10th Feb 2005 07:00
10 February 2005 ROLLS-ROYCE GROUP plc PRELIMINARY RESULTS 2004 Continuing Progress Group Highlights * 21per cent gain in underlying* pre-tax profits to ‚£345m (2003: ‚£285m): profit before tax ‚£306m (2003 : ‚£180m) * 41per cent reduction in average net debt to ‚£560m (2003: ‚£950m) * 9 per cent rise in year-end firm order book to record ‚£18.9bn (2003: ‚£ 17.4bn) * 14 per cent rise in service revenues to ‚£3.2bn, or 55 per cent of sales (2003: 50 per cent) * before exceptional and non-trading items (see note 2)Sir John Rose, Chief Executive, said:"Our results confirm the benefits of a consistent strategy and strong businessmodel. During 2004 this has resulted in strengthened market positions andgrowth in services revenues, with higher volumes, improved mix and strongoperational performance enabling the Group to increase profit and reduceaverage net debt."We enter 2005 with a record order book, strong positions on a new generationof programmes and a growing services business. These factors, supported by ourinvestment in operational efficiency, underpin our expectation of continuedgrowth in profits and reduction of average net debt."Group OverviewGroup sales in 2004 rose 5 per cent to ‚£5,939m (2003: ‚£5,645m), in large partreflecting the growth of service revenues and a better than expected cyclicalrecovery of the civil aerospace market.The Group gross margin rose to 19.0 per cent (2003: 17.4 per cent), benefitingfrom continuing improvements in operational efficiency and a 5 per centreduction in product unit costs.Underlying profits before taxation rose 21 per cent to ‚£345m (2003: ‚£285m).After exceptional and non-trading items, notably goodwill amortisation, pre-taxprofits on ordinary activities were ‚£306m (2003: ‚£180m).Underlying earnings per share rose 19 per cent to 14.50p (2003: 12.20p) andbasic earnings per share rose 71 per cent to 12.07p (2003: 7.04p). A payment toshareholders has been proposed of 5.00p per share (2003: 5.00p), making a totalpayment for the year of 8.18p per share (2003: 8.18p).The Group generated a cash inflow of ‚£243m (2003: ‚£272m), resulting in areduction in year-end net debt to ‚£80m (2003: ‚£323m). Average net debt for theyear fell to ‚£560m (2003: ‚£950m), its lowest level since 1998.The net deficit on the Group's three main UK pension funds, as defined underFRS17 and after taking account of deferred taxation, declined to ‚£805m (2003: ‚£855m).New orders in 2004 reached a record level of ‚£8.7bn (2003: ‚£8.1bn), and broughtthe year-end firm order book to a record ‚£18.9bn (2003: ‚£17.4bn). The orderbook has now grown in each of the past 10 years, at a 12 per cent compoundannual growth rate. Good progress was made across all four of the Group'starget markets: * in civil aerospace, the Trent 1000 engine was adopted by Boeing for its new 787 Dreamliner programme, and was selected for the purchase of 50 aircraft by ANA, ensuring that Rolls-Royce will provide the launch engines for this programme; * in defence aerospace, the European governments participating in the Eurofighter Typhoon confirmed Tranche 2 of the programme, resulting in an EJ200 order worth more than ‚£750m for the Group; * in the marine sector, the MT30 version of the Trent engine was selected for the Lockheed Martin version of the US Navy's Littoral Combat Ship, complementing our earlier success with the demonstrator programme for the DD(X) US destroyer; * in the energy sector, important contracts were won in China for the West-East pipeline and in the Middle East for the Dolphin project, which is the first oil and gas application for the industrial version of the Trent engine. These, and other successes during the year, ensured that Rolls-Royce continuedto enhance its strong market position in each of its four chosen sectors. Incivil aerospace, we won 40 per cent of all new orders placed - our best everperformance. In the oil and gas sector, the success of the industrial Trentenhanced our position in the market for aero-derived engines.The Group continued to build on the significant service opportunities that arecreated each time an engine is sold. Revenue from services (including 100 percent repair and overhaul joint ventures) grew by 12 per cent to ‚£3.8bn (2003: ‚£3.4bn), resulting in a compound annual growth rate for this business over thepast five years of 12 per cent. Revenue from services accounted for 55 per centof Group sales (2003: 50 per cent) and orders for future services accounted for‚£7.3bn or 39 per cent of the year-end firm order book (2003: ‚£6.6bn or 38 percent).Further significant investments were made in new technology and theestablishment of an international network of technology-oriented relationships:more than 50 per cent of our spending on technology programmes is now directedoutside the UK. A Technology Agreement was signed in December, for example,with a number of research institutions in Singapore. Reflecting the importanceof innovation at the core of our business, Rolls-Royce last year approved 250applications for new patents, a record total for the group in any one year.The Group continued to overhaul and expand its manufacturing capabilities andinfrastructure. A new ‚£85m production facility for compression systems wasopened at Inchinnan in Scotland.ProspectsThe four sectors of the power systems market on which Rolls-Royce is focused -civil aerospace, defence aerospace, marine and energy - all enjoy strong demandtrends stretching well into the future. The aggregate demand for engines andservices across all four sectors over the next 20 years is estimated to beworth approximately $2 trillion.Rolls-Royce is well placed to benefit from this demand, having invested heavilyin new product. Taking advantage of the common technological base underpinningall four sectors, the Group has directed its investment into the development ofa robust portfolio of products that can be adapted and applied to respond tonew market opportunities. Thus, the investment in the Trent family of enginesprovided the technical foundation for us to bid successfully last year on thenew Boeing 787 and has also formed the basis for new products in other sectors,such as the MT30 in marine and the industrial Trent in the energy sector.The potential in services is also encouraging. The growing number ofRolls-Royce engines in service and their long service lives promise to ensureattractive returns over many years. This aspect of the Group's business isevolving rapidly with a significant level of investment being made in supportcapabilities such as engine repair and overhaul facilities, engine leasing andpredictive data management. A steady rise in the number of long-term serviceagreements with our major customers is expected to create substantial valueboth for them and for Rolls-Royce.Across its four sectors, Rolls-Royce has now established a strong positionwithin programmes that will shape the power systems market for many years tocome: * in civil aerospace, conditions remain difficult for some airlines but Rolls-Royce has a broad spread of products and customers. The Trent engine family has secured a 50 per cent share of the engine market serving wide-bodied aircraft. In addition to the Boeing 787, Trent engines will power the launch of the Airbus A380. The Trent 900 was certified on time and the first A380 was rolled out in January 2005. We also offer a competitive range of engines for the regional airlines and corporate aircraft sectors; * in defence aerospace, our strong position on a broad range of mature and new programmes enables us to mitigate the impact of volatility on individual programmes and provides a stable outlook; * in the marine sector, our naval business is well positioned on a number of important new programmes and orders in the offshore market recovered strongly in the second half of 2004; * in the energy sector, our oil and gas business has a strong order book and the industrial Trent is well placed to secure a growing share of the power generation market. Earlier this year we established a joint venture with a consortium of companies in Asia as a further step in the process of bringing to market our solid-oxide fuel cell technology. The Group is exposed to exchange-rate movements on foreign currencies,particularly the US dollar which continued to weaken relative to sterlingthroughout 2004. We have, however, continued to pursue our strategy of hedgingfuture net dollar revenues and at the end of 2004 had approximately $9 billionof forward cover.Our strong order book, the long-term services revenue stream and our focus onoperational performance underpin the Group's expectations of continued growthin profits and reduction of average net debt in 2005. We continue to target a10 per cent return on sales over the medium term, across all our businesses, asthe business model develops and our operational efficiency continues toimprove.Enquiries:Peter Barnes-Wallis Duncan Campbell-Smith Director of Financial Communications Director of Corporate Communications Tel: 0207 222 9020www.rolls-royce.comREVIEW OF 2004 BY BUSINESS SECTORCivil AerospaceSales: ‚£3,040m (2003: ‚£2,694m)Underlying profit before interest: ‚£170m (2003: ‚£131m)Highlights of the Year * The Trent 1000 engine was selected by Boeing for its new 787 Dreamliner aircraft and was then chosen by the first two airlines that purchased the aircraft. ANA will be the first to put the aircraft into service. * The Trent 900 engine for the Airbus A380 achieved its Airworthiness Certificate on schedule in October, paving the way for its first flight early in 2005. * Malaysian Airlines became the fifth A380 customer to select the Trent 900 engine * China Eastern ordered Trent 700 engines to power 20 A330 aircraft. * International Aero Engines, the joint venture one-third owned by Rolls-Royce, delivered the 2,500th V2500 and ended the year with 950 engines in its firm order book and a further 1,100 option orders. The breadth of our product range now allows us to provide engines for more than30 different aircraft types for international airlines, regional airlines andcorporate operators.We strengthened our presence in the civil aero-engine industry during 2004,through a combination of strong positions on the new aircraft under developmentand a growing market share, including a market-leading position on modernwide-bodied aircraft. Overall, we won 40 per cent of the civil orders announcedduring the year, a record level for the Group.Engine deliveries were higher than originally anticipated, at 824, reflecting arecovery from the trough year in 2003, when we delivered 746 engines. We expectsome continued growth in engine deliveries in 2005.The Rolls-Royce civil fleet flying hours increased by 15 per cent compared to2003, as a result of a combination of world traffic growth recovery andincreased fleet size. The Trent 500 engine passed the one million flying hoursmark in December.In 2004 the corporate jet market showed signs of recovery, which we expect tocontinue in 2005. The regional market, for 50-seat aircraft, is expected toremain depressed.Our success in the modern wide-body sector, where we have a 50 per cent marketshare, has been further reinforced through our launch position on the Boeing787. This aircraft addresses a growing sector of the civil market, which weanticipate will require almost $100bn of new engines over the next 20 years.We secured significant new risk and revenue sharing partnerships on the Trent1000 engine. In Japan, MHI joined KHI, our long-term partner on the Trent, andthese two companies will together have a 15 per cent share of the Trent 1000programme.We made further headway with our strategy of offering innovative long-termservices to our customers, through the TotalCare and CorporateCare programmes:new contracts worth ‚£1.0bn were signed during the year, extending theircoverage to 38 per cent of the fleet. The 500th customer of Aeromanager, thee-business portal which allows users access to a broad range of aero engineaftermarket services, was signed up recently. In addition, we enhanced ourservice-support infrastructure with our 24/7 Operations Room in Derby, whichwent live in March 2004. It provides an integrated decision-support system,co-ordinating data from aircraft, engine and overhaul shops and providinground-the-clock logistics support and access to expert engineering knowledge.Services sales increased by 25 per cent, to ‚£1.8bn, representing 59 per cent ofcivil aerospace sales.In January 2005, Boeing announced the closure of its 717 line, an aircraftpowered exclusively by our BR715 engine. This programme had been subject tospeculation for some time and we had already taken a prudent approach to ourmodest financial exposure within our 2004 results.Defence AerospaceSales: ‚£1,374m (2003: ‚£1,398m)Underlying profit before interest: ‚£155m (2003: ‚£147m)Highlights of the year * Confirmation of Tranche 2 of the Eurofighter Typhoon, worth more than ‚£750 million to Rolls-Royce. * Joint Strike Fighter programme milestones achieved - successful testing of the F136 engine and operation of the Rolls-Royce LiftSystem‚®. * Successful conclusion of the preliminary design review of the TP400-D6 engine for the A400M transport aircraft. * Selection by Oman of the RTM322 engine to power 20 NH90 helicopters. * Maiden flight of the BR710-powered Nimrod MRA4 reconnaissance aircraft. * Over 1,100 military engines and 1,800 military engine modules now covered by Mission Ready Management Solutions (MRMS) long-term services contracts. Our defence business is broadly based, with a strong portfolio of products andservices covering the key defence aerospace market sectors, from combat andtrainer to transport, tactical aircraft and helicopters.In 2004, we continued to expand our services offerings and our customer base,while increasing the fleet of installed engines.In the combat market, the order for Tranche 2 of the Eurofighter Typhoonaircraft will mean new EJ200 engine sales worth more than ‚£750 million toRolls-Royce. Work on Tranche 2 engines will start in 2005.The F136 engine, in which Rolls-Royce is a 40 per cent partner, for the F-35Joint Strike Fighter (JSF), successfully performed its first engine test. TheRolls-Royce LiftSystem‚®, which provides vertical lift for the JSF, continued tobeat programme requirements.A further ten Pegasus engines were ordered by the Spanish and Italian navies tosupport their Harrier AV-8B aircraft.The transport market, in which Rolls-Royce is the global leader, was anotherarea of strength in 2004, particularly in the United States. T56 turbopropbusiness remained strong in this engine's 51st year of production and theimproved Series IV engine secured the Advanced Hawkeye development programmefor the next generation of that aircraft. The AE 1107C-Liberty engine continuedto perform well in Operational Assessment testing of the V-22 Osprey. In thesummer, the US Air Force took possession of its first AE 2100-powered C-130Jaircraft.In Europe, the preliminary design review of the TP400-D6 engine for the A400Mtransport aircraft was successfully concluded, followed by on-schedule initialtesting of the first engine hardware.In the helicopter market, the selection by Oman of the latest increased powerversion of the RTM322 engine, for 20 helicopters, increased the number ofcustomers who have selected this engine for the NH90 to nine out of ten. Thefirst production NH90 made its maiden flight in May, powered by the RTM322.The Federal Aviation Administration certified the LHTECH T800 engine for theSuperLynx 300 helicopter and the first SuperLynx 300 aircraft were formallyhanded over, to customers in Thailand and Oman. First deliveries of theMTR390-powered Tiger took place in the second half of the year. The companyalso received a large order for Model 250 engines when the US Border Patrolselected the Bell 430 helicopter.In the tactical aircraft market, four BR710 engines powered the Nimrod MRA4reconnaissance aircraft for its maiden flight and five Rolls-Royce engines -four AE 2100s and one T800 - powered the Japanese US1A-Kai flying boat on itsfirst flight.The AE 3007 continues to demonstrate superb performance in the Global Hawk,which has now exceeded 4,000 flying hours. The AE 3007 also powers the ERJ-145which has been selected for the Aerial Common Sensor programme.The provision of services contributed 56 per cent of the Group's defence salesand we continued successfully to service existing contracts and win new ones.Over 1,100 military engines and 1,800 military engine modules are now coveredby Mission Ready Management Solutions (MRMS) long-term services contracts.MarineSales: ‚£963m (‚£1,003m)Underlying profit before interest: ‚£67m (2003: ‚£78m)Highlights of the year * Lockheed Martin selected MT30 gas turbines and Kamewa waterjets for the first prototype ship in the US Navy's Littoral Combat Ship programme (LCS). * Orders worth ‚£166 million were taken for design and propulsion equipment packages in the offshore sector in the last six months of 2004. * Rolls-Royce was selected to supply nine gas turbine generator sets for the Republic of Korea Navy's KDX III destroyer programme. * The UK Ministry of Defence, acting on behalf of the UK, France and Norway, selected Rolls-Royce to provide the NATO Submarine Rescue System. * The Group penetrated new markets with offshore-derived technology, including coastal protection vessels for Norway and France and pollution control variants for India. It has been a year of steady progress for the marine business with growth innaval markets and a recovering commercial sector.In the naval market sector, our MT30 gas turbine was selected for the firstprototype in the US Navy's Littoral Combat Ship (LCS) programme. This newcoastal defence vessel will also be powered by Rolls-Royce Kamewa waterjets.The MT30, which is the world's most powerful marine gas turbine, earned fullnaval and commercial certification.The MT30 programme reflects a core Rolls-Royce philosophy, which is to investin a basic technology once and then reap the rewards across our differentmarket sectors. The engine has 80 per cent commonality with the Trent 800 aeroengine, developed for the Boeing 777.The first MT30 to be delivered was handed over to Northrop Grumman in early2004 as part of the land-based demonstrator for the US Navy's DD(X) destroyerprogramme. Rolls-Royce is therefore well positioned on both DD(X) and LCS whenthey move into full production.Our submarine propulsion business accounted for 54 per cent of our naval sales.During the year Rolls-Royce was awarded the NATO Submarine Rescue Systemcontract by the UK Ministry of Defence, acting on behalf of the UK, France andNorway.In 2004, our commercial business supplied the largest waterjets ever made forthe Japanese Techno-Superliner ferry, which will begin operations this year on16-hour voyages between Tokyo and Ogasawara-Gunso. The waterjets will helppropel the 140m long, aluminium ferries at a service speed of 38 knots.The offshore market recovered strongly in the second half of 2004, when weannounced firm orders worth ‚£166 million to supply design and equipmentpackages for service and support vessels in the offshore oil and gas industry.Demonstrating our ability to supply complete systems, we are designing and willhelp equip 26 new support vessels, based on our UT-Design.Our ability to take offshore technology into new markets is enhancing our salesopportunities. We entered the coastguard sector by supplying coastal protectionvessel design and equipment packages to France and Norway and pollution controlvariants to India, all based on the UT-Design.Much of the world's shipbuilding now takes place in Asia and our structuresreflect this regional shift. We gained orders from the Republic of Korea Navyfor nine AG9140RF gas turbine generator sets, which will be supplied to theRepublic's KDX III destroyer programme in partnership with Samsung. We are alsoproviding propellers and associated equipment and services for the same shipsin conjunction with Doosan Heavy Industries.In 2004, marine made 41 per cent of its sales from services. This market isgrowing as more navies acquire gas turbine technology.EnergySales: ‚£489m (2003: ‚£508m)Underlying profit before interest: ‚£14m (2003: ‚£23m)Highlights of the year * Second consecutive year of record order intake. * Industrial Trent launched into the oil and gas market. * New cost-effective package design completed for the industrial Trent. * RB211 confirmed as market leader for oil and gas applications in its size range. * Geographic footprint of installed-product base continued to expand in the oil and gas market. * Record year for long-term service-agreement contracts. In 2004 we continued to develop a solid foundation for sustained profitabilityand robust growth.In oil and gas, the RB211 was the clear market leader for aero-derivedindustrial gas turbines in its size range. We also launched the industrialTrent gas turbine into the oil and gas market with orders for six industrialTrent gas compression packages for the Dolphin Energy Limited gas pipeline inthe Middle East. The Trent is the first aero-derived gas turbine in its classto be selected for a major gas compression application. In addition, wecommenced shipments and achieved successful start-up of the first RB211-drivencompressor packages for the West-East pipeline in China, and we remain onschedule for delivery of all 20 packages ordered for this important project.In customer service, we continued to respond to the growing customer trend forlong-term service agreements. 2004 was a record year with over $160 millionbooked in new contracts. We received the 2004 "Great Operator" award from BPplc, having improved significantly the product performance on their Bruceplatform in the North Sea.As we predicted, the world power generation market remained sluggish in 2004.We continued to use this period to restructure our power generation businessand enhance new product development to take advantage of the expected marketrecovery. Both Dry Low Emissions (DLE) and Wet Low Emissions (WLE) versions ofthe industrial Trent are now available for sale, and are accumulating thousandsof operating hours each month.We completed a new cost-competitive Trent package that provides our customerswith a world-class design for installation and maintainability. This newpackage is applicable to both power generation and oil and gas units, and isbeing embodied in the Trent units provided for the Dolphin Energy Limited gaspipeline.Our expansion of the geographic footprint of our installed base in the oil andgas sector continued. We received orders for eight RB211 packages for the thirdand final phase of the BP Azeri project for offshore Azerbaijan in the CaspianSea. With this success, we have received orders for 28 RB211 packages from BPover the past three years.Our goal of entering the offshore Kazakhstan market was realised with ordersfor four RB211 generating sets that will be installed on a barge to providepower to adjacent offshore facilities. Five additional RB211 packages wereordered for offshore West Africa, making nearly 20 packages ordered foroffshore service there in recent years. Brazil remains a key market area and wereceived orders for seven additional offshore RB211 packages in 2004 fromPetrobras, who have now ordered a total of 19 units for their offshore serviceoperations.We are developing facilities to support operations in the Caspian, Brazil andChina, and are considering further opportunities in West Africa and otherregions of the world.In 2004, we increased investment in our fuel cell technology. Earlier this yearwe established a joint venture with a consortium of companies in Asia as afurther step in the process of bringing to market our solid-oxide fuel celltechnology. The Asian group has bought a 25 per cent share in Rolls-Royce FuelCell Systems and will contribute both financial and technical resources to thisdevelopment programme.Financial ServicesSales: ‚£73m (2003: ‚£42m)Underlying profit before interest: ‚£9m (2003: ‚£(4)m)The Financial Services businesses comprise engine leasing, aircraft leasing andpower project development.Rolls-Royce and Partners Finance, the Group's joint venture engine leasingbusiness, owned a portfolio of 273 engines, of which 99 per cent by value wereon lease to 39 customers.Pembroke Group, the Group's joint venture aircraft leasing business, owned aportfolio of 28 aircraft. These are all on lease to 13 customers.Rolls-Royce Power Ventures, the Group's power project developer, has 14 powergeneration projects underway. The business is being restructured, reflectingthe general weakness in power generation markets. Net charges of ‚£5 millionwere taken.FINANCIAL REVIEWThe firm order book, at constant exchange rates, was ‚£18.9bn (2003: ‚£17.4bn).In addition, a further ‚£2.4bn had been announced (2003: ‚£1.3bn). Aftermarketservices represented 39 per cent of the firm order book (2003: 38 per cent).Sales increased by five per cent, compared with 2003, at ‚£5,939m (2003: ‚£5,645m). The translation impact of the weaker US dollar reduced sales byapproximately ‚£200m.Gross profit, before exceptional items, was ‚£1,127m (2003: ‚£980m). Gross marginincreased to 19.0 per cent in 2004 from 17.4 per cent in 2003. Payments to Riskand Revenue Sharing Partners (RRSPs), charged in cost of sales, amounted to ‚£240m (2003: ‚£179m).Underlying profit before tax was ‚£345m (2003: ‚£285m). Underlying earnings pershare increased by 19 per cent, to 14.50p (2003: 12.20p).Gross research and development investment was ‚£601m (2003: ‚£619m). Net researchand development investment was ‚£282m (2003: ‚£281m). Receipts from RRSPs inrespect of new programme developments, shown as other operating income, were ‚£73m (2003: ‚£153m).Restructuring costs of ‚£37m (2003: ‚£10m) were charged within operating costs.The taxation charge was ‚£101m (2003: ‚£64m). After adjusting for exceptional andnon-trading items, the tax charge on an underlying basis was ‚£99m, representing29 per cent of underlying profit before tax. (2003: ‚£84m, also representing 29per cent of underlying profit before tax).Cash inflow during the year was ‚£243m (2003: ‚£272m). Average net debt was ‚£560m(2003: ‚£950m). Net debt at the year-end was ‚£80m (2003: ‚£323m).Net working capital was ‚£381m (2003: ‚£383m); inventory increased by ‚£119m(2003: ‚£196m reduction); debtors reduced by ‚£196m (2003: increased by ‚£193m);and creditors reduced by ‚£75m (2003: increased by ‚£8m). The impact of long-termcontract accounting for TotalCare Packages was a ‚£13m reduction in debtors(2003: ‚£115m increase) and a ‚£52m increase in creditors (2003: ‚£45m). The netasset on the balance sheet at the year-end, in respect of TotalCare packages,was ‚£389m (2003: ‚£454m).Provisions were ‚£787m, (2003: ‚£795m). Provisions carried forward in respect ofpotential customer financing exposure amounted to ‚£116m at the year-end (2003:‚£92m).There were no material changes to the Group's gross and net contingentliabilities in 2004 (see note 4).Under the FRS17 definition, after taking account of deferred taxation, the netdeficit on the Group's three main UK pension schemes amounted to ‚£805m (2003: ‚£855m)(see note 5).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 sameamount of cash that would have been received with a cash dividend, or convertedinto the same number of ordinary shares in the Group that would have beenreceived under the scrip dividend alternative. The issue of `B' shares willresult in significant tax benefits for the Group, by accelerating the recoveryof Advanced Corporation Tax, which will in turn benefit all our shareholders.The proposed final payment to shareholders is equivalent to 5.00 pence perordinary share (2003: final payment 5.00p), making a total payment for the yearof 8.18 pence (2003: 8.18p). The final payment is payable on 4 July 2005 toshareholders on the register on 11 March 2005. The final day of trading withentitlement to B shares (equivalent to the ex-dividend date) is 9 March 2005. * * * * * An interview on the results with Rolls-Royce Chief Executive, Sir John Rose, isavailable on video, audio and text on www.Rolls-Royce.com and www.cantos.com.Photographs of directors and products are available at www.newscast.co.ukGroup profit and loss accountfor the year ended December 31, 2004 2004 2003 Notes ‚£m ‚£m Turnover: Group and share of joint 6,229 6,038 ventures Sales to joint ventures 965 936 Less share of joint ventures' turnover (1,255) (1,329) Group turnover 1 5,939 5,645 Cost of sales (4,812) (4,714) Gross profit 1,127 931 Other operating income 73 153 Commercial, marketing and product (302) (292)support costs General and administrative costs (296) (288) Research and development (net)* (282) (281) Group operating profit 320 223 Share of operating profit of joint 49 52 ventures Profit on sale or termination of 9 6 businesses Loss on sale of fixed assets (2) (11) Profit on ordinary activities before 1 376 270 interest Net interest payable - Group (48) (66) - joint ventures (22) (24) Profit on ordinary activities before 306 180 taxation Taxation (101) (64) Profit on ordinary activities after 205 116 taxation Equity minority interests in subsidiary (1) - undertakings Profit attributable to ordinary 204 116 shareholders Payment to shareholders 6 (140) (137) Earnings per ordinary share: 2 Underlying** 14.50p 12.20p Basic 12.07p 7.04p Diluted 11.64p 6.94p *Research and development (gross) (601) (619) **Underlying profit and earnings are defined in note 2 Group balance sheetat December 31, 2004 Restated* 2004 2003 ‚£m ‚£m Fixed assets Intangible assets 911 863 Tangible assets 1,626 1,750 Investments - subsidiary undertakings - - - joint ventures 199 202 share of gross assets 1,137 1,113 share of gross liabilities (943) (916) goodwill 5 5 - other 57 63 2,793 2,878 Current assets Stocks 1,081 962 Debtors - amounts falling due within one year 1,357 1,497 - amounts falling due after one year 1,053 1,109 Short-term deposits and investments 730 174 Cash at bank and in hand 758 794 4,979 4,536 Creditors - amounts falling due within one year Borrowings (204) (94) Other creditors (2,570) (2,759) Net current assets 2,205 1,683 Total assets less current liabilities 4,998 4,561 Creditors - amounts falling due after one year Borrowings (1,364) (1,197) Other creditors (540) (426) Provisions for liabilities and charges (787) (795) 2,307 2,143 Capital and reserves Called-up share capital 346 333 Share premium account 4 1 Revaluation reserve 89 96 Merger reserve 3 3 Capital redemption reserve 74 - Profit and loss account 1,787 1,707 Shareholders' funds 1 2,303 2,140 Equity minority interests in subsidiary 4 3 undertakings 2,307 2,143 1.Equity shareholders' funds ‚£2,298m (2003 ‚£2,140m). Non-equity shareholders' funds ‚£5m (2003 -) * see note 8Group cash flow statementfor the year ended December 31, 2004 Restated* Notes 2004 2003 ‚£m ‚£m Net cash inflow from operating activities A 640 673 Dividends received from joint ventures 15 11 Returns on investments and servicing of finance B (48) (56) Taxation paid (84) (43) Capital expenditure and financial investment C (219) (198) Acquisitions and disposals D 14 (16) Equity dividends paid (33) (88) Cash inflow before use of liquid resources and 285 283 financing Management of liquid resources E (558) (90) Financing F 274 (17) Increase in cash 1 176 Reconciliation of net cash flow to movement in net funds Increase in cash 1 176 Cash outflow from increase in liquid resources 558 90 Cash (inflow)/outflow from (increase)/decrease in (299) 20 borrowings Change in net funds resulting from cash flows 260 286 Borrowings of businesses disposed - 33 Finance lease additions - (10) Amortisation of zero-coupon bonds (4) (4) Exchange adjustments (13) (33) Movement in net funds 243 272 Net debt at January 1 (323) (595) Net debt at December 31 (80) (323) * see note 8Reconciliation of operating profit to operating cash 2004 Restated*flows ‚£m 2003 ‚£m Operating profit 320 223 Amortisation of intangible assets 62 63 Depreciation of tangible fixed assets 223 223 Increase in provisions for liabilities and charges 7 3 (Increase)/decrease in stocks (121) 191 Decrease/(increase) in debtors 180 (188) (Decrease)/increase in creditors (31) 158 A Net cash inflow from operating activities 640 673 Returns on investments and servicing of finance Interest received 58 28 Interest paid (103) (79) Interest element of finance lease payments (3) (5) B Net cash outflow for returns on investments and (48) (56)servicing of finance Capital expenditure and financial investment Disposals of unlisted investments - 5 Additions of intangible assets (110) (37) Purchases of tangible fixed assets (175) (182) Disposals of tangible fixed assets 66 16 C Net cash outflow for capital expenditure and (219) (198)financial investment Acquisitions and disposals Acquisitions of businesses - (9) Disposals of businesses 16 1 Investments in joint ventures (2) (8) D Net cash inflow/(outflow) for acquisitions and 14 (16)disposals Management of liquid resources Increase in short-term deposits (561) (91) Decrease in government securities and corporate bonds 3 1 E Net cash outflow from management of liquid resources (558) (90) Financing Borrowings due within one year - repayment of loans (57) (245) - increase in loans - 2 Borrowings due after one year - repayment of loans (92) (58) - increase in loans 500 296 Capital element of finance lease payments (52) (15) Net cash inflow/(outflow) from increase/(decrease) in 299 (20)borrowings Issue of ordinary shares 4 1 Net (Purchase)/Disposal of own shares (2) 2 Redemption of B Shares (27) - F Net cash inflow/(outflow) from financing 274 (17) *see note 8Group statement of total recognised gains and lossesfor the year ended December 31, 2004 Restated* 2004 2003 ‚£m ‚£m Profit attributable to the shareholders of Rolls-Royce 204 116 Group plc Exchange adjustments on foreign currency net (38) (3)investments Total recognised gains for the year 166 113 Group historical cost profits and losses for the year ended December 31, 2004 Restated* 2004 2003 ‚£m ‚£m Profit on ordinary activities before taxation 306 180 Difference between the historical cost depreciation 7 4 charge and the actual depreciation charge for the year calculated on the revalued amount Historical cost profit on ordinary activities before 313 184 taxation Historical cost transfer to reserves 211 67 Reconciliations of movements in Group shareholders' fundsfor the year ended December 31, 2004 Restated* 2004 2003 ‚£m ‚£m At January 1 (as previously reported) 2,141 2,035 Prior year adjustment* (1) (3) At January 1 (restated) 2,140 2,032 Total recognised gains for the year 166 113 Ordinary dividends (net of scrip dividend adjustments) (7) (8) New ordinary share capital issued (net of expenses) 4 1 Goodwill transferred to the profit and loss account in 2 -respect of disposal of businesses Relating to own shares (2) 2 At December 31 2,303 2,140 *see note 8Notes1. Segmental analysis Restated* 2004 2003 ‚£m ‚£m Group turnover Analysis by business: Civil aerospace 3,040 2,694 Defence 1,374 1,398 Marine 963 1,003 Energy 489 508 Financial services 73 42 5,939 5,645 Profit before interest Analysis by business: Civil aerospace 165 82 Defence 155 132 Marine 40 39 Energy 8 23 Financial services 8 (6) 376 270 Underlying profit before interest* Analysis by business: Civil aerospace 170 131 Defence 155 147 Marine 67 78 Energy 14 23 Financial services 9 (4) 415 375 *before exceptional and non-trading items Net assets** Analysis by business: Civil aerospace 1,142 1,099 Defence 47 69 Marine 567 577 Energy 387 346 Financial services 244 375 2,387 2,466 **Net assets exclude net debt of ‚£80m (2003 ‚£323m) The segmental analysis of non-trading items is: Civil aerospace ‚£5m, Marine ‚£27m, Energy ‚£6m and Financial services ‚£1m.* See note 8. In addition, the segmental analysis has been restated for thetransfer of the diesels business from Energy to Marine2. Earnings per ordinary shareBasic earnings per ordinary share are calculated by dividing the profitattributable to ordinary shareholders of ‚£204 million (2003 ‚£116m) by 1,690million (2003 1,647 million) ordinary shares, being the weighted average numberof ordinary shares in issue during the year, excluding own shares held undertrust which have been treated as if they have been cancelled.Underlying profit before taxation and earnings per ordinary share have beencalculated as follows:Year to 31 December 2004 ‚£m ‚£m Pence Profit before taxation 306 Profit attributable to ordinary shareholders 204 12.07 Exclude: Net profit on sale of businesses (9) (9) (0.53) Loss on sale of fixed assets*Related Shares:
Rolls-Royce