Final Results
9 February 2012
ROLLS-ROYCE HOLDINGS PLC
2011 FULL YEAR REPORT
Group Highlights
- Record order book of £62.2bn, up five per cent.
- Record underlying revenue of £11.3bn, up four per cent.
- Record underlying profit before tax of £1.16bn, up 21 per cent.
- Full year payment to shareholders of 17.5 pence per share, up nine per cent.
- Joint acquisition of Tognum, Rolls-Royce investment £1.5bn.
- Proposed restructuring of International Aero Engines (IAE) and sale of share
holding.
Summary data - £ million 2011 2010 Change
Order book 62,201 59,153 +5%
Underlying revenue* 11,277 10,866 +4%
Underlying profit before tax* 1,157 955 +21%
Underlying earnings per share* 48.54p 38.73p +25%
Full year payment to shareholders 17.5p 16.0p +9%
Reported revenue 11,124 11,085 0%
Reported profit before financing 1,189 1,134 +5%
Net cash 223 1,533
Average net cash 320 960
* See explanations in Note 2 on p.20 and Note 4 on p23
John Rishton, Chief Executive, said:
"Rolls-Royce performed well in 2011, and at the year-end had a record order
book, record underlying revenue and record underlying profit. We continue to
benefit from a broad portfolio, a large and growing customer base and access to
markets where demand remains strong for our products and services.
"Our order book gives us good visibility of future revenues and demonstrates
the confidence our customers have in us.
"We see opportunities for profitable growth across our portfolio. In
particular, the acquisition of Tognum, that we have made in partnership with
Daimler, adds significantly to the breadth of our portfolio and will accelerate
growth.
"For 2012 we expect good growth in both underlying revenue and underlying
profit with cash flow around breakeven as we continue to invest in future
growth."
Group Overview
Rolls-Royce continued to perform well in 2011. Our order book grew to £62.2bn,
underlying revenue increased to £11.3bn and underlying profit rose to £1.16bn.
This strong performance demonstrates the increasing resilience of our business
and underpins our confidence for the future which is reflected in a final
payment to shareholders of 10.6 pence per share, bringing the full year payment
to 17.5 pence per share.
Rolls-Royce is a long-term business. We invest in products, systems and
services that take many years to develop but then have life cycles that last
for decades. The Group has consistently invested in future growth and we
continue to develop technology and expand capacity in order to meet our
customers' current and future needs. This consistent record of long-term
investment has given Rolls-Royce a broad portfolio, a strong market position
and access to world markets, creating a powerful platform for future growth.
This disciplined application of a long-term strategy has enabled Rolls-Royce to
grow its underlying revenue, profit and order book consistently over a decade.
This has been achieved despite the financial crisis of 2008, recessions in
Europe and the USA and significant economic and social turmoil. We have doubled
our revenues within the past decade and expect to double them again in the
coming ten years through organic growth alone.
To fulfil our record order book, we continue to invest in operational capacity.
During 2011, we opened a major new facility at Crosspointe, in Virginia USA,
where we are now manufacturing gas turbine discs. We completed the construction
of a 65,000 sq metre facility at Seletar in Singapore where, for the first time
outside the UK, we will manufacture wide-chord fan blades and assemble and test
Trent engines. We also continued to add to our network of Marine service
centres during the year, opening or expanding sites in the Netherlands, Poland,
Namibia, Germany and Hong Kong. These investments and others across the
portfolio add to our capacity and increase productivity.
Close collaboration with our suppliers is critical to our continued success.
Around 70 per cent of our manufacturing is conducted within our supply chain.
Our partners and suppliers are also investing significantly to deliver future
growth and improve productivity.
During 2011, we took three strategic actions that will further strengthen our
position and underpin long-term growth. The first was our acquisition of the
German industrial engines group Tognum, that we made in a joint offer with
Daimler. It brings together highly complementary product and technology
portfolios and creates significant new opportunities for our Marine and Energy
businesses. Second, we signed an exclusive deal to develop an enhanced Trent
XWB that will power the long-range Airbus A350-1000 aircraft. Third, we agreed
to sell our equity stake in IAE to Pratt & Whitney, at the same time announcing
our intention to form a new joint venture to develop engines for the next
generation of mid-size aircraft. This agreement builds on a long and successful
partnership with Pratt & Whitney in this segment and charts a clear course for
our future in this important market.
Progress was evident in each of our business segments in 2011.
In Civil Aerospace good order intake accompanied strong growth in underlying
revenue and profit. We celebrated the first commercial flight of the Boeing 787
Dreamliner powered by Trent 1000 engines. The Trent XWB engine programme for
the Airbus A350 progressed well, with over 1,500 test hours completed. Our
BR725 engine, developed for Gulfstream's new flagship executive jet, the
Gulfstream G650, is due to enter service in 2012.
Our Defence Aerospace business performed well despite the pressure on defence
spending in Europe and the USA. We continue to benefit from the diversity of
our portfolio and our access to emerging markets. Our LiftFanâ„¢ system for the
F-35 Lightning II Joint Strike Fighter (JSF) continued to make good progress
during intensive flight tests that included multiple take offs and vertical
landings on board the aircraft carrier USS Wasp. The TP400 engine for the
Airbus A400M is on course to enter service in 2013.
While the underlying profit generated by the Marine business was broadly flat,
original equipment (OE) revenue failed to meet our expectations as some
offshore customers deferred investment decisions beyond 2011. Set against this,
revenue from services grew strongly as the business benefited from the
expansion of our network of service centres and the growth of the fleet
equipped with our systems. During the year, we received an order to power a
further ten US Navy Littoral Combat Ships, our largest ever surface fleet
order. We also secured the first orders for our award winning Environship, a
cargo vessel powered by liquid natural gas.
In Energy, underlying profit fell, primarily due to our investment in Civil
Nuclear and revenues declined, reflecting weak demand for gas turbine power
generation. However, strong demand from the oil and gas industry drove a
significant increase in the order book. This included our biggest ever single
contract, to supply Petrobras, Brazil's leading oil company, with 32 gas
turbine power generators for its offshore operations.
Trading Summary
Underlying revenue
The Group's underlying revenue increased four per cent to £11.3bn. This
includes a nine per cent growth in services revenue to £6.0bn that more than
offset a one per cent reduction in OE revenue to £5.3bn. OE performance
included strong 18 per cent growth in Civil Aerospace offset by a greater than
anticipated reduction of 23 per cent in Marine OE revenue.
Underlying services revenue continues to represent more than half (53 per cent)
of the Group's revenue. In 2011, we achieved growth in services revenue in each
of our businesses as we continue to benefit from the growth in our installed
base and the expansion of our services network. Defence Aerospace income
included contract termination settlements resulting from the Strategic Defence
and Security Review (SDSR) of the UK Ministry of Defence (MoD).
Underlying profit
Underlying profit before tax increased 21 per cent to £1.16bn. This was due to
a better mix between OE and services, an improvement in productivity resulting
from the focus on cost, net foreign exchange (FX) benefits of £54m including an
eight cent improvement in the achieved rate on selling USD income. In addition
there was a benefit of £30m from Tognum net of the costs of the acquisition and
a £60m benefit from the SDSR settlements referred to above.
Cash and liquidity
The reported net cash position was £223m after the impact of the acquisition of
Tognum and R Brooks Associates totalling £1.5bn. Excluding these acquisitions
and FX translation there was a cash inflow of £210m. The Group retains a strong
balance sheet with debt maturities well spread and total liquidity of £2.5bn.
Tognum
The Group's joint venture with Daimler now owns over 99 per cent of Tognum AG
for which Rolls-Royce paid a cash consideration of £1.5bn in 2011. This joint
venture investment made a £30m net contribution to underlying profit before tax
but did not impact the Group's 2011 revenues.
International Aero Engines (IAE)
The Group's proposed sale of its 32.5 per cent shareholding in IAE is subject
to regulatory approval and did not impact 2011 financial performance.
Rolls-Royce will continue to play an active role as a first tier supplier of
high pressure compressors and fan blades and remains responsible for the final
assembly of 50 per cent of the production engines. The announced new joint
venture with Pratt & Whitney to develop an engine to power the next generation
of mid-size aircraft is also subject to regulatory approval and had no effect
on 2011 financial performance.
Group Prospects
Our consistent strategy, which has been pursued over many years, has created a
broad and balanced portfolio and established a strong financial position.
Despite continued macroeconomic uncertainty, our record order book and strong
market positions underpin our confidence in the future. The increasing
resilience of the business has enabled Rolls-Royce consistently to grow its
underlying revenue, underlying profit and order book in spite of the
significant macro economic turbulence of recent years.
In 2012 the Group expects to see good growth in underlying revenue and
underlying profit with a cash flow around breakeven as we continue to invest
for future growth, excluding the impact of the Tognum acquisition and the
proposed IAE transaction.
In Civil Aerospace, we anticipate good growth in underlying revenue and strong
growth in underlying profit. In Defence Aerospace we expect modest growth in
underlying revenue and profit. In Marine we expect a modest increase in
underlying revenue, with underlying profit broadly flat. And in Energy we see
growth in underlying revenue and some improvement in underlying profit.
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 certain forward-looking
statements. These forward-looking statements can be identified by the fact that
they do not relate only to historical or current facts. In particular, all
statements that express forecasts, expectations and projections with respect to
future matters, including trends in results of operations, margins, growth
rates, overall market trends, the impact of interest or exchange rates, the
availability of financing to the Company, anticipated cost savings or synergies
and the completion of the Company's strategic transactions, are forward-looking
statements. By their nature, these statements and forecasts involve risk and
uncertainty because they relate to events and depend on circumstances that may
or may not occur in the future. There are a number of factors that could cause
actual results or developments to differ materially from those expressed or
implied by these forward-looking statements and forecasts. The forward-looking
statements reflect the knowledge and information available at the date of
preparation of this Full Year Results Announcement, and will not be updated
during the year. Nothing in this Preliminary Full Year Results
Announcement should be construed as a profit forecast.
Civil Aerospace
FY Review - £ million 2011 2010 Change
Order book 51,942 48,490 +7%
Engine deliveries 962 846 +14%
Underlying revenue 5,572 4,919 +13%
Underlying OE revenue 2,232 1,892 +18%
Underlying services revenue 3,340 3,027 +10%
Underlying profit before financing 499 392 +27%
Financial
The order book increased by seven per cent, including new orders of £11.0bn.
The order book contains over 5,000 engines that will add around 250m pounds of
installed thrust to our current installed base of 400m pounds of thrust. During
2011 we secured orders for more than 200 Trents, among the most significant
were:
- Trent XWB engines for up to 60 Airbus A350 XWBs from AirFrance KLM Group.
- Trent 1000 engines for six Boeing 787s from Oman Air.
- Trent 900 engines for six Airbus A380s from Skymark Airlines and for six A380s
from Asiana.
- Trent 700 engines for 15 Airbus A330s from Singapore Airlines and for 15 A330s
from Cathay Pacific.
Revenue increased by 13 per cent. OE revenue grew 18 per cent, largely as a
result of higher deliveries of widebody and corporate and regional engines.
Services revenue grew by 10 per cent. This was due to growth in TotalCare
revenue during the year and a recovery in time and materials.
Profit increased by 27 per cent due to increased volume, improving
productivity, FX benefits and the non-recurrence of a one-off charge. This
improvement was partially offset by higher R&D charges and the launch costs
associated with major new programmes.
Portfolio
- In June, Rolls-Royce announced an exclusive agreement to produce a higher
thrust version of the Trent XWB, to offer increased range and capacity for the
Airbus A350-1000.
- In September, Rolls-Royce powered the entry into service of the Boeing 787
Dreamliner with launch customer All Nippon Airways (ANA).
- In October 2011 we announced a new joint venture with Pratt & Whitney to
develop engines for future generation mid-size aircraft. We also agreed to sell
our shareholding in IAE.
We delivered production BR725 engines for the Gulfstream 650 that is due to
enter service in 2012.
Defence Aerospace
FY Review - £ million 2011 2010 Change
Order book 6,035 6,522 -7%
Engine deliveries 814 710 +15%
Underlying revenue 2,235 2,123 +5%
Underlying OE revenue 1,102 1,020 +8%
Underlying services revenue 1,133 1,103 +3%
Underlying profit before financing 376 309 +22%
Financial
The order book declined by seven per cent as OE deliveries exceeded order
intake, reflecting the pressures on defence budgets in Europe and the USA.
However, new orders of £1.8bn in the year demonstrate that there are still
opportunities for growth in both traditional and in developing markets.
Significant orders included:
- Two major service contracts, worth almost US$250m for AE2100 engines powering
C-130J military transport aircraft for the US and UK armed forces.
- A US$100m MissionCare contract from the US Department of Defence to provide
support for F405 (Adour) engines on T-45 training aircraft.
Revenue grew by five per cent benefiting from increased OE deliveries of eight
per cent, reflecting LiftSystem, AirTanker, and Military Transport production
increases, and a three per cent increase in services revenue, principally due
to the impact of the SDSR settlement and increases in fleet sizes for C-130J
and V-22 aircraft.
Profit grew by 22 per cent as a result of increased revenue, cost reduction
programmes and the £60m benefit of the SDSR settlement.
Portfolio
- In February, funding for the development programme of the F136 engine for the
JSF in which Rolls-Royce was a 40 per cent partner, was terminated by the US
Department of Defense.
- In May, the TP400 engine for the Airbus A400M military transport aircraft
received civil certification from European Aviation Safety Agency (EASA). The
programme has amassed over 8,000 flying hours as part of the flight test
programme. Deliveries for the first production engines are due to begin in 2012
as part of the initial order of 180 aircraft.
- In the combat sector, the LiftSystem for the STOVL variant of the JSF achieved
its 'Initial Service Release'. In October, two F-35B aircraft accomplished 72
short take-offs and vertical landings on the USS Wasp during sea trials. In
January 2012, probationary status was lifted for the F-35B and the first STOVL
aircraft were delivered to the customer.
- The Eurofighter Typhoon was deployed on combat operations for the first time as
part of the NATO operation in Libya, displaying outstanding levels of
performance and reliability. During 2011, we delivered the 750th EJ200 engine
on behalf of Eurojet for the Eurofighter programme.
Marine
FY Review - £ million 2011 2010 Change
Order book 2,737 2,977 -8%
Underlying revenue 2,271 2,591 -12%
Underlying OE revenue 1,322 1,719 -23%
Underlying services revenue 949 872 +9%
Underlying profit before financing 323 332 -3%
Financial
The order book declined by eight per cent. However new order intake during the
year improved by 15 per cent to £2.1bn providing some evidence of recovering
demand. Significant systems and equipment orders during the period included:
- MT30 gas turbines and water jets for a ten vessel contract for the US Navy
Littoral Combat Ship.
- First orders for the award-winning Environship, including two vessels for
Norway's Nor Lines AS.
- 60 water jets for a new fleet of 20 Fast Patrol Vessels for the Indian Coast
Guard.
- An order to design and equip two anchor handling vessels for Farstad Shipping
in Norway.
Revenue declined by 12 per cent due to a 23 per cent decline in OE revenue that
was partially offset by a nine per cent improvement in service revenue. The
recovery in OE that had been expected in the second half of the year did not
materialise as customer investment decisions were deferred. The improved
service revenue was driven by the expansion of our network of marine supply
centres and the growth of our installed fleet.
Profit declined by three per cent relative to a fall in revenue of 12 per cent
reflecting an improved revenue mix and an increased focus on costs and
operational performance.
Portfolio
- In May, the UK Government announced its decision to replace the UK's Vanguard
class nuclear submarines with a new design of submarine utilising our
Pressurised Water Reactor (PWR) Generation 3 reactor technology.
- In September, we announced the success of our joint tender offer for Tognum.
This acquisition brings together highly complementary product and technology
sets and represents an important strategic step in the long-term development of
the business.
- We continue to invest in our service capability and capacity, with customer
training centres opening in Norway and Singapore, and service centres opened or
expanded in Namibia, the Netherlands, Poland, Germany and Hong Kong.
Energy
FY Review - £ million 2011 2010 Change
Order book 1,487 1,164 +28%
Engine Deliveries 75 95 -21%
Underlying revenue 1,199 1,233 -3%
Underlying OE revenue 602 691 -13%
Underlying services revenue 597 542 +10%
Underlying profit before financing 24 27 -11%
Financial
The order book increased by 28 per cent, driven by significant demand in the
oil and gas industry. New orders of £1.5bn included a number of significant
contracts:
- 32 RB211 gas turbines for offshore application in support of Petrobras.
This US$650m contract is the largest signed by the Energy business.
- Six RB211 compressor units for Petro China's WEPP Line 2 East project.
- Eight Bergen engines for power generation in Bangladesh - 82 now sold in
Bangladesh.
- A €250m contract with EDF to supply instrumentation and control (I&C)
technologies to the world's largest reactor upgrade programme, being carried
out in France.
Revenue declined by three per cent largely due to the phasing of OE deliveries
in power generation. Demand for aftermarket products and services continue to
grow with an increase of ten per cent.
Profit fell by 11 per cent as a result of lower revenue and investment in the
future growth of our Civil Nuclear business.
Portfolio
- In February 2011, we announced plans for the construction of a new
purpose-built gas turbine package, assembly and test facility in Rio de
Janeiro, Brazil. The facility, expected to become operational in the first
quarter of 2013, will strengthen our support of Petrobras and other customers
in the rapidly expanding offshore market in Brazil.
- As in the Marine business, Energy will benefit from the joint acquisition of
Tognum. By combining our medium-speed diesel and gas Bergen engines business
with Tognum's high-speed reciprocating engines and systems capabilities, we
have significantly enhanced our core product portfolio and global network of
sales and service facilities.
We continued to build our capability in the Civil Nuclear sector, with a number
of important milestones reached during the year.
- A cooperation agreement was signed with Areva for the manufacture of complex
components for the first European Pressurised Reactors to be built in the UK.
- Enhanced MoUs were agreed with Nuclear Power Delivery UK,EDF and Rosatom.
- We acquired the US-based R.Brooks Associates, a world leader in remote
inspection.
Additional Financial Information
Underlying income statement
Underlying income statement extracts - £ million 2011 2010 Change
Revenue 11,277 10,866 +4%
Civil Aerospace 5,572 4,919 +13%
Defence Aerospace 2,235 2,123 +5%
Marine 2,271 2,591 -12%
Energy 1,199 1,233 -3%
Profit before financing costs and taxation 1,206 1,010 +19%
Civil Aerospace 499 392 +27%
Defence Aerospace 376 309 +22%
Marine 323 332 -3%
Energy 24 27 -11%
Engine Holding (Tognum JV) 36 - -
Central costs (52) (50) -4%
Net financing costs (49) (55) +11%
Profit before taxation 1,157 955 +21%
Taxation (261) (236) +11%
Profit for the year 896 719 +25%
EPS 48.54p 38.73p +25%
Payment to shareholders 17.5p 16.0p +9%
Other items
Other operating income 70 87 -20%
Gross R&D investment 908 923 -2%
Net R&D charged to the income statement 463 422 +10%
- Underlying revenue and underlying profit before financing costs and taxation
are discussed in the relevant business sections.
- Underlying financing costs declined by 11 per cent to £49m, including a small
reduction in financial Risk & Revenue Sharing Partners (RRSP) costs and lower
funding costs due to the settlement of the Group's €750m Eurobond during the
year.
- Underlying taxation was £261m, an underlying tax rate of 22.6 per cent compared
with 24.7 per cent in 2010. This reduction reflects increased profits from
joint ventures (which are accounted for on post-tax basis) and some adjustments
to prior year estimates.
- Underlying EPS increased by 25 per cent to 48.54 pence, broadly in line with
the increase in the underlying profit after tax.
- Payments to shareholders At the AGM on May 4, 2012, the directors will
recommend an issue of 106 C Shares with a total nominal value of 10.6 pence for
each ordinary share. The final payment is payable on July 4, 2012 to
shareholders on the register on April 27, 2012 and the final day of trading
with entitlement to C Shares is April 24, 2012. Together with the interim
issue on January 3, 2012 of 69 C Shares for each ordinary share with a total
nominal value of 6.9 pence, this is the equivalent of a total annual payment to
ordinary shareholders of 17.5 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 Friday June 1, 2012.
- Other operating income relates to programme receipts from RRSPs, which
reimburse past R&D costs. These receipts decreased by 20 per cent in 2011 due
to the phasing of major programmes.
- Net R&D charged to the income statement increased by 10 per cent to £463m. The
Group recruited an additional 1,000 engineers to develop the products of the
future and to help continue to improve the in-service performance of the
existing installed base of products. This investment and the 29 per cent
increase in capital expenditure to £467m will prepare our infrastructure and
global supply chain for significant growth in the next decade. The Group
continues to expect net R&D investment 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:
2011 2010 Change
USD per GBP
Year end spot rate 1.55 1.57 -1%
Average spot rate 1.60 1.54 +4%
EUR per GBP
Year end spot rate 1.20 1.17 +3%
Average spot rate 1.15 1.17 -2%
- The adjustments between the underlying income statement and the reported income
statement are set out in note 2 to the condensed financial statements.
Balance Sheet
Summary balance sheet - £ million 2011 2010
Intangible assets 2,882 2,884
Property, plant and equipment 2,338 2,136
Net post-retirement scheme deficits (IAS19basis) (397) (856)
Net working capital (1,098) (973)
Net funds 223 1,533
Provisions (502) (544)
Net financial assets and liabilities (718) (627)
Investments in joint ventures and associates 1,680 393
Assets held for sale 178 9
Other net assets and liabilities (67) 24
Net assets 4,519 3,979
Other items
USD hedge book $22,000 $20,900
Net TotalCare assets 956 920
Gross customer finance contingent liabilities 612 633
Net customer finance contingent liabilities 124 121
- 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 £2.9bn: this was largely due to increased
development, certification and software costs being offset by the
reclassification of V2500 assets on the balance sheet as "Assets held for
sale". 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 impairments in 2011. Further details are
given in note 6 of the condensed financial statements.
- Property, plant and equipment increased by nine per cent to £2.3bn due to the
ongoing development and refreshment of facilities and tooling as the Group
prepares for increased production volumes.
- Net post-retirement scheme deficits decreased 54 per cent to £397m, including:
(i) the impact of the change in pensions' indexing to CPI in the UK (£130m);
(ii) revised healthcare benefits in certain overseas schemes (£74m); and (iii)
the reduction in discount rates having a larger impact on the value of the
assets than the obligations (calculated on an IAS 19 basis). Overall funding
across the schemes has improved in recent years as the Group has improved
funding of the schemes with an increasingly 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; exposure to
equities has reduced to around 20 per cent of scheme assets, this has been
achieved against the headwind of increasing life expectancy assumptions. In
2011, the Group made further arrangements to reduce volatility and enable
future funding to be predicted with more certainty. A longevity swap was
transacted with a third party to eliminate the risk of increasing life
expectancy of pensioners in the largest UK defined benefit scheme. No
significant change expected to the ongoing funding levels of the UK pension
schemes in 2012.
- Net funds reduced to £223m largely due to the £1.5bn consideration paid during
the year for the Group's shared investment in Tognum AG. As a result, average
net funds fell by £640m to £320m (£805m excluding acquisitions). The Group
continues to have access to good liquidity with £1.2bn undrawn committed
facilities and bond proceeds of £1.1bn, providing total liquidity of £2.5bn
when net funds of £223m are taken into consideration.
- Investment - joint ventures and associates increased in the year as a result of
the investment in Tognum.
- Assets held for sale represent the assets and liabilities expected to be
derecognised as a result of the anticipated restructuring of IAE.
- 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 financial RRSPs and the fair
value of foreign exchange, commodity and interest rate contracts, 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.
- The USD hedge book increased five per cent to US$22.0bn. This represents around
four and a half years of net exposure and has an average book rate of £1 to
US$1.60. Current forward market exchange rates are similar to current average
book rates.
- Net TotalCare 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 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. 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 2011,
the Group's exposure remained stable with gross and net exposures of £612m and
£124m respectively. As has been well publicised, some banks that have been
active in recent years in providing funds for aircraft financing have chosen
during 2011 to substantially reduce their exposure in this market segment.
Although this may have some effect on the terms and pricing of new aircraft
finance transactions in the near future, the Group expects that other providers
of USD funding and ongoing support from the export credit agencies will largely
fill the gap left by these banks.
Group 2012 Guidance
Excluding the impact of the Tognum acquisition and the proposed IAE
transaction, in 2012 the Group expects to see good growth in underlying revenue
and underlying profit with a cash flow around breakeven as we continue to
invest for future growth.
In Civil Aerospace, we anticipate good growth in underlying revenue and strong
growth in underlying profit. In Defence Aerospace we expect modest growth in
underlying revenue and profit. In Marine we expect a modest increase in
underlying revenue, with underlying profit broadly flat. And in Energy we see
growth in revenue and some improvement in profit.
Other relevant data
- Foreign exchange: neutral.
- R&D: a modest increase in expenditure combined with lower net capitalisation
and higher amortisation due to the phasing of new programmes.
- Taxation: the underlying tax rate is expected to be around 24 per cent.
- Capital expenditure: a modest increase, including increased investment in IT.
- Intangible assets: modest increase compared with 2011 due to a modest increase
in recoverable engine costs partially offset by a decrease in development costs
due to the phasing of new programmes.
- Property, plant and equipment: modest increase compared with 2011 as we
continue to invest in capability and infrastructure.
- Pensions: no material changes expected to funding levels.
Tognum and IAE transactions
- Tognum is expected to contribute in the first half to the Group's share of
results of joint ventures and associates. Tognum's results are expected to be
fully consolidated around the half year with Daimler's 50 per cent share of the
result recorded as a non-controlling interest. For 2012, Tognum will be
reported as a separate segment. As Tognum remains a listed company, the Group
is not permitted to provide guidance at this time. Tognum will issue their
preliminary results on 8 March, 2012.
- The sale of the Group's 32.5 per cent shareholding in IAE is expected to
receive regulatory approval during the first half of 2012, at which time the
initial cash consideration of $1.5bn will be received. For the first full year
following settlement, the impact of the sale on subsequent trading will have a
small negative effect on underlying revenue and a positive effect of around £
140m on underlying profit. The impact on the order book will be a reduction of
around £4bn.
Condensed consolidated income statement
For the year ended December 31, 2011
2011 2010
Notes £m £m
Revenue 2 11,124 11,085
Cost of sales (8,676) (8,885)
Gross profit 2,448 2,200
Other operating income 69 95
Commercial and administrative costs (984) (836)
Research and development costs (463) (422)
Share of results of joint ventures and associates 116 93
Operating profit 1,186 1,130
Profit on disposal of businesses 3 4
Profit before financing and taxation 2 1,189 1,134
Financing income 456 453
Financing costs (540) (885)
Net financing 3 (84) (432)
Profit before taxation 1 1,105 702
Taxation (257) (159)
Profit for the year 848 543
Attributable to:
Ordinary shareholders 850 539
Non-controlling interests (2) 4
Profit for the year 848 543
Earnings per ordinary share attributable to shareholders2 4
Basic 45.95p 29.20p
Diluted 45.33p 28.82p
Payments to ordinary shareholders in respect of the year 5
Per share 17.5p 16.0p
Total 328 299
1 Underlying profit before taxation 1,157 955
2 Underlying earnings per share is shown in note 4
Condensed consolidated statement of comprehensive income
For the year ended December 31, 2011
2011 2010
£m £m
Profit for the year 848 543
Other comprehensive income (OCI)
Foreign exchange translation differences on foreign operations (102) 22
Movements in post-retirement schemes 123 (94)
Share of OCI of joint ventures and associates (10) (16)
Related tax movements (54) 29
Total comprehensive income for the year 805 484
Attributable to:
Ordinary shareholders 808 480
Non-controlling interests (3) 4
Total comprehensive income for the year 805 484
Condensed consolidated balance sheet
At December 31, 2011
2011 2010
Notes £m £m
ASSETS
Non-current assets
Intangible assets 6 2,882 2,884
Property, plant and equipment 2,338 2,136
Investments - joint ventures and associates 1,680 393
Investments - other 10 11
Other financial assets 7 327 371
Deferred tax assets 368 451
Post-retirement scheme surpluses 9 503 164
8,108 6,410
Current assets
Inventories 2,561 2,429
Trade and other receivables 4,009 3,943
Taxation recoverable 20 6
Other financial assets 7 91 250
Short-term investments 11 328
Cash and cash equivalents 1,310 2,859
Assets held for sale 313 9
8,315 9,824
Total assets 16,423 16,234
LIABILITIES
Current liabilities
Borrowings (20) (717)
Other financial liabilities 7 (111) (105)
Trade and other payables (6,236) (5,910)
Current tax liabilities (138) (170)
Provisions for liabilities and charges (276) (276)
Liabilities associated with assets held for sale (135) -
(6,916) (7,178)
Non-current liabilities
Borrowings (1,184) (1,135)
Other financial liabilities 7 (919) (945)
Trade and other payables (1,314) (1,271)
Deferred tax liabilities (445) (438)
Provisions for liabilities and charges (226) (268)
Post-retirement scheme deficits 9 (900) (1,020)
(4,988) (5,077)
Total liabilities (11,904) (12,255)
Net assets 4,519 3,979
EQUITY
Equity attributable to ordinary shareholders
Called-up share capital 374 374
Share premium account - 133
Capital redemption reserve 173 209
Cash flow hedging reserve (52) (37)
Other reserves 433 527
Retained earnings 3,590 2,769
4,518 3,975
Non-controlling interests 1 4
Total equity 4,519 3,979
Condensed consolidated cash flow statement
For the year ended December 31, 2011
*Restated
2011 2010
Notes £m £m
Reconciliation of cash flows from operating activities
Profit before taxation 1,105 702
Share of results of joint ventures and associates (116) (93)
Profit on disposal of businesses (3) (4)
Profit on disposal of property, plant and equipment (8) (10)
Net financing 3 84 432
Taxation paid (208) (168)
Amortisation of intangible assets 169 130
Depreciation and impairment of property, plant and equipment 241 237
Impairment of investments - 3
(Decrease)/increase in provisions (28) 99
(Increase)/decrease in inventories (140) 41
(Increase)/decrease in trade and other receivables (62) 39
Increase in trade and other payables 416 248
Movement in other financial assets and liabilities 68 (299)
Net defined benefit post-retirement (credit)/cost (43) 147
recognised in profit before financing
Cash funding of defined benefit post-retirement schemes (304) (282)
Share-based payments 59 50
Dividends received from joint ventures and associates 76 68
Net cash inflow from operating activities 1,306 1,340
Cash flows from investing activities
Additions of unlisted investments - (1)
Disposals of unlisted investments 1 46
Additions of intangible assets (363) (321)
Disposals of intangible assets 6 -
Purchases of property, plant and equipment (412) (354)
Government grants received 38 38
Disposals of property, plant and equipment 31 38
Acquisitions of businesses (19) (150)
Disposals of businesses 7 2
Investments in joint ventures and associates (1,329) (19)
Loan to Engine Holding GmbH (167) -
Net cash outflow from investing activities (2,207) (721)
Cash flows from financing activities
Repayment of loans (567) (108)
Proceeds from increase in loans - 68
Net cash flow from decrease in borrowings (567) (40)
Interest received 19 23
Interest paid (50) (77)
Decrease/ (increase) in short-term investments 316 (326)
Issue of ordinary shares (net of expenses) (1) 67
Purchase of ordinary shares (57) (124)
Redemption of C Shares (315) (266)
Net cash outflow from financing activities (655) (743)
Net decrease in cash and cash equivalents (1,556) (124)
Cash and cash equivalents at January 1 2,851 2,958
Exchange (losses)/gains on cash and cash equivalents (4) 17
Cash and cash equivalents at December 31 1,291 2,851
* Restated to show government grants, previously included in trade and other
payables, separately.
Reconciliation of movement in cash and cash equivalents to movements in net funds
2011 2010
£m £m
Decrease in cash and cash equivalents (1,556) (124)
Cash flow from decrease in borrowings 567 40
Cash flow from (decrease)/ increase in short-term investments (316) 326
Change in net funds resulting from cash flows (1,305) 242
Net funds (excluding cash and cash equivalents) of businesses - (1)
acquired
Exchange (losses)/gains on net funds (5) 17
Fair value adjustments 92 26
Movement in net funds (1,218) 284
Net funds at January 1 excluding the fair value of swaps 1,335 1,051
Net funds at December 31 excluding the fair value of swaps 117 1,335
Fair value of swaps hedging fixed rate borrowings 106 198
Net funds at December 31 223 1,533
The movement in net funds (defined by the Group as including the items shown
below) is as follows:
At Funds Exchange Fair value At
January flow differences adjustments December
1, 2011 31, 2011
£m £m £m £m £m
Cash at bank and in hand 1,266 26 (7) - 1,285
Money-market funds 381 (370) - - 11
Short-term deposits 1,212 (1,201) 3 - 14
Overdrafts (8) (11) - - (19)
Cash and cash equivalents 2,851 (1,556) (4) - 1,291
Short-term investments 328 (316) (1) - 11
Other current borrowings (709) 566 - 142 (1)
Non-current borrowings (1,134) 1 - (50) (1,183)
Finance leases (1) - - - (1)
1,335 (1,305) (5) 92 117
Fair value of swaps hedging 198 (92) 106
fixed rate borrowings
1,533 (1,305) (5) - 223
Condensed consolidated statement of changes in equity
For the year ended December 31, 2011
Attributable to ordinary shareholders
Cash
Capital flow Total
Share Share redemption hedging Other Retained Non-controlling
capital premium reserve reserve reserves1 earnings2 Total interests equity
£m £m £m £m £m £m £m £m £m
At January 1,
2010 371 98 191 (19) 506 2,635 3,782 - 3,782
Total
comprehensive
income for
the year - - - (18) 21 477 480 4 484
Arising on
issues of
ordinary
shares 3 64 - - - - 67 - 67
Issue of C
Shares - (29) (249) - - 1 (277) - (277)
Redemption of
C Shares - - 267 - - (267) - - -
Ordinary
shares
purchased - - - - - (124) (124) - (124)
Share-based
payments -
direct to
equity 3 - - - - - 42 42 - 42
Related tax
movements - - - - - 5 5 - 5
Other changes
in equity in
the year 3 35 18 - - (343) (287) - (287)
At January 1,
2011 374 133 209 (37) 527 2,769 3,975 4 3,979
Total - - - (15) (94) 917 808
comprehensive
income for
the year (3) 805
Arising on - 1 - - - - 1 - 1
issues of
ordinary
shares
Issue of C - (120) - - - (176) (296) - (296)
Shares
Redemption of - - 317 - - (317) - - -
C Shares
Ordinary - - - - - (57) (57) - (57)
shares
purchased
Share-based - - - - - 77 77 - 77
payments -
direct to
equity 3
Effect of 2,434 (14) (353) - - (2,069) (2) - (2)
scheme of
arrangement 4
Effect of (2,434) - - - - 2,434 - - -
capital
reduction 4
Related tax - - - - - 12 12 - 12
movements
Other changes - (133) (36) - - (96) (265) - (265)
in equity in
the year
At December 374 - 173 (52) 433 3,590 4,518 1 4,519
31, 2011
1 Other reserves include a merger reserve of £3m (2010: £3m; 2009: £3m) and a
translation reserve of £430m (2010: £524m; 2009: £503m).
2 At December 31, 2011, 22,541,187 ordinary shares with a net book value of £116m
(2010: 28,320,962; 2009: 7,156,497 ordinary shares with net book values of £
125m and £25m respectively) were held for the purpose of share-based payment
plans and included in retained earnings. During the year, 14,822,563 ordinary
shares with a net book value of £66m (2010: 6,586,568 shares with a net book
value of £24m) vested in share-based payment plans. During the year the
Company acquired 9,042,788 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 May 23, 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 (May
20, 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.
5 On May 24, 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.
1 Basis of preparation
These 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 December 31, 2011, but is derived from
those accounts. Statutory accounts for Rolls-Royce Group plc for the year ended
December 31, 2010 have been delivered to the Registrar of Companies. Statutory
accounts for Rolls-Royce Holdings plc 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.
There were no revisions to Adopted IFRS that became applicable in 2011 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.
Engineering and Technology and Operations, discussed in the business review,
operate on a Group-wide basis across all the above segments. The equity
accounted share of the Engine Holding GmbH business acquired during the year is
shown separately.
The operating results reviewed by the Board are prepared on an underlying
basis, which the Board considers reflects better the economic substance of the
Group's trading in the year. The principles adopted to determine 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. There is no
inter-segment trading and hence all revenues are from external customers.
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.
2011 2010
Original Original
equipment Aftermarket Total equipment Aftermarket Total
£m £m £m £m £m £m
Underlying revenues
Civil aerospace 2,232 3,340 5,572 1,892 3,027 4,919
Defence aerospace 1,102 1,133 2,235 1,020 1,103 2,123
Marine 1,322 949 2,271 1,719 872 2,591
Energy 602 597 1,199 691 542 1,233
5,258 6,019 11,277 5,322 5,544 10,866
2011 2010
£m £m
Underlying profit before financing and taxation
Civil aerospace 499 392
Defence aerospace 376 309
Marine 323 332
Energy 24 27
Engine Holding 36 -
Reportable segments 1,258 1,060
Central items (52) (50)
1,206 1,010
Underlying net financing (49) (55)
Underlying profit before taxation 1,157 955
Underlying taxation (261) (236)
Underlying profit for the year 896 719
Net assets/(liabilities) Total assets Total liabilities Net assets
2011 2010 2011 2010 2011 2010
£m £m £m £m £m £m
Civil aerospace 8,621 8,162 (5,982) (5,435) 2,639 2,727
Defence aerospace 1,311 1,344 (1,831) (1,867) (520) (523)
Marine 2,227 2,363 (1,544) (1,548) 683 815
Energy 1,285 1,182 (617) (748) 668 434
Engine Holding 1,418 - - - 1,418 -
Reportable segments 14,862 13,051 (9,974) (9,598) 4,888 3,453
Eliminations (757) (823) 757 823 - -
Net funds/(debt) 1,427 3,385 (1,204) (1,852) 223 1,533
Tax assets/(liabilities) 388 457 (583) (608) (195) (151)
Net post-retirement scheme 503 164 (900) (1,020) (397) (856)
surpluses/(deficits)
Net assets 16,423 16,234 (11,904) (12,255) 4,519 3,979
Group employees at year end 2011 2010
Civil aerospace 21,100 19,600
Defence aerospace 6,900 7,000
Marine 9,500 9,400
Energy 3,800 3,600
41,300 39,600
Reconciliation to reported results
Total Underlying
reportable central Total Underlying
segments items underlying adjustments Group
£m £m £m £m £m
Year ended December 31, 2011
Revenue from sale of 5,258 - 5,258 (19) 5,239
original equipment
Revenue from 6,019 - 6,019 (134) 5,885
aftermarket services
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 172 - 172 (56) 116
joint ventures and
associates
Profit on disposal of 3 - 3 - 3
businesses
Profit before financing 1,258 (52) 1,206 (17) 1,189
and taxation
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
Year ended December 31,
2010
Revenue from sale of 5,322 - 5,322 112 5,434
original equipment
Revenue from 5,544 - 5,544 107 5,651
aftermarket services
Total revenue 10,866 - 10,866 219 11,085
Operating profit
excluding share of
results of joint
ventures and associates 963 (50)1 913 124 1,037
Share of results of 93 - 93 - 93
joint ventures and
associates
Profit on disposal of 4 - 4 - 4
businesses
Profit before financing 1,060 (50) 1,010 124 1,134
and taxation
Net financing (55) (55) (377) (432)
Profit before taxation (105) 955 (253) 702
Taxation (236) (236) 77 (159)
Profit for the year (341) 719 (176) 543
1 Central corporate costs
Underlying adjustments
2011 2010
Profit Profit
before Net before Net
Revenue financing financing Taxation Revenue financing financing Taxation
£m £m £m £m £m £m £m £m
Underlying 1,277 1,206 (49) (261) 10,866 1,010 (55) (236)
performance
Revenue (153) - - - 219 - - -
performance
recognised at
exchange rate
on date of
transaction
Realised - (116) 24 - - 180 (7) -
(gains)/losses
on settled
derivative
contracts1
Net unrealised - (5) (49) - - - (341) -
fair value
changes to
derivative
contracts2
Effect of - 4 - - - (56) - -
currency on
contract
accounting
Revaluation of - - - - - - 8 -
trading assets
and liabilities
Financial RRSPs
- foreign
exchange - - 2 - - - (6) -
differences and
changes in
forecast
payments
Effect of - (64) - - - - - -
acquisition
accounting3
Post-retirement - 164 - - - - - -
scheme past-
service credits4,5
Net - - (12) - - - (31) -
post-retirement
scheme financing
Related tax - - - 4 - - - 77
effect
Total (153) (17) (35) 4 219 124 (377) 77
underlying
adjustments
Reported per
consolidated
income
statement 11,124 1,189 (84) (257) 11,085 1,134 (432) (159)
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 have
been amended, resulting in a gain in the income statement of £130m, which has
been excluded from underlying profit.
5 The Group has agreed revised post-retirement healthcare arrangements on
certain of its overseas schemes. This has resulted in a net gain in the income
statement of £34m which has been excluded from underlying profit.
The reconciliation of underlying earnings per ordinary share is shown in note 4.
3 Net financing
2011 2010
Per Per
consolidated Underlying consolidated Underlying
income financing1 income financing1
statement statement
£m £m £m £m
Financing income
Interest receivable 20 20 23 23
Financial RRSPs - foreign
exchange differences and
changes in forecast payments 2 - - -
Fair value gains on commodity - - 29 -
derivatives
Expected return on 410 - 400 -
post-retirement scheme assets
Net foreign exchange gains 24 - 1 -
456 20 453 23
Financing costs
Interest payable (51) (51) (63) (63)
Fair value losses on foreign (21) - (370) -
currency contracts
Financial RRSPs - foreign - - (6) -
exchange differences and
changes in forecast payments
Financial charge relating to (11) (11) (13) (13)
financial RRSPs
Fair value losses on (28) - - -
commodity contracts
Interest on post-retirement (422) - (431) -
scheme liabilities
Other financing charges (7) (7) (2) (2)
(540) (69) (885) (78)
Net financing (84) (49) (432) (55)
Analysed as:
Net interest payable (31) (31) (40) (40)
Net post-retirement scheme financing (12) - (31) -
Net other financing (41) (18) (361) (15)
Net financing (84) (49) (432) (55)
1 See note 2
4 Earnings per ordinary share
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.
2011 2010
Potentially Potentially
dilutive share dilutive share
Basic options Diluted Basic options Diluted
Profit attributable 850 850 539 539
to ordinary
shareholders (£m)
Weighted average 1,850 25 1,875 1,846 24 1,870
number of shares
(millions)
EPS (pence) 45.95 (0.62) 45.33 29.20 (0.38) 28.82
The reconciliation between underlying EPS and basic EPS is as follows:
2011 2010
Pence £m Pence £m
Underlying EPS/Underlying profit attributable to 48.54 898 38.73 715
ordinary shareholders
Total underlying adjustments to profit before tax (2.81) (52) (13.70) (253)
(note 2)
Related tax effects 0.22 4 4.17 77
EPS/Profit attributable to ordinary shareholders 45.95 850 29.20 539
Diluted underlying EPS 47.89 38.24
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:
2011 2010
Pence Pence
per share £m per share £m
Interim (issued in January) 6.9 129 6.4 119
Final (issued in July) 10.6 199 9.6 180
17.5 328 16.0 299
6 Intangible assets
Certification
costs and Recoverable Software
participation Development engine and
Goodwill fees expenditure costs other Total
£m £m £m £m £m £m
Cost:
At January 1, 1,115 686 862 697 413 3,773
2011
Exchange (20) (2) (1) - (2) (25)
differences
Additions - 44 93 135 95 367
Acquisitions 11 - - - 8 19
of businesses
Transferred - - - (368) - (368)
to assets
held for sale
Disposals - (8) - - (24) (32)
At December 1,106 720 954 464 490 3,734
31, 2011
Accumulated
amortisation:
At January 1, 7 190 232 351 109 889
2011
Charge for - 15 36 62 56 169
the year
Transferred - - - (182) - (182)
to assets
held for sale
Disposals - (8) - - (16) (24)
At December 7 197 268 231 149 852
31, 2011
Net book 1,099 523 686 233 341 2,882
value at
December 31,
2011
Net book 1,108 496 630 346 304 2,884
value at
December 31,
2010
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 (2010 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 Interest
exchange Commodity rate Financial C
contracts contracts contracts Total RRSPs Shares Total
£m £m £m £m £m £m £m
At December
31, 2011
Non-current assets 237 7 83 327 - - 327
Current assets 84 7 - 91 - - 91
321 14 83 418 - - 418
Current (85) (7) - (92) (15) (4) (111)
liabilities
Non-current (683) (19) (2) (704) (215) - (919)
liabilities
(768) (26) (2) (796) (230) (4) (1,030)
(447) (12) 81 (378) (230) (4) (612)
At December
31, 2010
Non-current assets 317 18 36 371 - - 371
Current assets 98 10 142 250 - - 250
415 28 178 621 - - 621
Current (38) (5) - (43) (39) (23) (105)
liabilities
Non-current (713) (2) (3) (718) (227) - (945)
liabilities
(751) (7) (3) (761) (266) (23) (1,050)
(336) 21 175 (140) (266) (23) (429)
Derivative financial instruments
Movements in the fair value of derivative financial instruments were as
follows:
2011 2010
Foreign Interest
exchange Commodity rate Total Total
£m £m £m £m £m
At January 1 (336) 21 175 (140) 44
Movements in fair value hedges 2 - 83 85 (14)
Movements in cash flow hedges (1) - - (1) -
Movements in other derivative contracts (21) (28) 1 (48) (342)
Contracts settled (91) (5) (178) (274) 172
At December 31 (447) (12) 81 (378) (140)
Financial risk and revenue sharing partnerships (RRSPs)
Movements in the recognised values of financial RRSPs were as follows:
2011 2010
£m £m
At January 1 (266) (363)
Cash paid to partners 46 114
Exchange adjustments included in OCI (1) 2
Financing charge1 (11) (13)
Excluded from underlying profit:
Exchange adjustments1 1 (6)
Changes in forecast payments1 1 -
At December 31 (230) (266)
1 Total charge included within finance in the income statement is £9m (2010
charge £19m).
8 Borrowings
During 2011, the £250m bank revolving credit facility ("RCF") due in 2012 and £
750m RCF due in 2013 were both refinanced with a new £1.0bn RCF due in 2016
provided by a syndicate of relationship banks.
9 Pensions and other post-retirement benefits
Movements in the net post-retirement position recognised in the balance sheet
were as follows:
UK Overseas Total
schemes schemes
£m £m £m
At January 1, 2011 (220) (636) (856)
Exchange differences - 1 1
Current service cost (119) (34) (153)
Past-service credit 126 162 288
Curtailment - 2 2
Finance cost (372) (50) (422)
Expected return on assets 381 29 410
Contributions by employer 256 48 304
Net actuarial gains/(losses) 790 (84) 706
Movement in unrecognised past-service credit - (94) (94)
Movement in unrecognised surplus1 (690) 7 (683)
Movement on minimum funding liability2 100 - 100
At December 31, 2011 252 (649) (397)
Analysed as:
Post-retirement scheme surpluses - included in 495 8 503
non-current assets
Post-retirement scheme deficits - included in (243) (657) (900)
non-current liabilities
252 (649) (397)
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.
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 the value 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:
2011 2010
£m $m £m $m
Gross contingent liabilities 612 951 633 991
Contingent liabilities net of relevant security 1 124 192 121 190
Contingent liabilities net of relevant security reduced by 20%2 201 312 200 314
1 Security includes unrestricted cash collateral of: 67 104 68 106
2 Although sensitivity calculations are complex, the reduction of the relevant
security by 20% 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.
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.
Principal risks and uncertainties
Risk or uncertainty and potential impact Mitigation
Significant external events affecting - Established a balanced business
demand for transportation such as portfolio
terrorism, political change, global - Strong access to parts of the world
pandemic, natural disaster or continued where demand remains robust
and deeper economic retrenchment - Diversity of global operations
- Regularly exercised senior response
team
Failure to minimise the environmental - Research and development in low
impact of the Group's products and carbon technologies such as nuclear
operations leading to reputational damage power, tidal energy and fuel cells
and ultimately loss of market share - Significant investment in
innovative solutions for aviation,
marine and energy markets
- Governance structure headed by the
Environment Council to oversee
improvements
Reduction in Government spending due to - Development of a diversified
global financial uncertainty and budgetary portfolio of products and services
constraint in Europe and the US in for various markets and regions
particular causing reduced revenues on - Proactive lobbying for research and
existing platforms and inhibiting technology funding
investment in new technologies - Achieve commitments under current
contracts
Failure of counterparties, including - Established policy for managing
financial institutions, customers, joint counterparty credit risk
venture partners and insurers, driven - Common framework to measure, report
mainly by the economic uncertainties and and control exposures to
pressures in the current environment, counterparties across the Group
potentially affecting short term cash using value-at-risk and fair-value
flows techniques
- Internal credit rating assigned to
each counterparty, assessed with
reference to publicly available
credit information and subject to
regular review
Fluctuations in foreign currency exchange - Long-term hedging policy, using a
rates affecting operational results or the variety of financial instruments
outcomes of financial transactions - Where applicable, currency matching
of assets and liabilities to manage
translational exposures
- Regular review of risks and
appropriate risk mitigation
performed where material mismatches
arise
Regulatory changes relating to financial - Close monitoring of proposed changes
derivatives may require the Group to post - Evaluation of potential financial
cash collateral, increasing cash flow impact in terms of cash collateral
volatility and the risk of default required and use of public trading
exchanges
- Lobbying politicians and regulators
in conjunction with other large
European corporates
If the Rolls-Royce products, services and - Establishment of long-term customer
pricing do not remain competitive, this relationships to differentiate
could result in the loss of market share, products and services and protect
with attendant impact on long-term margins
financial performance. - Steady focus on improvement in
operational performance, for
example through the modernisation
of facilities
- Increased focus on managing the
costs of operations and products
- Sustained investment in technology
acquisition
Non-compliance with applicable legislation - A business-wide compliance structure
and regulations, for example export focussing on anti-bribery and
controls, anti-bribery and authorisation corruption legislation
of chemicals and substances compromising - Exports Committee, chaired by the
the ability to conduct business in certain Chief Operating Officer directs
jurisdictions and exposing the Group to strategy and policy on exports
reputational damage and potential - Resources to comply with
financial penalties requirements are embedded
throughout the business
- Employee awareness training
Failure to grow capable resource globally - Continued significant investment in
due to demographic trends and limited resourcing and capability
supply of appropriately skilled personnel infrastructure
affecting programme delivery, damaging - Objective assessment of performance
reputation and stifling opportunities for using improved system for developing
future innovation and monitoring the competency of
individuals
- Regularly refreshed framework to
develop managers and leaders
Product performance not meeting - Operating a 'safety first' culture,
expectations affecting safety and including delivery of regularly
reliability with adverse long term refreshed mandated product integrity
financial consequences training to employees and suppliers
- Future safety requirements are
defined by the Product Safety
Assurance team
- Activities to improve maturity of
products at entry into service
- Engineering focus on improvements
to product reliability and service
lives
Disruption of supply chain due to external - Continuous improvement of all
factors or failure to deliver parts to processes and project management
committed costs and quality reducing the controls to ensure both technical
ability to meet customer commitments, win and business objectives are achieved
future business or achieve operational - Customer Excellence Centre provides
results improved response to and analysis of
supply chain disruption
- Focus on production quality through
plant and supplier improvement plans
- Providing duality of capability
through establishment of world-class
manufacturing capabilities in Asia,
North America and Europe
- Pursuit of low cost sourcing
strategies
Downgrade in credit rating restricting the - The Group has developed a strong
Group's ability to secure funding, hedge financial risk profile and continues
forward or provide vendor financing to improve the business risk profile
Failure to conduct business in an ethical - Ethics Committee established to
and socially responsible manner causing oversee and maintain the highest
disruption and reputational damage ethical standards
- Global Code of Business Ethics, in
18 languages, issued to all
employees supported by a training
and engagement programme to improve
awareness of the Group's values
- Global telephone and intranet
channels are available for employees
to report in confidence any concerns
regarding potentially unethical
behaviours
Failure to manage multiple complex product - Continuous improvement of all
programmes effectively with potentially processes and project management
significant adverse financial and controls to ensure both technical
reputational consequences, including the and business objectives are achieved
risk of impairment of the carrying value - All major programmes subject to
of the Group's intangible assets and the approval and regular review by the
impact of potential litigation Board, with particular focus on the
nature and potential impact of
emerging risks and the effective
mitigation of previously identified
threats
Breach of IT security through increasing - Continual upgrading of security
volumes of data being transmitted equipment and software
electronically across international - Deployment of a multi-layered
borders may cause controlled data to be protection system that includes web
lost, corrupted or accessed by gateway filtering, firewalls and
unauthorised users, impacting the Group's intrusion detection
reputation - Specialist resources employed to
increase capability
- Active sharing of information
through industry and government
forums
Failure to execute of programme to - Governance structure established to
modernise the IT infrastructure impacting oversee the programme
efficiency and effectiveness of business - Project and risk management
operations methodologies are being followed
- Specialist resources have been
secured to increase capability
- Involvement of multiple service
providers to provide competition and
remove dependency on any single
supplier
Loss or unintended disclosure of - Strengthening of resources to manage
Intellectual Property damaging the Group's patents
competitive position and causing potential - Creation of a global framework of
breach of contractual requirements Intellectual Property officers
- Procurement of a global IT system to
make patent information more widely
available to engineers
Annual report and financial statements
The statements below have been prepared in connection with the Company's full
Annual report for the year ended December 31, 2011. 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 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 £2.3bn of which £1.1bn was drawn at the year end. None of these
facilities expire in 2012.
The Group's forecasts and projections, taking into account reasonably possible
changes in trading performance, show that the Group has sufficient financial
resources. As a consequence, the Directors have a 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 Financial Reporting Council) in preparing the consolidated financial
statements.
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.
AGM and directorate change
This year's AGM will be held at 11.00am on Friday, May 4 2012 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 2012 AGM and offer themselves for re-election. However, Sir Peter
Gregson has expressed his wish to retire as a non-executive director of
Rolls-Royce at this year's Annual General Meeting and therefore will not be
seeking re-election.
By order of the Board
John Rishton Mark Morris
Chief Executive Finance Director
February 8, 2012 February 8, 2012
Friday, 10th January 2025
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