Preliminary Results 2000

Rolls-Royce PLC 2 March 2001 ROLLS-ROYCE plc PRELIMINARY RESULTS 2000 Rolls-Royce plc announced today preliminary results for the year ended 31 December 2000. Highlights are: 2000 1999 Sales £5864m £4634m +27% *Underlying profit before tax £436m £368m +18% Underlying earnings per share 21.63p 19.52p +10.8% Dividend 8.00p 7.25p +10.3% Order book £13.1bn £11.5bn +14% *See note 2 Sir Ralph Robins, Chairman, said:- 'We achieved our financial targets in 2000 including the predicted reduction in average borrowings. 'In 2000, the management team met the challenge of successfully integrating the Vickers acquisition and creating a world leader in marine propulsion systems. We continue to strengthen our position in civil aerospace, participate in many of the world's key defence aerospace programmes and expect to grow our position in the Energy sector as we introduce new products. 'In each of our market sectors we are able to exploit our core technologies by developing a range of related products and value added services. We enter 2001 with a record order book of more than £13 billion. 'Significant opportunities exist to provide support to our customers throughout the life of the product in service. As a result service revenues grew by 20 per cent during 2000.' Business overview Rolls-Royce continued to develop its strong portfolio of businesses in 2000, increasing its focus, strengthening its market position and improving its productivity. The company met its financial targets and achieved a record order book. Average net debt levels, before the impact of acquisitions, were reduced, as the company predicted. Rolls-Royce has anticipated customer needs in civil aerospace, defence, marine and energy markets and has successfully invested in new products and services to meet this demand. The capabilities and technologies developed to satisfy the needs of customers, particularly in the aerospace sector, are increasingly being applied in each of the company's markets. The company has been an innovator in many areas of its business: - * Rolls-Royce developed the Trent family of engines, anticipating the market need for a range of engines to power the new generation of wide-bodied aircraft. This has enabled the company to stay ahead of the competition, securing almost 50 per cent of the global market opportunity. * Rolls-Royce and Partners Finance, established in 1989, anticipated the growth of aircraft and engine leasing. The company has become the world's largest specialist aero engine leasing business. * The acquisition in 1995 of the Allison Engine Company anticipated the strong growth in the corporate and regional aircraft sector, where the company is now a global leader. It also enabled the company to consolidate its position on the US Joint Strike Fighter programme, the world's largest defence aerospace programme. * The company has become a world leader in marine propulsion systems following the acquisition of Vickers in 1999. Rolls-Royce is well placed to benefit from the move towards integrated propulsion systems and the growing emphasis on gas turbines in the commercial sector. * Across all its markets Rolls-Royce has developed a strong services capability. Financial and aftermarket services account for 38 per cent of the company's sales. They offer a strong growth opportunity as the company extends the scope of its services for customers. By making early investments in its repair and overhaul network, the company has been able to double its share of the overhaul of Rolls-Royce civil aero engines. * The company has invested in its predictive maintenance capability through Data Systems and Solutions (DS&S), a joint venture with the US-based Science Applications International Corporation. DS&S is pioneering internet-based customer services, which are applicable in each of Rolls-Royce's markets. Prospects The near-term outlook is consistent with the view given at the announcement of its half year results in August 2000. Earnings growth is expected to resume in 2002. Rolls-Royce is well positioned for growth in each of its markets. These markets present opportunities for the company to exploit its world-leading gas turbine technology supported by a range of related products and services. In 2000, the company increased its focus on these activities with the sale of non-core businesses, such as Materials Handling, Cochran Boilers and the major part of Vickers Turbine Components. The company strengthened its market position by introducing new products and winning new customers. The Trent 500 was certificated, ahead of schedule; the WR-21 marine engine was launched with the Royal Navy; the first EJ200 production engine for Eurofighter was assembled and tested; and, in the oil and gas sector, Rolls-Royce was chosen as a preferred supplier by BP Amoco. Good progress was made with the implementation of the new combustion system for the industrial Trent. The company expects to complete this exercise within the £120 million provision established. Demand for the industrial Trent is strong and the company anticipates annual sales will reach 30 units within five years. Rolls-Royce has continued to increase efficiency. Sales per employee increased by 11 per cent in 2000. In addition to ongoing restructuring, the company announced further plans for the rationalisation of its business following a period of rapid growth and increased complexity arising from acquisitions and joint ventures. Simplification of the business structure will reduce costs and deliver substantial efficiency gains. The cost of this programme will amount to £150 million, spread over three years, as previously announced. It is now likely that about half of this will be incurred before the end of 2001. The company's proposals include concentrating the large gas turbine operations of its Energy business in Montreal and the consolidation of its Naval Marine surface vessels business in Bristol. The company is also assessing its engineering capabilities with a view to using this resource more efficiently and effectively by co-locating it wherever possible with the relevant Rolls-Royce business. The company constantly reviews its supply chain to ensure that world-class standards are achieved in design and manufacture of components, whether outsourced or made by Rolls-Royce. The rationalisation programme includes a detailed assessment of the future balance between in-house centres of excellence and external sourcing. In 2001, as previously indicated, underlying earnings are expected to be unchanged. This is due to a combination of factors, including the mix of business in civil aerospace, delayed sales of the industrial Trent and continuing restructuring costs. Earnings growth is expected to resume in 2002. The company has a well balanced portfolio of businesses which are all expected to contribute to future growth. The strongest growth is expected to occur in, energy, marine, financial services and defence. More modest growth is expected from civil aerospace, where the company is investing in the Trent 600 and 900 engines. The current civil product portfolio is relatively new and is expected to generate significant long term returns. As a result of improving returns and asset efficiency, the company expects to continue to reduce the average level of net debt, on a comparable basis. Enquiries Peter Barnes-Wallis Director of Financial Communications Tim Blythe Director of Corporate Communications Tel: 0207 222 9020 www.rolls-royce.com Rolls-Royce plc preliminary results 2000 Underlying profit before tax was £436 million, up 18 per cent over 1999. Underlying earnings per share grew by 10.8 per cent to 21.63p. An exceptional provision of £120 million was made, to cover the costs associated with implementing new combustion technology on the industrial Trent. £55 million of this was utilised during the year. The balance is expected to be utilised in 2001. The firm order book was £13.1 billion (1999 £11.5 billion). In addition, a further £1.4 billion had been announced but not yet included in the order book (1999 £1.7 billion). Total care packages for aftermarket services represented almost ten per cent of the order book. These are long term contracts where only the first seven years revenue is included in the order book. Sales, including the impact of the acquisitions made in 1999, increased by 27 per cent to £5,864 million (1999 £4,634 million). Civil spares sales grew by 15 per cent, of which ten percentage points related to sales of RB211 upgrade kits. Underlying trading profit, before restructuring costs and after the net impact of risk and revenue sharing partners, increased by 17 per cent, to £901 million (1999 £773 million). Underlying trading margin reduced by 1.3 percentage points, as a result of an increased loss in the energy business and the lower defence profits. Gross research and development investment was £604 million (1999 £626 million). Net research and development expenditure, before receipts from risk and revenue sharing partners, increased to £371 million (1999 £337 million), as a result of the impact of acquisitions and development of the Trent 500. Net research and development figures have been restated to reflect the change of accounting presentation announced on 28 February 2001. Risk and revenue sharing partners (RRSPs) contributed £341 million, now shown under other operating income (1999 £232 million). Payments to RRSPs, charged in cost of sales, amounted to £129 million (1999 £99 million). Following the launch of the Trent 600 and 900, RRSP receipts are expected to be relatively stable in 2001. Payments to RRSPs will grow in line with sales of the relevant engine programme. Future receipts will depend upon existing RRSP arrangements, the launch of new programmes and the ability to attract new partners. The taxation charge, at £83 million, represents a rate of 22.8 per cent of underlying profits and reflects the write back of Advance Corporation Tax written off in previous years. Capital expenditure was £186 million (1999 £250 million), including £35 million in respect of acquired businesses. In addition, investment in finance companies was £67 million (1999 £162 million). The fair value adjustments relating to newly acquired businesses, which were reported provisionally in the 1999 accounts, have been finalised. This has resulted in an overall increase to fair value adjustments of £33 million, with a corresponding increase in goodwill. Average net debt, before the impact of acquisitions, was in line with the company's plans and, at £335 million, showed a 14 per cent reduction over 1999 (1999 £390 million). Average net debt, after acquisitions, was £1,323 million. The company expects to continue to reduce average net debt as a result of trading cash flows, control of working capital, cost reduction and disposals of non-core activities. Net debt on 31 December 2000 was £690 million. Cash flow returns on invested capital are expected to grow, reflecting more effective management of margins and enhanced utilisation of assets. Margins will benefit from the company's broader business portfolio, cost reduction and lower interest charges. Asset efficiency will be increased substantially by the company's new Enterprise Resource Planning system, the outcome of the company's rationalisation proposals and the results of the make:buy review. The proposed final dividend is 5.00 pence per share, an increase of 10 per cent over 1999, making a full year dividend of 8.00 pence per share (1999 7.25p). The dividend is payable on 2 July 2001 to shareholders on the register on 27 April 2001. The ex-dividend date is 25 April 2001. REVIEW OF OPERATIONS Civil aerospace: Sales £3,150m; underlying profit before interest £332m The company's civil aerospace business will become more robust and predictable as it grows and matures, reaping the benefits of a greater installed base of engines. Civil engine programmes typically reach the break-even point 10 to 15 years after the programme is launched and an engine programme may be in service for more than 50 years. Over each programme the financial rewards are substantial and are weighted towards the aftermarket for spare parts and services. The return on sales depends, therefore, on the size and maturity of the installed base of engines, which creates the aftermarket opportunity. The company has taken steps to secure a high proportion of this opportunity through the supply of spare parts and the development of aftermarket services. In particular, total care packages have been put in place, which offer a comprehensive service to customers throughout the life of the engine. In 2001, profits will be lower as a result of the high proportion of civil engine deliveries, combined with lower spares sales. Subsequent growth will reflect continuing market success and the increasing maturity of the product portfolio. Rolls-Royce expects its installed base of engines to almost double over the next five years, as a result of market share gains and the consequent growth in engine deliveries. A growing proportion of the company's civil aerospace profits will, therefore, arise from the aftermarket. 2000 was a strong year for the civil aerospace industry, with record new aircraft orders placed. Rolls-Royce increased its market share and achieved record engine deliveries. Rolls-Royce secured a 31 per cent share of engine orders placed during the year and a 27 per cent share of engines delivered. 1,091 engines were delivered, a number which is expected to increase in 2001 and 2002 to more than 1,300 engines per annum. This compares to an annual average of 400 engines in the first half of the 1990s and 200 engines in the late 1980s. The increase in engine deliveries reflects the company's success in building a strong portfolio of aero engines, which it has achieved through investment in new products, acquisitions and joint ventures. In the airline sector, success was achieved across the product range, from regional airliners to large wide-bodied aircraft. The Trent 700 and 800, in service on the Airbus Industrie A330 and Boeing 777 respectively, secured new orders from customers in Europe, North America, South East Asia and the Middle East. The Trent 500, under development for the A340-500 and 600 aircraft, gained certification ahead of schedule. Ten customers have placed firm and option engine orders with a total value of $5.8 billion. The Trent 900 won launch customers on the new Airbus Industrie A380 aircraft. Singapore Airlines and Virgin Atlantic ordered up to 37 Trent-powered A380s, worth more than $2 billion. Since the year end the company has been selected by Qantas to power its 12 A380 aircraft. The RB211-535, powering the Boeing 757, won new orders from American Trans Air, Continental Airlines and American Airlines. Deliveries of the 535 engine are expected to grow over the next two years. Demand in the regional airline sector remains strong. Orders for Rolls-Royce AE3007 powered Embraer regional jets now exceed 1,200 aircraft. AE3007 engine deliveries exceeded 400 in 2000 and are expected to grow to approximately 500 in 2001. Growth in the corporate jet sector has been stimulated by the introduction of new aircraft and fractional ownership. Rolls-Royce has a sole-source engine position on a range of corporate aircraft, including the Bombardier Global Express, the Cessna Citation X and the Gulfstream IV and V. Gulfstream announced a new generation of the GIV which will be powered by the Rolls-Royce Tay engine. Embraer launched a corporate version of the Rolls-Royce powered ERJ 145. The company made good progress with the integration of Rolls-Royce Deutschland which had previously been a joint venture with BMW. In 2000, Rolls-Royce Deutschland delivered almost 200 engines for corporate and regional aircraft. Defence: Sales £1,403m, underlying profit before interest £154m Rolls-Royce is a transatlantic defence company with a strong, mature product range and participation in many of the world's new defence programmes. In 2000, profits were affected by the phasing of long-term contracts, particularly the EJ200 engine for Eurofighter. Profits are expected to grow in 2001 and beyond. The EJ200 engine is making the transition from development to production. The first production engine was assembled and tested in December. Output is expected to increase to around 100 engines a year by 2003. Rolls-Royce has a 36 per cent share of the engine production contract, which covers up to 1,500 engines for 620 aircraft. The company also owns 47 per cent of ITP, the Spanish engine company which also participates in this programme. The first Pegasus Mk 107 engines were delivered to the Royal Air Force to power its Harrier GR 7 aircraft fleet, under an agreement to upgrade up to 126 engines, worth £350 million. The upgrade, one of the first examples of Smart Acquisition, provides more than 10 per cent additional thrust over the current engines. Rolls-Royce expanded its defence portfolio through its participation in a new European consortium which will develop the TP400 engine for the A400M European transport aircraft. The company will be responsible for the low pressure compressor and the overall integration of the engine. ITP will be responsible for the engine casings and dressings. Participation in the TP400 consolidates the company's position as a world leader in the transport sector, where it also supplies engines for the C-130J and V-22 aircraft. The United States Department of Defense (DoD) is the company's largest defence customer. Rolls-Royce supplies the DoD with a range of engines for many sectors, including combat, trainer, transport, maritime patrol, aerial surveillance and helicopters. The US Joint Strike Fighter programme is one of the world's largest defence procurement programmes. Rolls-Royce is participating in each of the competing aircraft configurations, the prototypes of which made their first flights in 2000. The UK Government recently confirmed its participation in the engineering, manufacturing and development stage of the programme. Rolls-Royce forecasts demand for nearly 10,000 gas turbine powered helicopters over the next ten years. 55 per cent of the demand is expected to arise in the civil market and 45 per cent in defence. The RTM 322 completed 3,000 hours operation in the GKN Westland Apache. The British Army has ordered 67 Apache helicopters with entry into service scheduled for the end of this year. Germany, France and the Netherlands selected Rolls-Royce Turbomeca RTM 322 engines, with a potential value of one billion dollars, for up to 399 twin-engined NH90 helicopters. An order for 320 MTR390 engines for the Franco-German Tiger helicopter was signed in 2000. Deliveries begin this year and run through to 2011. Customer support offers a growing opportunity for Rolls-Royce in the defence sector. Customers are focusing upon their core activities, creating an opportunity for Rolls-Royce to provide a range of services from long term support to complete managed fleet solutions. The company offers its customers modern logistic planning and management processes designed to improve operational effectiveness and reduce life cycle support costs. In 2000, further integrated logistic support services for the EJ200 engine were announced. Vickers Defence Systems won a £70 million contract, to supply spare parts and logistics services to the Ministry of Defence in support of the British Army's Challenger 2 main battle tank. Vickers Specialist Engines was selected as preferred bidder to the Field Electrical Power Supply (FEPS) programme to provide mobile generators for the British Army. The programme is estimated to have a total value of more than £100 million over the next 15-20 years. Marine: Sales £751m, underlying profit before interest £67m Rolls-Royce has developed a world leading marine business, serving customers in commercial and naval markets. The acquisition of Vickers in 1999 added a range of complementary products and services and expanded the company's routes to market. The integration of Vickers has proceeded well, with the company achieving its acquisition objectives. Rolls-Royce expects its marine business to grow substantially over the next five years. This growth is driven by three main factors: * A naval re-equipment cycle is commencing, as new vessels are introduced incorporating advanced technologies and offering lower through life costs. The WR-21 marine gas turbine, developed in partnership with Northrop Grumman, represents the next generation of fuel-efficient engines. It achieved a significant breakthrough when it secured a launch order for the first three ships of a new fleet of air defence destroyers for the Royal Navy. A class of up to 12 Type 45 destroyers is planned. * The company is benefiting from a strong recovery in the commercial offshore service vessel sector. In the past year, Rolls-Royce designs and packages of equipment have been selected for 53 offshore service vessels, representing a record order intake in this sector. The total value of these contracts, which include packages of Rolls-Royce propulsion equipment, is £170 million. * The company will benefit from its enhanced market position, as it addresses the whole of the marine market with its comprehensive product range and systems integration capability. In particular the company will be able to exploit developments in the commercial sector, where it has world-leading positions with its broad range of propulsion components. This, combined with an in-depth knowledge and gas turbine technology, allows the marine business to offer competitive proposals for the new generation of cruise and cargo vessels. Rolls-Royce has been selected to power the first of a new generation of fast cargo vessels, FastShip, with the 50MW marine Trent and Kamewa water jets. The marine business offers an excellent opportunity to exploit the gas turbine technology originally developed for aerospace applications. Computational fluid dynamics tools, developed for aerospace, are being applied to marine propulsor design. Aerospace materials, manufacturing engineering and advanced measurement techniques are helping to reduce costs and improve the performance of the company's marine products. The core gas turbine technology is being applied to a broad range of marine gas turbines, to 50MW. The company plans to introduce new aero-derivatives to match the needs of the marine market. Energy: Sales £476m, underlying loss before interest £48m Rolls-Royce plans to generate significant growth in its energy business, with the launch of new products. The addressable market is forecast to be worth $165 billion over the next ten years and the company is making significant investments with the objective of securing an increasing proportion of the growing global energy market. About three quarters of this opportunity lies in power generation and one quarter in the oil and gas sector. In each of these sectors the company is pursuing the strategy of developing a strong market position through the exploitation of its core gas turbine technology. In the power generation sector, the deregulation and privatisation of the electricity supply industries, environmental pressures, infrastructure constraints and the growing availability of gas are all creating higher levels of demand which Rolls-Royce is addressing through its range of gas turbine and diesel equipment. The financial performance of the energy business reflects the high level of investment in the industrial Trent and the start-up nature of this business. The company has made good progress with the implementation of the new combustion system for the industrial Trent. It is on target to demonstrate this system in a production environment in the second quarter of this year. Demand for the product is strong and the company expects annual sales to reach 30 units within five years. Sales in the oil and gas sector fell in 2000, as levels of investment in the oil and gas exploration industry remained subdued. Order intake improved in the first quarter of 2001, supported by the sustained recovery in oil prices, with more orders being secured in this period than in the whole of 2000. This will benefit the company's sales in 2001 and beyond. The company successfully integrated the compressor and packaging business of Cooper Cameron, acquired in 1999. This has enabled it to offer integrated solutions and improved support to customers through aftermarket services. The aftermarket offers significant growth prospects for the energy business as it exploits the capabilities developed in other parts of the company, such as predictive maintenance techniques and total care packages. Financial Services: Sales £40m, underlying profit before interest £56m The financial services businesses comprise subsidiary and joint venture companies. These offer engine leasing, aircraft leasing and management, and power project development services in support of the company's core business activities. Rolls-Royce has invested £370 million over the past five years in its financial services. These businesses are making an increasing contribution to profits as they grow and mature. They have been developed through partnerships which share investment and risk and which bring expertise and objectivity. The gross assets of the financial services businesses, including partner shares, amount to £1.7 billion. Net assets amount to £112 million, reflecting the financial structure of the joint ventures, with a large proportion of the gross assets funded by non-recourse debt. Gross sales amounted to £190 million. Rolls-Royce Power Ventures, the company's energy services subsidiary, ended the year with 12 power generation projects in operation and four projects in late stage commissioning. Through these projects, RRPV sells electricity to utilities and industrial clients in nine countries on four continents. Rolls-Royce power generation equipment is used extensively in these projects. The potential for RRPV's business grows as more countries privatise their power generation industries and more industrial customers subcontract their energy services. Pembroke Group, the company's aircraft leasing joint venture, continued to grow. It has a portfolio of 145 aircraft owned, managed or on order or option. GATX, the US-based finance and leasing company, recently became an equal partner with Rolls-Royce in this joint venture, endorsing the approach that Rolls-Royce has taken in the development of this business. Rolls-Royce and Partners Finance, the world's largest specialist aero gas turbine leasing business, is also a 50:50 partnership with GATX. The company had a successful year and made an increased profit contribution. By the end of the year, it had 190 engines, representing 13 engine types, in its lease portfolio. Aftermarket services: Sales and profit figures are included in the relevant market sectors. Rolls-Royce has continued the strategic development of its aftermarket activities. The entry into service of a Rolls-Royce engine marks the start of a customer relationship which may last 25 years or more. This creates a significant opportunity through the provision of spare parts and associated services. In the civil aerospace sector, the supply of spare parts over the life of an engine generates revenue equivalent to the original list price of the engine. The company's expanded range of aftermarket services will generate further revenue. Over the past five years the company has invested £200 million in the expansion of its aerospace repair and overhaul network, including joint ventures and acquisitions. This has enabled the company to more than double its share of the repair and overhaul of Rolls-Royce aero engines. Sales, including all those of the joint ventures, have more than trebled, with the number of worldwide locations increasing from six to 17. The company has continued to develop total care packages. These offer a comprehensive aftermarket service to customers, covering the operation and maintenance of the engine throughout its life. Whilst pioneered in the civil aerospace business, the concept of total care is increasingly being applied in the company's other business sectors. In January 2001, the company announced a maintenance support agreement with American Airlines, worth one billion dollars over ten years, for its fleet of RB211-535 engines. Data Systems and Solutions (DS&S) completed its first full year of operation. The company provides predictive services, including engine health monitoring and engine shop visit forecasting. These services are applied to total care packages and are yielding potential savings ten times greater than their cost. DS&S launched aeromanager.com in 2000, providing new predictive services which add value to the customer's operation. aeromanager.com combines information from a wide variety of sources within Rolls-Royce with data collected from engines in service. Operational improvement Rolls-Royce is concentrating its improvement activities on a number of well-defined areas, with a strong emphasis on reducing lead times. The company aims to achieve a step change in performance by shortening the time from order receipt to delivery of an engine, and by continuing to invest in lean manufacturing techniques. The improvement activities also have a strong focus on the reduction of costs in all areas of operation with aggressive targets set, backed by appropriate implementation plans. Underpinning all the improvement activities is an ongoing investment in the company's use of information. This is being approached through a balanced strategy of new e-business developments combined with major replacement of back-office systems. The aims of the e-business programmes are to provide enhanced services to customers, whilst at the same time making significant reductions in transaction costs with suppliers and partners. Major roll-out programmes for back-office systems have continued and include the new Enterprise Resource Planning system, as well as new systems for the management of product definition data and in-service product performance data. Group profit and loss account for the year ended December 31, 2000 Continuing Exceptional Total Restated operations items** 2000 Total 1999 before exceptional items £m £m £m £m Notes _____________________________________________________________________________ Turnover: Group and share of joint ventures 5,955 - 5,955 4,697 Sales to joint ventures 893 - 893 799 Less share of joint ventures' turnover (984) - (984) (862) _____________________________________________________________________________ Group turnover 1 5,864 - 5,864 4,634 Cost of sales (4,860) (145) (5,005) (3,787) _____________________________________________________________________________ Gross profit 1,004 (145) 859 847 Other operating income 341 - 341 232 Commercial, marketing and product support costs (268) - (268) (195) General and administrative costs (271) - (271) (171) Research and development (net)* (371) - (371) (337) _____________________________________________________________________________ Group operating profit 435 (145) 290 376 Share of operating profit of joint ventures 76 - 76 31 Loss on sale or termination of businesses (5) (73) (78) (14) Profit on sale of fixed assets 1 - 1 20 _____________________________________________________________________________ Profit on ordinary activities before Interest 1 507 (218) 289 413 Net interest payable - Group (85) - (85) (35) - joint ventures (38) - (38) (18) _____________________________________________________________________________ Profit on ordinary activities before taxation 384 (218) 166 360 Taxation (99) 16 (83) (74) _____________________________________________________________________________ Profit on ordinary activities after taxation 285 (202) 83 286 ------------------ Equity minority interests in subsidiary undertakings - (2) _____________________________________________________________________________ Profit attributable to ordinary shareholders 83 284 Dividends (126) (112) _____________________________________________________________________________ Transferred (from)/to reserves (43) 172 _____________________________________________________________________________ *Research and development (gross) (604) (626) Earnings per ordinary share: 2 Underlying 21.63p 19.52p Basic 5.33p 18.86p Diluted basic 5.30p 18.62p **exceptional items are: industrial Trent provision £(120)m acquisition restructuring £(16)m rationalisation £(9)m disposal of Materials Handling £(73)m ---------- £(218)m ---------- Group Balance sheet at December 31, 2000 restated 2000 1999 £m £m _____________________________________________________________________________ Fixed assets Intangible assets 889 918 Tangible assets 1,772 1,753 Investments - subsidiary undertakings - - - joint ventures 174 151 ______________________________ share of gross assets 1,117 958 share of gross liabilities (943) (807) ______________________________ - other 33 31 _____________________________________________________________________________ 2,868 2,853 _____________________________________________________________________________ Current assets Stocks 1,166 1,274 Debtors - amounts falling due within one year 1,591 1,292 - amounts falling due after one year 482 355 Short-term deposits and investments 142 464 Cash at bank and in hand 498 521 _____________________________________________________________________________ 3,892 3,906 Creditors - amounts falling due within one year Borrowings (272) (408) Other creditors (2,559) (2,467) _____________________________________________________________________________ Net current assets 1,061 1,031 _____________________________________________________________________________ Total assets less current liabilities 3,929 3,884 Creditors - amounts falling due after one year Borrowings (1,058) (1,271) Other creditors (206) (109) Provisions for liabilities and charges (601) (503) _____________________________________________________________________________ 2,064 2,001 _____________________________________________________________________________ Capital and reserves Called up share capital 314 309 Share premium account 623 615 Revaluation reserve 108 112 Other reserves 182 140 Profit and loss account 836 812 _____________________________________________________________________________ Equity shareholders' funds 2,063 1,988 Equity minority interests in subsidiary undertakings 1 13 _____________________________________________________________________________ 2,064 2,001 _____________________________________________________________________________ Group cash flow statement for the year ended December 31, 2000 restated Notes 2000 1999 £m £m _____________________________________________________________________________ Net cash inflow from operating activities A 479 359 Dividends received from joint ventures 13 6 Returns on investments and servicing of finance B (76) (32) Taxation paid (25) (38) Capital expenditure and financial investment C (253) (199) Acquisitions and disposals D (53) (666) Equity dividends paid (74) (88) _____________________________________________________________________________ Cash inflow/(outflow) before use of liquid resources and financing 11 (658) Management of liquid resources E 324 261 Financing F (360) 622 _____________________________________________________________________________ (Decrease)/increase in cash (25) 225 _____________________________________________________________________________ Reconciliation of net cash flow to movement in net funds (Decrease)/increase in cash (25) 225 Cash (inflow) from (decrease) in liquid resources (324) (261) Cash outflow/(inflow) from decrease/(increase) in borrowings 370 (618) Change in net funds resulting from cash flows 21 (654) Borrowings of businesses acquired - (332) Amortisation of zero-coupon bonds (3) (3) Exchange adjustments (14) (7) _____________________________________________________________________________ Movement in net funds 4 (996) Net (debt)/funds at January 1 (694) 302 _____________________________________________________________________________ Net debt at December 31 (690) (694) _____________________________________________________________________________ Reconciliation of operating profit to operating cash flows 2000 1999 £m £m Operating profit 290 376 Amortisation of intangible assets 60 19 Depreciation of tangible fixed assets 178 105 (Profit)/loss on disposals of tangible fixed assets (3) 4 Increase/(decrease) in provisions for liabilities and charges 49 (34) Decrease in stocks 62 39 Increase in debtors (374) (127) Increase/(decrease) in creditors 217 (23) _____________________________________________________________________________ A Net cash inflow from operating activities 479 359 _____________________________________________________________________________ Returns on investments and servicing of finance Interest received 26 26 Interest paid (96) (51) Interest element of finance lease payments (6) (7) _____________________________________________________________________________ B Net cash outflow for returns on investments and servicing of finance (76) (32) _____________________________________________________________________________ Capital expenditure and financial investment Additions to unlisted investments (2) - Addition to certification costs (10) - Purchases of tangible fixed assets (292) (381) Disposals of tangible fixed assets 51 187 Acquisitions of own shares by trust - (5) _____________________________________________________________________________ C Net cash outflow for capital expenditure and financial investment (253) (199) _____________________________________________________________________________ Acquisitions and disposals Acquisitions of businesses (45) (653) Disposals of businesses (5) 14 Investments in joint ventures (13) (27) Loan repayments from joint ventures 10 - _____________________________________________________________________________ D Net cash outflow for acquisitions and disposals (53) (666) _____________________________________________________________________________ Management of liquid resources Decrease in short-term deposits 327 262 Increase in government securities and corporate bonds (3) (1) _____________________________________________________________________________ E Net cash inflow/(outflow) from management of liquid resources 324 261 _____________________________________________________________________________ Financing Borrowings due within one year - repayment of loans (147) - - increase in loans - 88 Borrowings due after one year - repayment of loans (725) (196) - new loans 510 734 Capital element of finance lease payments (8) (8) Net cash (outflow)/inflow from (decrease)/increase in borrowings (370) 618 Issue of ordinary shares 10 4 _____________________________________________________________________________ F Net cash (outflow)/inflow from financing (360) 622 _____________________________________________________________________________ Group statement of total recognised gains and losses for the year ended December 31, 2000 2000 1999 £m £m _____________________________________________________________________________ Profit attributable to the shareholders of Rolls-Royce plc 83 284 Exchange adjustments on foreign currency net investments 30 17 __________________ Total recognised gains for the year 113 301 __________________ Group historical cost profits and losses for the year ended December 31, 2000 _____________________________________________________________________________ 2000 1999 £m £m _____________________________________________________________________________ Profit on ordinary activities before taxation 166 360 Difference between the historical cost depreciation charge and the actual depreciation charge for the year calculated on the revalued amount 4 2 Historical cost profit on ordinary activities __________________ before taxation 170 362 __________________ Historical cost transfer to reserves (39) 174 Reconciliations of movements in Group shareholders' funds for the year ended December 31, 2000 2000 1999 £m £m _____________________________________________________________________________ At January 1 1,988 1,705 Total recognised gains for the year 113 301 Ordinary dividends (net of scrip dividend adjustments) (89) (101) New ordinary share capital issued (net of expenses) 10 75 Goodwill transferred to the profit and loss account in respect of disposal of businesses 41 8 _____________________________________________________________________________ At December 31 2,063 1,988 _____________________________________________________________________________ Notes 1. Segmental Analysis restated 2000 1999 £m £m _____________________________________________________________________________ Group turnover Analysis by businesses: Civil aerospace 3,150 2,544 Defence 1,403 1,138 Marine Systems 751 385 Energy 476 482 Financial Services 40 37 Materials Handling 44 48 _____________________________________________________________________________ 5,864 4,634 _____________________________________________________________________________ Profit before interest _____________________________________________________________________________ Analysis by businesses: Civil aerospace 312 232 Defence 151 181 Marine Systems 38 37 Energy (191) (39) Financial Services 55 24 Materials Handling (76) (22) _____________________________________________________________________________ 289 413 _____________________________________________________________________________ Underlying profit before interest** Analysis by businesses: Civil aerospace 332 224 Defence 154 182 Marine Systems 67 43 Energy (48) (30) Financial Services 56 24 Materials Handling (2) (22) _____________________________________________________________________________ 559 421 **before exceptional and non trading items _____________________________________________________________________________ Net assets* Analysis by businesses: Civil aerospace 1,152 1,074 Defence 286 312 Marine Systems 600 595 Energy 444 468 Financial Services 295 243 Materials Handling (23) 3 _____________________________________________________________________________ 2,754 2,695 *Net assets exclude net debt of £690m (1999 £694m) _____________________________________________________________________________ The segmental analysis of exceptional items is: Civil aerospace £9m, Marine systems £3m, Energy £133m, and Materials Handling £73m. 2. Earnings per ordinary share Basic earnings per ordinary share are calculated by dividing the profit attributable to ordinary shareholders of £83 million (1999 £284m) by 1,558 million (1999 1,506 million) ordinary shares, being the average number of ordinary shares in issue during the year, excluding own shares held under trust which have been treated as if they have been cancelled. Underlying profit before taxation and earnings per ordinary share for 2000 have been calculated as follows: £m £m Pence _____________________________________________________________________________ Profit before Taxation 166 Profit attributable to ordinary shareholders 83 5.33 Exclude: Net loss on sale of businesses - Materials handling 73 73 4.69 - Other 5 5 0.32 Loss on sale of fixed assets* 1 1 0.06 Amortisation of goodwill 46 46 2.95 Restructuring of acquired business 16 16 1.03 Exceptional rationalisation 9 9 0.58 Energy - exceptional charge 120 120 7.70 Related tax effect - (16) (1.03) _____________________________________________________________________________ Underlying profit before taxation 436 _____________________________________________________________________________ Underlying profit attributable to shareholders 337 _____________________________________________________________________________ Underlying earnings per share 21.63 _____________________________________________________________________________ * excluding lease engines and aircraft sold by financial services companies. Diluted basic earnings per ordinary share are calculated by dividing the profit attributable to ordinary shareholders of £83m (1999 £284m) by 1,566 million (1999 1,525 million) ordinary shares, being 1,558 million (1999 1,506 million) as above adjusted by the bonus element of existing share options of 8 million (1999 19 million). 3. Group Employees at the period end 31 December 31 December 2000 1999 Number Number Civil Aerospace 24,500 25,700 Defence 7,300 7,900 Marine Systems 6,500 6,600 Energy 5,300 5,600 Financial Services 100 100 Businesses disposed - 3,700 _________________________________ 43,700 49,600 4. The financial information above does not constitute the Group's statutory accounts for the year ended December 31, 2000 or 1999. Statutory accounts for 1999 have been delivered to the Registrar of Companies, whereas those for 2000 will be delivered following the annual general meeting. The auditors have reported on those accounts; their reports were unqualified and did not contain a statement under section 237(2) or (3) of the Companies Act 1985.

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