24th Jul 2008 07:00
24 July 2008 ROLLS-ROYCE GROUP plc INTERIM RESULTS 2008Group Highlights
- Order book increased by 17 per cent to ‚£53.5 billion (2007: year end ‚£45.9 billion).
- Group sales increased to ‚£4,049 million. Sales on an underlying basis* increased by 12 per cent to ‚£4,211 million.
- Services revenues increased by 12 per cent to ‚£2,242 million on an underlying basis*, representing 53 per cent of Group sales.
- Underlying profit before taxation* increased to ‚£410 million, up eight per cent.
- Profit before taxation of ‚£389 million (2007: first half ‚£377 million).
- Average net cash of ‚£265 million (2007: first half ‚£373 million).
- Cash outflow of ‚£44 million (2007: first half cash inflow of ‚£61 million before special ‚£132 million injection to the UK pension schemes).
- Interim payment to shareholders of 5.72 pence per share.
*see note 3
Sir John Rose, Chief Executive, said:
"We have delivered a strong set of first half results.
"Over the last decade, Rolls-Royce has pursued a consistent strategy which hascreated a global power systems company with a broad and diverse portfolio ofproducts and services." The youth, scale and geographical diversity of our Civil Aerospace installedbase, along with our broad portfolio, will help mitigate the consequences ofuncertain conditions in the airline industry. Our other businesses areincreasingly material and are performing well.
"We are confident that we will continue to deliver profitable growth and positive cash flow for the full year."
Group Overview
Rolls-Royce made strong progress in the first half of 2008, again increasing both underlying profit and earnings per share.
The Group's order book grew by ‚£7.6 billion to ‚£53.5 billion, further extendingthe visibility of future revenues. The profile of the order book continues tobecome more international, with the growing Asian and Middle East markets nowaccounting for over 40 per cent of the total.
Sales in the period increased by 12 per cent on an underlying basis to ‚£4,211 million and underlying aftermarket sales also increased by 12 per cent.
Underlying profit before tax increased by eight per cent to ‚£410 million. Thisincrease in profitability was achieved after the impact of a further five centdeterioration in the US dollar achieved exchange rate, increases in energy andcommodity costs and a ‚£36 million increase in restructuring charges. Theincreased charge for restructuring was mainly due to the programme, announcedin January, to reduce the number of people working on support functions by2,300 people. In addition, a one-off charge of ‚£16 million was taken in thecivil business.At the end of the first half, the hedge book stood at $9.1 billion with anaverage exchange rate of 1.87 US dollars to the pound, a deterioration of fourcents from the start of 2008. For 2008 as a whole, the Group continues toforecast a deterioration in the achieved rate of between six and eight centsrelative to 2007, at an incremental cost to the Group of around ‚£100 millionover the full year.The consistent strategy pursued by the Group over many years has created abroadly based power systems company. The breadth, diversity and materiality ofthe Group's portfolio of businesses and products, access to global markets, agrowing installed base, the expansion of the Group's aftermarket servicesbusiness and the strength of the balance sheet all place Rolls-Royce in a goodposition to deal with the challenges of the current economic environment. Activity in the Group's Civil Aerospace business has continued to increasestrongly in the first half despite the impact of global economic pressures andrising fuel prices on the civil aviation industry. Underlying service revenuesincreased by ten per cent to ‚£1,322 million in the first half and the orderbook by 17 per cent to ‚£42.1 billion.Demand for widebody aircraft remained strong and Rolls-Royce now has a 50 percent share of this sector. Programmes in the business jet market continued tosell well, with 191 deliveries in the first half, an increase of four per cent. The successful launch of the Rolls-Royce powered Gulfstream G650 extends the Group's footprint in this sector and has attracted a positive market response.
The civil aviation industry will not be immune from the effects of high oil prices, the economic downturn and constraints on financing. However, the impact on the Civil Aerospace business should be mitigated by a number of factors:
‚- The widebody and corporate sectors, which together account for more than 75per cent of Civil Aerospace original equipment revenues, continue to beresilient. The delays to the Airbus A380 and Boeing 787 programmes havereduced planned capacity in the widebody sector by around 300 aircraft over thenext three years and caused firmer demand for existing widebody products.‚- The relative youth and fuel efficiency of the Rolls-Royce installed base,which has an average age of eight years, make it less likely that Rolls-Roycepowered aircraft will be grounded than older and less efficient aircraft. Themajority of announced retirements to date have been narrowbody aircraft oraircraft over 20 years old. In the narrowbody sector the Rolls-Royce effectiveshare is less than ten per cent of the current generation market and less thanten per cent of the Rolls-Royce narrowbody fleet is more than 20 years old. -‚ The scale and diversity of the Rolls-Royce installed base, with the number ofRolls-Royce engines having grown by 75 per cent over the last ten years andwith a further 462 engines delivered in the first half of 2008, will continue tosupport growth in aftermarket revenues.The Marine business is benefiting from high levels of activity in the oil andgas sector and has enjoyed a very strong first half with its order book risingby 17 per cent. The oil industry is increasingly investing in deep water,offshore exploration and development, as well as in compression andtransportation systems, which generate demand for high specification, bespokevessels and equipment. This activity is opening up new opportunities forMarine in the supply of offshore ship designs and equipment. Defence Aerospace continued to benefit from strong US demand, which nowaccounts for around 45 per cent of its revenues. The business maintained itslead in the military transport sector where the AE series of engines has madestrong progress. The programme uses a common core and production facilitiesacross a wide range of applications for the transport sector, including theC-130J, the C-27J, V-22 Osprey TiltRotor and the Global Hawk UAV. Theseapplications will drive significant growth in engine deliveries in the secondhalf of 2008 and beyond, with the C-130J and the V-22 alone expected togenerate deliveries of around 160 engines a year over the next few years.Energy is also benefiting from increased worldwide demand in the oil and gasproduction sector, driven by higher oil prices and, in the land-based powergeneration market, by the need for increased peaking capacity. This is openingup new opportunities for the business in the supply of gas turbines andcompressors for land-based and underwater pipelines, as well as for powergeneration on rigs and Floating Production, Storage and Offloading vessels.The balance sheet is robust, with the Group enjoying a strong cash position andcredit rating. This enables the Group to take on long-term commitments, pursueinvestment opportunities as they arise and deal with any short-termconsequences of the current economic environment. Changes to the Group'sdefined benefit pension schemes in 2007, including a ‚£500 million cashinjection and a reallocation of investments, have significantly reducedvolatility in funding requirements. The Group saw a cash outflow in the first half of ‚£44 million (2007: cashinflow ‚£61 million before special ‚£132 million injection to the UK pensionschemes), due to a range of factors including restructuring costs and increasedinventory. However, the Group continues to expect a positive cash flow overthe full year. Average net cash fell by ‚£108 million to ‚£265 million overthe period, primarily reflecting the timing of the cash injection into thepension fund late in 2007.
Underlying earnings per share increased by nine per cent to 17.15p per share (2007: first half 15.72p per share). Basic earnings per share were 16.22p (2007: first half 17.12p).
An interim payment to shareholders has been declared of 5.72p per share (2007:first half: 4.04p). For the 2007 full year, the payment increased by 35 percent compared with 2006. This interim payment is expected to be around 40 percent of the full year payment for 2008.
Developments
Rolls-Royce is well placed to continue to develop its business and is investingin new programmes. In March, it launched the BR725, the exclusive engine forGulfstream's new G650 corporate jet which is targeting an engine market wortharound $14 billion. Also in March, the Group announced that the RR300helicopter engine, for Robinson Helicopter's R66, had been awarded its FederalAviation Authority (FAA) Type and Production Certificate, becoming the firstengine to roll off the Group's new small engine assembly line at Indianapolis.These two engine programmes demonstrate how the Group has continued to broadenits product portfolio.Since the launch in July 2006 of the Airbus A350 XWB, for which the Trent XWBis currently the sole engine, firm orders have been placed to date for morethan 700 engines. The engine addresses a sector of the market estimated to beworth $186 billion over the next 20 years.There have also been significant developments in Marine and Energy. The Grouphas continued to develop its marine capability and earlier this month announcedits intention to acquire Scandinavian Electric Holdings, a supplier of systempackages for diesel electric propulsion systems. Rolls-Royce is alsoparticularly well positioned to respond to the increasing interest in theenvironmental impact of shipping. It is developing further versions of itssuccessful Bergen gas engine to respond to the impact of increasingly stringentenvironmental restrictions.The Group is also seeking to broaden its Energy portfolio to address newopportunities in civil nuclear and distributed power. In July, it announcedthe reshaping of its nuclear business to apply Rolls-Royce's existingcapabilities to the expanding civil nuclear market, which is estimated to beworth up to ‚£50 billion a year in 15 years time. In March, the Group took a23.5 per cent equity stake in TGL, a privately owned company developing a freestream tidal power generation capability.
More generally, the Group has maintained its commitment to research and development (R&D). R&D investment funded by the Group in the first half was
‚£222 million, or 5.3 per cent of underlying Group sales. Around two thirds ofthis investment is devoted to improving the environmental performance of theGroup's products.The Group has continued to expand its global footprint and strengthen itsoperational performance. In Singapore, the ground-breaking ceremony took placefor the new engine assembly and test facility for large commercial aeroengines, which the Group announced in 2007. Also in development isCrosspointe, a new advanced manufacturing, assembly and test facility in theCommonwealth of Virginia in the US. Good progress has been made with the programme announced in January to reduceby 2,300 the number of people working in support areas. To date around 1,900employees have left Rolls-Royce. The Group anticipates that the programme willbe complete by the end of 2008 and that it will be self-financing in the year. Meanwhile, Rolls-Royce has continued to recruit in operational areas as well asmaintaining its apprentice and graduate programmes.
Prospects
Over the last decade, Rolls-Royce has pursued a consistent strategy which hascreated a global power systems company with a broad and diverse portfolio ofproducts and services.
We are confident that we will continue to deliver profitable growth and positive cash flow for the full year.
For visual materialAn 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 are available at www.newscast.co.uk
Please visit the Rolls-Royce Media Room for images and The Newsmarket for broadcast-standard video. If you are a first-time user of The Newsmarket, we encourage you to take a moment to register. If you have any questions about using The Newsmarket, please email Journalist Help.
For further information:
Investor relations: Mark Alflatt Director of Financial Communications Rolls-Royce plc Tel: +44 (0)20 7227 9241 Email: [email protected] Media relations:Nicky Louth-DaviesDirector of Corporate CommunicationsRolls-Royce plcTel: +44 (0)20 7227 9232Email: [email protected]
REVIEW OF FIRST HALF 2008 BY BUSINESS SECTOR
Civil Aerospace
Order book: ‚£42.1bn (2007: year end ‚£35.9bn)Engine deliveries: 462 (2007: 421)Underlying sales: ‚£2,102m (2007: ‚£2,011m)Underlying aftermarket service sales: ‚£1,322m (2007: ‚£1,205m)Underlying profit before financing: ‚£272m (2007: ‚£261m)
The Civil Aerospace business has made good progress in the first half, with over ‚£8 billion of new orders.
Underlying sales rose to ‚£2,102 million, driven by growth in the corporatesector, increased deliveries of the V2500 for the Airbus A320 family and a tenper cent increase in aftermarket revenues. These trends are expected tocontinue for the full year. Trent deliveries for widebody aircraft wereslightly lower in the first half but are expected to increase strongly in thesecond half.Underlying profit increased by four per cent in the period, reflectingincreasing volumes and a higher aftermarket mix. This was achieved despitehigher unit costs, a five cent deterioration in the US dollar exchange rate andrestructuring costs. In addition there was an increase in customer provisionsof ‚£16 million against a specific customer, relating to regional aircraft.The business extended its product portfolio with the launch of the BR725,selected as the exclusive powerplant for Gulfstream's new flagship corporatejet, the G650. Rolls-Royce continues to be the leading engine supplier in thecorporate sector, with a 34 per cent market share.The Trent engine family secured orders worth ‚£4.5 billion for a further 360engines. The most mature Trent, the Trent 700, consolidated its lead positionon the Airbus A330, on which it has a 53 per cent market share, and won ordersfor up to 194 engines. At the end of June the order book included a total ofmore than 2,300 Trent engines across six programmes. The global nature of thecustomer base was again evident, with orders from customers in Asia, LatinAmerica and the Middle East, as well as the US and Europe.In June, the Group established a joint venture company with GKN Aerospace tocarry out research and development on the use of composite materials in futureaero engine fan blades.The Group's services activity continues to develop and is increasingly valuedby civil aviation customers. Over half of Rolls-Royce's modern jet enginefleet is now covered by TotalCare‚® or CorporateCare‚® service agreements, alevel that is expected to increase given that around 70 per cent of recentwidebody orders incorporate these arrangements.In July, the Group further extended its services provision, announcing a newjoint venture company with its partner Mubadala Development Company, offeringon-wing care for the rapidly expanding Middle East aviation market.
Defence Aerospace
Order book: ‚£4.9bn (2007: year end ‚£4.4bn)Engine deliveries: 198 (2007: 168)Underlying sales: ‚£769m (2007: ‚£808m)Underlying aftermarket service sales: ‚£441m (2007: ‚£422m)Underlying profit before financing: ‚£104m (2007: ‚£106m)The Defence business continued to strengthen its market position in the firsthalf, winning contracts worth ‚£1.2 billion. The business's broad portfolioalready comprises around 20,000 in-service engines and the fleet is expected togrow given the Group's strong position on a number of key programmes in thetransport and combat sectors. Overall underlying sales declined slightly in the first half due to the timingand mix of deliveries on new production engines, while aftermarket salesincreased by five per cent. Both original equipment and aftermarket sales willimprove in the second half.
Underlying profits were stable, despite an increased restructuring charge and adverse phasing of research and development spend.
The Group maintained its lead position on military transport aircraft. As partof the AirTanker consortium, it won a 27 year engine and support contract tosupply the Trent 700 engine to the UK Ministry of Defence, worth over ‚£700million. The AE 2100 programme continued to make strong progress. AE 2100orders this year have included a $135 million contract for the Canadian AirForce for the C-130J and an exclusive nine year agreement, worth around $915million, with Alenia Aeronautica for C-27J propulsion systems.A number of major development programme milestones were reached during theperiod, demonstrating the breadth of the defence portfolio. The F-35 LightningII (Joint Strike Fighter) achieved first flight, fitted with the Rolls-RoyceLiftSystemƒ¢, while the aircraft's collaborative F136 engine successfullycompleted its critical design review. On the Airbus A400M programme, EuropropInternational, in which Rolls-Royce has a 25 per cent share, delivered fourTP400-D6 flight test engines to power the first A400M. The RR300 helicopterengine achieved its Federal Aviation Authority (FAA) Type and ProductionCertificate in March.
Marine
Order book: ‚£5.5bn (2007: year end ‚£4.7bn)Underlying sales: ‚£1,016m (2007: ‚£700m)Underlying aftermarket service sales: ‚£326m (2007: ‚£257m)Underlying profit before financing: ‚£87m (2007: ‚£58m)
Rolls-Royce is a world leader in the provision of marine propulsion systems, offering a unique set of products and services for the naval and commercial sectors. Through its services business, it also supports propulsion systems installed on more than 20,000 vessels, including those in service with 70 navies worldwide.
The business continued to benefit from increased demand in the merchant and offshore sectors and achieved record sales in the first half. Underlying profits increased significantly, supported by strong volume growth in both original equipment and support services. Marine is now the Group's second largest business in revenue terms.
Increasing oil prices are supporting significant investment in the offshore oiland gas sector, driving demand for the Group's vessel designs and power systemsequipment. Order activity continues to be robust, with new orders totalling ‚£1.6 billion in the first half supporting a further increase in the order bookto ‚£5.5 billion.Two landmark orders were received from China: a ‚£58 million contract with ChinaOilfield Services Ltd to provide design and equipment systems for two offshoresupport vessels and a ‚£13 million contract with BGP Marine China to design andequip an advanced seismic research vessel. The ships will support oil and gasexploration and production and are the Group's first such contracts in theChinese market.
Also in China, the Group's integrated propulsion and manoeuvring system, Promas, is being installed on four merchant cargo ships under construction.
In the naval market, Marine passed a significant milestone with the successful'light-off' of the two MT30 gas turbines installed on the US Navy's firstLittoral Combat Ship. These Trent-derived engines are the most powerful marinegas turbines available worldwide.
The business also signed a memorandum of understanding with the Vietnam Shipbuilding Industry Group (Vinashin) in Hanoi to support the development of Vietnam's fast-growing marine industry.
Services capabilities were expanded with the opening of a new facility inMumbai to support the Group's growing installed base of marine equipment. Thisdevelopment is part of an expansion of the Marine services capability thatincludes construction of new Service Centres in Galveston and Rio de Janeiroand the upgrading of the Rotterdam Service Centre.
Energy
Order book: ‚£1.0bn (2007: year end ‚£0.9bn)Engine deliveries: 18 (2007: 9)Underlying sales: ‚£324m (2007: ‚£227m)Underlying aftermarket service sales: ‚£153m (2007: ‚£117m)Underlying loss before financing: ‚£(8)m (2007: loss ‚£(1)m)
The Energy business supplies a broad range of aero-derived gas turbine packages to the worldwide oil and gas and power generation markets. With over 160 million hours of operating experience, the business has supplied over 4,000 packages to customers in around 80 countries.
Strong order intake in both the oil and gas and power generation sectors contributed to a 10 per cent increase in the order book in the first half, with new orders being won for 13 industrial Trent units in a broad range of locations, including Australia, Europe, Russia and South East Asia.
Sales increased by 43 per cent, driven by significantly increased original equipment and aftermarket sales across both the oil and gas and power generation sectors.
At Dolphin Energy in Qatar, the world's first industrial Trent mechanical drive gas turbines achieved full plant gas export capacity.
The Group continued to progress its programme to develop a commerciallycompetitive fuel cell system. A 100 hour concept demonstration test of a fullyintegrated system is planned for the second half as part of the programme toprove the unit.Steps have also been taken to exploit the Group's nuclear capability, derivedfrom its 50 year involvement in the UK Royal Navy's nuclear submarineprogramme. In July, Rolls-Royce announced that it was establishing a new unitto take advantage of the emerging opportunities in civil nuclear in the UK andin other countries.Strong volume growth contributed to an improved trading performance in thefirst half. Increased charges for restructuring and the expected increase inthe Group's investment in fuel cells and lower levels of technology fees in thefirst half of 2008 all contributed to the result in the period. Continuedstrong volume growth in both original equipment and aftermarket is expected todeliver a modest profit in the second half of 2008.
Financial review
The firm and announced order book, at constant exchange rates, was ‚£53.5bn (2007: year end ‚£45.9bn). Aftermarket services represented 26 per cent of the order book (2007: year end 28 per cent).
Sales increased by 13 per cent to ‚£4,049m (2007: ‚£3,591m). Sales on an underlying basis grew by 12 per cent. Payments to industrial Risk and Revenue Sharing Partners (RRSPs), charged in cost of sales, amounted to ‚£107m (2007: ‚£95m).
The published profit before tax increased to ‚£389m from ‚£377m. Underlying profit before tax was ‚£410m (2007: ‚£380m). Underlying earnings per share increased by nine per cent, to 17.15p (2007: 15.72p) (see note 6).
Gross research and development investment increased seven per cent to ‚£399m(2007: ‚£373m). Net research and development investment charged to the incomestatement in the first half was ‚£177m (2007: ‚£195m) after net capitalisation of‚£45m (2007: ‚£9m) on development programmes. The second half charge for R&D isexpected to be around ‚£40m higher than in the first half, the bulk of theincrease being in Civil. Receipts from RRSPs in respect of new programmedevelopments, shown as other operating income, were ‚£13m (2007: ‚£40m).
Investment in intangibles was ‚£127m (2007: ‚£60m) and, in addition to capitalised R&D of ‚£57m, included ‚£32m (2007: ‚£24m) on recoverable engine costs and a further ‚£25m (2007: ‚£9m) on certification costs and participation fees.
Restructuring costs of ‚£60m (2007: ‚£24m) were charged within operating costs including costs associated with optimising the Group's support functions.
The taxation charge was ‚£97m (2007: ‚£74m). The taxation charge on an underlying basis was ‚£101m, representing 25 per cent of underlying profit before tax (2007: ‚£102m, representing 27 per cent of underlying profit before tax). The effective underlying tax rate is impacted by a number of factors including the geographical mix of profits, changes in legislation and the benefit of research and development tax credits.
There was a cash outflow in the period of ‚£44m (2007: inflow ‚£61m before ‚£132mspecial injection to the UK pension schemes). Key features were an increase inoverall working capital of ‚£334m from 2007 year end, including increased tradeand other receivables of ‚£490m, an inventory increase of ‚£250m, mitigated by a‚£406m increase in trade and other payables (including customer deposits). Thenet cash balance at the half year was ‚£844m (2007: year end ‚£888m).
Average net cash was ‚£265m (2007: ‚£373m), the reduction in the half-year largely accounted for by the phasing of a ‚£500m investment in the Group's UK pension schemes that occurred largely at the end of 2007.
Provisions were ‚£324m (2007: year end ‚£301m). Provisions carried forward inrespect of potential customer financing exposure amounted to ‚£57m at the periodend (2007: year end ‚£44m).There were no material changes to the Group's gross and net contingentliabilities in the first half. Contingent liabilities include commitments madeto civil aerospace customers in the form of asset value guarantees (AVGs) andcredit guarantees. At the end of June 2008, the gross level of commitments ondelivered aircraft was $1,198m (‚£602m), including $666m for AVG's and $532m forcredit guarantees. The net exposure after reflecting the level of security was$241m (‚£121m).
Related party transactions were broadly in line with 2007 (see note 14).
Pre-tax post-retirement benefit obligations were ‚£123m (2007: year end ‚£123m) (see note 10). After taking account of deferred taxation, post-retirement benefit obligations were ‚£86m (2007: year end ‚£88m).
The proposed interim payment to shareholders is equivalent to 5.72 pence perOrdinary Share (2007: interim payment 4.04 pence). This payment will be thefirst to be paid in C Shares rather than B Shares, the only material differencebeing that C Shares will not carry the right to convert directly into OrdinaryShares (see note 7 below). The interim payment is payable on January 5, 2009to shareholders on the register on October 31, 2008. The ex entitlement datefor C Shares is October 29, 2008.As the Company will no longer be issuing B Shares, the directors have decidedto exercise the Company's right to redeem compulsorily all remaining B Sharesin issue at their nominal value of 0.1 pence per share on 22 September 2008. Payment of these redemption monies will be made to shareholders on 29 September2008 together with a final B Share dividend accrued on B Shares from 1 July upuntil 22 September.Condensed consolidated income statementFor the half-year ended June 30, 2008 Half-year to Half-year to Year to June 30, 2008 June 30, 2007 December 31, 2007 Notes ‚£m ‚£m ‚£m Revenue 2 4,049 3,591 7,435Cost of sales (3,231) (2,943) (6,003)Gross profit 818 648 1,432Other operating income 13 40 50Commercial and (366) (318) (653)administrative costs Research and development (177) (195) (381)costs Share of profit of joint 33 26 66ventures Operating profit 321 201 514Profit/(loss) on sale or 1 (1) (2)termination of businesses Profit before financing 2 322 200 512 Financing income 4 359 416 718Financing costs 4 (292) (239) (497)Net financing 67 177 221 Profit before taxation 1 2,3 389 377 733 Taxation 5,6 (97) (74) (133)Profit for the period 292 303 600 Attributable to: Equity holders of the 294 306 606parent Minority interests (2) (3) (6)Profit for the period 292 303 600
Earnings per ordinary share 2
Basic 6 16.22p 17.12p 33.67pDiluted 6 15.97p 16.74p 32.97pPayments to shareholders in 7 (105) (73)
(237)
respect of the period 1 Underlying profit before 3 410 380
800
taxation 2 Underlying earnings per share are shown in note 6.
Condensed consolidated balance sheet
At June 30, 2008 June Restated* December 31, 30, June 2007 2008 30, 2007 Notes ‚£m ‚£m ‚£m ASSETS Non-current assets Intangible assets 8 1,885 1,492 1,761Property, plant and equipment 1,792 1,725
1,813
Investments - joint ventures 298 258
284Other investments 57 51 57Deferred tax assets 91 82 81Post-retirement scheme surpluses 10 221 94 210 4,344 3,702 4,206 Current assets Inventory 2,453 2,081 2,203Trade and other receivables 3,069 2,535 2,585Taxation recoverable 7 3 7Other financial assets 9 498 603 514Short-term investments 1 35 40Cash and cash equivalents 1,844 1,811 1,897Assets held for sale 24 - 7 7,896 7,068 7,253 Total assets 12,240 10,770 11,459 LIABILITIES Current liabilities Borrowings (13) (38) (34)Other financial liabilities 9 (159) (30) (85)Trade and other payables (4,647) (3,826) (4,326)Current tax liabilities (198) (189) (188)Provisions (163) (115) (121) (5,180) (4,198) (4,754) Non-current liabilities Borrowings (1,040) (1,003) (1,030)Other financial liabilities 9 (320) (336) (303)Trade and other payables (1,026) (873) (965)Deferred tax liabilities (404) (384) (345)Provisions (161) (185) (180)Post-retirement scheme deficits 10 (344) (503) (333) (3,295) (3,284) (3,156) Total liabilities (8,475) (7,482) (7,910) Net assets 3,765 3,288 3,549 EQUITY Capital and reserves Called-up share capital 364 361 364Share premium account 67 66 67Capital redemption reserves 185 198 191Transition hedging reserve 29 138 77Other reserves 171 (59) 62Retained earnings 2,939 2,579 2,776Equity attributable to equity holders 11 3,755 3,283 3,537of the parent Minority interests 10 5 12Total equity 3,765 3,288 3,549
* Progress payments received against other inventory in the 2007 half-year comparative (‚£396m) have been included within trade and other payables.
Condensed consolidated cash flow statementFor the half-year ended June 30, 2008 Half-year Restated* Year to to June Half-year to December 31, 30, 2008 June 30, 2007 2007 Notes ‚£m ‚£m ‚£m
Reconciliation of cash flows from
operating activities Profit before taxation 389 377 733Share of profit of joint ventures (33) (26) (66)(Profit)/loss on sale or (1) 1 2termination of businesses (Profit)/loss on sale of (13) 2 1property, plant and equipment Net interest payable 4 5 6 6Net post-retirement scheme 4 13 (15) (30)financing Net other financing 4 (85) (168) (197)Taxation paid (32) (23) (71)
Amortisation of intangible assets 8 56 30
63
Depreciation of property, plant 92 82
170
and equipment Increase/(decrease) in provisions 16 (35) (42)Increase in inventories (250) (236) (359)Increase in trade and other (490) (97) (128)receivables Increase in trade and other 406 233 778payables Decrease in other financial 223 156 357assets and liabilities Additional cash funding of (58) (40) (441)post-retirement schemes Share-based payments charge 17 17 36Transfers of hedge reserves to (66) (63)
(149)
income statement Dividends received from joint 22 16
42
ventures Net cash inflow from operating 211 217 705activities Cash flows from investing activities Additions of unlisted investments (1) -
(5)
Disposals of unlisted investments 1 - -Additions to intangible assets (122) (58)
(294)
Purchases of property, plant and (105) (121)
(304)
equipment Disposals of property, plant and 42 -
47equipment Acquisition of businesses (8) (1) (6)Disposals of businesses - 2 3Investments in joint ventures (9) (10) (13)Disposals of joint ventures 13 - -Net cash outflow from investing (189) (188) (572)activities Cash flows from financing activities Borrowings due within one year - (3) (346)
(350)
repayment of loans Borrowings due after one year - (25) 35 -(repayment)/increase in loans Capital element of finance lease (2) (1)
(5)
payments Net cash outflow from decrease in (30) (312) (355)borrowings Interest received 43 70 95Interest paid (55) (78) (93)Interest element of finance lease - (3)
(3)
payments Decrease/(increase) in government 39 (1)
(6)
securities and corporate bonds
Issue of ordinary shares - 28 29Purchase of own shares (44) (78) (77)
Other transactions in own shares - 27
34
Redemption of B Shares (58) (56)
(97)
Net cash outflow from financing (105) (403) (473)activities Decrease in cash and cash (83) (374) (340)equivalents Cash and cash equivalents at 1,872 2,171 2,171January 1 Foreign exchange 48 (11) 41Cash and cash equivalents at 1,837 1,786 1,872period end
* Increase in inventories and increase in trade and other payables in the 2007half-year comparative have been restated from (‚£238m) and ‚£235m respectively toreflect progress payments received from other inventory being included withintrade and other payables. The movement of ‚£2m in each also reflects thecorresponding restatement of both inventory and trade and other payables in theDecember 31, 2006 comparatives. Half-year to Half-year to Year to June 30, June 30, December 31, 2008 2007 2007 ‚£m ‚£m ‚£m
Reconciliation of movement in cash and cash equivalents to movements in net funds
Decrease in cash and cash (83) (374) (340)equivalents
Cash (inflow)/outflow from (decrease)/ increase in government securities and corporate bonds (39) 1 6Net cash outflow from decrease in 30 312
355
borrowings Change in net funds resulting (92) (61)
21from cash flows Exchange adjustments 48 (10) 41Fair value adjustments (37) 47 (18)Movement in net funds (81) (24) 44Net funds at January 1 excluding 873 829
829
the fair value of swaps Net funds at period end excluding 792 805
873
the fair value of swaps Fair value of swaps hedging fixed 52 (50)
15rate borrowings Net funds at period end 844 755 888 The movement in net funds (defined by the Group as including the items shownbelow) is as follows: At Funds Non Exchange Fair At June January flow cash adjustments value 30, 2008 1, 2008 flow ‚£m ‚£m ‚£m ‚£m ‚£m ‚£mCash at bank and in hand 1,265 (315) - 44 - 994Overdrafts (25) 18 - - - (7)Short-term deposits 632 214 - 4 - 850Cash and cash equivalents 1,872 (83) - 48 - 1,837Investments 40 (39) - - - 1Other borrowings due within (4) 3 (1) - - (2)one year Borrowings due after one (1,026) 25 1 - (37) (1,037)year Finance leases (9) 2 - - - (7) 873 (92) - 48 (37) 792Fair value of swaps hedging fixed rate borrowings 15 37 52 888 (92) - 48 - 844
Condensed consolidated statement of recognised income and expense For the half-year ended June 30, 2008
Half-year Half-year Year to to June to June December 31, 30, 2008 30, 2007 2007 ‚£m ‚£m ‚£m
Foreign exchange translation differences 109 (4)
117from foreign operations Net actuarial gains - 525 511Movement in unrecognised pension surplus (43) -
(112)
(see note 10) Transfers from transition hedging (66) (63) (149)reserve Related tax movements 30 (132) (86)
Change in rates of corporation tax - (9)
(9)
Net income recognised directly in 30 317
272equity Profit for the period 292 303 600
Total recognised income and expense for 322 620
872the period Attributable to: Equity holders of the parent 324 623 878Minority interests (2) (3) (6)
Total recognised income and expense for 322 620
872the period
1 Basis of preparation and accounting policies
Reporting entityRolls-Royce Group plc is a company domiciled in the UK. These condensedconsolidated half-year financial statements of the Company as at and for thesix months ended June 30, 2008 comprise the Company and its subsidiaries(together referred to as the "Group") and the Group's interests in jointlycontrolled entities. They have been prepared on the basis of the recognitionand measurement requirements of IFRS applied to the financial statements atDecember 31, 2007 and those standards that have been endorsed and will beapplied at December 31, 2008.The consolidated financial statements of the Group as at and for the year endedDecember 31, 2007 (2007 Annual report) are available on the Group's website at www.rolls-royce.com or upon request from the Company Secretary, Rolls-RoyceGroup plc, 65 Buckingham Gate, London SW1E 6AT.
Statement of compliance
These condensed consolidated half-year financial statements have been preparedin accordance with IAS 34 Interim Financial Reporting as adopted by theEuropean Union. They do not include all of the information required for fullannual statements, and should be read in conjunction with the 2007 Annualreport. The comparative figures for the financial year December 31, 2007 are not theCompany's statutory accounts for that financial year. Those accounts have beenreported on by the Company's auditors and delivered to the Registrar ofCompanies. The report of the auditors was (i) unqualified, (ii) did not includea reference to any matters to which the auditors drew attention by way ofemphasis without qualifying their report, and (iii) did not contain a statementunder section 237(2) of the Companies Act 1985.
The condensed consolidated half-year financial statements were approved by the Board of directors on July 23, 2008.
Significant accounting policies
The accounting policies applied by the Group in these condensed consolidatedhalf-year financial statements are the same as those that applied to theconsolidated financial statements of the Group for the year ended December 31,2007.
Key sources of estimation uncertainty
In applying the accounting policies, management has made appropriate estimatesin many areas, and the actual outcome may differ from those calculated. The keysources of estimation uncertainty at the balance sheet date were the same asthose that applied to the consolidated financial statements of the Group forthe year ended December 31, 2007.
2 Analysis by business segment
Half-year to June Half-year to June Year to December 30, 2008 30, 2007 31, 2007 2008 ‚£m ‚£m ‚£m Revenue Civil aerospace 1,970 1,880 3,718Defence aerospace 758 796 1,636Marine 1,009 698 1,542Energy 312 217 539 4,049 3,591 7,435 Half-year to June 30, Half-year to June 30, Year to
December 31,
2008 2007 2007 Underlying Underlying Underlying Underlying Underlying Underlying adjustments results adjustments results adjustments results ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£mProfit before financing Civil 186 86 272 112 149 261 308 256 564aerospace Defence 106 (2) 104 84 22 106 170 29 199aerospace Marine 75 12 87 40 18 58 91 22 113Energy (17) 9 (8) (10) 9 (1) (8) 13 5Central (28) - (28) (26) - (26) (49) - (49)items 322 105 427 200 198 398 512 320 832Net 67 (84) (17) 177 (195) (18) 221 (253) (32)financing Profit before 389 21 410 377 3 380 733 67 800taxation Taxation (97) (4) (101) (74) (28) (102) (133) (60) (193)Profit for 292 17 309 303 (25) 278 600 7 607the period Minority 2 - 2 3 - 3 6 - 6interests Profit attributable to equity holders of the parent 294 17 311 306 (25) 281 606 7 613 June June December 30, 2008 30, 2007 31, 2007 ‚£m ‚£m ‚£mNet assets/(liabilities) Civil aerospace 2,785 2,497 2,468Defence aerospace (170) (49) (172)Marine 605 616 563Energy 328 366 370Net tax liabilities (504) (488) (445)Net unallocated post-retirement scheme deficits (123) (409) (123)Net funds 844 755 888Net assets 3,765 3,288 3,549 June June December 30, 2008 30, 2007 31, 2007 Number Number NumberGroup employees at period end Civil aerospace 22,300 22,700 23,200Defence aerospace 5,700 5,600 5,700Marine 8,000 7,700 8,000Energy 2,500 2,500 2,600 38,500 38,500 39,500 3 Underlying performance
Underlying performance is presented to show the economic substance of the Group's hedging strategies in respect of transactional exchange rate and commodity price movements.
Underlying sales exclude the release of the foreign exchange transition hedgingreserve and reflect the achieved exchange rates arising on settled derivativecontracts.
Underlying profit before financing includes amounts realised from settled derivative contracts (primarily relating to civil aerospace) and for 2007 excluded the ‚£130m of past-service post-retirement costs.
In addition, underlying profit before taxation excludes the unrealised amountsarising from revaluations required by IAS 32 Financial Instruments:Presentation and IAS 39 Financial Instruments: Recognition and Measurement andthe net impact of financing costs related to post-retirement scheme benefits.
Underlying profit adjustments:
Half-year to Half-year to Year to June 30, 2008 June 30, 2007 December 31, 2007 Profit Profit Profit Profit Profit Profit before before before before before before financing tax financing tax financing tax ‚£m ‚£m ‚£m ‚£m ‚£m ‚£mProfit per consolidated income statement 322 389 200 377 512 733 Release of transition (66) (66) (63) (63) (149) (149)hedging reserve Realised gains on settled 191 235 161 171 415 420derivative contracts Net unrealised fair value changes to derivative contracts - (135) - (162) - (251)Effect of currency on (30) (30) (76) (76)contract accounting (20) (20) Revaluation of trading - 2 - (16) - 10assets and liabilities Financial RRSPs - foreign exchange differences and
changes in forecast payments - (8) - (12) -
13Net post-retirement scheme - 13 - (15) - (30)financing Post-retirement schemes - - - 130 130 130 130past service costs 1
Total underlying adjustments 105 21 198 3 320
67 Underlying profit 427 410 398 380 832 800 1 During 2007, the Group, as part of its ongoing discussions with theTrustees of its UK pension schemes, agreed to reflect changes in HM Revenue &Customs practice and increase the size of the lump sum payment retirees areable to receive by commuting part of the pension. Like many other employers,the Group also increased the amount of the lump sum payment for the pensioncommuted. Updating the commutation arrangements to reflect these factorsincreased the post-retirement liability by ‚£100m.The Group also agreed a 2% discretionary increase applicable to pensions thatdo not benefit from any guaranteed increase, which increased the liability
by ‚£30m.4 Net financing Half-year Half-year to to Year to June 30, June 30, December 2008 2007 31, 2007 Underlying Underlying Underlying net net net financing financing financing ‚£m ‚£m ‚£m ‚£m ‚£m ‚£mFinancing income Interest receivable 31 31 44 44 83 83
Fair value gains on foreign currency contracts 75 - 137 - 215
-
Financial RRSPs - foreign exchange differences and changes in forecast payments 8 - 12 - -
-
Fair value gains on commodity derivatives 60 - 25 - 36
-
Expected return on post-retirement scheme
assets 185 - 191 - 384 -Net foreign exchange gains - - 6 - - -Other financing income - - 1 1 - - 359 31 416 45 718 83Financing costs Interest payable (36) (36) (50) (50) (89) (89)
Financial RRSPs - foreign exchange differences and changes in forecast payments - - - - (13)
-
Financial charge relating to financial RRSPs (12) (12) (13) (13) (26) (26) Interest on post-retirement scheme liabilities (198) - (176) - (354)
-Net foreign exchange losses (46) - - - (15) - (292) (48) (239) (63) (497) (115)Net financing 67 (17) 177 (18) 221 (32) Analysed as: Net interest payable (5) (5) (6) (6) (6) (6)
Net post-retirement scheme financing (13) - 15 - 30
-Net other financing 85 (12) 168 (12) 197 (26)Net financing 67 (17) 177 (18) 221 (32) 5 TaxationThe effective tax rate for the half-year is 24.9% (2007 half-year 19.6%, fullyear 18.1%). The effective rate for 2007 full year was lower, mainly becauseof the impact of the reduction in UK and German corporation tax rates enactedduring 2007. The effective underlying tax rates are discussed on page 10.
6 Earnings per ordinary share (EPS)
Basic EPS is calculated by dividing the profit attributable to ordinaryshareholders of ‚£294m (2007 half-year ‚£306m, full year ‚£606m) by 1,813m (2007half-year 1,787m, full year 1,800m) ordinary shares, being the average numberof ordinary shares in issue during the period, excluding own shares held undertrust, which have been treated as if they had been cancelled.
Underlying EPS has been calculated as follows:
Half-year to Half-year to Year to June 30, June 30, December 31, 2008 2007 2007 Pence ‚£m Pence ‚£m Pence ‚£m
EPS / Profit attributable to equity
holders of the parent 16.22 294 17.12 306 33.67 606Release of transition hedging reserve (3.64) (66) (3.52) (63) (8.28) (149)Realised gains on settled derivative contracts 12.96 235 9.57 171 23.33 420
Net unrealised fair value changes to derivative contracts (7.45) (135) (9.06) (162) (13.94) (251)Effect of currency on contract accounting (1.10) (20) (1.68) (30) (4.22) (76)Revaluation of trading assets and liabilities 0.11 2 (0.90) (16) 0.56 10Financial RRSPs - foreign exchange differences
and changes in forecast payments (0.44) (8) (0.67) (12) 0.72 13 Net post-retirement scheme
financing 0.71 13 (0.84) (15) (1.67) (30)Post-retirement schemes - past service costs - - 7.27 130 7.22 130Related tax effect (0.22) (4) (0.28) (5) (1.39) (25)
Change in rates of corporation tax 1 - - (1.29) (23) (1.94) (35) Underlying EPS / Underlying profit
attributable toequity holders of the parent 17.15 311 15.72 281 34.06 613
1 During 2007, changes in the rates of UK and German corporation tax were enacted. The above adjustments represent the reduction in deferred tax liabilities reflected in the income statement as a result of these changes.
Where deferred tax had previously been charged or credited to the statement ofrecognised income and expense or directly to equity, the related deferred taxadjustments have been included in those statements respectively.Diluted EPS is calculated by dividing the profit attributable to ordinaryshareholders of ‚£294m (2007 half-year ‚£306m, full year ‚£606m) by 1,841m (2007half-year 1,828m, full year 1,838m) ordinary shares, being 1,813m (2007half-year 1,787m, full year 1,800m) as above, adjusted by the bonus element ofexisting share options of 28m (2007 half-year 41m, full year 38m).
7 Payments to shareholders in respect of the period
Payments to shareholders in respect of the period represent the value of B Shares or C Shares to be issued in respect of the results for the period.
Issues of B Shares and C Shares were declared as follows:
Half-year to Year to June 30, 2008 December 31, 2007 Pence per Pence per share ‚£m share ‚£mInterim 5.72 105 4.04 73Final 8.96 164 13.00 237 The Company has previously identified the importance and relevance of makingpayments to Shareholders in a form that does not generate additional surplusshadow ACT. This will accelerate the recovery of the Group's surplus ACT, andimprove future cash flow, to the benefit of all Shareholders. Accordingly, allpayments made to shareholders since June 2004 have been made in the form of BShares rather than cash dividends.As a result of the Company's strategic financial review the directors concludedthat the increase in the Company's issued share capital, which occurs whenShareholders choose to convert B Shares to Ordinary Shares, is inconsistentwith its strategy to maintain a more efficient balance sheet and limit EarningsPer Ordinary Share dilution. Therefore, from January 2009, payments toshareholders will be made in the form of C Shares, the only significantdifference being that, unlike B Shares, C Shares will not carry the right toconvert directly into Ordinary Shares. Instead shareholders will have the rightto participate in the C Share Reinvestment Plan (CRIP) operated by ourRegistrar, which will provide a low-cost method of reinvesting redemptionproceeds in Ordinary Shares.
8 Intangible assets
Goodwill Certification Development Recoverable Software Total costs and expenditure engine and participation costs other fees ‚£m ‚£m ‚£m ‚£m ‚£m ‚£mCost: At January 1, 2008 801 504 514 366 109 2,294Exchange adjustments 53 2 - - - 55Additions - 25 57 32 13 127On acquisition of business - - - - 2 2Disposals - - - - (3) (3)At June 30, 2008 854 531 571 398 121 2,475 Accumulated amortisation and impairment: At January 1, 2008 - 150 150 204 29 533Exchange adjustments - 1 - - - 1Provided during the period - 6 12 30 8 56At June 30, 2008 - 157 162 234 37 590Net book value at June 30, 2008 854 374 409 164 84 1,885Net book value at December 31, 2007 801 354 364 162 80 1,761
9 Other financial assets and liabilities
The carrying values of other financial assets and liabilities were as follows: June 30, 2008 June 30, 2007 December 31, 2007 Net Net Net Assets Liabilities amount Assets Liabilities amount Assets Liabilities amount ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£mForeign exchange contracts 348 (103) 245 557 (23) 534 433 (54) 379Commodity contracts 74 - 74 46 - 46 39 - 39 422 (103) 319 603 (23) 580 472 (54) 418Interest rate contracts 76 (1) 75 - (25) (25) 42 (3) 39Financial RRSPs - (353) (353) - (306) (306) - (315) (315)B Shares - (22) (22) - (12) (12) - (16) (16) 498 (479) 19 603 (366) 237 514 (388) 126
Foreign exchange and commodity financial instruments
Movements in the fair values of foreign exchange and commodity contracts wereas follows: Half-year Year to Half-year to to June December June 30, 2008 30, 2007 31, 2007 Foreign exchange Commodity Total Total Total ‚£m ‚£m ‚£m ‚£m ‚£mAt January 1 379 39 418 593 593Fair value changes to fair value hedges 1 - 1 (4) (6)Fair value changes to derivative contracts 75 60 135 162 251Fair value of contracts settled (210) (25) (235) (171) (420)At period end 245 74 319 580 418
Financial risk and revenue sharing partnerships (RRSPs)
Movements in the recognised values of financial RRSPs were as follows:
Half-year Half-year Year to to June to June December 31, 30, 2008 30, 2007 2007 ‚£m ‚£m ‚£mAt January 1 (315) (324) (324)Cash paid to partners 12 19 55Addition (39) - -Exchange adjustments direct to (7) - (7)reserves Financing charge 1 (12) (13) (26)Excluded from underlying profit 1 Exchange adjustments 5 7 7
Changes in forecast payments 3 5 (20) At period end
(353) (306) (315)
1 Total charge included within finance in the income statement is ‚£4m (2007 half-year ‚£1m, full year ‚£39m).
10 Pensions and other post-retirement benefits
Movements in the net post-retirement position recognised in the balance sheetwere as follows: UK Overseas schemes schemes Total ‚£m ‚£m ‚£mAt January 1, 2008 181 (304) (123)Exchange adjustments - (2) (2) Current service cost (65) (12) (77) Past service cost - (5) (5)
Interest on post-retirement scheme liabilities (181) (17) (198)Expected return on post-retirement scheme assets 176 9
185
Contributions by employer 128 12
140
Movement in unrecognised surplus 1 (43) -
(43) At June 30, 2008 2 196 (319) (123) Analysed as:
Post-retirement scheme surpluses - included in non-current assets 221 -
221
Post-retirement scheme deficits - included in
non-current liabilities (25) (319) (344) 196 (319) (123) 1 Where a surplus has arisen on a scheme, in accordance with IAS19, thesurplus is recognised as an asset only if it represents an unconditionaleconomic benefit available to the Group in the future. Any surplus in excessof this benefit is not recognised in the balance sheet. The ‚£43m movement inthe current period has arisen due to the funding commitments currently inplace.2 The net post-retirement scheme deficit as at June 30, 2008 is calculated ona year to date basis, using the latest valuation as at December 31, 2007. Therehave been no significant fluctuations or one-time events during the six-monthperiod that would require adjustments to the actuarial assumptions made atDecember 31, 2007.
11 Movements in capital and reserves
Movements in equity attributable to equity holders of the parent were asfollows: Half-year Half-year Year to to June to June December 31, 30, 2008 30, 2007 2007 ‚£m ‚£m ‚£mAt beginning of the period 3,537 2,718 2,718
Total recognised income and expense attributable to equity holders of the parent 324 623
878
Arising on issue of ordinary shares - 28
29
Issue of B shares (73) (65)
(172)
Conversion of B shares into ordinary shares 9 10
71
Own shares purchased (44) (78)
(78)
Own shares vesting in share-based payment plans 35 85
93
Share-based payments adjustment (18) (41)
(22)
Related tax movements - current tax - -
43
Related tax movements - deferred tax (15) 8
(18)
Change in rate of UK corporation tax -
deferred tax - (5) (5)At period end 3,755 3,283 3,537 12 Share-based paymentsIn accordance with IFRS 2, a charge of ‚£17m (2007 half-year ‚£17m, full year ‚£36m), relating to the fair value of share-based schemes granted since November7, 2002 is included in the income statement.
13 Sales financing contingent liabilities
In connection with the sale of its products the Group will, on some occasions,provide financing support for its customers. The Group's contingent liabilitiesrelated to financing arrangements are spread over many years and relate to anumber of customers and a broad product portfolio.
During the first half of 2008, there were no material changes to the maximum gross and net contingent liabilities.
14 Related party transactions
Transactions with related parties are shown on page 109 of the Annual report2007. Significant transactions in the current financial period are as follows: Half-year Year to to June December 30, 2008 31, 2007 ‚£m ‚£mSale of goods and services to joint ventures 785
1,289
Purchases of goods and services from joint ventures (688) (1,100) 15 Acquisitions
During the period the Group acquired one small business for consideration of ‚£ 8m. There were no significant fair value adjustments in respect of the net assets acquired.
Principal risks and uncertainties
As described on pages 22 and 23 of the Annual report 2007, the Group continuesto be exposed to a number of risks and has an established, structured approachto identifying, assessing and managing those risks. The Group has a consistentstrategy and long performance cycles and consequently the risks faced by theGroup have not changed significantly over the first six months of 2008.
The principal risks reflect the global growth of the business, and the competitive and challenging business environment in which it operates. Risks are considered under four broad headings:
Business environment risks- Environmental impact of products and operations- External events which might affect demand for air travel or cause thebusiness to be disruptedStrategic risks- Aftermarket- Competitive pressures
Financial risks - Counterparty credit risk, funding, liquidity and credit rating - Market risks - foreign currency, interest rate and commodity - Sales financing
Operational risks- Performance of supply chain- IT security- Ethics- Programme risk
Specific risks and uncertainties are discussed on pages 2 to 11.
Statement of directors' responsibilities
The directors confirm, to the best of their knowledge, that this condensed setof financial statements has been prepared in accordance with IAS 34 InterimFinancial Reporting, as adopted by the European Union and that the half-yearreport includes a fair review of the information required by Rules 4.2.7 and4.2.8 of the Disclosure and Transparency Rules of the United Kingdom FinancialServices Authority.
The directors of Rolls-Royce Group plc at February 6, 2008 are listed in the Annual report 2007 on page 46. There have been the following changes to the Board of directors since that report:
Dr John McAdam - appointed February 19, 2008Carl Symon - resigned May 7, 2008By order of the BoardSir John Rose Chief Executive July 23, 2008 Andrew Shilston Finance DirectorJuly 23, 2008
Independent review report to Rolls-Royce Group plc
Introduction
We have been engaged by the Company to review the condensed set of financialstatements in the half-yearly financial report for the six months ended June30, 2008 which comprises the condensed consolidated income statement, thecondensed consolidated balance sheet, the condensed consolidated cash flowstatement, the consolidated statement of recognised income and expense and therelated explanatory notes. We have read the other information contained in thehalf-yearly financial report and considered whether it contains any apparentmisstatements or material inconsistencies with the information in the condensedset of financial statements.This report is made solely to the Company in accordance with the terms of ourengagement to assist the Company in meeting the requirements of the Disclosureand Transparency Rules ("the DTR") of the UK's Financial Services Authority("the UK FSA"). Our review has been undertaken so that we might state to theCompany those matters we are required to state to it in this report and for noother purpose. To the fullest extent permitted by law, we do not accept orassume responsibility to anyone other than the Company for our review work, forthis report, or for the conclusions we have reached.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FSA.
As disclosed in note 1, the annual financial statements of the Group areprepared in accordance with IFRSs as adopted by the EU. The condensed set offinancial statements included in this half-yearly financial report has beenprepared in accordance with IAS 34 Interim Financial Reporting as adopted bythe EU.Our responsibilityOur responsibility is to express to the Company a conclusion on the condensedset of financial statements in the half-yearly financial report based on ourreview.Scope of review
We conducted our review in accordance with International Standard on ReviewEngagements (UK and Ireland) 2410 Review of Interim Financial InformationPerformed by the Independent Auditor of the Entity issued by the AuditingPractices Board for use in the UK. A review of interim financial informationconsists of making enquiries, primarily of persons responsible for financialand accounting matters, and applying analytical and other review procedures. Areview is substantially less in scope than an audit conducted in accordancewith International Standards on Auditing (UK and Ireland) and consequently doesnot enable us to obtain assurance that we would become aware of all significantmatters that might be identified in an audit. Accordingly, we do not express anaudit opinion.
Whilst the Company has previously produced a half-yearly report containing a condensed set of financial statements, those financial statements have not previously been subject to a review by an independent auditor. As a consequence, the review procedures set out above have not been performed in respect of the comparative period for the six months ended June 30, 2007.
Conclusion
Based on our review, nothing has come to our attention that causes us tobelieve that the condensed set of financial statements in the half-yearlyfinancial report for the six months ended June 30, 2008 is not prepared, in allmaterial respects, in accordance with IAS 34 as adopted by the EU and the DTRof the UK FSA.KPMG Audit PlcChartered Accountants, LondonJuly 23, 2008
mapperRelated Shares:
Rolls-Royce