Interim Results
27 July 2006
ROLLS-ROYCE GROUP plc INTERIM RESULTS 2006
Group Highlights
* Order book increased to £25.1bn (2005 half-year £23.0bn).
* Sales increased to £3,390m. Sales on an underlying* basis increased by nine
per cent.
* Aftermarket services sales represented 54 per cent of Group sales.
* Underlying profit before financing costs** increased to £345m, up 12 per
cent. Profit before financing costs was £361m.
* Underlying profit before taxation** increased to £324m, up 22 per cent.
* Cash inflow of £122m (2005 half-year £180m).
* Average net cash of £83m (2005 half-year £377m average net debt), an
improvement of £460m.
* Interim payment to shareholders increased by ten per cent to 3.67p per
share.
* Underlying sales reflect the exclusion of the IAS 39 hedge reserve adjustments
and the inclusion of the benefit of settled foreign exchange transactions, and
is consistent with underlying profit presentation.
** Adjustments for underlying profits are included in Note 2. Underlying profits
reflect a level of performance that excludes items considered to be
non-operating in nature (see notes 2 and 3).
Sir John Rose, Chief Executive, said:
"We have continued to make good progress, despite the challenges of a weak US
dollar and increased raw material costs.
"The strength of our order book, continuing growth of services sales and our
progress with efficiency improvements support our expectations of increased
profits and positive cash flow for 2006. As a result we have increased our
interim payment to shareholders by ten per cent"
Group Overview
Rolls-Royce continued to make good progress in the first half of 2006, with
increased profit and positive cash flow.
The Group's performance has been built on a consistent strategy, supported by
investment in market access, technology and capability. Its balanced business
portfolio has demonstrated its value, creating a broad market access and
reducing volatility associated with individual programmes or economic cycles.
The Group operates in markets with extraordinarily long product life cycles,
with high barriers to entry and good, long-term visibility.
This growth has been achieved despite the weakening US dollar exchange rate
achieved by the Group, increasing materials costs and pressure on the global
supply chain. The focus on cost reduction and increased efficiency within the
Group's operations and supply chain and its increasing emphasis on overhead
reduction are helping the Group to deal with these headwinds.
Aftermarket services sales increased by six per cent on an underlying basis and
represented 54 per cent of Group sales. The Group continues to expect
double-digit growth in aftermarket sales for the full year.
Underlying profit before tax increased by 22 per cent to £324m and a cash
inflow of £122m was generated, resulting in positive net cash of £457m on the
balance sheet at the end of June (2005 half-year net debt £37m). Average net
cash of £83m represented a £460m improvement over the £377m of average net debt
for the same period in 2005.
Underlying earnings per share rose 23 per cent to 13.62p (2005 half-year
11.05p) and basic earnings per share were 35.86p (2005 half-year 6.88p). An
interim payment to shareholders has been declared of 3.67p per share (2005
half-year 3.34p), an increase of ten per cent.
The introduction of new products and the continued success of existing
programmes have once again resulted in strong order intake for the period. New
orders in the first half of 2006 reached £5.1bn (2005 half-year £6.4bn), and
brought the period-end firm and announced order book to £25.1bn (2005 half-year
£23.0bn).
The Group continues to concentrate on its three key priorities of focused
investment in technology and products, improving operational efficiency and
developing its aftermarket services.
Rolls-Royce opened a new University Technology Centre in Dresden, Germany,
focused on lightweight materials; signed a research collaboration agreement
with Pusan University, Korea, on advanced heat-exchangers; and opened the
Rolls-Royce Centre of Excellence for Aerospace Materials at the National
Institute for Materials Science in Tsukuba, Japan.
The Group made further progress with its factory modernisation programme. The
latest in its series of new facilities was opened at Barnoldswick, in the UK,
and investment in Derby, Bristol and Indianapolis continues in order to improve
productivity and reduce costs by developing world-class manufacturing
facilities and processes.
The Group has continued to expand its services capabilities. The recently
opened repair and overhaul facility in Derby is now fully operational. Hong
Kong Aero Engine Services Limited, of which Rolls-Royce owns 45%, announced
plans to expand its capacity to cater for growing regional repair and overhaul
activity. Construction began in Germany of the fifth Trent engine overhaul
facility, a joint venture between Rolls-Royce and Lufthansa Technik. The Group
took full control in March of Data Systems & Solutions, its former joint
venture with SAIC in predictive services.
Prospects
Rolls-Royce is addressing four long-term growth markets. The Group's consistent
investment in technology and new products and services is creating the
opportunity for organic growth in each sector.
As the sales from aftermarket services continue to grow, the Group expects cash
flow to continue to be positive, after maintaining its level of investment in
technology, product development and capability.
The Group has continued to pursue its strategy of hedging future net dollar
revenues and is using its hedge book, in conjunction with cost reduction
initiatives and further `dollarisation' of the cost base to enable it to
continue to increase underlying profits while absorbing the effects of the
weaker US dollar exchange rate.
Continued progress is expected in the remainder of 2006, underpinned by the
strong order book, growing services sales and increasing efficiency. As a
result, the Group expects increased underlying profits and a positive cash flow
for the 2006 full year.
Enquiries:
Peter Barnes-Wallis
Director of Financial Communications
Mark Alflatt
Director of Investor Relations
Caroline Harris
Director of Corporate Communications
Tel: 0207 222 9020
www.rolls-royce.com
An interview on the results with Rolls-Royce Chief Executive, Sir John Rose, is
available on video, audio and text on www.rolls-royce.com and www.cantos.com.
Photographs are available at www.newscast.co.uk
Visit www.thenewsmarket.com/rolls-royce to download broadcast-standard video or
order a Beta SP tape of Rolls-Royce products, services and facilities.
REVIEW OF FIRST HALF 2006 BY BUSINESS SECTOR*
Civil Aerospace
Underlying sales: £1,781m (2005 half-year £1,681m)
Underlying profit before financing costs: £246m (2005 half-year £200m)
Order book: £19.0bn (2005 half-year £17.7bn)
The Group made strong progress in civil aerospace, as a result of its broad
portfolio of aero engines, which power aircraft from corporate jets to the
largest airliners. Profit increased by 23 per cent, reflecting the continuing
growth of aftermarket services sales, which increased by eight per cent and
accounted for 60 per cent of civil aerospace sales. The Group continues to
expect civil aerospace aftermarket services sales to grow by more than ten per
cent for the full year.
Total civil aerospace sales increased by six per cent compared with the first
half of 2005, reflecting a reduction in engine unit deliveries, to 412 (2005
441), as a result of the anticipated slow down in demand for 50-seat regional
aircraft.
The installed base of civil jet engines grew to 11,636 and the Rolls-Royce
civil fleet flying hours increased by seven per cent compared to the first half
of 2005.
Order intake remained strong and the civil order book stood at a record level
of £19.0bn at the half-year.
Defence Aerospace
Underlying sales: £761m (2005 half-year £677m)
Underlying profit before financing costs: £95m (2005 half-year £94m)
Order book: £3.5bn (2005 half-year £3.3bn)
The defence aerospace business addresses the principal market sectors, from
combat and trainer aircraft to transport and tactical aircraft and helicopters,
through a broad portfolio of mature programmes, new production programmes,
development programmes and services activities.
Sales increased by 12 per cent compared to the first half of 2005, with engine
deliveries and aftermarket services sales both increasing. Services sales
increased by 11 per cent supported by increased activity on both RB199 and
EJ200 programmes and accounted for 55 per cent of defence sales. Profits were
relatively stable compared with 2005, when profit was weighted towards the
first half. The Group expects to make steady progress over the full year.
Marine
Underlying sales: £621m (2005 half-year £488m)
Underlying profit before financing costs: £50m (2005 half-year £39m)
Order book: £2.1bn (2005 half-year £1.7bn)
The marine business continued to benefit from its broad access to commercial
and naval markets.
The first half results demonstrate strong performance with both profit and
sales increasing by more than 20 per cent, reflecting in particular the
continuing strength of the offshore oil and gas support market, where
Rolls-Royce is securing a good share of the available business. The naval
business remains stable, with strong long-term prospects, particularly as a
result of the Group's position on new US naval programmes.
In the first half of 2006, sales derived from services and support activities
increased by five per cent and represented 38 per cent of marine sales.
Energy
Underlying sales: £214m (2005 half-year £237m)
Underlying (loss) before financing costs: £(20m) (2005 half-year £(3)m)
Order book: £0.5bn (2005 £0.3bn)
Activities in the energy sector comprise oil and gas applications and power
generation.
Profit in the oil and gas business increased in the first half of 2006,
although sales were lower as a result of the timing of major programmes.
The overall results of the energy business reflect the continuing development
of the power generation business, lower than anticipated receipts of technology
fees and the investment in its fuel cell technology. The Group achieved its
first-half technology milestone of running a fuel cell system at 60kW.
In the first half of 2006, services sales reduced by four per cent and
represented 41 per cent of energy sales. However, the Group expects services
sales for the full year to exceed those of 2005, resulting in a lower loss in
the second half of the year.
Financial Services
Underlying sales: £27m (2005 half-year £52m)
Underlying (loss)/profit before financing costs: £(1)m (2005 half-year £3m)
Rolls-Royce & Partners Finance, the Group's joint venture engine leasing
business, continued to trade profitably in the first half of 2006.
An agreement had been reached to sell Pembroke Group, the Group's joint venture
aircraft leasing business, which is no longer considered to be a core business.
A charge of £10m was incorporated in the first-half results to reflect the
recoverable value of Pembroke's aircraft assets.
Financial Services will no longer be reported as a separate business. Engine
leasing activities will be incorporated in civil aerospace and power ventures
within the energy segment. Revised segmental analyses are shown in note 1b.
* Commentaries relate to underlying sales and profits unless specifically noted
FINANCIAL REVIEW
The firm and announced order book, at constant exchange rates, was £25.1bn
(2005 half-year £23.0bn). Aftermarket services represented 38 per cent of the
order book (2005 half-year 37 per cent).
Sales increased by six per cent, compared with 2005, at £3,390m (2005 half-year
£3,184m). Sales on an underlying basis grew by nine per cent.
Payments to Risk and Revenue Sharing Partners (RRSPs), charged in cost of
sales, amounted to £79m (2005 half-year £73m).
Gross research and development investment was £346m (2005 half-year £283m). Net
research and development investment charged to the income statement was £177m
(2005 half-year £117m), the increase being attributable to the mix of
development programmes and lower capitalisation of costs in 2006. Research and
development investment charged to the income statement in the second half is
expected to be modestly higher than the first half, leading to a significant
full-year increase compared to 2005. Receipts from RRSPs in respect of new
programme developments, shown as other operating income, were £38m (2005
half-year £44m).
Restructuring costs of £23m (2005 half-year £27m) were charged within operating
costs.
The taxation charge was £253m (2005 half-year £47m). The taxation charge on an
underlying basis was £91m, representing 28 per cent of underlying profit before
tax. (2005 half-year £75m, representing 28 per cent of underlying profit before
tax).
Cash inflow * for the period was £122m (2005 half-year £180m), benefiting from
strong operational cash flow, after higher capital investment in tangible and
intangible assets. Average net cash was £83m (2005 half-year £377m net debt).
The net cash balance at the period-end was £457m (2005 half-year net debt £
37m).
Provisions were £353m (2005 half-year £367m). Provisions carried forward in
respect of potential customer financing exposure amounted to £98m at the
half-year (2005 half-year £93m).
There were no material changes to the Group's gross and net contingent
liabilities in the first half of 2006 (see note 10).
A charge of £64m (2005 half-year £61m) for pensions and other post-retirement
benefits is included in the income statement (see Note 11). The Group announced
in April the start of a consultation process with workforce representatives and
pension fund trustees, whereby the Group would inject £500m into the pension
funds, subject to the agreement of certain conditions.
*Cash inflow is the sum of net funds resulting from cash flows plus exchange
and other revaluation effects at the period end.
The Group has continued to pursue its strategy of hedging future net dollar
revenues and at the end of June 2006 had approximately $10.4 billion of forward
cover at an average exchange rate of 1.70 dollars to the pound (2005 year-end
$10.5 billion at 1.67).
The Group is using this hedge book in conjunction with cost reduction
initiatives and further `dollarisation' of the cost base to manage future
foreign exchange risk. In the first half of 2006 the Group absorbed a £58
million deterioration due to the weakening US dollar exchange rate achieved by
the Group. Over the whole of 2006, the Group expects the deterioration will be
six to eight cents compared with the rate achieved in 2005.
The Group considers it prudent to continue to strengthen its balance sheet
because of the long-term nature of its programmes and the significant
investments and obligations they entail. As a result of the improvements
to-date, Standard & Poors Ratings Services raised its long-term credit rating
to A- from BBB+ during the first-half of the year. The Group also recognises
the importance of dividends to shareholders and is declaring an increase in the
payment to shareholders of ten per cent for the first half of 2006.
The Group is continuing to make payments to shareholders in the form of `B'
shares rather than a dividend. These shares can then be redeemed for the same
amount of cash that would have been received with a cash dividend, or converted
into the same number of ordinary shares in the Group that would have been
received under the scrip dividend alternative. The issue of `B' shares will
result in significant tax benefits for the Group, by accelerating the recovery
of Advance Corporation Tax, which will in turn benefit all shareholders.
The declared interim payment to shareholders is equivalent to 3.67 pence per
ordinary share (2005 3.34p). The interim payment is payable on 3 January 2007
to shareholders on the register on 13 October 2006. The final day of trading
with entitlement to B shares is 10 October 2006.
Consolidated Income Statement
Half Year Half Year Year to
to to 31 December
30 June 2006 30 June 2005 2005
£m £m £m
Revenue 3,390 3,184 6,603
Cost of sales and other operating (2,862) (2,691) (5,488)
income and costs*
Research and development costs (177) (117) (282)
Share of profit of joint ventures 10 26 46
Group operating profit 361 402 879
Loss on sale of businesses - (1) (2)
Profit before financing costs 361 401 877
Financial income 739 271 442
Financial expenses (230) (507) (842)
Net financing income/(costs)** (note 3) 509 (236) (400)
Profit before taxation *** 870 165 477
Taxation - UK (196) (21) (61)
Taxation - Overseas (57) (26) (69)
Profit for the period 617 118 347
Attributable to:
Equity holders of the parent 619 119 350
Minority interest (2) (1) (3)
Profit for the period 617 118 347
Payments to shareholders (65) (59) (154)
Earnings per ordinary share (note 2)
Basic 35.86p 6.88p 20.11p
Diluted 34.41p 6.64p 19.31p
* Other operating income 38 44 60
** Net interest payable (note 3) (11) (21) (39)
*** Underlying profit before taxation 324 265 593
(note 2)
Consolidated Balance Sheet
*2005 Balance sheets have been restated to reflect the reclassification of
capitalised software costs. There is no impact on the net assets of the Group
(see Note 4).
Restated* Restated*
30 June 30 June 2005 31 December
2006 2005
£m £m £m
ASSETS
Non-current assets
Intangible assets (note 4) 1,394 1,265 1,315
Property, plant and equipment 1,624 1,637 1,649
Investments in joint ventures 243 241 247
Other investments 51 55 52
Deferred tax assets 274 292 439
3,586 3,490 3,702
Current assets
Inventory 1,423 1,163 1,309
Trade and other receivables 2,128 1,923 2,047
Taxation recoverable 3 3 3
Other financial assets 717 786 464
Short-term investments 36 41 37
Cash and cash equivalents 1,837 1,767 1,757
Assets held for sale (note 5) 22 - -
6,166 5,683 5,617
Total assets 9,752 9,173 9,319
LIABILITIES
Current liabilities
Borrowings (388) (461) (75)
Other financial liabilities (72) (283) (234)
Trade and other payables (2,878) (2,275) (2,689)
Current tax liabilities (186) (209) (171)
Provisions (152) (160) (138)
(3,676) (3,388) (3,307)
Non-current liabilities
Borrowings (1,052) (1,468) (1,458)
Other financial liabilities (353) (457) (339)
Other payables (606) (554) (650)
Deferred tax liabilities (191) (119) (178)
Provisions (201) (207) (223)
Post-retirement benefit obligations (1,625) (1,422) (1,659)
(4,028) (4,227) (4,507)
Total liabilities (7,704) (7,615) (7,814)
Net assets 2,048 1,558 1,505
EQUITY
Capital and Reserves
Called up share capital 354 347 352
Share premium account 30 29 30
Other reserves 550 645 605
Retained earnings 1,105 531 512
Equity attributable to equity holders of 2,039 1,552 1,499
the parent
Minority interest 9 6 6
Total equity 2,048 1,558 1,505
Consolidated Cash Flow Statement
Half Year Half Year Year to
to to 31 December
30 June 2006 30 June 2005
2005
£m £m £m
Cash flows from operating activities
Profit before taxation 870 165 477
Net financing (income)/costs (509) 236 400
Depreciation and amortisation 109 126 254
Decrease in provisions (7) (26) (31)
(Increase)/decrease in working capital (24) (101) 247
Decrease in other financial assets and 69 153 283
liabilities
Other non cash movements (158) (206) (545)
Taxation paid (18) (13) (60)
Dividends received from joint ventures 11 6 35
Net cash inflow from operating 343 340 1,060
activities
Cash flows from investing activities
Disposals of unlisted investments/ 8 2 5
Investments by minority interests
Additions to intangible assets (97) (55) (116)
Purchases of property, plant and (109) (73) (235)
equipment
Disposals of property, plant and 25 10 69
equipment
(Acquisitions)/disposals of businesses (5) 2 1
Investments in joint ventures (10) (4) (13)
Net cash flow from investing activities (188) (118) (289)
Cash flows from financing activities
Decrease in borrowings (51) (3) (207)
Capital element of finance lease (5) (8) (11)
payments
Net cash outflow from decrease in (56) (11) (218)
borrowings
Decrease/(increase) in government 1 (5) (1)
securities and corporate bonds
Net interest paid (16) (40) (49)
Payments to shareholders and issue of (21) 6 (26)
shares
Relating to own shares 25 (13) (149)
Net cash outflow from financing (67) (63) (443)
activities
Net increase in cash and cash 88 159 328
equivalents
Cash and cash equivalents at January 1 1,745 1,439 1,439
Exchange and other non-cash adjustments (22) 31 46
Adjustment on implementation of IAS 32 - (68) (68)
and IAS 39
Cash and cash equivalents at period end 1,811 1,561 1,745
Reconciliation of increase in cash and
cash equivalents to movement in net
funds
Increase in cash and cash equivalents 88 159 328
Cash (inflow)/outflow from (decrease)/ (1) 5 1
increase in government securities and
corporate bonds
Net cash outflow from decrease in 56 11 218
borrowings
Change in net funds resulting from cash 143 175 547
flows
Exchange and other non-cash adjustments (21) 5 5
Fair value adjustments on borrowings 50 37 47
Movement in net funds 172 217 599
Net funds/(debt) at January 1 excluding 261 (149) (149)
swaps
Adjustment on implementation of IAS 32 - (189) (189)
and IAS 39
Net funds at period end excluding swaps 433 (121) 261
Fair value of swaps hedging fixed rate 24 84 74
borrowings
Net funds/(debt) at period end including 457 (37) 335
swaps
Consolidated Statement of Recognised Income and Expense
Half Year Half Year Year to
to to 31 December
30 June 2006 30 June 2005 2005
£m £m £m
Foreign exchange adjustments (13) 16 49
Actuarial losses - (29) (282)
Deferred taxation on actuarial losses - 9 84
Transfers from transition hedging reserve (99) (169) (324)
Transfers from cash flow hedging reserve - 2 3
Net expense recognised directly in equity (112) (171) (470)
Profit for the period 617 118 347
Total recognised income and expense for 505 (53) (123)
the period
Attributable to:
Equity holders of the parent 507 (52) (120)
Minority interest (2) (1) (3)
Total recognised income and expense for 505 (53) (123)
the period
Summary of movements in equity
Half Year Half Year Year to
to to 31 December
30 June 2006 30 June 2005 2005
£m £m £m
At January 1 1,505 1,446 1,446
Total recognised income and expense for 505 (53) (123)
the period
Adjustments relating to adoption of IAS 151 151
32 and IAS 39
from January 1, 2005
Issue of B Shares (59) (54) (141)
On issue of ordinary shares 38 63 117
Relating to own shares 38 (1) 2
Share-based payment adjustment 16 3 48
Disposal of shares in subsidiary to a 5 3 5
minority interest
At period end 2,048 1,558 1,505
Attributable to:
Equity holders of the parent 2,039 1,552 1,499
Minority interest 9 6 6
Total equity 2,048 1,558 1,505
Notes
1a. Analysis by business segment
Half Year Half Year Year to
to to 31 December
30 June 2006 30 June 2005 2005
£m £m £m
Revenue
Civil aerospace 1,780 1,730 3,510
Defence aerospace 752 677 1,413
Marine 620 488 1,097
Energy 210 237 505
Financial services 28 52 78
3,390 3,184 6,603
Profit before financing costs
Civil aerospace 267 299 659
Defence aerospace 90 95 177
Marine 50 37 87
Energy (21) (9) 2
Financial services* - 3 (3)
Central costs (25) (24) (45)
361 401 877
Underlying profit before financing costs*
*
Civil aerospace 246 200 454
Defence aerospace 95 94 180
Marine 50 39 89
Energy (20) (3) 4
Financial services* (1) 3 (3)
Central costs (25) (24) (45)
345 309 679
Net assets/liabilities
Civil aerospace 1,787 1,414 1,278
Defence aerospace (176) (8) (59)
Marine 590 566 592
Energy 339 324 314
Financial services* 177 279 199
Unallocated pension liabilities (1,126) (980) (1,154)
Net funds/(debt) 457 (37) 335
Net assets 2,048 1,558 1,505
*Includes the impact of the impairment of £10m for the investment in the
Pembroke joint venture which has been re-classified as an asset for sale and
written down to a recoverable value of £1m (see note 5)
**See note 2
Following the disposal of Pembroke, Financial Services is to be amalgamated
into the civil aerospace and energy segments.
1b. Revised analysis by business segment
Half Year Half Year Year to
to to 31 December
30 June 2006 30 June 2005 2005
£m £m £m
Revenue
Civil aerospace 1,789 1,766 3,561
Defence aerospace 752 677 1,413
Marine 620 488 1,097
Energy 229 253 532
3,390 3,184 6,603
Profit before financing costs
Civil aerospace* 265 304 659
Defence aerospace 90 95 177
Marine 50 37 87
Energy (19) (11) (1)
Central costs (25) (24) (45)
361 401 877
Underlying profit before financing costs*
*
Civil aerospace* 243 205 454
Defence aerospace 95 94 180
Marine 50 39 89
Energy (18) (5) 1
Central costs (25) (24) (45)
345 309 679
Net assets/liabilities
Civil aerospace* 1,871 1,548 1,380
Defence aerospace (176) (8) (59)
Marine 590 566 592
Energy 432 469 411
Unallocated pension liabilities (1,126) (980) (1,154)
Net funds/(debt) 457 (37) 335
Net assets 2,048 1,558 1,505
*Includes the impact of the impairment of £10m for the investment in the
Pembroke joint venture which has been re-classified as an asset for sale and
written down to a recoverable value of £1m (see note 5)
**See note 2
2. Earnings per ordinary share and underlying profit reconciliation
The Group seeks to present a measure of underlying performance, which excludes
items considered to be non-operating in nature. Underlying profit now excludes
the net impact of financing costs related to post-retirement benefits as well
as unrealised amounts arising from revaluations required by IAS 32 and IAS 39,
and includes the realised amounts arising from settled hedging transactions.
The calculation of underlying profit and underlying earnings per share is shown
below for the current and prior periods.
Basic earnings per ordinary share are calculated by dividing the profit
attributable to ordinary shareholders of £619m (2005 half year £119m, full year
£350m) by 1,726 million (2005 half year 1,729 million, full year 1,740 million)
ordinary shares, being the average number of ordinary shares in issue during
the period, excluding own shares held under trust which have been treated as if
they had been cancelled.
Half Year to 30 June 2006
£m £m £m Pence
Profit before financing costs 361
Profit before taxation 870
Profit attributable to equity holders 619 35.86
of the parent
Release of hedge reserves (note 8) (141) (141) (141) (8.17)
Unrealised fair value changes to - (509) (509) (29.49)
derivative
contracts (note 6)
Revaluation of trading assets and - (5) (5) (0.29)
liabilities
Exchange differences and forecast - (29) (29) (1.68)
changes relating
to Risk and Revenue Sharing
Partnerships (note 7)
Realised gains on settled derivative 121 138 138 8.00
contracts (note 6)
FX adjustments carried forward in 4 4 4 0.23
contract
accounting (note 6)
Net pension financing income (Note 3) - (4) (4) (0.23)
Related tax effect - - 162 9.39
Underlying profit before financing 345
costs
Underlying profit before taxation 324
Underlying profit for the period 235
attributable to equity holders of the
parent
Underlying earnings per share 13.62
Half Year to 30 June 2005
£m £m £m Pence
Profit before financing costs 401
Profit before taxation - 165
Profit attributable to equity holders 119 6.88
of the parent
Release of hedge reserves (236) (236) (236) (13.65)
Unrealised fair value changes to - 180 180 10.41
derivative
contracts
Revaluation of trading assets and - (67) (67) (3.88)
liabilities
Exchange differences and forecast - 44 44 2.55
changes relating
to Risk and Revenue Sharing
Partnerships
Realised gains on settled derivative 176 206 206 11.91
contracts
FX adjustments carried forward in (32) (32) (32) (1.85)
contract
accounting (note 6)
Net pension financing charge (Note 3) - 5 5 0.29
Related tax effect - - (28) (1.61)
Underlying profit before financing 309
costs
Underlying profit before taxation 265
Underlying profit for the period 191
attributable to equity holders of the
parent
Underlying earnings per share 11.05
Year to 31 December 2005
£m £m £m Pence
Profit before financing costs 877
Profit before taxation 477
Profit attributable to equity holders 350 20.11
of the parent
Release of hedge reserves (452) (452) (452) (25.97)
Unrealised fair value changes to - 345 345 19.83
derivative
contracts
Revaluation of trading assets and - (78) (78) (4.49)
liabilities
Exchange differences and forecast - (30) (30) (1.72)
changes relating
to Risk and Revenue Sharing
Partnerships
Realised gains on settled derivative 328 396 396 22.76
contracts
FX adjustments carried forward in (74) (74) (74) (4.25)
contract
accounting (note 6)
Net pension financing income (Note 3) - 9 9 0.52
Related tax effect - - (40) (2.31)
Underlying profit before financing 679
costs
Underlying profit before taxation 593
Underlying profit for the period 426
attributable to equity holders of the
parent
Underlying earnings per share 24.48
The 2005 figures have been restated to exclude the net impact of financing
costs relating to post retirement benefits as the Group considers these do not
relate to the operating performance of the business.
Diluted earnings per ordinary share, are calculated by dividing the profit
attributable to ordinary shareholders of £619m (2005 half year £119m, full year
£350m) by 1,799 million (2005 half year 1,791 million, full year 1,813 million)
ordinary shares, being 1,726 million (2005 half year 1,729 million, full year
1,740 million) as above, adjusted by the bonus element of existing share
options of 73 million
(2005 half year 62 million, full year 73 million).
3. Net financing costs
Half Year Half Year Year to
to to 31 December
30 June 2006 30 June 2005 2005
£m £m £m
* * *
Interest receivable 38 38 29 29 65 65
Fair value gains on foreign currency 478 - - - - -
contracts (Note 6)
Exchange and forecast movements on 29 - - - 30 -
financial RRSPs
Fair value gains on commodity 31 - 50 - 54 -
derivatives (Note 6)
Expected return on pension scheme assets 173 - 155 - 312 -
Net foreign exchange gains - - 37 - 11 1
Other financing income 4 4 - - - -
Financial income 753 42 271 29 472 66
Interest payable (49) (49) (50) (50) (104) (104)
Fair value losses on foreign currency - - (230) - (399) -
contracts (Note 6)
Financial charge relating to financial (14) (14) (19) (19) (43) (43)
RRSPs (Note 7)
Exchange and forecast movements on - - (44) - - -
financial RRSPs
Interest on pension scheme liabilities (169) - (160) - (321) -
Net foreign exchange losses (12) - - - - -
Other financing charges - - (4) (4) (5) (5)
Financial expenses (244) (63) (507) (73) (872) (152)
Net financing income/(costs) 509 (21) (236) (44) (400) (86)
Analysed as:
Net interest payable (11) (11) (21) (21) (39) (39)
Net pension scheme financing income/ 4 - (5) - (9) -
(costs)
Net other financing income/(expenses) 516 (10) (210) (23) (352) (47)
Net financing income/(costs) 509 (21) (236) (44) (400) (86)
* underlying financing costs
4. Intangible assets
Certification Other
Goodwill Development Recoverable Total
and
costs engine
Participation
costs
fees
£m £m £m £m £m £m
Cost:
At January 1, 2006 751 284 381 265 - 1,681
as previously
reported
Reclassification -
of software from - - - 43 43
property, plant
and equipment
At January 1, 2006 751 284 381 265 43 1,724
as restated
Exchange 1 - - - - 1
adjustments
Other - (2) - - 2 -
reclassifications
Additions at cost 23 23 43 8 97
Acquisition of 7 - - - 3 10
business
At June 30, 2006 759 305 404 308 56 1,832
Accumulated
depreciation:
At January 1, 2006 - 138 116 146 - 400
as previously
reported
Reclassification -
of software from - - - 9 9
property, plant
and equipment
At January 1, 2006 - 138 116 146 9 409
as restated
Exchange - - - - - -
adjustments
Provided during - 2 7 16 4 29
the year
At June 30, 2006 - 140 123 162 13 438
Net book value at 759 165 281 146 43 1,394
June 30, 2006
Net book value at 751 146 265 119 34 1,315
December 31, 2005
(Restated)
External software purchases were previously included within property, plant and
equipment. Following a review in 2006, it was concluded that certain of these
items should more properly, in accordance with IAS 38 Intangible Assets, be
classified as intangible assets. Accordingly, software with a net book value at
December 31, 2005 of £34 million (June 30, 2005 £29 million) has been
reclassified from property, plant and equipment to intangible assets. There is
no change to the amortisation policy in respect of these assets, being on a
straight-line basis over a maximum of five years.
5. Assets held for sale
Assets held for sale comprise:
ï‚· The investment in the Pembroke joint venture. Prior to the re-classification,
an impairment charge of £10m was recognised to write the investment down to its
recoverable amount of £1m, being the anticipated sales proceeds. Since June 30,
2006, the sale of this investment has been completed.
* Three aircraft that were being marketed for sale with net book value and
recoverable amount of £21m. Since June 30, 2006, two of these aircraft have
been sold and it is expected that the third will be sold in the second half
of the year.
6. Foreign exchange and commodity financial assets
Movements in the fair value of foreign exchange and commodity contracts are as
follows:
Foreign Commodity Total
exchange
£m £m £m
At January 1, 2006 228 31 259
Fair value changes to derivative contracts 478 31 509
Fair value changes to fair value hedges (12) - (12)
Fair value relating to contracts utilised* (125) (13) (138)
At June 30, 2006 569 49 618
* fair value of utilised contracts carried (4) - (4)
forward in
contract accounting balances
At January 1, 2005 986 9 995
Fair value changes to derivative contracts (230) 50 (180)
Fair value relating to contracts utilised* (195) (11) (206)
At June 30, 2005 561 48 609
* fair value of utilised contracts carried 32 - 32
forward in
contract accounting balances
At January 1, 2005 986 9 995
Fair value changes to derivative contracts (399) 54 (345)
Fair value changes to fair value hedges 5 - 5
Fair value relating to contracts utilised* (364) (32) (396)
At 31 December 2005 228 31 259
* fair value of utilised contracts carried 74 - 74
forward in
contract accounting balances
7. Financial Risk and Revenue Sharing Partnerships (RRSPs)
Movements in the recognised value of RRSPs are as follows:
Half Year Half Year Year to
to to 31 December
30 June 2006 30 June 2005 2005
£m £m £m
At beginning of period (423) (468) (468)
Financing charge* (14) (19) (43)
Excluded from underlying profit:
-Exchange adjustments* 22 (37) (56)
-Change in forecasts* 7 (7) 86
Cash paid to partners 58 37 58
Fair value at period end (350) (494) (423)
* Total amounts included within the finance income/(costs) within the income
statement £15m (30 June 2005 £(63)m, 31 December 2005, £(13)m).
8. Foreign exchange and commodity transition hedging reserve movements
Movements in the foreign exchange and commodity transition hedging reserve
excluding deferred taxation are as follows:
Foreign Commodity Total
exchange
£m £m £m
At January 1, 2006* 538 5 543
Transferred to income statement** (139) (2) (141)
At June 30, 2006 399 3 402
* Deferred tax on opening balance (162) (2) (164)
** Deferred tax on amount transferred 42 - 42
At January 1, 2005* 996 9 1,005
Transferred to income statement** (239) (2) (241)
At June 30, 2005 757 7 764
* Deferred tax on opening balance (299) (3) (302)
** Deferred tax on amount transferred 72 - 72
At January 1, 2005* 996 9 1,005
Transferred to income statement** (458) (4) (462)
At 31 December 2005 538 5 543
* Deferred tax on opening balance (299) (3) (302)
** Deferred tax on amount transferred 137 1 138
9. Group employees at period end
30 June 30 June 31 December
2006 2005 2005
Number Number Number
Civil aerospace 21,900 20,300 21,000
Defence aerospace 5,400 5,000 5,200
Marine 7,400 7,200 7,200
Energy 2,700 2,800 2,700
Financial services 100 100 100
37,500 35,400 36,200
10. Sales financing contingent liabilities
In connection with the sale of its products the Group may provide financing
support for 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.
During the first half of 2006 there were no material changes to the maximum
gross and net contingent liabilities.
11. Pensions and other post-retirement benefits
The Group's pension deficit may be volatile between reporting dates due to
changes in interest rates, share prices and other asset values. At each half
year it is the Group's policy to adjust the valuation of the pension scheme
assets and liabilities only where there is a significant market fluctuation or
a significant one-off event. At the half-year there was a modest improvement in
the future liabilities as a result of increasing interest rates and the value
of scheme assets were broadly similar to the previous year-end. Accordingly, no
adjustment has been made at the half year. The pension deficit will be revalued
at the end of 2006, in line with IAS 19.
12. Share-based payments
In accordance with IFRS 2, a charge of £16m (2005 half-year £12m), relating to
the fair value of share-based schemes granted since November 7, 2002, is
included in the income statement.
13. Basis of preparation
These financial statements have been prepared on the basis of the recognition
and measurement requirements of IFRS applied in the financial statements at 31
December 2005 and those standards that have been endorsed and will be applied
at 31 December 2006.
Section 240 Statement
The results for each half-year are unaudited. The comparative figures for the
year to 31 December 2005 have been abridged from the Group's financial
statements for that year, which have been delivered to the Registrar of
Companies. The auditors have reported on those financial statements; their
report was unqualified and did not contain statements under section 237(2) or
(3) of the Companies Act 1985.
The interim financial statements for the six months ended 30 June 2006 were
approved by the Board on 26 July 2006.
Friday, 10th January 2025
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