Rolls-Royce plc Interim Results 2001
LONDON, Aug. 23 Rolls-Royce plc announced today interim
results for the half-year ended 30 June 2001.
Highlights are:
* Profit and cash on course
* Sales up 15 per cent, at 3,042 million pounds sterling
* Underlying profit before tax on target at 190 million pounds
* Average net debt reduced by 25 per cent to 940 million pounds
* Order book and service revenues increased
* Record order book of 14.9 billion pounds
* Service revenues up 20 per cent, representing 40 per cent of total
revenue
* Acquisitions -- integration completed; businesses progressing well
* Improved operational performance - underlying trading margin up
15 per cent
Sir Ralph Robins, Chairman, said:
"These results demonstrate the importance of the strategic changes made by
management over recent years. We have secured significant market success with
our growing range of products and innovative through-life services, and all of
our businesses have good prospects.
"Our order book has increased again to a record level of 14.9 billion
pounds.
"We have met our financial targets with average net debt being reduced by
25 percent.
"The market is challenging. However, we have built a robust company with
a balanced portfolio of businesses, a very strong order book, continuing
improvements in operational performance and highly committed people.
"We continue to expect flat underlying earnings in 2001 and target
increased underlying earnings in 2002."
Overview
Results for the first half of 2001 were in line with the guidance given by
the company last year. The company's balanced business portfolio delivered an
underlying profit before tax of 190 million pounds, with a strong performance
by civil aerospace offsetting additional costs in the energy business. A
similar mix is expected in the second half. In line with our statement in
August 2000, we continue to expect unchanged underlying earnings per share in
2001.
Strong order intake resulted in a record order book of 14.9 billion pounds
at the half year. A further 1.9 billion pounds of orders had been announced
but not yet signed.
The provision of aftermarket services has always been an important feature
of the company's strategy. It maximises the opportunity in each market sector
and builds on the technology and intellectual property embedded in the
product. Aftermarket services revenues increased by 20 per cent and
represented 40 per cent of sales in the first half.
The company has continued to improve operational efficiency. Good
progress has been made with the first phases of the rationalisation programme,
announced last year, to simplify the business structure and deliver
substantial efficiency gains. Aggressive targets for the reduction of lead
times have been adopted. These are supported by the successful investments in
capabilities and capacity.
Market conditions are challenging. However, Rolls-Royce is a robust
business, with a balanced business portfolio, a strong order book, improved
operational performance and highly committed people. The company has recently
completed its annual review of each of its business sectors and continues to
target growth in underlying earnings and reduction of average net debt next
year.
Sectoral Review
Civil aerospace: Sales 1,717m pounds; underlying profit before interest
163m pounds
The civil aerospace business performed well as a result of a combination
of factors:
* Aftermarket sales were strong. The impact of the predicted retirement
of older engines was offset by higher aftermarket activity in respect
of other engines, particularly as a result of the phasing of RB211-535
and 524 aftermarket sales.
* Engine unit deliveries were up by 40 per cent, largely as a result of
strong demand for corporate and regional aircraft engines.
* The timing of engine development programmes resulted in lower research
and development investment and lower receipts from risk and revenue
sharing partners (RRSPs).
* Improvements in operational efficiency contributed to better operating
margins
Operational highlights included the continuing success of the Trent
family. The Trent 700 and 800 secured new orders; the Trent 500-powered A340
500/600 continued its successful flight tests; and the Trent 900 secured three
out of the first four airline customers for the A380.
The V2500 engine secured 55 per cent of the orders announced for the
Airbus single aisle range. Midwest Express Airlines ordered Rolls-Royce
AE3007 and BR715 engines for the whole of its new regional fleet of Embraer
and Boeing aircraft.
Significant success was achieved with the sale of Total Care Packages.
American Airlines and Continental Airlines committed their existing fleets of
RB211 engines to long-term contracts worth $1.4 billion. Such agreements now
cover 60 per cent of the RB211-535s in service.
Defence: Sales 639m Pounds, Underlying Profit Before Interest 70m Pounds
The defence business is well positioned, with a broad range of programmes.
The phasing of individual programmes is expected to lead to a similar
performance in 2001 to that achieved in 2000. This year, EJ200 engine
deliveries, for Eurofighter, are planned to reach around 40 engines, weighted
towards the second half of the year, and to increase to around 100 engines a
year by 2003.
Operational highlights included commitment by European Defence Ministers
to launch the A400M military transport aircraft programme. Rolls-Royce, and
its Spanish joint venture partner, Industria de Turbo Propulsores, will play a
major role in developing the TP400 engine for the A400M.
The Joint Strike Fighter (JSF) programme, in which Rolls-Royce
participates, progressed to short take off and vertical landing (STOVL) flight
tests.
Rolls-Royce Turbomeca signed a $1 billion agreement to supply RTM322
engines for the 399 NH90 helicopters ordered by Germany, Holland and France.
The company is launching 'Mission Ready Management Services', the defence
sector equivalent of Total Care Packages, capitalising on its experience in
the civil sector.
Vickers Defence Systems continued to make a good financial contribution to
the defence business as the Challenger II contract approached completion. It
won a 250 million pounds contract for the supply of next generation engineer
tanks for the British Army.
Marine: Sales 384m Pounds, Underlying Profit Before Interest 31m Pounds
The marine business made good progress in the first half as it continued
to benefit from a broader approach to the marine market, arising from its
ability to offer and integrate propulsion systems in commercial and naval
markets.
In the naval sector, Rolls-Royce was selected for the design, manufacture
and supply of propulsors for the Royal Navy's Astute class of submarines.
These capabilities, which were developed in the commercial marine business,
complement the company's position as the supplier of the nuclear steam raising
plant for the submarines.
Rolls-Royce, with its partner Northrop Grumman, was awarded a contract to
supply 12 WR-21 marine gas turbine packages for the first six Type 45
frigates, for the Royal Navy.
Order intake in the commercial sector remained high. The company was
selected to supply a range of equipment, from podded propulsion systems to
stabiliser systems and deck machinery, for the new luxury cruise liner, Queen
Mary 2.
Energy: Sales 272m Pounds, Underlying Loss Before Interest 48m Pounds
The performance of the energy business continued to be affected by the
consequential cost of technical issues relating to new products. However, the
oil and gas business is performing strongly and the industrial RB211 continues
to sell well in both the oil and gas and power generation sectors.
The programme to develop the industrial Trent is making progress as the
testing of new combustion systems to address emissions levels proceeds.
Market demand remains strong and the company expects to take new orders for
the industrial Trent during the second half.
The industrial RB211 continued its market success, with projects under
development around the world. Increased demand for natural gas is resulting
in new production and pipeline transportation infrastructure projects. To
satisfy the demand, production of industrial RB211 engines will be increased
to around 40 units next year, double the output planned for 2001.
Service problems have been experienced with both the Allen 5000 diesel
engine and the A601 small gas turbine. These problems, which are being
resolved, led to contract provisions of 35 million pounds, which were included
in the underlying loss before interest, in the first half.
The company expects second half trading performance for its energy
businesses to be similar to the first half, after charging higher research and
development costs for the industrial Trent, the Allen 5000 and the A601.
Financial Services: Sales 30m Pounds, Underlying Profit Before
Interest 30m Pounds
The financial services businesses made an increased contribution,
reflecting their underlying growth and increasing maturity.
Rolls-Royce Power Ventures, the company's power project developer,
continued to benefit from new opportunities arising from deregulation and
privatisation of electricity supplies.
Pembroke Group, the company's aircraft leasing business, became a joint
venture with GATX. The company's aircraft portfolio grew to 101 aircraft,
owned or on order or option, and a further 47 aircraft under management on
behalf of customers.
Rolls-Royce and Partners Finance, also a joint venture with GATX, is the
company's engine leasing business. It increased profits in the first half and
extended its activities to include industrial engines. At the half-year, RRPF
managed 224 engines on lease to 42 lessees in 22 countries.
Financial Review
Sales were increased by 15 per cent to 3,042m pounds (2000 2,641m pounds).
Underlying trading profit, before risk and revenue sharing partner
receipts and net research and development, increased by 35 per cent, to 254m
pounds (2000 189m pounds). Underlying trading margin increased from
7.2 per cent to 8.3 per cent.
Underlying profit before tax was 190m pounds (2000 195m pounds).
Underlying earnings per share reduced by six per cent, to 8.16p. These
figures reflect the higher contribution in 2000 from risk and revenue sharing
partners, which was more than usually weighted towards the first half.
The firm order book was 14.9bn pounds (2000 11.8bn pounds). In addition,
a further 1.9bn pounds had been announced but not yet included in the order
book (2000 1.6bn pounds). Services represented 24 per cent of the order book.
Gross research and development investment was 270m pounds (2000 288m
pounds). Net research and development expenditure was 167m pounds
(2000 186m pounds).
Receipts from risk and revenue sharing partners (RRSPs), shown under other
operating income, were 122m pounds (2000 216m pounds). Payments to RRSPs,
charged in cost of sales, amounted to 62m pounds (2000 60m pounds).
Ongoing restructuring costs, of 14m pounds (2000 15m pounds), were
recorded within cost of sales. In addition, exceptional rationalisation costs
of 30m pounds were charged as a part of the 150m pounds rationalisation
programme, announced last year, to simplify the business structure and are not
included in underlying earnings.
The taxation charge, at 52m pounds (2000 20m pounds), reflects the
adoption of FRS19. On the previous basis (SSAP15) taxation would have been 42m
pounds (2000 30m pounds). Underlying earnings per share, reported under FRS
19, were 8.16p (2000 8.7p). On the previous basis, underlying earnings per
share would have been 8.86p (2000 9.79p). The guidance on underlying earnings
per share, given by the company, has been consistently stated on the basis of
SSAP15.
Capital expenditure was 47m pounds (2000 139m pounds). Expenditure for the
full year is expected to be weighted towards the second half.
Average net debt in the first half was reduced by 25 per cent to 940m
pounds. Net debt on 30 June was 748m pounds (2000 1,235m pounds).
The interim dividend is 3.18 pence per share, an increase of six per cent
over 2000. The dividend is payable on 7 January 2002 to shareholders on the
register on 19 October 2001. The ex-dividend date is 17 October 2001.
Group Profit and Loss Account
For the half year to 30 June 2001
Restated Restated
(note 5) (note 5)
Half Year Half Year Year to
to to 31 December
30 June 2001 30 June 2000 2000
m pounds m pounds m pounds
Turnover: Group and share
of joint ventures 3,150 2,807 5,955
Sales to joint ventures 383 315 893
Less share of joint ventures'
turnover (491) (481) (984)
Group turnover (note 1) 3,042 2,641 5,864
Cost of sales and other
operating income and costs* (2,719) (2,391) (5,203)
Research and development (net)** (167) (186) (371)
Group operating profit 156 64 290
Share of operating profit
of joint ventures 33 30 76
Total operating profit 189 94 366
Operating profit before
exceptional item 219 214 511
Exceptional item (note 2) (30) (120) (145)
Loss on sale of businesses (2) (3) (78)
Profit on sale of fixed assets 6 2 1
Profit on ordinary activities
before interest (note 1) 193 93 289
Net interest payable
- Group (35) (39) (85)
- joint ventures (21) (16) (38)
Profit on ordinary
activities before taxation 137 38 166
Taxation (52) (20) (87)
Profit on ordinary activities
after taxation and
attributable to
ordinary shareholders 85 18 79
Dividends - interim 3.18p
(2000 interim 3.00p final 5.00p) (50) (47) (126)
Transferred to/(from) reserves 35 (29) (47)
* includes Other
Operating Income 122 216 341
** Research and development
(gross) (270) (288) (604)
Earnings per ordinary
share (note 3)
Underlying 8.16p 8.70p 19.38p
Basic 5.38p 1.16p 5.07p
Diluted basic 5.35p 1.15p 5.04p
Group Statement of Total Recognised Gains and Losses
Profit attributable to
ordinary shareholders 85 18 79
Exchange adjustments on
foreign currency net investments 19 32 30
Total recognised gains
for the period 104 50 109
Summary Group Balance Sheet
Restated Restated
Half Year Half Year Year to
to to 31 December
30 June 2001 30 June 2000 2000
m pounds m pounds m pounds
Fixed assets
Intangible 835 888 877
Tangible 1,732 1,792 1,772
Investments - joint ventures 193 175 174
share of
gross assets 1,263 1,003 1,117
share of gross
liabilities (1,070) (828) (943)
- other 29 31 33
2,789 2,886 2,856
Current assets
Stocks 1,294 1,335 1,179
Debtors 2,442 1,975 2,181
Short term deposits
and investments 175 248 142
Cash at bank and in hand 471 491 498
4,382 4,049 4,000
Creditors
Amounts falling due within
one year - Borrowings (265) (474) (272)
- Other Creditors (2,647) (2,082) (2,559)
Amounts falling due after
one year - Borrowings (1,129) (1,500) (1,058)
- Other Creditors (216) (184) (206)
Provisions for liabilities
and charges (791) (698) (720)
Net assets 2,123 1,997 2,041
Capital and Reserves
Equity shareholders' funds 2,122 1,995 2,040
Equity minority interests
in subsidiary undertakings 1 2 1
2,123 1,997 2,041
Reconciliation of Movements in Shareholders' Funds
m pounds m pounds m pounds
At 1 January (restated) 2,040 1,967 1,967
Total recognised gains
for the period 104 50 109
FRS 19 adjustment relating
to goodwill -- -- 2
Ordinary dividends (net of
scrip dividend adjustments) (35) (28) (89)
New ordinary share capital
issued (net of expenses) 13 5 10
Goodwill transferred to the
profit and loss account
in respect of disposals
of businesses -- 1 41
At period end 2,122 1,995 2,040
Summary Group Cash Flow Statement
Restated
Half Year Half Year Year to
to to 31 December
30 June 2001 30 June 2000 2000
m pounds m pounds m pounds
Net cash inflow/(outflow)
from operating activities 15 (289) 479
Dividends received
from joint ventures 4 4 13
Returns on investments
and servicing of finance (31) (32) (76)
Taxation paid (24) (15) (25)
Capital expenditure and
financial investment (47) (139) (253)
Acquisitions and disposals 48 (44) (53)
Equity dividends paid (31) (22) (74)
Cash outflow before use
of liquid resources
and financing (66) (537) 11
Management of liquid resources (31) 217 324
Financing (share capital
and borrowings) 122 346 (360)
Increase/(decrease) in cash 25 26 (25)
Reconciliation of net cash
flow to movement in net funds
Increase/(decrease) in cash 25 26 (25)
Cash outflow/(inflow) from
increase/(decrease) in
liquid resources 31 (217) (324)
Cash (inflow)/outflow from
(increase)/decrease
in borrowings (109) (341) 370
Change in net funds resulting
from cash flows (53) (532) 21
Amortisation of
zero-coupon bonds (1) (1) (3)
Exchange adjustments (4) (8) (14)
Movement in net funds (58) (541) 4
Net funds at 1 January (690) (694) (694)
Net debt at period end (748) (1,235) (690)
Reconciliation of operating
profit to operating cash flows
Operating profit 156 64 290
Amortisation of intangible assets 29 30 60
Depreciation of tangible
fixed assets 90 75 178
(Profit) on disposals of
tangible fixed assets -- -- (3)
Increase in provisions for
liabilities and charges 55 90 49
(Increase) in working capital/
creditors due after more
than one year (315) (548) (95)
Net cash inflow/(outflow)
from operating activities 15 (289) 479
Notes
Restated Restated
Half Year Half Year Year to
to to 31 December
30 June 2001 30 June 2000 2000
m pounds m pounds m pounds
1. Analysis by business segment
Group turnover
Civil Aerospace 1,717 1,343 3,150
Defence 639 696 1,403
Marine 384 340 751
Energy 272 217 476
Financial services 30 22 40
Businesses to be disposed -- 23 44
3,042 2,641 5,864
Underlying profit
before interest*
Civil Aerospace 163 166 332
Defence 70 69 154
Marine 31 27 67
Energy (48) (34) (48)
Financial services 30 24 56
Businesses to be disposed -- (2) (2)
246 250 559
* before exceptional
and non-trading items
Profit before interest
Civil Aerospace 151 159 312
Defence 69 68 151
Marine 14 11 38
Energy (70) (165) (191)
Financial services 29 24 55
Businesses to be disposed -- (4) (76)
193 93 289
Net assets/liabilities
- excluding net debt
Civil Aerospace 1,226 1,492 1,116
Defence 298 390 261
Marine 569 614 582
Energy 373 387 449
Financial services 405 334 346
Businesses to be disposed -- 15 (23)
Net assets 2,871 3,232 2,731
2. Exceptional items
Relating to: Restated Restated Year
Half Year to Half Year to 31 Dec
30 Jun 2001 To 30 Jun 2001 2001
m pounds m pounds m pounds
Industrial Trent -- (120) (120)
Rationalisation
- of acquired businesses -- -- (16)
- other (30) -- (9)
(30) (120) (145)
3. Earnings Per Ordinary Share
Basic earnings per ordinary share are calculated by dividing the
profit attributable to ordinary shareholders of 85 million pounds
(2000 half year 18m pounds, full year 79m pounds) by 1,580 million
(2000 half year,1,552 million, full year 1,558 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.
Underlying earnings per ordinary share have been calculated as
follows.
Half Year to 30 June 2001
m pounds m pounds Pence
Profit before taxation 137
Profit attributable to
ordinary shareholders 85 5.38
Exclude:
Net loss on sale of
businesses 2 2 0.13
Profit on sale of
fixed assets * (2) (2) (0.13)
Amortisation of goodwill 23 23 1.45
Exceptional rationalization 30 30 1.90
Related tax effect (9) (0.57)
Underlying profit before taxation 190
Underlying profit
attributable to shareholders 129
Underlying earnings per share 8.16
* excluding lease engines and aircraft sold by financial services
companies
Restated Half Year to 30 June 2000
m pounds m pounds Pence
Profit before taxation 38
Profit attributable
to ordinary shareholders 18 1.16
Exclude:
Net loss on sale of businesses 3 3 0.19
Profit on sale of fixed assets * (1) (1) (0.06)
Amortisation of goodwill 23 23 1.48
Restructuring of acquired
businesses 12 12 0.77
Energy - exceptional charge 120 120 7.73
Related tax effect (40) (2.57)
Underlying profit before taxation 195
Underlying profit attributable
to shareholders 135
Underlying earnings per share 8.70
* excluding lease engines and aircraft sold by financial services
companies
Restated Year to 31 December 2000
m pounds m pounds Pence
Profit before taxation 166
Profit attributable to
ordinary shareholders 79 5.07
Exclude:
Net loss on sale of businesses 78 78 5.01
Loss on sale of fixed assets * 1 1 0.06
Amortisation of goodwill 46 46 2.95
Restructuring of
acquired businesses 16 16 1.03
Exceptional rationalization 9 9 0.58
Industrial Trent -
exceptional charge 120 120 7.70
Related tax effect (47) (3.02)
Underlying profit before taxation 436
Underlying profit attributable
to shareholders 302
Underlying earnings per share 19.38
* excluding lease engines and aircraft sold by financial services
companies
Diluted earnings per ordinary share, are calculated by dividing the profit
attributable to ordinary shareholders of 85m pounds (2000 half year 18m
pounds, full year 79m pounds) by 1,589 million (2000 half year 1,562
million, full year 1,566 million) ordinary shares, being 1,580 million
(2000 half year 1,552 million, full year 1,558 million) as above adjusted
by the bonus element of existing share options of 9 million (2000 half
year 10 million, full year 8 million).
4. Group employees at the period end
30 June 30 June 31 Dec
2001 2000 2000
Number Number Number
Civil Aerospace 24,300 25,000 24,500
Defence 7,200 7,600 7,300
Marine systems 6,500 6,500 6,500
Energy 5,100 5,400 5,300
Financial services 100 100 100
Businesses to be disposed -- 1,900 --
43,200 46,500 43,700
5. Preparation of interim financial statements
Throughout these financial statements the 2000 comparatives have been
restated to reflect the adoption of FRS 19 Deferred Taxation.
Additionally the Half Year 2000 comparatives have been restated to
reflect UITF 24 'Accounting for Start-up Costs' and the change in the
presentation of risk and revenue sharing partnership receipts -- both
of which were incorporated in 2000 year-end financial statements.
The results for each half-year are unaudited. The comparative figures
for the year to 31 December 2000 have been abridged from the Group's
financial statements for that year, after restatement for the change
in accounting policy described above. Those financial statements have
been delivered to the Registrar of Companies. The auditors have
reported on those financial statements; their report was unqualified
and did not contain a statement under s237 (2) or (3) of the
Companies Act 1985.
The interim financial statements for the six months ended 30 June 2001
were approved by the Board on 22 August 2001.
