
prices and global growth continue to sustain bid activity, albeit
with pricing pressures and order deferrals by some customers. While
the power generation market in mature economies remains suppressed,
we are seeing growth in developing countries. We continue to invest
for future growth in Civil Nuclear.
Significant orders in 2012 included:
o A contract with Petrochina to supply a further six RB211 gas
turbine compression packages for Line 3 of the West-East Pipeline
Project (WEPP).
o A contract with Uzbekistan to supply three RB211 units for the
Uzbekistan section of the Asia Trans Gas (ATG) pipeline to
transport gas from Turkmenistan to China.
o A contract to supply two industrial Trent 60 WLE gas turbines
to generate power for LUKOIL's plant in Russia.
o A contract to supply a Trent 60 WLE gas turbine to supply
power for the El Alto plant in the Kenko Zone that will power over
100,000 homes in and around La Paz, Bolivia.
o A contract to supply an RB211 to operate PTT's Ethane
Separation Plant in Thailand.
-- Revenue fell by 11 per cent due to a significant reduction in
OE revenue and adverse revenue mix in Oil & Gas and in Power
Generation. The OE reduction was partially offset by an 11 per cent
increase in services revenue. Services revenue, particularly in Oil
& Gas, benefited from a better penetration of the aftermarket
for the installed base across all sectors.
-- Profit increased by five million pounds.
Portfolio
-- Agreements were signed with Areva and Hitachi to collaborate
further on civil nuclear new build projects for which we will
manufacture complex components and provide technical services.
-- The RB211-Gzero was launched as a retrofit upgrade product to
provide increased power to many existing users of industrial RB211
aero-derivative gas turbine engines.
-- LG acquired a 51 per cent stake in Rolls-Royce Fuel Systems
(US) Inc. that will enable the business to further develop and
industrialise fuel cell technology. In January 2013, we sold Tidal
Generation Ltd. to Alstom.
-- Construction of a new purpose-built gas turbine package,
assembly and test facility in Santa Cruz in Brazil is well
advanced. The facility is expected to start production in 2013.
Additional Financial Information
Income statement
Underlying income statement extracts - GBP millions 2012 2011 Change
Revenue 12,209 11,277 8%
Civil Aerospace 6,437 5,572 16%
Defence Aerospace 2,417 2,235 8%
Marine 2,249 2,271 -1%
Energy 962 1,083 -11%
Engine Holding 287 331 -13%
Intra-segment (143) (215)
----------------------------------------------------- ------- ------- -------
Profit before financing costs and taxation 1,490 1,206 24%
Civil Aerospace 727 499 46%
Defence Aerospace 404 376 7%
Marine 294 287 2%
Energy 21 16 31%
Engine Holding 109 80 36%
Intra-segment (11) -
Central costs (54) (52)
----------------------------------------------------- ------- ------- -------
Net financing costs (61) (49) 24%
Profit before taxation 1,429 1,157 24%
----------------------------------------------------- ------- ------- -------
Taxation (318) (261) 22%
Profit for the period 1,111 896 24%
EPS 59.27p 48.54p 22%
Payment to shareholders 19.5p 17.5p 11%
----------------------------------------------------- ------- ------- -------
Other items
Other operating income 33 70
Gross R&D investment 919 908
Net R&D charged to the income statement 589 463
----------------------------------------------------- ------- ------- -------
-- Engine Holding (EH), our joint venture with Daimler, owns
Bergen and over 99 per cent of Tognum. Management control of Tognum
was taken on 1 January 2013 from which date we will fully
consolidate EH's results, together with Daimler's 50 per cent
non-controlling interest. EH's contribution of GBP287m to 2012
revenue came wholly from Bergen. EH's profit contribution of
GBP109m comprised GBP32m from Bergen and GBP77m from the equity
accounted contribution from Tognum. The transfer of Bergen to EH
during 2012 also resulted in a GBP167m cash benefit to the Group.
Further details are provided in Note 12 on p.27.
-- Underlying revenue increased eight per cent to GBP12.2 bn.
This includes a five per cent growth in services revenue to
GBP6.3bn and a 12 per cent increase in OE revenue to GBP5.9bn. OE
performance included strong 31 per cent growth in Civil Aerospace
and 12 per cent growth in Defence Aerospace offset by reductions in
OE revenue in each of Marine, Energy and EH. Underlying services
revenue continues to represent more than half (52 per cent) of the
Group's underlying revenue. In 2012, services revenue grew in all
businesses as the installed base of products continued to grow and
the services network expanded.
-- Underlying profit before financing costs and taxation
increased 24 per cent to GBP1.5bn. This was due to a number of
factors: increased revenue; better mix; unit cost reduction; a full
year's benefit from Tognum (compared to four months' contribution
to Group results in 2011); and improved trading following the IAE
restructuring settlement completed during the year. These
improvements were partly offset by a significant increase in the
R&D charge and lower other operating income. Further discussion
of trading is included in the business segment reports on p.6 to
p.9.
-- Underlying financing costs increased 24 per cent to GBP61m,
including an increase in net interest charges reflecting lower
average net funds after funding the Tognum acquisition in the
second half of 2011.
-- Underlying taxation was GBP318m, an underlying tax rate of
22.3 per cent compared with 22.6 per cent in 2011.
-- Underlying EPS increased 22 per cent to 59.27 pence, in line
with the increase in the underlying profit after tax.
-- Payments to shareholders: at the AGM on 2 May 2013, the
directors will recommend an issue of 119 C Shares with a total
nominal value of 11.9 pence for each ordinary share. The final
issue of C shares will be made on 1 July 2013 to shareholders on
the register on 26 April, 2013 and the final day of trading with
entitlement to C Shares is 23 April 2012. Together with the interim
issue on 2 January 2013 of 76 C Shares for each ordinary share with
a total nominal value of 7.6 pence, this is the equivalent of a
total annual payment to ordinary shareholders of 19.5 pence for
each ordinary share.
The payment to shareholders will, as before, be made in the form
of redeemable C Shares which shareholders may either choose to
retain or redeem for a cash equivalent. The Registrar, on behalf of
the Company, operates a C Share Reinvestment Plan (CRIP) and can,
on behalf of shareholders, purchase ordinary shares from the market
rather than delivering a cash payment. Shareholders wishing to
redeem their C Shares or else redeem and participate in the CRIP
must ensure that their instructions are lodged with the Registrar,
Computershare Investor Services Plc, no later than 5pm on 3 June
2013. Redemption will take place on 3 July 2013.
-- Other operating income relates to programme receipts from
RRSPs, which reimburse past expenditure. These receipts decreased
by 53 per cent in 2012 due to the phasing of major programmes such
as the Trent XWB.
-- Net R&D charged to the income statement increased by 27
per cent to GBP589m reflecting a combination of increased spend of
GBP57m and lower net capitalisation of GBP70m due to the phasing of
major new programmes. This investment and the ten per cent increase
in capital expenditure including software to GBP610m will prepare
our infrastructure and global supply chain for significant growth
in the next decade. The Group continues to expect the net R&D
spend to remain within four to five per cent of Group underlying
revenue.
-- Foreign exchange rate movements influence the reported income
statement, the cash flow and closing net cash balance. The average
and spot rates for the principal trading currencies of the Group
are shown in the table below:
2012 2011
USD per GBP Closing spot rate 1.63 1.55
Average spot rate 1.59 1.60
EUR per GBP Closing spot rate 1.23 1.20
Average spot rate 1.23 1.15
-- The adjustments between the underlying income statement and
the reported income statement are set out in Note 2 to the
condensed financial statements on p.20.
Balance sheet
Summary balance sheet - GBP millions 2012 2011
Intangible assets 2,901 2,882
Property, plant and equipment 2,564 2,338
Net post-retirement scheme deficits (545) (397)
Net working capital (1,100) (1,098)
Net funds 1,317 223
Provisions (461) (502)
Net financial assets and liabilities (127) (718)
Investment in joint ventures and associates 1,800 1,680
Assets held for sale 4 178
Other net assets and liabilities (248) (67)
----------------------------------------------- -------- --------
Net assets 6,105 4,519
----------------------------------------------- -------- --------
Other items
USD hedge book $22,500 $22,000
Net TotalCare assets 1,312 956
Gross customer finance contingent liabilities 569 612
Net customer finance contingent liabilities 70 124
----------------------------------------------- -------- --------
-- Intangible assets relate to goodwill, certification costs,
participation fees, development expenditure, recoverable engine
costs, software and other costs that represent long-term assets of
the Group. In aggregate, these assets remained broadly unchanged at
GBP2.9bn with additional development, recoverable engine,
certification and software costs being offset by annual
amortisation charges. The carrying values of the intangible assets
are assessed for impairment against the present value of forecast
cash flows generated by the intangible asset. The principal risks
remain: reductions in assumed market share; programme timings;
increases in unit cost assumptions; and adverse movements in
discount rates. There have been no significant impairments in 2012.
Further details are given in Note 6 to the condensed financial
statements on p.24.
-- Property, plant and equipment increased by 10 per cent to
GBP2.6bn due to the ongoing development and refreshment of
facilities and tooling as the Group prepares for increased
production volumes.
-- Net post-retirement scheme deficits increased 37 per cent to
GBP545m. This was principally due to the movements in the
assumptions used to value the underlying assets and liabilities in
accordance with IAS 19 - in particular the discount rate which is
derived from AA corporate bond yields. The impact of the revisions
to IAS 19 is described in Note 9 to the condensed financial
statements on p.26.
Overall funding across the schemes has improved in recent years
as the Group has adopted a lower risk investment strategy that
reduces volatility going forward and enables the funding position
to remain stable: interest rate and inflation risks are largely
hedged; and exposure to equities has reduced to around 12 per cent
of scheme assets. This has been achieved against the headwind of
increasing life expectancy assumptions. A modest reduction in the
Group's cash contribution to the overall funding level of the
schemes is expected in 2013.
-- Net funds increased by GBP1.1bn to GBP1.3bn largely due to
the GBP0.9bn proceeds received on the restructuring of IAE. Average
net funds fell by GBP465m to (GBP145m) due to the timing of the
Tognum acquisition in the second half of 2011 and the restructuring
of IAE in June 2012.
-- Investment - joint ventures and associates increased by seven
per cent, largely as a result of the capitalisation of a loan to
Engine Holding in respect of the acquisition of Tognum.
-- Provisions largely relate to warranties and guarantees
provided to secure the sale of OE and services. These provisions
reduced modestly during the year.
-- Net financial assets and liabilities relate to the fair value
of foreign exchange, commodity and interest rate contracts and
financial RRSPs and the put option on Bergen Engine AS, set out in
detail in note 7 to the condensed financial statements. The change
largely reflects the impact of the change in the GBP/USD exchange
rate on the valuation of foreign exchange contracts and the
inclusion of the put option (GBP167m) for the first time.
-- The USD hedge book increased two per cent to US$22.5bn. This
represents around five years of net exposure and has an average
book rate of GBP1 to US$1.60. Current forward market exchange rates
are similar to current average book rates.
-- Net TotalCare(R) assets relate to long-term service agreement
(LTSA) contracts in the civil aerospace business, including the
flagship services product TotalCare. These assets represent the
timing difference between the recognition of income and costs in
the income statement and cash receipts and payments.
-- Customer financing facilitates the sale of original equipment
(OE) and services by providing financing support to certain
customers. Where such support is provided by the Group, it is
generally to customers of the civil aerospace business and takes
the form of various types of credit and asset value guarantees.
These exposures produce contingent liabilities that are outlined in
Note 10 to the condensed financial statements on p.26 and p.27. The
contingent liabilities represent the maximum aggregate discounted
gross and net exposure in respect of delivered aircraft, regardless
of the point in time at which such exposures may arise.
During 2012, the Group's gross exposure remained stable at
GBP569m. On a net basis, exposure reduced by GBP54m to GBP70m
predominantly due to an indemnity from United Technologies for all
A320 commitments following the restructuring of IAE.
Whilst some banks, particularly European institutions, continue
to find circumstances challenging and offer limited participation
in financing new aircraft deliveries, the Group expects that other
providers of US dollar funding and ongoing support from the export
credit agencies will largely fill the gap left by these banks.
Condensed consolidated income statement
For the year ended 31 December 2012
2012 2011
------------------------------------------------------- -------
Excluding IAE restructuring IAE restructuring Total
Notes GBPm GBPm GBPm GBPm
------------------------------------------ ----- --------------------------- ----------------- ------- -------
Revenue 2 12,161 - 12,161 11,124
------------------------------------------- ----- --------------------------- ----------------- ------- -------
Cost of sales (9,416) - (9,416) (8,676)
------------------------------------------- ----- --------------------------- ----------------- ------- -------
Gross profit 2,745 - 2,745 2,448
------------------------------------------- ----- --------------------------- ----------------- ------- -------
Other operating income 33 - 33 69
------------------------------------------- ----- --------------------------- ----------------- ------- -------
Commercial and administrative costs (989) - (989) (984)
------------------------------------------- ----- --------------------------- ----------------- ------- -------
Research and development costs (589) - (589) (463)
------------------------------------------- ----- --------------------------- ----------------- ------- -------
Share of results of joint ventures and
associates 173 - 173 116
------------------------------------------- ----- --------------------------- ----------------- ------- -------
Operating profit 1,373 - 1,373 1,186
------------------------------------------- ----- --------------------------- ----------------- ------- -------
Profit on disposal of businesses - 699 699 3
------------------------------------------- ----- --------------------------- ----------------- ------- -------
Profit before financing and taxation 2 1,373 699 2,072 1,189
------------------------------------------- ----- --------------------------- ----------------- ------- -------
Financing income 1,112 - 1,112 456
------------------------------------------- ----- --------------------------- ----------------- ------- -------
Financing costs (479) - (479) (540)
------------------------------------------- ----- --------------------------- ----------------- ------- -------
Net financing 3 633 - 633 (84)
------------------------------------------- ----- --------------------------- ----------------- ------- -------
Profit before taxation (1) 2,006 699 2,705 1,105
------------------------------------------- ----- --------------------------- ----------------- ------- -------
Taxation (447) 37 (410) (257)
------------------------------------------- ----- --------------------------- ----------------- ------- -------
Profit for the year 1,559 736 2,295 848
------------------------------------------- ----- --------------------------- ----------------- ------- -------
Attributable to:
------------------------------------------- ----- --------------------------- ----------------- ------- -------
Ordinary shareholders 1,545 736 2,281 850
------------------------------------------- ----- --------------------------- ----------------- ------- -------
Non-controlling interests 14 - 14 (2)
------------------------------------------- ----- --------------------------- ----------------- ------- -------
Profit for the year 1,559 736 2,295 848
------------------------------------------- ----- --------------------------- ----------------- ------- -------
Earnings per ordinary share attributable to
shareholders (2) 4
------------------------------------------- ----- --------------------------- ----------------- ------- -------
Basic 83.47p 39.76p 123.23p 45.95p
------------------------------------------- ----- --------------------------- ----------------- ------- -------
Diluted 121.59p 45.33p
------------------------------------------- ----- --------------------------- ----------------- ------- -------
Underlying earnings per ordinary share are
shown in note 4
------------------------------------------- ----- --------------------------- ----------------- ------- -------
Payments to ordinary shareholders in
respect of the year 5
------------------------------------------- ----- --------------------------- ----------------- ------- -------
Per share 19.5p 17.5p
------------------------------------------- ----- --------------------------- ----------------- ------- -------
Total 365 328
------------------------------------------- ----- --------------------------- ----------------- ------- -------
(1) Underlying profit before taxation 1,429 - 1,429 1,157
------------------------------------------- ----- --------------------------- ----------------- ------- -------
(2) Underlying earnings per share are shown
in note 4
------------------------------------------- ----- --------------------------- ----------------- ------- -------
Condensed consolidated statement of comprehensive income
For the year ended 31 December 2012
2012 2011
GBPm GBPm
-------------------------------------------------------------------- ----- -----
Profit for the year 2,295 848
-------------------------------------------------------------------- ----- -----
Other comprehensive income (OCI)
-------------------------------------------------------------------- ----- -----
Items that will not be reclassified to profit and loss
-------------------------------------------------------------------- ----- -----
Movements in post-retirement schemes (259) 123
-------------------------------------------------------------------- ----- -----
Share of OCI of joint ventures and associates (46) (3)
-------------------------------------------------------------------- ----- -----
Related tax movements 91 (53)
-------------------------------------------------------------------- ----- -----
(214) 67
-------------------------------------------------------------------- ----- -----
Items that may be reclassified to profit and loss
-------------------------------------------------------------------- ----- -----
Foreign exchange translation differences on foreign operations (118) (102)
-------------------------------------------------------------------- ----- -----
Share of OCI of joint ventures and associates (12) (7)
-------------------------------------------------------------------- ----- -----
Related tax movements (1) (1)
-------------------------------------------------------------------- ----- -----
(131) (110)
-------------------------------------------------------------------- ----- -----
Total comprehensive income for the year 1,950 805
-------------------------------------------------------------------- ----- -----
Attributable to:
-------------------------------------------------------------------- ----- -----
Ordinary shareholders 1,937 808
-------------------------------------------------------------------- ----- -----
Non-controlling interests 13 (3)
-------------------------------------------------------------------- ----- -----
Total comprehensive income for the year 1,950 805
-------------------------------------------------------------------- ----- -----
Condensed consolidated balance sheet
At 31 December 2012
2012 2011
Notes GBPm GBPm
----------------------------------------------------- ----- -------- --------
ASSETS
----------------------------------------------------- ----- -------- --------
Non-current assets
----------------------------------------------------- ----- -------- --------
Intangible assets 6 2,901 2,882
----------------------------------------------------- ----- -------- --------
Property, plant and equipment 2,564 2,338
----------------------------------------------------- ----- -------- --------
Investments - joint ventures and associates 1,800 1,680
----------------------------------------------------- ----- -------- --------
Investments - other 6 10
----------------------------------------------------- ----- -------- --------
Other financial assets 7 592 327
----------------------------------------------------- ----- -------- --------
Deferred tax assets 330 368
----------------------------------------------------- ----- -------- --------
Post-retirement scheme surpluses 9 329 503
----------------------------------------------------- ----- -------- --------
8,522 8,108
----------------------------------------------------- ----- -------- --------
Current assets
----------------------------------------------------- ----- -------- --------
Inventories 2,726 2,561
----------------------------------------------------- ----- -------- --------
Trade and other receivables 4,119 4,009
----------------------------------------------------- ----- -------- --------
Taxation recoverable 33 20
----------------------------------------------------- ----- -------- --------
Other financial assets 7 115 91
----------------------------------------------------- ----- -------- --------
Short-term investments 11 11
----------------------------------------------------- ----- -------- --------
Cash and cash equivalents 2,585 1,310
----------------------------------------------------- ----- -------- --------
Assets held for sale 4 313
----------------------------------------------------- ----- -------- --------
9,593 8,315
----------------------------------------------------- ----- -------- --------
Total assets 18,115 16,423
----------------------------------------------------- ----- -------- --------
LIABILITIES
----------------------------------------------------- ----- -------- --------
Current liabilities
----------------------------------------------------- ----- -------- --------
Borrowings 8 (149) (20)
----------------------------------------------------- ----- -------- --------
Other financial liabilities 7 (312) (111)
----------------------------------------------------- ----- -------- --------
Trade and other payables (6,387) (6,236)
----------------------------------------------------- ----- -------- --------
Current tax liabilities (126) (138)
----------------------------------------------------- ----- -------- --------
Provisions for liabilities and charges (220) (276)
----------------------------------------------------- ----- -------- --------
Liabilities associated with assets held for sale - (135)
----------------------------------------------------- ----- -------- --------
(7,194) (6,916)
----------------------------------------------------- ----- -------- --------
Non-current liabilities
----------------------------------------------------- ----- -------- --------
Borrowings 8 (1,234) (1,184)
----------------------------------------------------- ----- -------- --------
Other financial liabilities 7 (418) (919)
----------------------------------------------------- ----- -------- --------
Trade and other payables (1,465) (1,314)
----------------------------------------------------- ----- -------- --------
Deferred tax liabilities (584) (445)
----------------------------------------------------- ----- -------- --------
Provisions for liabilities and charges (241) (226)
----------------------------------------------------- ----- -------- --------
Post-retirement scheme deficits 9 (874) (900)
----------------------------------------------------- ----- -------- --------
(4,816) (4,988)
----------------------------------------------------- ----- -------- --------
Total liabilities (12,010) (11,904)
----------------------------------------------------- ----- -------- --------
Net assets 6,105 4,519
----------------------------------------------------- ----- -------- --------
EQUITY
----------------------------------------------------- ----- -------- --------
Equity attributable to ordinary shareholders
----------------------------------------------------- ----- -------- --------
Called-up share capital 374 374
----------------------------------------------------- ----- -------- --------
Share premium account - -
----------------------------------------------------- ----- -------- --------
Capital redemption reserve 169 173
----------------------------------------------------- ----- -------- --------
Cash flow hedging reserve (63) (52)
----------------------------------------------------- ----- -------- --------
Other reserves 314 433
----------------------------------------------------- ----- -------- --------
Retained earnings 5,294 3,590
----------------------------------------------------- ----- -------- --------
6,088 4,518
----------------------------------------------------- ----- -------- --------
Non-controlling interests 17 1
----------------------------------------------------- ----- -------- --------
Total equity 6,105 4,519
----------------------------------------------------- ----- -------- --------
Condensed consolidated cash flow statement
For the year ended 31 December 2012
2012 2011
Notes GBPm GBPm
--------------------------------------------------------------------------------- ------ ----- -------
Reconciliation of cash flows from operating activities
--------------------------------------------------------------------------------- ------ ----- -------
Operating profit 1,373 1,186
----------------------------------------------------------------------------------------- ----- -------
Profit on disposal of property, plant and equipment (9) (8)
----------------------------------------------------------------------------------------- ----- -------
Share of results of joint ventures and associates (173) (116)
----------------------------------------------------------------------------------------- ----- -------
Dividends received from joint ventures and associates 129 76
----------------------------------------------------------------------------------------- ----- -------
Amortisation and impairment of intangible assets 231 169
----------------------------------------------------------------------------------------- ----- -------
Depreciation and impairment of property, plant and equipment 256 241
----------------------------------------------------------------------------------------- ----- -------
Impairment of investments 2 -
----------------------------------------------------------------------------------------- ----- -------
Decrease in provisions (40) (28)
----------------------------------------------------------------------------------------- ----- -------
Increase in inventories (158) (140)
----------------------------------------------------------------------------------------- ----- -------
Increase in trade and other receivables (284) (62)
----------------------------------------------------------------------------------------- ----- -------
Increase in trade and other payables 267 416
----------------------------------------------------------------------------------------- ----- -------
Movement in other financial assets and liabilities (29) 68
----------------------------------------------------------------------------------------- ----- -------
Net defined benefit post-retirement cost/(credit) recognised in operating profit 151 (43)
----------------------------------------------------------------------------------------- ----- -------
Cash funding of defined benefit post-retirement schemes (297) (304)
----------------------------------------------------------------------------------------- ----- -------
Share-based payments 55 59
----------------------------------------------------------------------------------------- ----- -------
Net cash inflow from operating activities before taxation 1,474 1,514
----------------------------------------------------------------------------------------- ----- -------
Taxation paid (219) (208)
----------------------------------------------------------------------------------------- ----- -------
Net cash inflow from operating activities 1,255 1,306
----------------------------------------------------------------------------------------- ----- -------
Cash flows from investing activities
--------------------------------------------------------------------------------- ------ ----- -------
Disposals of unlisted investments 4 1
----------------------------------------------------------------------------------------- ----- -------
Additions of intangible assets (250) (363)
----------------------------------------------------------------------------------------- ----- -------
Disposals of intangible assets 1 6
----------------------------------------------------------------------------------------- ----- -------
Purchases of property, plant and equipment (435) (412)
----------------------------------------------------------------------------------------- ----- -------
Government grants received 10 38
----------------------------------------------------------------------------------------- ----- -------
Disposals of property, plant and equipment 30 31
----------------------------------------------------------------------------------------- ----- -------
Acquisitions of businesses (net of cash acquired) (20) (19)
----------------------------------------------------------------------------------------- ----- -------
Proceeds from restructuring of IAE 942 -
----------------------------------------------------------------------------------------- ----- -------
Disposals of businesses - 7
----------------------------------------------------------------------------------------- ----- -------
Investments in joint ventures and associates (24) (1,329)
----------------------------------------------------------------------------------------- ----- -------
Cash flows arising from loan to Engine Holding GmbH 167 (167)
----------------------------------------------------------------------------------------- ----- -------
Transfer of subsidiary to associate (1) -
----------------------------------------------------------------------------------------- ----- -------
Net cash inflow/(outflow) from investing activities 424 (2,207)
----------------------------------------------------------------------------------------- ----- -------
Cash flows from financing activities
--------------------------------------------------------------------------------- ------ ----- -------
Repayment of loans (78) (567)
----------------------------------------------------------------------------------------- ----- -------
Proceeds from increase in loans 200 -
----------------------------------------------------------------------------------------- ----- -------
Net cash flow from increase/(decrease) in borrowings 122 (567)
----------------------------------------------------------------------------------------- ----- -------
Interest received 11 19
----------------------------------------------------------------------------------------- ----- -------
Interest paid (52) (50)
----------------------------------------------------------------------------------------- ----- -------
Decrease in short-term investments - 316
----------------------------------------------------------------------------------------- ----- -------
Issue of ordinary shares - (1)
----------------------------------------------------------------------------------------- ----- -------
Purchase of ordinary shares (94) (57)
----------------------------------------------------------------------------------------- ----- -------
Redemption of C Shares (318) (315)
----------------------------------------------------------------------------------------- ----- -------
Net cash outflow from financing activities (331) (655)
----------------------------------------------------------------------------------------- ----- -------
Net increase/(decrease) in cash and cash equivalents 1,348 (1,556)
----------------------------------------------------------------------------------------- ----- -------
Cash and cash equivalents at 1 January 1,291 2,851
----------------------------------------------------------------------------------------- ----- -------
Exchange losses on cash and cash equivalents (54) (4)
----------------------------------------------------------------------------------------- ----- -------
Cash and cash equivalents at 31 December 2,585 1,291
----------------------------------------------------------------------------------------- ----- -------
2012 2011
GBPm GBPm
----------------------------------------------------------------------------------- ----- -------
Reconciliation of movements in cash and cash equivalents to movements in net funds
----------------------------------------------------------------------------------- ----- -------
Increase/(decrease) in cash and cash equivalents 1,348 (1,556)
----------------------------------------------------------------------------------- ----- -------
Cash flow from (increase)/decrease in borrowings (122) 567
----------------------------------------------------------------------------------- ----- -------
Cash flow from decrease in short-term investments - (316)
----------------------------------------------------------------------------------- ----- -------
Change in net funds resulting from cash flows 1,226 (1,305)
----------------------------------------------------------------------------------- ----- -------
Net funds (excluding cash and cash equivalents) of businesses acquired (78) -
----------------------------------------------------------------------------------- ----- -------
Exchange losses on net funds (54) (5)
----------------------------------------------------------------------------------- ----- -------
Fair value adjustments 2 92
----------------------------------------------------------------------------------- ----- -------
Movement in net funds 1,096 (1,218)
----------------------------------------------------------------------------------- ----- -------
Net funds at 1 January excluding the fair value of swaps 117 1,335
----------------------------------------------------------------------------------- ----- -------
Net funds at 31 December excluding the fair value of swaps 1,213 117
----------------------------------------------------------------------------------- ----- -------
Fair value of swaps hedging fixed rate borrowings 104 106
----------------------------------------------------------------------------------- ----- -------
Net funds at 31 December 1,317 223
----------------------------------------------------------------------------------- ----- -------
The movement in net funds (defined by the Group as including the
items shown below) is as follows:
Net funds of
business
At 1 January acquired/ Exchange Fair value At 31
2012 Funds flow disposed differences adjustments Reclass-ifications December 2012
------------- ------------- ---------- ------------ ------------- ------------ ------------------ -------------
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------- ------------- ---------- ------------ ------------- ------------ ------------------ -------------
Cash at bank
and in hand 1,285 (578) (33) - - 674
------------- ------------- ---------- ------------ ------------- ------------ ------------------ -------------
Money-market
funds 11 397 - - - 408
------------- ------------- ---------- ------------ ------------- ------------ ------------------ -------------
Short-term
deposits 14 1,510 (21) - - 1,503
------------- ------------- ---------- ------------ ------------- ------------ ------------------ -------------
Overdrafts (19) 19 - - - -
------------- ------------- ---------- ------------ ------------- ------------ ------------------ -------------
Cash and cash
equivalents 1,291 1,348 (54) - - 2,585
------------- ------------- ---------- ------------ ------------- ------------ ------------------ -------------
Short-term
investments 11 - - - - - 11
------------- ------------- ---------- ------------ ------------- ------------ ------------------ -------------
Other current
borrowings (1) 78 (78) - - (148) (149)
------------- ------------- ---------- ------------ ------------- ------------ ------------------ -------------
Non-current
borrowings (1,183) (200) - - 2 148 (1,233)
------------- ------------- ---------- ------------ ------------- ------------ ------------------ -------------
Finance
leases (1) - - - - - (1)
------------- ------------- ---------- ------------ ------------- ------------ ------------------ -------------
Net funds
excluding
fair value
of swaps 117 1,226 (78) (54) 2 - 1,213
------------- ------------- ---------- ------------ ------------- ------------ ------------------ -------------
Fair value of
swaps
hedging
fixed rate
borrowings 106 - - - (2) - 104
------------- ------------- ---------- ------------ ------------- ------------ ------------------ -------------
Net funds 223 1,226 (78) (54) - - 1,317
------------- ------------- ---------- ------------ ------------- ------------ ------------------ -------------
Condensed consolidated statement of changes in equity
For the year ended 31 December 2012
Attributable to ordinary shareholders
Cash
Capital flow
Share Share redemption hedging Other Retained Non-controlling Total
capital premium reserve reserve reserves(1) earnings(2) Total interests Equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------- -------- -------- ---------- -------- ----------- ----------- ----- --------------- -------
At 1 January
2011 374 133 209 (37) 527 2,769 3,975 4 3,979
--------------- -------- -------- ---------- -------- ----------- ----------- ----- --------------- -------
Profit for the
year - - - - - 850 850 (2) 848
--------------- -------- -------- ---------- -------- ----------- ----------- ----- --------------- -------
Foreign
exchange
translation
differences on
foreign
operations - - - - (101) - (101) (1) (102)
--------------- -------- -------- ---------- -------- ----------- ----------- ----- --------------- -------
Movement on
post
employment
schemes - - - - - 123 123 - 123
--------------- -------- -------- ---------- -------- ----------- ----------- ----- --------------- -------
Share of OCI of
joint ventures
and associates - - - (15) 8 (3) (10) - (10)
--------------- -------- -------- ---------- -------- ----------- ----------- ----- --------------- -------
Related tax
movements - - - - (1) (53) (54) - (54)
--------------- -------- -------- ---------- -------- ----------- ----------- ----- --------------- -------
Total
comprehensive
income for the
year - - - (15) (94) 917 808 (3) 805
--------------- -------- -------- ---------- -------- ----------- ----------- ----- --------------- -------
Arising on
issues of
ordinary
shares - 1 - - - - 1 - 1
--------------- -------- -------- ---------- -------- ----------- ----------- ----- --------------- -------
Issue of C
Shares - (120) - - - (176) (296) - (296)
--------------- -------- -------- ---------- -------- ----------- ----------- ----- --------------- -------
Redemption of C
Shares - - 317 - - (317) - - -
--------------- -------- -------- ---------- -------- ----------- ----------- ----- --------------- -------
Ordinary shares
purchased - - - - - (57) (57) - (57)
--------------- -------- -------- ---------- -------- ----------- ----------- ----- --------------- -------
Share-based
payments -
direct to
equity (3) - - - - - 77 77 - 77
--------------- -------- -------- ---------- -------- ----------- ----------- ----- --------------- -------
Effect of
scheme of
arrangement
(4) 2,434 (14) (353) - - (2,069) (2) - (2)
--------------- -------- -------- ---------- -------- ----------- ----------- ----- --------------- -------
Effect of
capital
reduction (4) (2,434) - - - - 2,434 - - -
--------------- -------- -------- ---------- -------- ----------- ----------- ----- --------------- -------
Related tax
movements - - - - - 12 12 - 12
--------------- -------- -------- ---------- -------- ----------- ----------- ----- --------------- -------
Other changes
in equity in
the year - (133) (36) - - (96) (265) - (265)
--------------- -------- -------- ---------- -------- ----------- ----------- ----- --------------- -------
At 1 January
2012 374 - 173 (52) 433 3,590 4,518 1 4,519
--------------- -------- -------- ---------- -------- ----------- ----------- ----- --------------- -------
Profit for the
year - - - - - 2,281 2,281 14 2,295
--------------- -------- -------- ---------- -------- ----------- ----------- ----- --------------- -------
Foreign
exchange
translation
differences on
foreign
operations - - - - (117) - (117) (1) (118)
--------------- -------- -------- ---------- -------- ----------- ----------- ----- --------------- -------
Movement on
post
employment
schemes - - - - - (259) (259) - (259)
--------------- -------- -------- ---------- -------- ----------- ----------- ----- --------------- -------
Share of OCI of
joint ventures
and associates - - - (11) (1) (46) (58) - (58)
--------------- -------- -------- ---------- -------- ----------- ----------- ----- --------------- -------
Related tax
movements - - - - (1) 91 90 - 90
--------------- -------- -------- ---------- -------- ----------- ----------- ----- --------------- -------
Total
comprehensive
income for the
year - - - (11) (119) 2,067 1,937 13 1,950
--------------- -------- -------- ---------- -------- ----------- ----------- ----- --------------- -------
Issue of C
Shares - - (328) - - 4 (324) - (324)
--------------- -------- -------- ---------- -------- ----------- ----------- ----- --------------- -------
Redemption of C
Shares - - 324 - - (324) - - -
--------------- -------- -------- ---------- -------- ----------- ----------- ----- --------------- -------
Ordinary shares
purchased - - - - - (94) (94) - (94)
--------------- -------- -------- ---------- -------- ----------- ----------- ----- --------------- -------
Share-based
payments -
direct to
equity (3) - - - - - 47 47 - 47
--------------- -------- -------- ---------- -------- ----------- ----------- ----- --------------- -------
Transactions
with NCI (5) - - - - - 116 116 48 164
--------------- -------- -------- ---------- -------- ----------- ----------- ----- --------------- -------
Initial
recognition of
put option on
NCI (5) - - - - - (121) (121) (45) (166)
--------------- -------- -------- ---------- -------- ----------- ----------- ----- --------------- -------
Related tax
movements - - - - - 9 9 - 9
--------------- -------- -------- ---------- -------- ----------- ----------- ----- --------------- -------
Other changes
in equity in
the year - - (4) - - (363) (367) 3 (364)
--------------- -------- -------- ---------- -------- ----------- ----------- ----- --------------- -------
At 31 December
2012 374 - 169 (63) 314 5,294 6,088 17 6,105
--------------- -------- -------- ---------- -------- ----------- ----------- ----- --------------- -------
1 Other reserves include a merger reserve of GBP3m (2011: GBP3m;
2010: GBP3m) and a translation reserve of GBP311m (2011: GBP430m;
2010: GBP524m).
2 At 31 December 2012, 20,365,787 ordinary shares with a net
book value of GBP125m (2011: 22,541,187; 2010: 28,320,962 ordinary
shares with net book values of GBP116m and GBP125m respectively)
were held for the purpose of share based payment plans and included
in retained earnings. During the year, 13,533,646 ordinary shares
with a net book value of GBP85m (2011: 14,822,563 shares with a net
book value of GBP66m) vested in share-based payment plans. During
the year the Company acquired 11,485,790 of its ordinary shares
through purchases on the London Stock Exchange.
3 Share-based payments - direct to equity is the net of the
credit to equity in respect of the share-based payment charge to
the income statement and the actual cost of shares vesting,
excluding those vesting from own shares.
4 On 23 May 2011, under a scheme of arrangement between
Rolls-Royce Group plc, the former holding company of the Group, and
its shareholders under Part 26 of the Companies Act 2006, and as
sanctioned by the High Court, all the issued ordinary shares in
that company were cancelled and the same number of new ordinary
shares were issued to Rolls-Royce Holdings plc in consideration for
the allotment to shareholders of one ordinary share in Rolls-Royce
Holdings plc for each ordinary share in Rolls-Royce Group plc held
on the record date (20 May 2011). Pursuant to the scheme of
arrangement, 1,872,188,709 ordinary shares of 150 pence were
issued. As required by Section 612 of the Companies Act 2006, no
share premium was recognised.
On 24 May 2011, the share capital of Rolls-Royce Holdings plc
was reduced by reducing the nominal value of the ordinary shares
from 150 pence to 20 pence as sanctioned by the High Court.
5 On 2 January 2012, the Group transferred its interest in
Bergen Engines AS (Bergen) to Engine Holding GmbH, its joint
venture with Daimler AG. As it retained rights to control Bergen,
the transaction has been treated as a disposal of 50 per cent of
Bergen to a non--controlling interest (NCI) for EUR200m. Daimler AG
has a put option to sell its interest in Bergen for the same
value.
1 Basis of preparation
These condensed financial statements have been prepared in
accordance with International Financial Reporting Standards (IFRS)
adopted for use in the EU (Adopted IFRS) in accordance with EU law
(IAS Regulation EC 1606/2002).
The financial information set out above does not constitute the
Company's statutory accounts for the year ended 31 December 2012,
but is derived from those accounts. Statutory accounts for
Rolls-Royce Holdings plc for the year ended 31 December 2011 have
been delivered to the Registrar of Companies. Statutory accounts
for the year ended 31 December 2012 will be delivered to the
Registrar of Companies following the Company's Annual General
Meeting. The auditors have reported on those accounts; their
reports were (i) unqualified, (ii) did not include references to
any matters to which the auditors drew attention by way of emphasis
without qualifying their reports and (iii) did not contain
statements under section 498(2) or (3) of the Companies Act
2006.
In 2012, the Group has adopted revisions to IAS 1 Presentation
of Financial Statements that require items of other comprehensive
income to be classified depending on whether they may be
potentially reclassified to the income statement. There is no net
impact. There were no other revisions to IFRS that became
applicable in 2012 which had a significant impact on the Group's
financial statements.
2 Analysis by business segment
The analysis by business segment is presented in accordance with
IFRS 8 Operating segments, on the basis of those segments whose
operating results are regularly reviewed by the Board (the Chief
Operating Decision Maker as defined by IFRS 8), as follows:
Civil Aerospace development, manufacture, marketing and sales of commercial aero engines and aftermarket
services.
Defence Aerospace development, manufacture, marketing and sales of military aero engines and aftermarket services.
Marine development, manufacture, marketing and sales of marine-power propulsion systems and aftermarket
services.
Energy development, manufacture, marketing and sales of power systems for the offshore oil and gas
industry and electrical power generation and aftermarket services.
Engine Holding development, manufacture, marketing and sales of diesel engines and aftermarket services and
the equity accounted share of Tognum AG.
Technology and Operations, discussed in the business review,
operate on a Group-wide basis across all the above segments.
Following the transfer of Bergen Engines AS to Engine Holding on 2
January 2012, the comparative figures for 2011 have been restated
to put them on a consistent basis.
The operating results are prepared on an underlying basis, which
the Board considers reflects better the economic substance of the
Group's trading during the year. The principles adopted to
determine the underlying results are:
Underlying revenues - Where revenues are denominated in a
currency other than the functional currency of the Group
undertaking, these reflect the achieved exchange rates arising on
settled derivative contracts.
Underlying profit before financing - Where transactions are
denominated in a currency other than the functional currency of the
Group undertaking, this reflects the transactions at the achieved
exchange rates on settled derivative contracts. In addition,
adjustments have been made to exclude one-off past--service credits
on post retirement schemes and the effect of acquisition
accounting.
Underlying profit before taxation - In addition to those
adjustments in underlying profit before financing:
- Includes amounts realised from settled derivative contracts
and revaluation of relevant assets and liabilities to exchange
rates forecast to be achieved from future settlement of derivative
contracts.
- Excludes unrealised amounts arising from revaluations required
by IAS 39 Financial Instruments: Recognition and Measurement,
changes in value of financial RRSP contracts arising from changes
in forecast payments and the net impact of financing costs related
to post-retirement scheme benefits.
This analysis also includes a reconciliation of the underlying
results to those reported in the consolidated income statement.
2012 2011
--------------------------------------- ---------------------------------------
Original equipment Aftermarket Total Original equipment Aftermarket Total
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------- ------------------ ----------- ------ ------------------ ----------- ------
Underlying revenues
-------------------- ------------------ ----------- ------ ------------------ ----------- ------
Civil aerospace 2,934 3,503 6,437 2,232 3,340 5,572
-------------------- ------------------ ----------- ------ ------------------ ----------- ------
Defence aerospace 1,231 1,186 2,417 1,102 1,133 2,235
-------------------- ------------------ ----------- ------ ------------------ ----------- ------
Marine 1,288 961 2,249 1,322 949 2,271
-------------------- ------------------ ----------- ------ ------------------ ----------- ------
Energy 344 618 962 527 556 1,083
-------------------- ------------------ ----------- ------ ------------------ ----------- ------
Engine Holding 118 169 287 185 146 331
-------------------- ------------------ ----------- ------ ------------------ ----------- ------
Intra-segment (22) (121) (143) (110) (105) (215)
-------------------- ------------------ ----------- ------ ------------------ ----------- ------
5,893 6,316 12,209 5,258 6,019 11,277
-------------------- ------------------ ----------- ------ ------------------ ----------- ------
2012 2011
GBPm GBPm
------------------------------------------------ ----- -----
Underlying profit before financing and taxation
------------------------------------------------ ----- -----
Civil aerospace 727 499
------------------------------------------------ ----- -----
Defence aerospace 404 376
------------------------------------------------ ----- -----
Marine 294 287
------------------------------------------------ ----- -----
Energy 21 16
------------------------------------------------ ----- -----
Engine Holding 109 80
------------------------------------------------ ----- -----
Intra-segment (11) -
------------------------------------------------ ----- -----
Reportable segments 1,544 1,258
------------------------------------------------ ----- -----
Central items (54) (52)
------------------------------------------------ ----- -----
1,490 1,206
------------------------------------------------ ----- -----
Underlying net financing (61) (49)
------------------------------------------------ ----- -----
Underlying profit before taxation 1,429 1,157
------------------------------------------------ ----- -----
Underlying taxation (318) (261)
------------------------------------------------ ----- -----
Underlying profit for the year 1,111 896
------------------------------------------------ ----- -----
Net assets/(liabilities) Total assets Total liabilities Net assets
-------------- ------------------- ------------
2012 2011 2012 2011 2012 2011
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------------------ ------ ------ --------- -------- ----- -----
Civil aerospace 9,123 8,621 (5,598) (5,982) 3,525 2,639
------------------------------------------------ ------ ------ --------- -------- ----- -----
Defence aerospace 1,412 1,311 (1,797) (1,831) (385) (520)
------------------------------------------------ ------ ------ --------- -------- ----- -----
Marine 2,063 2,031 (1,467) (1,440) 596 591
------------------------------------------------ ------ ------ --------- -------- ----- -----
Energy 1,329 1,234 (570) (546) 759 688
------------------------------------------------ ------ ------ --------- -------- ----- -----
Engine Holding 1,478 1,654 (282) (164) 1,196 1,490
------------------------------------------------ ------ ------ --------- -------- ----- -----
Intra-segment (682) (746) 671 746 (11) -
------------------------------------------------ ------ ------ --------- -------- ----- -----
Reportable segments 14,723 14,105 (9,043) (9,217) 5,680 4,888
------------------------------------------------ ------ ------ --------- -------- ----- -----
Net funds/(debt) 2,700 1,427 (1,383) (1,204) 1,317 223
------------------------------------------------ ------ ------ --------- -------- ----- -----
Tax assets/(liabilities) 363 388 (710) (583) (347) (195)
------------------------------------------------ ------ ------ --------- -------- ----- -----
Net post-retirement scheme surpluses/(deficits) 329 503 (874) (900) (545) (397)
------------------------------------------------ ------ ------ --------- -------- ----- -----
Net assets 18,115 16,423 (12,010) (11,904) 6,105 4,519
------------------------------------------------ ------ ------ --------- -------- ----- -----
Group employees at year end 2012 2011
---------------------------- ------ ------
Civil aerospace 23,500 20,000
---------------------------- ------ ------
Defence aerospace 8,100 8,000
---------------------------- ------ ------
Marine 9,100 8,800
---------------------------- ------ ------
Energy 4,000 3,600
---------------------------- ------ ------
Engine Holding 1,000 900
---------------------------- ------ ------
45,700 41,300
---------------------------- ------ ------
Reconciliation to Total reportable Underlying central
reported results segments items Total underlying Underlying adjustments Group
Year ended 31 December GBPm GBPm GBPm GBPm GBPm
2012
---------------------- --------------------- --------------------- ---------------- ---------------------- ------
Revenue from sale of
original equipment 5,893 - 5,893 41 5,934
---------------------- --------------------- --------------------- ---------------- ---------------------- ------
Revenue from
aftermarket services 6,316 - 6,316 (89) 6,227
---------------------- --------------------- --------------------- ---------------- ---------------------- ------
Total revenue 12,209 - 12,209 (48) 12,161
---------------------- --------------------- --------------------- ---------------- ---------------------- ------
Operating profit
excluding share of
results of joint
ventures and
associates 1,313 (54)(1) 1,259 (59) 1,200
---------------------- --------------------- --------------------- ---------------- ---------------------- ------
Share of results of
joint ventures and
associates 231 - 231 (58) 173
---------------------- --------------------- --------------------- ---------------- ---------------------- ------
Profit on disposal of
businesses - - - 699 699
---------------------- --------------------- --------------------- ---------------- ---------------------- ------
Profit before
financing and
taxation 1,544 (54) 1,490 582 2,072
---------------------- --------------------- --------------------- ---------------- ---------------------- ------
Net financing (61) (61) 694 633
---------------------- --------------------- --------------------- ---------------- ---------------------- ------
Profit before taxation (115) 1,429 1,276 2,705
---------------------- --------------------- --------------------- ---------------- ---------------------- ------
Taxation (318) (318) (92) (410)
---------------------- --------------------- --------------------- ---------------- ---------------------- ------
Profit for the year (433) 1,111 1,184 2,295
---------------------- --------------------- --------------------- ---------------- ---------------------- ------
Year ended 31 December
2011
---------------------- --------------------- --------------------- ---------------- ---------------------- ------
Revenue from sale of
original equipment 5,258 - 5,258 (19) 5,239
---------------------- --------------------- --------------------- ---------------- ---------------------- ------
Revenue from
aftermarket services 6,019 - 6,019 (134) 5,885
---------------------- --------------------- --------------------- ---------------- ---------------------- ------
Total revenue 11,277 - 11,277 (153) 11,124
---------------------- --------------------- --------------------- ---------------- ---------------------- ------
Operating profit
excluding share of
results of joint
ventures and
associates 1,083 (52)(1) 1,031 39 1,070
---------------------- --------------------- --------------------- ---------------- ---------------------- ------
Share of results of
joint ventures and
associates 172 - 172 (56) 116
---------------------- --------------------- --------------------- ---------------- ---------------------- ------
Profit on disposal of
businesses 3 - 3 - 3
---------------------- --------------------- --------------------- ---------------- ---------------------- ------
Profit before
financing and
taxation 1,258 (52) 1,206 (17) 1,189
---------------------- --------------------- --------------------- ---------------- ---------------------- ------
Net financing (49) (49) (35) (84)
---------------------- --------------------- --------------------- ---------------- ---------------------- ------
Profit before taxation (101) 1,157 (52) 1,105
---------------------- --------------------- --------------------- ---------------- ---------------------- ------
Taxation (261) (261) 4 (257)
---------------------- --------------------- --------------------- ---------------- ---------------------- ------
Profit for the year (362) 896 (48) 848
---------------------- --------------------- --------------------- ---------------- ---------------------- ------
(1) Central corporate costs
Underlying adjustments 2012 2011
-------------------------------------------- -----------------------------------------
Profit Profit
before before Net
Revenue financing Net financing Taxation Revenue financing financing Taxation
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------- ------- ---------- ------------- -------- ------- ---------- ---------- --------
Underlying performance 12,209 1,490 (61) (318) 11,277 1,206 (49) (261)
----------------------------- ------- ---------- ------------- -------- ------- ---------- ---------- --------
Revenue recognised at
exchange
rate on date of transaction (48) - - (153) - -
----------------------------- ------- ---------- ------------- -------- ------- ---------- ---------- --------
Realised (gains)/losses on
settled derivative contracts
(1) (25) - (116) 24
----------------------------- ------- ---------- ------------- -------- ------- ---------- ---------- --------
Net unrealised fair value
changes to derivative
contracts
(2) - 747 (5) (49)
----------------------------- ------- ---------- ------------- -------- ------- ---------- ---------- --------
Effect of currency on
contract
accounting (23) - 4 -
----------------------------- ------- ---------- ------------- -------- ------- ---------- ---------- --------
Put option on NCI and
financial
RRSPs - foreign exchange
differences and other
unrealised
changes in value - 11 - 2
----------------------------- ------- ---------- ------------- -------- ------- ---------- ---------- --------
Effect of acquisition
accounting
(3) (69) - (64) -
----------------------------- ------- ---------- ------------- -------- ------- ---------- ---------- --------
Post-retirement scheme past
service credit (4, 5) - - 164 -
----------------------------- ------- ---------- ------------- -------- ------- ---------- ---------- --------
Net post-retirement scheme
financing - (64) - (12)
----------------------------- ------- ---------- ------------- -------- ------- ---------- ---------- --------
Related tax effects (129) 4
----------------------------- ------- ---------- ------------- -------- ------- ---------- ---------- --------
IAE restructuring 699 - 37 - - -
----------------------------- ------- ---------- ------------- -------- ------- ---------- ---------- --------
Total underlying adjustments (48) 582 694 (92) (153) (17) (35) 4
----------------------------- ------- ---------- ------------- -------- ------- ---------- ---------- --------
Reported per consolidated
income statement 12,161 2,072 633 (410) 11,124 1,189 (84) (257)
----------------------------- ------- ---------- ------------- -------- ------- ---------- ---------- --------
(1) Realised (gains)/losses on settled derivative contracts
include adjustments to reflect the (gains)/losses in the same
period as the related trading cash flows.
(2) Unrealised fair value changes to derivative contracts
include those included in equity accounted joint ventures and
exclude those for which the related trading contracts have been
cancelled when the fair value changes are recognised immediately in
underlying profit.
(3) The adjustment eliminates charges recognised as a result of
recognising assets in acquired businesses at fair value.
(4) In 2010, the UK Government announced changes to the basis of
the statutory indexation for pension increases. As a result, the
relevant arrangements were amended, resulting in a gain in the
income statement in 2011 of GBP130m, which was excluded from
underlying profit.
(5) In 2011, the Group agreed revised post-retirement healthcare
arrangements on certain of its overseas schemes. This resulted in a
net gain in the income statement of GBP34m which was excluded from
underlying profit.
The reconciliation of underlying earnings per ordinary share is
shown in note 4.
3 Net financing
2012 2011
---------------------------------------------- ----------------------------------------------
Per consolidated Underlying financing Per consolidated Underlying financing
income statement (1) income statement (1)
GBPm GBPm GBPm GBPm
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Financing income
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Interest receivable 10 10 20 20
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Fair value gains on
foreign currency
contracts 750 - - -
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Put option on NCI and
financial RRSPs -
foreign exchange
differences and other
changes in
unrealised values 11 - 2 -
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Fair value gains on - - -
commodity derivatives
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Expected return on
post-retirement
scheme assets 341 - 410 -
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Net foreign exchange
gains - - 24 -
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
1,112 10 456 20
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Financing costs
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Interest payable (51) (51) (51) (51)
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Fair value losses on
foreign currency
derivatives - - (21) -
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Financial charge
relating to financial
RRSPs (10) (10) (11) (11)
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Fair value losses on
commodity derivatives (3) - (28) -
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Interest on
post-retirement
scheme liabilities (405) - (422) -
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Other financing
charges (10) (10) (7) (7)
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
(479) (71) (540) (69)
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Net financing 633 (61) (84) (49)
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Analysed as:
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Net interest payable (41) (41) (31) (31)
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Net post-retirement
scheme financing (64) - (12) -
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Net other financing 738 (20) (41) (18)
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Net financing 633 (61) (84) (49)
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
(1) See note 2
4 Earnings per ordinary share (EPS)
Basic earnings per ordinary share (EPS) are calculated by
dividing the profit attributable to ordinary shareholders by the
weighted average number of ordinary shares in issue during the
year, excluding ordinary shares held under trust, which have been
treated as if they had been cancelled.
Diluted EPS are calculated by adjusting the weighted average
number of ordinary shares in issue during the year for the bonus
element of share options.
2012 2011
--------------------------------------------
Potentially dilutive share Potentially dilutive share
Basic options Diluted Basic options Diluted
--------------------------- ------ --------------------------- ------- ----- --------------------------- -------
Profit attributable to
ordinary shareholders
(GBPm) 2,281 2,281 850 850
--------------------------- ------ --------------------------- ------- ----- --------------------------- -------
Weighted average number of
shares (millions) 1,851 25 1,876 1,850 25 1,875
--------------------------- ------ --------------------------- ------- ----- --------------------------- -------
EPS (pence) 123.23 (1.64) 121.59 45.95 (0.62) 45.33
--------------------------- ------ --------------------------- ------- ----- --------------------------- -------
The reconciliation between underlying EPS and basic EPS is as
follows:
2012 2011
-------------- --------------
Pence GBPm Pence GBPm
----------------------------------------------------------------------- ------ ------ ------ ------
Underlying EPS/Underlying profit attributable to ordinary shareholders 59.27 1,097 48.54 898
----------------------------------------------------------------------- ------ ------ ------ ------
Total underlying adjustments to profit before tax (note 2) 68.93 1,276 (2.81) (52)
----------------------------------------------------------------------- ------ ------ ------ ------
Related tax effects (4.97) (92) 0.22 4
----------------------------------------------------------------------- ------ ------ ------ ------
EPS/Profit attributable to ordinary shareholders 123.23 2,281 45.95 850
----------------------------------------------------------------------- ------ ------ ------ ------
Excluding IAE restructuring 83.47 1,545 45.95 850
----------------------------------------------------------------------- ------ ------ ------ ------
IAE restructuring 39.76 736 - -
----------------------------------------------------------------------- ------ ------ ------ ------
Diluted underlying EPS 58.48 47.89
----------------------------------------------------------------------- ------ ------ ------ ------
5 Payments to shareholders in respect of the year
Payments to shareholders in respect of the year represent the
value of C Shares to be issued in respect of the results for the
year. Issues of C Shares were declared as follows:
2012 2011
---------------- ----------------
Pence Pence
per share GBPm per share GBPm
---------------------------- ---------- ---- ---------- ----
Interim (issued in January) 7.6p 142 6.9p 129
---------------------------- ---------- ---- ---------- ----
Final (issued in July) 11.9p 223 10.6p 199
---------------------------- ---------- ---- ---------- ----
19.5p 365 17.5p 328
---------------------------- ---------- ---- ---------- ----
6 Intangible assets
Certification
costs and
participation Development Recoverable Software and
Goodwill fees expenditure engine costs other Total
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------- -------- --------------- --------------- --------------- ---------------- ------
Cost:
----------------------------- -------- --------------- --------------- --------------- ---------------- ------
At 1 January 2012 1,106 720 954 464 490 3,734
----------------------------- -------- --------------- --------------- --------------- ---------------- ------
Exchange differences (4) (2) (4) - (1) (11)
----------------------------- -------- --------------- --------------- --------------- ---------------- ------
Additions - 28 38 35 124 225
----------------------------- -------- --------------- --------------- --------------- ---------------- ------
Acquisitions of businesses 10 - - - 9 19
----------------------------- -------- --------------- --------------- --------------- ---------------- ------
Transferred to assets held
for sale - - (1) - - (1)
----------------------------- -------- --------------- --------------- --------------- ---------------- ------
Disposals (1) (6) (6) - (3) (16)
----------------------------- -------- --------------- --------------- --------------- ---------------- ------
At 31 December 2012 1,111 740 981 499 619 3,950
----------------------------- -------- --------------- --------------- --------------- ---------------- ------
Accumulated amortisation:
----------------------------- -------- --------------- --------------- --------------- ---------------- ------
At 1 January 2012 7 197 268 231 149 852
----------------------------- -------- --------------- --------------- --------------- ---------------- ------
Charge for the year - 34 50 64 61 209
----------------------------- -------- --------------- --------------- --------------- ---------------- ------
Impairment 3 - - - - 3
----------------------------- -------- --------------- --------------- --------------- ---------------- ------
Disposals (1) (6) (6) - (2) (15)
----------------------------- -------- --------------- --------------- --------------- ---------------- ------
At 31 December 2012 9 225 312 295 208 1,049
----------------------------- -------- --------------- --------------- --------------- ---------------- ------
Net book value at 31 December
2012 1,102 515 669 204 411 2,901
----------------------------- -------- --------------- --------------- --------------- ---------------- ------
Net book value at 31 December
2011 1,099 523 686 233 341 2,882
----------------------------- -------- --------------- --------------- --------------- ---------------- ------
Certification costs and participation fees, development costs
and recoverable engine costs have been reviewed for impairment in
accordance with the requirements of IAS 36 Impairment of Assets.
Where an impairment test was considered necessary, it has been
performed on the following basis:
-- The carrying values have been assessed by reference to value
in use. These have been estimated using cash flows from the most
recent forecasts prepared by management, which are consistent with
past experience and external sources of information on market
conditions over the lives of the respective programmes.
-- The key assumptions underlying cash flow projections are
assumed market share, programme timings, unit cost assumptions,
discount rates, and foreign exchange rates.
-- The pre-tax cash flow projections have been discounted at 11
per cent (2011 11 per cent), based on the Group's weighted average
cost of capital.
-- No impairment is required on this basis. However, a
combination of changes in assumptions and adverse movements in
variables that are outside the Group's control (discount rate,
exchange rate and airframe delays), could result in impairment in
future years.
7 Other financial assets and liabilities
Derivatives
----------------------------------------------------
Foreign
exchange Commodity Interest rate Put option on Financial
contracts contracts contracts Total NCI RRSPs C Shares Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------- ------------- -------------- -------------- ----- -------------- -------------- -------- -----
At 31 December
2012
--------------- ------------- -------------- -------------- ----- -------------- -------------- -------- -----
Non-current
assets 498 4 90 592 - - - 592
--------------- ------------- -------------- -------------- ----- -------------- -------------- -------- -----
Current assets 104 6 5 115 - - - 115
--------------- ------------- -------------- -------------- ----- -------------- -------------- -------- -----
Current
liabilities (97) (8) - (105) (167) (30) (10) (312)
--------------- ------------- -------------- -------------- ----- -------------- -------------- -------- -----
Non-current
liabilities (233) (15) (7) (255) - (163) - (418)
--------------- ------------- -------------- -------------- ----- -------------- -------------- -------- -----
272 (13) 88 347 (167) (193) (10) (23)
--------------- ------------- -------------- -------------- ----- -------------- -------------- -------- -----
At 31 December
2011
--------------- ------------- -------------- -------------- ----- -------------- -------------- -------- -----
Non-current
assets 237 7 83 327 - - - 327
--------------- ------------- -------------- -------------- ----- -------------- -------------- -------- -----
Current assets 84 7 - 91 - - - 91
--------------- ------------- -------------- -------------- ----- -------------- -------------- -------- -----
Current
liabilities (85) (7) - (92) - (15) (4) (111)
--------------- ------------- -------------- -------------- ----- -------------- -------------- -------- -----
Non-current
liabilities (683) (19) (2) (704) - (215) - (919)
--------------- ------------- -------------- -------------- ----- -------------- -------------- -------- -----
(447) (12) 81 (378) - (230) (4) (612)
--------------- ------------- -------------- -------------- ----- -------------- -------------- -------- -----
Derivative financial instruments
Movements in the fair value of derivative financial instruments
were as follows:
2012 2011
-------------------------------------------------
Foreign exchange Commodity Interest rate Total Total
GBPm GBPm GBPm GBPm GBPm
---------------------------------------- ---------------- --------- ------------- ----- -----
At January 1 (447) (12) 81 (378) (140)
---------------------------------------- ---------------- --------- ------------- ----- -----
Movements in fair value hedges (8) - 6 (2) 85
---------------------------------------- ---------------- --------- ------------- ----- -----
Movements in cash flow hedges (4) - - (4) (1)
---------------------------------------- ---------------- --------- ------------- ----- -----
Movements in other derivative contracts 750 (3) 1 748 (48)
---------------------------------------- ---------------- --------- ------------- ----- -----
Contracts settled (19) 2 - (17) (274)
---------------------------------------- ---------------- --------- ------------- ----- -----
At December 31 272 (13) 88 347 (378)
---------------------------------------- ---------------- --------- ------------- ----- -----
Put option on NCI and financial RRSPs
The Group has agreed a put option with Daimler AG, such that
Daimler can sell its non-controlling interest (NCI) in Bergen
Engines AS to the Group for a period of six years from 1 January
2013. The fair value of the exercise value this option is included
as a financial liability. The Group has financial liabilities
arising from financial risk and revenue sharing partnerships
(RRSPs). These financial liabilities are valued at each reporting
date using the amortised cost method. This involves calculating the
present value of the forecast cash flows of the arrangements using
the internal rate of return at the inception of the arrangements as
the discount rate.
Put option on NCI Financial RRSPs
-----------------
2012 2012 2011
GBPm GBPm GBPm
----------------------------------------------------------------------------- ----------------- -------- -------
At 1 January - (230) (266)
------------------------------------------------------------------------------ ----------------- -------- -------
Cash paid to partners 35 46
------------------------------------------------------------------------------ ----------------- -------- -------
Addition (167) - -
------------------------------------------------------------------------------ ----------------- -------- -------
Exchange adjustments included in OCI 1 (1)
------------------------------------------------------------------------------ ----------------- -------- -------
Financing charge (1) (10) (11)
------------------------------------------------------------------------------ ----------------- -------- -------
Excluded from underlying profit:
----------------------------------------------------------------------------- ----------------- -------- -------
Change in put option exercise price (5)
------------------------------------------------------------------------------ ----------------- -------- -------
Exchange adjustments (1) 5 9 1
------------------------------------------------------------------------------ ----------------- -------- -------
Restructuring of financial RRSP agreements and changes in forecast payments
(1) 2 1
------------------------------------------------------------------------------ ----------------- -------- -------
At 31 December (167) (193) (230)
------------------------------------------------------------------------------ ----------------- -------- -------
(1) Included in finance
8 Borrowings
During 2012, the Group drew down a further GBP200 million loan
from the European Investment Bank. Following the acquisition of
AEC, the Group repaid AEC's external bank funding of GBP78
million.
9 Pensions and other post-retirement benefits
Movements in the net post-retirement position recognised in the
balance sheet were as follows:
UK schemes Overseas schemes Total
GBPm GBPm GBPm
---------------------------------------------------------------------- ---------- ---------------- -----
At 1 January 2012 252 (649) (397)
---------------------------------------------------------------------- ---------- ---------------- -----
Exchange differences - 24 24
---------------------------------------------------------------------- ---------- ---------------- -----
Current service cost (123) (38) (161)
---------------------------------------------------------------------- ---------- ---------------- -----
Past-service (cost)/credit (2) 12 10
---------------------------------------------------------------------- ---------- ---------------- -----
Interest on post-retirement scheme liabilities (356) (49) (405)
---------------------------------------------------------------------- ---------- ---------------- -----
Expected return on post-retirement scheme assets 315 26 341
---------------------------------------------------------------------- ---------- ---------------- -----
Contributions by employer 250 47 297
---------------------------------------------------------------------- ---------- ---------------- -----
Acquisition of business 5 - 5
---------------------------------------------------------------------- ---------- ---------------- -----
Net actuarial gains/(losses) (689) (98) (787)
---------------------------------------------------------------------- ---------- ---------------- -----
Movement in unrecognised surplus (1) 465 - 465
---------------------------------------------------------------------- ---------- ---------------- -----
Movement on minimum funding liability (2) 63 - 63
---------------------------------------------------------------------- ---------- ---------------- -----
At 31 December 2012 180 (725) (545)
---------------------------------------------------------------------- ---------- ---------------- -----
Analysed as:
---------------------------------------------------------------------- ---------- ---------------- -----
Post-retirement scheme surpluses - included in non-current assets 317 12 329
---------------------------------------------------------------------- ---------- ---------------- -----
Post-retirement scheme deficits - included in non-current liabilities (137) (737) (874)
---------------------------------------------------------------------- ---------- ---------------- -----
(1) Where a surplus has arisen on a scheme, in accordance with
IAS 19 and IFRIC 14, the surplus is recognised as an asset only if
it represents an unconditional economic benefit available to the
Group in the future. Any surplus in excess of this benefit is not
recognised in the balance sheet.
(2) A minimum funding liability arises where the statutory
funding requirements require future contributions in respect of
past service that will result in a future unrecognisable
surplus.
In 2013, Rolls-Royce will adopt the amendments to IAS 19
Employee Benefits. The principal change is that the financing on
post-retirement benefits is calculated on the net surplus or
deficit using an 'AA' corporate bond rate. If it had been effective
in 2012, it would have increased the current service cost of
defined benefit post-retirement schemes by GBP9 million, the past
service cost by GBP5 million and reduced the net post-retirement
scheme financing cost by GBP55 million. The net deficit at 31
December 2012 would have reduced by GBP100 million.
10 Contingent liabilities
In connection with the sale of its products the Group will, on
some occasions, provide financing support for its customers. The
Group's contingent liabilities related to financing arrangements
are spread over many years and relate to a number of customers and
a broad product portfolio.
Contingent liabilities are disclosed on a discounted basis. As
the directors consider the likelihood of these contingent
liabilities crystallising to be remote, this amount does not
represent avalue that is expected to crystallise. However, the
amounts are discounted at the Group's borrowing rate to reflect
better the time span over which these exposures could arise. The
contingent liabilities are denominated in US dollars. As the Group
does not adopt hedge accounting for forecast foreign currency
transactions, this amount is reported, together with the sterling
equivalent at the reporting date spot rate.
The discounted values of contingent liabilities relating to
delivered aircraft and other arrangements where financing is in
place, less insurance arrangements and relevant provisions
were:
2012 2011
--------- ---------
GBPm $m GBPm $m
------------------------------------------------------------------- ---- --- ---- ---
Gross contingent liabilities 569 925 612 951
------------------------------------------------------------------- ---- --- ---- ---
Contingent liabilities net of relevant security (1) 70 114 124 192
------------------------------------------------------------------- ---- --- ---- ---
Contingent liabilities net of relevant security reduced by 20% (2) 133 216 201 312
------------------------------------------------------------------- ---- --- ---- ---
(1) Security includes unrestricted cash collateral of: 64 104 67 104
------------------------------------------------------------------- ---- --- ---- ---
(2) Although sensitivity calculations are complex, the reduction
of the relevant security by 20 per cent illustrates the sensitivity
of the contingent liability to changes in this assumption
There are also net contingent liabilities in respect of
undelivered aircraft, but it is not considered practicable to
estimate these as deliveries can be many years in the future, and
the relevant financing will only be put in place at the appropriate
time.
Following a request for information from the Serious Fraud
Office (SFO) about allegations of malpractice in Indonesia and
China, investigations by Rolls-Royce have identified matters of
concern in these, and in other overseas markets. The Group has
passed information to the SFO relating to these concerns and is
cooperating fully.
The consequence of these disclosures will be decided by the
regulatory authorities. It is too early to predict the outcomes,
but these could include the prosecution of individuals and of the
company. Accordingly, the potential for fines or other penalties
cannot currently be assessed. As the investigation is ongoing it is
not possible to identify the timescale in which these issues might
be resolved.
Contingent liabilities exist in respect of guarantees provided
by the Group in the ordinary course of business for product
delivery, performance and reliability. The Group has, in the normal
course of business, entered into arrangements in respect of export
finance, performance bonds, countertrade obligations and minor
miscellaneous items. Various Group undertakings are parties to
legal actions and claims which arise in the ordinary course of
business, some of which are for substantial amounts. While the
outcome of some of these matters cannot precisely be foreseen, the
directors do not expect any of these arrangements, legal actions or
claims, after allowing for provisions already made, to result in
significant loss to the Group.
11 Restructuring of IAE
On 29 June 2012, the Group and Pratt & Whitney completed the
restructuring of their participation in IAE, which produces the
V2500 engine for the Airbus A320 family of aircraft. As a result of
the restructuring, Rolls-Royce sold its equity, programme share and
related goodwill in IAE to Pratt & Whitney for US$1.5 billion,
giving rise to a profit before tax of GBP699 million.
As Rolls-Royce continues to be responsible for the manufacture
of high-pressure compressors, fan blades as well as the provision
of engine support and final assembly of 50 per cent of V2500
engines, the transaction is not considered to give rise to a
discontinued operation.
12 Events after the reporting period - Consolidation of Tognum AG
On 1 January 2013, conditions were fulfilled which gave the
Group certain rights that result in Tognum AG being classified as a
subsidiary and consolidated. Rolls-Royce and Daimler AG each hold
50 per cent of the shares of Engine Holding GmbH (EH), which itself
holds over 99 per cent of the shares of Tognum AG. From 25 August
2011 to 31 December 2012 the Group's interest in Tognum was
classified as a joint venture and equity accounted. Tognum is a
premium supplier of engines, propulsion systems and components for
Marine, Energy, Defence, and other industrial applications (often
described as "off-highway" applications).
Accordingly, Rolls-Royce's current joint venture interest in EH
will be reclassified to a subsidiary. The provisional fair values
of the identifiable assets and liabilities assumed is GBP1,347
million, giving rise to goodwill of GBP735 million. In accordance
with the provisions of IFRS Business Combinations, the Group will
opt not to recognise goodwill in respect of the non-controlling
interest. The existing joint venture investment holding in EH will
be revalued, giving rise to a provisional gain of GBP81
million.
As part of the EH shareholders' agreement, Daimler has the
option to sell its shares in EH to Rolls-Royce for a period of six
years from 1 January 2013. The fair value of the exercise price of
this option in respect of Tognum will be recognised as a liability
(estimated GBP1.4 billion).
Principal risks and uncertainties
The following table describes the risks that the risk committee,
with endorsement from the Board, considers would have the most
material potential impact on the company and are specific to the
nature of our business notwithstanding that there are other risks
that may occur and may impact on the achievement of the Group's
objectives.
Product failure
Product not meeting safety * Operating a 'safety first' culture
expectations, or causing
significant impact to
customers or the environment * Our engineering design and validation process is
through failure in quality applied from initial design, through production and
control. into service
* A safety management system has been established by a
dedicated team, which is subject to continual
improvement based on experience and industry best
practice
* Plan to accelerate quality improvements launched,
including involvement from our suppliers
* Crisis management team led by Director of Engineering
and Technology or General Counsel as appropriate
---------------------------------- -------------------------------------------------------------
Business continuity
Complete breakdown of * Continued investment in adequate capacity and modern
external supply chain equipment and facilities
or internal facilities
that could be caused
by destruction of key * Identifying and reducing single points of failure
facilities, natural disaster,
regional conflict, financial
insolvency of a critical * Selection of stronger suppliers; developing dual
supplier or scarcity sources, or dual capability
of materials which would
reduce the ability to
meet customer commitments, * Developing and testing site level incident management
win future business or and business recovery plans
achieve operational results.
* Customer excellence centres provide improved response
to supply chain disruption
---------------------------------- -------------------------------------------------------------
Competitor action
The presence of large, * Accessing and developing key capabilities in
financially strong competitors technology and service offerings which differentiate
in the majority of our us competitively
markets means that the
Group is susceptible
to significant price * Focusing on our customers and partnering with others
pressure even where our effectively
markets are mature or
the competitors are few.
Our main competitors * Driving down cost and improving margins
have access to significant
government funding programmes
as well as the ability * Protecting credit linesInvesting in innovation,
to invest heavily in manufacturing and production
capability.
* Understanding our competitors
---------------------------------- -------------------------------------------------------------
International trade friction
Geopolitical factors * Where possible, locating our domestic facilities in
that lead to significant politically stable countries and/or ensuring that we
tensions between major retain dual capability
trading parties or blocs
which could impact the
Group's operations. For * Diversifying global operations to avoid excessive
example: explicit trade concentration of risks in particular areas
protectionism; differing
tax or regulatory regimes;
potential for conflict, * Regional director network proactively monitors local
or broader political situations
issues.
* Maintaining a balanced business portfolio with high
barriers to entry and a diverse customer base
* Understanding our supply chain risks
* Proactively influencing regulation where it affects
us
---------------------------------- -------------------------------------------------------------
Major product programme
delivery * Major programmes are subject to Board approval
Failure to deliver a
major product programme
on time, to specification * Major programmes are reviewed at levels and
or technical performance frequencies appropriate to their performance against
falling significantly key financial and non-financial deliverables and
short of customer expectations potential risks
would have potentially
significant adverse financial
and reputational consequences, * Technical audits are conducted at pre-defined points,
including the risk of performed by a team that is independent from the
impairment of the carrying programme
value of the Group's
intangible assets and
the impact of potential * Formal independent gated reviews are conducted
litigation. throughout a programme's lifecycle to review
non-technical risks
* Programmes are required to address the actions
arising from reviews and audits and progress is
monitored and controlled through to closure
* Knowledge management principles are applied to
provide benefit to current and future programmes
---------------------------------- -------------------------------------------------------------
Compliance
Non-compliance by the * An uncompromising approach to compliance is now, and
Group with legislation should always be, the only way to do business
or other regulatory requirements
in the heavily regulated
environment in which * The Group has an extensive compliance programme as
it operates (for example: separately described in the ethics and risk committee
export controls; use reports. These programmes and the Code of Ethics are
of controlled chemicals promulgated throughout the Group and are updated and
and substances; and anti-bribery reinforced from time to time, to ensure their
and corruption legislation) continued relevance and, to ensure that they are
compromising the ability complied with both in spirit and to the letterA legal
to conduct business in and compliance team has been put in place to manage
certain jurisdictions the current specific issue through to a conclusion
and exposing the Group
to potential: reputational
damage; financial penalties; * The appointment of Lord Gold to lead a review of the
debarment from government Group's current compliance procedures and report to
contracts for a period the ethics committee
of time; and/or suspension
of export privileges
(including export credit
financing), each of which
could have a material
adverse effect.
---------------------------------- -------------------------------------------------------------
Market shock
The Group is exposed * Maintaining a strong balance sheet, through healthy
to a number of market cash balances and a continuing low level of debt
risks: some of which
are of a macro-economic
nature, for example, * Providing financial flexibility by maintaining high
foreign currency exchange levels of liquidity and an investment grade 'A'
rates , and some which credit rating
are more specific to
the Group, for example,
liquidity and credit * The portfolio effect from our business interests,
risks or disruption to both in terms of original equipment to aftermarket
aircraft or other operations. split and our different segments provide a natural
Significant extraneous shock absorber since the portfolios are not
market events could also correlated
materially damage the
Group's competitiveness
and/or credit worthiness. * Deciding where and what currencies to source in,
This would affect operational where and how much credit risk is extended or taken
results or the outcomes and hedging residual risk through the financial
of financial transactions. derivatives markets (foreign exchange, interest rates
and commodity price risk)
---------------------------------- -------------------------------------------------------------
IT vulnerability
Breach of IT security * Establishing 'defence in depth' through deployment of
causing controlled data multiple layers of software and processes including
to be lost, made inaccessible, web gateways, filtering, firewalls, intrusion and
corrupted or accessed advanced persistent threat detectors
by unauthorised users,
impacting the Group's
reputation. * Establishment of security and network operations
centres
* Active sharing of information through industry,
government and security forums
---------------------------------- -------------------------------------------------------------
Annual report and financial statements
The statements below have been prepared in connection with the
Company's full Annual report for the year ended 31 December 2012.
Certain parts thereof are not included with this announcement.
Going concern
The Group's business activities, together with the factors
likely to affect its future development, performance and position
and a summary of the principal risks and uncertainties affecting
the business are shown in the business review. The financial
position of the Group, its cash flows, liquidity position,
borrowing facilities and financial risks are also described in the
business review. In addition, the consolidated financial statements
include the Group's objectives, policies and processes for
financial risk management, details of its cash and cash
equivalents, indebtedness and borrowing facilities and its
financial instruments, hedging activities and its exposure to
counterparty credit risk, liquidity risk, currency risk, interest
rate risk and commodity pricing risk.
The Group meets its funding requirements through a mixture of
shareholders' funds, bank borrowings, bonds, notes and finance
leases. The Group has facilities of GBP2.3 billion of which GBP1.3
billion was drawn at the year end. Facilities of $230 million
mature during 2013.
The Group's forecasts and projections, taking into account
reasonably possible changes in trading performance, show that the
Group has sufficient financial resources. In the event that the put
option on Engine Holding GmbH is exercised, (estimated cost GBP1.6
billion), the directors consider that the Group would be able to
raise additional resources in the necessary timeframe to meet this
commitment. As a consequence, the directors have reasonable
expectation that the Company and the Group are well placed to
manage their business risks and to continue in operational
existence for the foreseeable future, despite the current uncertain
global economic outlook.
Accordingly, the directors continue to adopt the going concern
basis (in accordance with the guidance 'Going Concern and Liquidity
Risk: Guidance for Directors of UK Companies 2009' issued by the
FRC) in preparing the consolidated financial statements.
Annual General Meeting and directorates change
This year's AGM will be held at 11.00am on Thursday, 2 May 2013
at the QEII Conference Centre, Broad Sanctuary, Westminster,
London, SW1P 3EE. Under Article 112 of the Company's Articles of
Association, all directors will retire at the 2013 AGM and offer
themselves for re-election. However, Sir Simon Robertson, Peter
Byrom and Ian Strachan have all expressed a wish to retire as
non-executive directors of Rolls-Royce at this year's AGM and
therefore will not be seeking re-election.
Responsibility statement
Each of the persons who is a director at the date of approval of
this report confirms that to the best of his or her knowledge:
i) each of the Group and parent company financial statements,
prepared in accordance with IFRS and UK Accounting Standards
respectively, gives a true and fair view of the assets,
liabilities, financial position and profit or loss of the issuer
and the undertakings included in the consolidation taken as a
whole; and
ii) the Directors' report includes a fair review of the
development and performance of the business and the position of the
Company and the undertakings included in the consolidation taken as
a whole, together with a description of the principal risks and
uncertainties that they face.
By order of the Board
Sir Simon Robertson Mark Morris
Chairman Chief Financial Officer
13 February 2013 13 February 2013
This information is provided by RNS
The company news service from the London Stock Exchange
END
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