28th Jul 2005 06:00
28 July 2005 ROLLS-ROYCE GROUP plc INTERIM RESULTS 2005 Group Highlights¢â‚¬¢ Record order book, at ‚£21.9bn (2004: ‚£18.1bn).¢â‚¬¢ Sales increased to ‚£3,184m. Sales on an underlying* basis increased by 14 per cent.¢â‚¬¢ Services revenues increased by 15 per cent on an underlying* basis and represented 55 per cent of Group sales.¢â‚¬¢ Profit before financing costs increased to ‚£401m.¢â‚¬¢ Underlying profit before financing costs** increased to ‚£309m, up 44 per cent on a like for like basis.¢â‚¬¢ Underlying profit before taxation** increased to ‚£260m, up 54 per cent on a like for like basis.¢â‚¬¢ Average net debt reduced to ‚£377m (2004: ‚£626m).¢â‚¬¢ Interim payment to shareholders increased by five per cent.Note: All results are reported under International Financial Reporting Standards (IFRS). 2004 results, as permitted by IFRS 1, are not restated in respect of IAS 32/39, financial instruments. A full analysis of the impact of adopting IFRS is available at http://ir.rolls-royce.com/rr/investors/analyst/presentations/* underlying sales and profit exclude unrealised gains on fair value and otherIAS 39 adjustments (see note 3 and 4)** underlying profit on a like for like basis is adjusted due to the lack ofcomparability caused by the different treatment of payments to financial Risk and Revenue Sharing Partners resulting from the implementation of IAS32/39 on 1 January 2005 with no retrospective adjustment(see page 2 and note 4).Sir John Rose, Chief Executive, said:"We continue to make good progress, demonstrating the increasinglyinternational nature of the business and our broad portfolio of products andservices."The higher orders and sales reflect strong market positions and the continuinggrowth of our services revenues. Our business mix and focus on improvedefficiency are contributing to higher levels of profit and cash generation. Asa result we have increased our payment to shareholders by five per cent."We remain on target to generate continued growth in profits and reduction ofaverage net debt in 2005."Group OverviewThe Group maintained a good level of order intake, resulting in a record orderbook of ‚£21.9bn at the half year (2004: ‚£18.1bn). In addition, a further ‚£1.1bnhad been announced (2004: ‚£1.5bn) but not contracted. Orders for futureservices accounted for ‚£8.2bn or 37 per cent of the firm order book at the halfyear (2004: ‚£7.1bn or 39 per cent).Group sales in the first half of 2005 rose to ‚£3,184m. Sales on an underlyingbasis (see note 4) increased by 14 per cent, reflecting the continuing growthof services revenues and increased engine deliveries.Revenue from services activities rose to ‚£1.8bn. On an underlying basis (seenote 4), services revenues grew by 15 per cent and accounted for 55 per cent ofGroup sales (2004: 55 per cent).Profit before financing costs increased to ‚£401m (2004: ‚£175m) and underlyingprofit before financing costs (which excludes unrealised losses and gains onfair value adjustments) rose to ‚£309m (see note 3). On a like for like basis,underlying profit before financing costs increased by 44 per cent. If IAS 32/39had been applied to the underlying profit before financing costs for 2004,payments to financial risk and revenue sharing partners, amounting to ‚£39m, allrelating to the civil aerospace segment, would have been excluded. This wouldhave resulted in an underlying profit before financing costs of ‚£214m in 2004,compared to ‚£309m achieved in 2005.After financing costs, including fair value adjustments arising from the markto market of financial instruments and monetary assets, pre-tax profit onordinary activities was ‚£165m (2004: ‚£149m). On an underlying basis, pre taxprofit was ‚£260m (2004: ‚£149m) and compared to 2004, on a like for like basis,increased by 54 per cent (see note 4).Underlying earnings per share rose to 10.87p (2004: 6.44p) and basic earningsper share rose to 6.88p (2004: 6.44p). An interim payment to shareholders hasbeen proposed of 3.34p per share (2004: 3.18p), an increase of five per cent.The Group generated a cash inflow of ‚£175m in the first half (2004: ‚£44m). Netdebt at the half year was ‚£37m (2004: ‚£363m). Average net debt for the firsthalf fell to ‚£377m (2004: ‚£626m).The Group has continued to pursue its strategy of hedging future net dollarrevenues in order to provide protection against fluctuations in exchange rates.Currently, forward cover amounts to approximately $9 billion, at an averagerate of 1.61 dollars to the pound. This substantial hedge book, combined withnew forward sales of dollars, cost reduction activities and further`dollarisation' of the cost base are the methods that the Group will use toenable it to manage future foreign exchange risk. The achieved exchange rate inthe first half of 2005 deteriorated by three cents relative to 2004.The Group continues to invest in new technology. In the first half it signed anagreement with a Singaporean consortium to invest jointly $100m in developing acommercially viable power system based on fuel cell technology, building uponresearch that began in Rolls-Royce in 1992. In addition, the Group expanded itsinternational network of technology-oriented relationships, establishing itsfirst University Technology Centre in Norway to conduct key research programmesin the marine sector.Rolls-Royce has made good progress with its investment programme aimed atoverhauling its manufacturing capabilities and infrastructure. New facilitiesfor compression systems, combustion systems, turbines, component services andrepair and overhaul are on schedule for completion by 2007. Consequently, theGroup expects to continue to reduce operating costs, although the rate of costreduction has slowed in 2005. The level of capital investment is expected toincrease in support of this improvement programme.OutlookThe Group is continuing to invest in new products and technology to strengthenfurther its presence in power systems markets in the civil and defenceaerospace, marine and energy sectors. It has established strong positionswithin new programmes that will shape these markets for many years to come. Theaggregate demand for engines and services across all four sectors over the next20 years is estimated to be worth approximately $2 trillion.As the Group addresses new market opportunities to drive organic growth in eachof its business sectors, self-funded investment in research and development isexpected to continue at approximately five per cent of Group sales. Under IFRS,the impact of this investment on the income statement will reflect the mix andmaturity of individual development programmes.While this investment continues, the Group expects to see increasing returnsfrom the substantial investments already made in establishing strong marketpositions. These returns arise over many years as a result of the long-termnature of original equipment programmes and the substantial servicesopportunity created each time an engine is delivered. The Group is wellpositioned to capture a large proportion of this services opportunity, havinginvested in comprehensive support capabilities such as engine repair andoverhaul facilities, spare engine leasing, predictive data management andlong-term services agreements.The Group's strong order book, the long-term services revenue stream and thefocus on operational performance underpin its expectations of continued growthin profits and reduction of average net debt in 2005.Enquiries:Peter Barnes-Wallis Duncan Campbell-SmithDirector of Financial Communications Director of Corporate CommunicationsTel: 0207 222 9020www.rolls-royce.comREVIEW OF 2005 BY BUSINESS SECTORCivil AerospaceSales: ‚£1,730m (2004: ‚£1,453m)Underlying profit before financing costs: ‚£200m (2004: ‚£83m)The Group has developed a broad and competitive portfolio of engines for thecivil market, addressing more than 30 different aircraft types forinternational airlines, regional airlines and corporate operators.Civil aerospace sales increased by 19 per cent and profit increased as a resultof the continuing cyclic recovery in engine deliveries, strong growth inaftermarket services revenues, phasing of receipts from risk and revenuesharing partners (RRSPs) and, in 2005, the absence of charges relating topayments to financial RRSPs resulting from the introduction of IFRS 32/39 (Seenote 4).The Group delivered 441 civil engines in the first half, compared to 384 in thefirst half of 2004. The installed base of civil jet engines increased to 11,230engines, with an average in service age of 8.8 years.The Group continues to experience strong growth in flying hours, with totalflying hours at record levels, up 10 per cent compared to the same period in2004. Civil aftermarket services sales grew by 18 per cent and represented 59per cent of civil aerospace sales. In the future, it is likely that the rate ofgrowth of services revenues will moderate but continue at double-digit levels.Defence AerospaceSales: ‚£677m (2004: ‚£638m)Underlying profit before financing costs: ‚£94m (2004: ‚£82m)The Group's defence business is broadly based, with a strong portfolio ofproducts and services covering the key defence aerospace market sectors, fromcombat and trainer to transport, tactical aircraft and helicopters.Defence aerospace sales increased by 6 per cent and profit benefited from agood performance on long-term development programmes and a favourable businessmix in the first half. The Group delivered 207 military engines, compared to192 in the first half of 2004.The defence business continued to develop its services capability, attractingpraise from the US Navy for its innovative `Power by the Hour¯Æ'¤' MRMS supportfor the F405 engine on the T-45 Goshawk trainer aircraft. Defence aftermarketservices sales grew by four per cent and represented 55 per cent of defenceaerospace sales.MarineSales: ‚£488m (2004 ‚£443m)Underlying profit before financing costs: ‚£39m (2004: ‚£35m)The Group has developed a leading position in commercial and naval marinepropulsion markets with a broad product range, from vessel design and gasturbine engines, to water jets and deck handling equipment, and full systemsintegration capability.Marine sales increased by 10 per cent, reflecting continuing recovery in theoffshore oil and gas support sector. Profit increased by 11 per cent, largelyreflecting the fact that the comparative profit for 2004 included a ‚£10m chargein respect of the WR-21 programme. The marine business is expected to benefitfrom a stronger business mix in the second half of the year.Marine aftermarket services sales grew by 15 per cent and represented 46 percent of marine sales.EnergySales: ‚£237m (2004: ‚£186m)Underlying profit/(loss) before financing costs: (‚£3m) (2004: ‚£1m)In energy markets, Rolls-Royce has supplied more than 2,500 gas turbines tocustomers in nearly 120 countries and is investing in new products andcapabilities for the oil and gas industry and for distributed electricitygeneration.Energy sales increased by 27 per cent reflecting strong demand from the oil andgas sector. Underlying profit declined, reflecting the higher proportion oforiginal equipment sales in the oil and gas business and the continuinginvestment to develop the power generation business.Financial ServicesSales: ‚£52m (2004: ‚£30m)Underlying profit/(loss) before financing costs: ‚£3m (2004: (‚£2m))The Financial Services businesses comprise engine leasing, aircraft leasing andpower project development.In 2005, Rolls-Royce and Partners Finance, the Group's joint venture engineleasing business, owned a portfolio of 271 engines, of which 99 per cent byvalue were on lease to 42 customers.Pembroke Group, the Group's joint venture aircraft leasing business, owned aportfolio of 22 aircraft. These are all on lease to 14 customers.Rolls-Royce Power Ventures, the Group's power project developer, has 12 powergeneration projects underway.FINANCIAL REVIEWThe firm order book, at constant exchange rates, was ‚£21.9bn (2004: ‚£18.1bn).In addition, a further ‚£1.1bn had been announced (2004: ‚£1.5bn). Aftermarketservices represented 37 per cent of the firm order book (2004: 39 per cent).On an underlying basis, after adjusting for the impact of the Group's hedgingactivities on achieved exchange rates, sales increased by 14 per cent (see note4).Within cost of sales, payments to non-financial Risk and Revenue SharingPartners (RRSPs) amounted to ‚£73m (2004: ‚£112m, including ‚£39m payments tofinancial partners) and restructuring costs were ‚£27m (2004: ‚£16m).Gross research and development investment was ‚£283m (2004: ‚£291m). Net researchand development investment was ‚£147m (2004: ‚£129m), of which ‚£36m wascapitalised (2004: nil). Amortisation of previously capitalised research anddevelopment costs amounted to ‚£6m (2004: ‚£9m), resulting in a net charge to theincome statement of ‚£117m (2004: ‚£138m). Receipts from RRSPs in respect of newprogramme developments, reported as other operating income, were ‚£44m (2004: ‚£15m).The taxation charge was ‚£47m (2004: ‚£41m). The tax charge on an underlyingbasis was ‚£73m, representing 28 per cent of underlying profit before tax.(2004: ‚£41m, also representing 28 per cent of underlying profit before tax).Cash inflow during the first half was ‚£175m (2004: ‚£44m). Average net debt was‚£377m (2004: ‚£626m). Net debt at the period-end was ‚£37m (2004: ‚£363m).The net asset on the balance sheet at the half-year, in respect of TotalCarepackages, was ‚£397m, an increase of ‚£8m in the first half.Provisions were ‚£367m, (2004: ‚£395m). Provisions carried forward in respect ofpotential customer financing exposure amounted to ‚£93m at the half year (2004:‚£87m).There were no material changes to the Group's gross and net contingentliabilities in the first half of 2005 (see note 12).The Group is continuing the practice of making payments to shareholders in theform of `B' shares rather than a dividend. These shares can then be redeemedfor the same amount of cash that would have been received with a cash dividend,or converted into the same number of ordinary shares in the Group thatshareholders would have received under the scrip dividend alternative. Theissue of `B' shares will result in significant tax benefits for the Group, byaccelerating the recovery of Advanced Corporation Tax, which will in turnbenefit all shareholders.The proposed interim payment to shareholders is equivalent to 3.34 pence perordinary share (2004: 3.18p), an increase of five per cent. The interim paymentof B shares will be made on 3 January 2006 to shareholders on the register on14 October 2005. The final day of trading with entitlement to B shares(equivalent to the ex-dividend date) is 12 October 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.ukVisit www.thenewsmarket.com to download broadcast-standard video or order aBeta SP tape of Rolls-Royce products, services and facilities.Consolidated Income Statement Half Year Half Year Year to to to 31 December 30 June 2005 30 June 2004 2004 ‚£m ‚£m ‚£m Revenue 3,184 2,750 5,947 Cost of sales and other operating (2,691) (2,460) (5,270) income and costs* Research and development costs (117) (138) (288) Share of profit of joint ventures 26 12 19 Group operating profit 402 164 408 Profit/(loss) on sale of businesses (1) 11 9 Profit on ordinary activities before 401 175 417 financing costs Financial income 116 19 58 Financial expenses (352) (45) (111) Net financing costs** (note 5) (236) (26) (53) Profit on ordinary activities before 165 149 364 taxation *** Taxation (47) (41) (100) Profit for the period 118 108 264 Attributable to: Equity holders of the parent 119 108 263 Minority interest (1) - 1 Profit for the period 118 108 264 Payments to shareholders (59) (54) (140) Earnings per ordinary share (note 3) Basic 6.88p 6.44p 15.56p Diluted 6.64p 6.25p 15.05p * Other operating income 44 15 73 ** Net interest payable (21) (26) (52) *** Underlying profit before 260 149 364 taxation (note 3) Note: All results are reported under International Financial Reporting Standards (IFRS). 2004 results, as permitted by IFRS 1, are not restated in respect of IAS 32/39, financial instruments. A full analysis of the impact of adopting (IFRS) is available at http://ir.rolls-royce.com/rr/ investors/analyst/presentations/ Consolidated Balance Sheet 30 June 30 June 31 December 2005 2004 2004 ‚£m ‚£m ‚£m ASSETS Non-current assets Intangible assets (note 6) 1,236 1,085 1,227 Property, plant and equipment 1,666 1,729 1,672 Investments in joint ventures 241 221 211 Other investments 55 59 57 Deferred tax assets 292 322 318 3,490 3,416 3,485 Current assets Inventory 1,163 1,051 1,090 Trade and other receivables 1,923 2,045 2,049 Taxation recoverable 3 7 2 Other financial assets 786 - - Short-term investments 41 37 36 Cash and cash equivalents 1,767 1,434 1,452 5,683 4,574 4,629 Total assets 9,173 7,990 8,114 LIABILITIES Current liabilities Borrowings (461) (154) (207) Other financial liabilities (283) - - Trade and other payables (2,275) (2,285) (2,395) Current tax liabilities (209) (191) (176) Provisions (160) (215) (173) (3,388) (2,845) (2,951) Non-current liabilities Borrowings (1,468) (1,680) (1,430) Other financial liabilities (457) - - Other payables (554) (488) (543) Deferred tax liabilities (119) (92) (115) Provisions (207) (180) (220) Pensions liability (1,422) (1,460) (1,409) (4,227) (3,900) (3,717) Total liabilities (7,615) (6,745) (6,668) Net assets 1,558 1,245 1,446 EQUITY Capital and Reserves Called up share capital 347 420 346 Share premium account 29 3 4 Other reserves 645 (80) 39 Retained earnings 531 899 1,053 Equity attributable to equity holders 1,552 1,242 1,442 of the parent Minority interest 6 3 4 Total equity and reserves 1,558 1,245 1,446 Consolidated Cash Flow Statement Half Year Half Year Year to to to 31 December 30 June 30 June 2004 2005 2004 ‚£m ‚£m ‚£m Cash flows from operating activities Net profit before taxation 165 149 364 Depreciation and amortisation 126 124 299 (Decrease)/increase in provisions (26) 1 (8) (Increase)/decrease in working capital (101) (52) 33 Decrease in fair value of financial 153 - - assets and liabilities Other non cash movements 30 (20) (9) Taxation paid (13) (40) (84) Dividends received from joint ventures 6 2 15 Net cash inflow from operating 340 164 610 activities Cash flows from investing activities Disposals of unlisted investments 2 - - Additions to intangible assets (55) (13) (142) Purchases of property, plant and (73) (60) (175) equipment Disposals of property, plant and 10 14 66 equipment Disposals of businesses 2 13 16 Investments in joint ventures (4) 2 (2) Net cash flow from investing (118) (44) (237) activities Cash flows from financing activities (Decrease)/increase in borrowings (3) 423 348 Capital element of finance lease (8) (8) (52) payments Net cash (outflow)/inflow from (11) 415 296 (decrease)/increase in borrowings (Increase)/decrease in government (5) 2 3 securities and corporate bonds Net interest paid (40) (44) (52) Payments to shareholders and issue of 6 (30) (56) shares Purchase of own shares (13) (2) (2) Net cash (outflow)/inflow from (63) 341 189 financing activities Net increase in cash and cash 159 461 562 equivalents Cash and cash equivalents at January 1 1,391 909 909 Exchange and other non-cash 11 (18) (32) adjustments Adjustment on implementation of IAS 32 - - (48) and IAS 39 Cash and cash equivalents at period 1,561 1,352 1,391 end Reconciliation of increase in cash and cash equivalents to movement in net funds Increase in cash and cash equivalents 159 461 562 Cash (inflow)/outflow from (decrease)/ 5 (2) (3) increase in government securities and corporate bonds Net cash outflow/(inflow) from 11 (415) (296) decrease/(increase) in borrowings Change in net funds resulting from 175 44 263 cash flows Exchange and other non-cash 5 (7) (12) adjustments Fair value adjustments on borrowings 37 - - Movement in net funds 217 37 251 Net debt at January 1 (149) (400) (400) Adjustment on implementation of IAS 32 (189) - - and IAS 39 (121) (363) (149) Fair value of interest rate swaps 84 - - hedging fixed rate borrowings Net debt at period end (37) (363) (149) Consolidated Statement of Recognised Income and Expense Half Year Half Year Year to to to 31 30 June 30 June December 2005 2004 2004 ‚£m ‚£m ‚£m Net profit for the period 119 108 263 Foreign exchange adjustments 16 (81) (38) Actuarial losses (29) (29) (7) Deferred taxation 9 9 2 Recognised income and expense for 115 7 220 the period Consolidated Statement of Changes in Equity Half Year Half Year Year to to to 31 December 30 June 30 June 2004 2005 2004 ‚£m ‚£m ‚£m At January 1 (as previously reported 1,442 2,140 2,140 under UK GAAP) Adjustments on adoption of IFRS from - (927) (927) January 1, 2004 * Adjustments relating to adoption of 151 - - IAS 32 and IAS 39 from January 1, 2005* At January 1 (restated) 1,593 1,213 1,213 Recognised income and expense for the 115 7 220 period Scrip dividend adjustments - 20 20 Redemption of B Shares (19) - (27) New ordinary share capital issued 28 3 4 (net of expenses) Relating to own shares (11) (2) (2) Share-based payment adjustment 3 3 12 Other adjustments - (2) 2 Transfers from cashflow hedging (169) - - reserves (fx and commodity contracts - note 10)** Transfer from cashflow hedging 2 - - reserve (interest rate swaps) Relating to forward purchase 10 - - contracts for own shares At period end 1,552 1,242 1,442 * See appendix 1 for reconciliations showing adjustments required on adoption of IFRS for half year and full year 2004 accounts. ** Gross hedge reserve release of ‚£239m, a further ‚£2m on commodity swaps reduced by ‚£72m in deferred tax Notes1. Basis of preparationThe attached interim financial statements are the first interim financialstatements following the adoption of International Financial ReportingStandards (IFRS). As the Group has not previously published a full set offinancial statements under IFRS, the content of these statements has beenexpanded to include summarised reconciliations of net assets and equity frompreviously reported amounts under UK GAAP for the six months ended June 30,2004 and year ended December 31, 2004 - see Appendix 1.As allowed by IFRS 1 `First-time adoption of IFRS', the Group adopted IAS 32`Financial instruments: disclosure and presentation' and IAS 39 `Financialinstruments: recognition and measurement', prospectively from January 1, 2005.Therefore, until December 31, 2004, the Group continued to hedge account forforecast foreign exchange transactions and commodity exposures in accordancewith UK GAAP, and hence the comparative financial statements exclude the impactof these standards. Summary details of the impact of adopting these standardsas at January 1, 2005 are also included in Appendix 1.The Group has determined that its existing hedging strategy is in the bestinterests of the business and its shareholders. It is not, therefore alteringits hedging activities in order to achieve a particular accounting presentationunder IFRS. In applying IAS 32 and IAS 39, the Group has chosen not to seek tohedge account its future foreign exchange and commodity transactions. Ontransition to IAS 32 and IAS 39, the Group was required to calculate the fairvalue of its foreign exchange and commodity contracts and record these in ahedging reserve. The balance on this reserve will be released to the incomestatement based on the expected maturities of the contracts at the transitiondate.On 14th April 2005, the Group published an analysis of the impact of adoptingIFRS from January 1, 2004 - News Release available from the company's web siteat www.rolls-royce.com. This included income statement, balance sheet andcashflow reconciliations, as well as details of the accounting policies appliedin restating its financial statements for the year ended December 31, 2004 andas at January 1, 2005. Some small adjustments have been made to thesestatements to more accurately reflect reclassifications.These financial statements have been prepared in accordance with accountingpolicies the Group expects to follow at the year-end. EU law (IAS Regulation EC1606/2002) requires that the next annual consolidated financial statements ofthe company, for the year ending 31 December 2005, be prepared in accordancewith IFRS adopted for use in the EU ("adopted IFRS").This interim financial information has been prepared on the basis of therecognition and measurement requirements of IFRS in issue that either areendorsed by the EU and effective (or available for early adoption) at 31December 2005 or are expected to be endorsed and effective (or available forearly adoption) at 31 December 2005, the Group's first annual reporting date atwhich it is required to use adopted IFRSs. Based on these IFRS, the directorshave made assumptions about the accounting policies expected to be applied,when the first annual IFRS financial statements are prepared for the yearending 31 December 2005.In particular, the directors have assumed that the IASB's amendment to IAS 19will be adopted by the EU in sufficient time that it will be available for usein the annual IFRS financial statements for the year ending 31 December 2005.In addition, the adopted IFRS that will be effective (or available for earlyadoption) in the annual financial statements for the year ending 31 December2005 are still subject to change and to additional interpretations andtherefore cannot be determined with certainty. Accordingly, the accountingpolicies for that annual period will be determined finally only when the annualfinancial statements are prepared for the year ending 31 December 2005.Section 240 StatementThe comparative figures for the financial year ended 31 December 2004 and halfyear ended 30 June 2004 are not the company's statutory accounts for thatfinancial year. Those accounts, which were prepared under UK Generally AcceptedAccounting Practices, have been reported on by the company's auditors anddelivered to the registrar of companies. The report of the auditors wasunqualified and did not contain statements under section 237(2) or (3) of theCompanies Act 1985. The interim financial statements for the six months ended30 June 2005 were approved by the Board on 27 July 2005.2. Analysis by business segment Half Year Half Year Year to to to 31 30 June 30 June December 2005 2004 2004 ‚£m ‚£m ‚£mRevenue Civil aerospace 1,730 1,453 3,040 Defence 677 638 1,374 Marine 488 443 963 Energy 237 186 489 Financial services 52 30 81 3,184 2,750 5,947 Profit before financing costs Civil aerospace 299 83 194 Defence 95 82 179 Marine 37 35 78 Energy (9) 1 14 Financial services 3 (2) (7) Central costs (24) (24) (41) 401 175 417 Underlying profit before financing costs* Civil aerospace 200 83 194 Defence 94 82 179 Marine 39 35 78 Energy (3) 1 14 Financial services 3 (2) (7) Central costs (24) (24) (41) 309 175 417 *excluding unrealised gains on fair value adjustments (see note 3) Net assets/liabilities Civil aerospace 1,414 1,317 1,343 Defence (8) 54 51 Marine 566 551 565 Energy 324 303 324 Financial services 279 417 314 Unallocated pension liabilities (980) (1,034) (1,002) Net debt (37) (363) (149) Net assets 1,558 1,245 1,446 3. Earnings per ordinary share and underlying profit reconciliationThe Group seeks to present a measure of underlying performance, which excludesitems considered to be non-operating in nature. Underlying profit excludes theunrealised amounts arising from revaluations required by IAS 32 and IAS 39, andincludes the realised amounts arising from settled hedging transactions. Thecalculation of underlying profit, and underlying earnings per share is shownbelow. For the comparative periods, half year to 30 June 2004 and year to 31December 2004, IAS 32 and 39 have not been applied, and consequently noadjustment is required.Basic earnings per ordinary share are calculated by dividing the profitattributable to ordinary shareholders of ‚£119m (2004 half year ‚£108m, full year‚£263m) by 1,729 million (2004 half year 1,677 million, full year 1,690 million)ordinary shares, being the average number of ordinary shares in issue duringthe period, excluding own shares held under trust which have been treated as ifthey had been cancelled.Half Year to 30 June 2005 ‚£m ‚£m ‚£m Pence Profit before financing costs 401 Profit before taxation 165 Profit attributable to equity 119 6.88 holders of the parent Exclude: Release of hedge reserves (note 10) (236) (236) (236) (13.65) Unrealised fair value changes to - 180 180 10.41 derivative contracts (note 7) Revaluation of trading assets and (67) (67) (3.88) liabilities (note 9) Exchange differences and forecast - 44 44 2.55 changes relating to Risk and Revenue Sharing Partnerships (note 8) Include: Realised gains on settled derivative 176 206 206 11.91 contracts (note 7) Less fx derivative gains carried (32) (32) (32) (1.85) forward in contract accounting (note 7) Related tax effect - - (26) (1.50) Underlying profit before financing 309 costs Underlying profit before taxation 260 Underlying profit for the period 188 attributable to equity holders of the parent Underlying earnings per share 10.87 Diluted earnings per ordinary share, are calculated by dividing the profitattributable to ordinary shareholders of ‚£119m (2004 half year ‚£108m, full year‚£263m) by 1,791 million (2004 half year 1,727 million, full year 1,747 million)ordinary shares, being 1,729 million (2004 half year 1,677 million, full year1,690 million) as above, adjusted by the bonus element of existing shareoptions of 62 million(2004 half year 50 million, full year 57 million).4. Derivation of underlying and "like-for-like" results Half Year Half Year Year on to to Year 30 June 30 June Changes(%) 2005 2004 ‚£m ‚£m Sales: Sales 3,184 2,750 16% Adjustment to reflect FX impact (49) - Underlying Sales* 3,135 2,750 14% Group services sales: Sales 1,763 1,505 17% Adjustment to reflect FX impact (29) - Underlying services sales* 1,734 1,505 15% Profit before finance costs: Underlying profit before finance 309 175 77% costs (See note 3) 2004 treatment of financial RRSP - 39 payments within cost of sales Like-for-like profit before finance 309 214 44% costs Profit before tax: Underlying profit before tax 260 149 74% 2004 treatment of financial RRSP - 39 payments within cost of sales Equivalent notional finance charge - (19) Like-for-like profit before tax 260 169 54% * Underlying sales reflects the 2005 turnover after removing the impact of theIAS 39 hedge reserve adjustments and includes the benefit of settled foreignexchange transactions. All of the ‚£49m adjustment are within the civilaerospace segment.5. Net financing costs Half Year Half Year Year to to to 31 December 30 June 30 June 2004 2005 2004 ‚£m ‚£m ‚£m Interest receivable 29 19 58 Gains on commodity derivatives 50 - - Net foreign exchange gains 37 - - Financial income 116 19 58 Interest payable (50) (45) (110) Fair value losses on foreign currency (230) - - contracts Finance charge relating to financial (63) - - risk and revenue sharing partnerships (Note 8) Financing charge on post-retirement (5) - (1) benefits Other financing charges (4) - - Financial expenses (352) (45) (111) Net financing costs (236) (26) (53) Analysed as: Net interest payable (21) (26) (52) Net other financing expenses (215) - (1) Net financing costs (236) (26) (53) 6. Intangible assets Goodwill Certification Development Recoverable Total and costs engine participation costs fees ‚£m ‚£m ‚£m ‚£m ‚£m Cost: At January 1, 2005 759 274 311 229 1,573 Exchange adjustments (19) - - - (19) Additions at cost - 3 36 16 55 At June 30, 2005 740 277Related Shares:
Rolls-Royce