REG - Rolls-Royce Holdings - Rolls-Royce 2016 Full Year Results <Origin Href="QuoteRef">RR.L</Origin> - Part 4
14/02/2017 07:07
- Part 4: For the preceding part double click ID:nRSN7784Wc
adjustments relating to the effects of acquisition accounting and foreign exchange 56 53
Net underlying cost recognised in the income statement (862) (765)
Translation to 2015 exchange rates 50 -
Net underlying cost at 2015 exchange rates (812) (765)
4 Net financing
2016 2015
Per consolidated income statement Underlying financing Per consolidated income statement Underlying financing
£m £m £m £m
Financing income
Interest receivable 14 14 12 12
Net fair value gains on foreign currency contracts 1 - - -
Financial RRSAs - foreign exchange differences and changes in forecast payments 23 - 21 -
Net fair value gains on commodity contracts 16 - - -
Financing on post-retirement scheme surpluses 42 - 65 -
Net foreign exchange gains - - 17 32
96 14 115 44
Financing costs
Interest payable (77) (77) (71) (71)
Net fair value losses on foreign currency contracts (4,437) - (1,217) -
Financial RRSAs - foreign exchange differences and changes in forecast payments (31) - (13) -
Financial charge relating to financial RRSAs (6) (6) (8) (8)
Net fair value losses on commodity contracts - - (89) -
Financing on post-retirement scheme deficits (39) - (33) -
Net foreign exchange losses (145) - - -
Other financing charges (38) (33) (25) (25)
(4,773) (116) (1,456) (104)
Net financing (4,677) (102) (1,341) (60)
Analysed as:
Net interest payable (63) (63) (59) (59)
Net fair value losses on derivative contracts (4,420) - (1,306) -
Net post-retirement scheme financing 3 - 32 -
Net other financing (197) (39) (8) (1)
Net financing (4,677) (102) (1,341) (60)
5 Taxation
The effective reported tax rate for the year is 13.0% (2015 47.5%). The 2016 reported loss before tax largely relates to
the mark to market adjustment on the foreign currency derivatives which arise mainly in the UK and the key driver of the
reported rate is therefore the UK tax rate. The financial penalties and goodwill impairments on which no tax relief is
available then have the effect of reducing the rate. The 2015 reported rate was high due to the low level of reported
profit before tax and the higher proportion of those profits arising in higher tax countries such as the US and items that
impact the tax charge having a more distortive effect.
Following announcements in the Summer Budget 2015 and the Budget 2016, the UK corporation tax rate will reduce to 19% from
1 April 2017 and 17% from 1 April 2020. The Summer Budget 2015 had originally announced that the rate would reduce to 18%
from 1 April 2020. This reduction was substantively enacted on 26 October 2015 and so the prior year deferred tax assets
and liabilities were calculated at this rate. The subsequent announcement in the Budget 2016 that the rate will reduce to
17% from 1 April 2020 was substantively enacted on 6 September 2016. As this reduction was substantively enacted prior to
the year end, the closing deferred tax assets and liabilities have been calculated at this rate.
The resulting charges or credits have been recognised in the income statement except to the extent that they relate to
items previously charged or credited to other comprehensive income or equity. Accordingly, in 2016, £30m has been charged
to the income statement (2015: £18m credited) and £2m has been charged directly to equity (2015: £3m).
6 Earnings per ordinary share (EPS)
Basic EPS are calculated by dividing the profit attributable to ordinary shareholders by the weighted average number of
ordinary shares in issue during the period, excluding ordinary shares held under trust, which have been treated as if they
had been cancelled. Diluted EPS are calculated by adjusting the weighted average number of ordinary shares in issue during
the period for the bonus element of share options.
2016 2015
Basic Potentially dilutive share options1 Diluted Basic Potentially dilutive share options Diluted
(Loss)/profit attributable to ordinary shareholders (£m) (4,032) - (4,032) 83 - 83
Weighted average number of ordinary shares (millions) 1,832 - 1,832 1,839 12 1,851
EPS (pence) (220.08)p - (220.08)p 4.51p (0.03)p 4.48p
4.48p
1 As there is a loss, the effect of potentially dilutive ordinary shares is anti-dilutive.
The reconciliation between underlying EPS and basic EPS is as follows:
2016 2015
Pence £m Pence £m
Underlying EPS / Underlying profit attributable to ordinary shareholders re-presented 30.13 552 58.73 1,080
Total underlying adjustments to profit before tax (note 2) (297.43) (5,449) (69.17) (1,272)
Related tax effects 47.22 865 14.95 275
EPS / (Loss)/profit attributable to ordinary shareholders (220.08) (4,032) 4.51 83
Diluted underlying EPS 30.08 58.35
7 Payments to shareholders in respect of the year
Payments to shareholders in respect of the period represent the value of C Shares to be issued in respect of the results
for the period. Issues of C Shares were declared as follows:
2016 2015
Pence per £m Pence per £m
share share
Interim (issued in January) 4.60 85 9.27 170
Final (issued in July) 7.10 130 7.10 131
11.70 215 16.37 301
8 Intangible assets
Goodwill£m Certification costs and participation Development expenditure£m Contractual aftermarket rights£m Customer relationships£m Software£m Other£m Total£m
fees£m
Cost:
At 1 January 2016 1,589 1,145 1,730 799 456 616 543 6,878
Exchange differences 284 26 116 - 84 16 66 592
Additions - 154 100 208 - 116 53 631
Acquisitions of businesses 1 - - - - - 1 2
Disposals - - (2) - - (6) - (8)
At 31 December 2016 1,874 1,325 1,944 1,007 540 742 663 8,095
Accumulated amortisation:
At 1 January 2016 86 373 691 394 139 325 225 2,233
Exchange differences 32 3 48 - 28 8 35 154
Charge for the year - 64 147 39 42 81 33 406
Impairment 219 - 2 - - - 1 222
At 31 December 2016 337 440 888 433 209 414 294 3,015
Net book value at:
31 December 2016 1,537 885 1,056 574 331 328 369 5,080
31 December 2015 1,503 772 1,039 405 317 291 318 4,645
Goodwill has been tested for impairment during 2016 on the following basis:
• The carrying values of goodwill have been assessed by reference to value in use. These have been estimated using cash
flows from the most recent forecasts prepared by management, which are consistent with past experience and external sources
of information on market conditions. Given the long-term and established nature of many of the Group's products (product
lives are often measured in decades), these forecasts generally cover the next five-ten years. Growth rates for the period
not covered by the forecasts are based on a range of growth rates (2.0-3.5%) that reflect the products, industries and
countries in which the relevant cash generating unit (CGU) or group of CGUs operate.
• The key assumptions for the impairment tests are the discount rate and, in the cash flow projections, the programme
assumptions, the growth rates and the impact of foreign exchange rates on the relationship between selling prices and
costs. Impairment tests are performed using prevailing exchange rates.
Prior to 2016, goodwill in the Marine business was considered as separate CGUs, based on the original acquisitions
(comprising ODIM ASA, Scandinavian Electric Holdings and Vinters Limited (formerly Vickers plc)). However, following
re-organisations, including those resulting from the current transformation programme, we now consider that the Marine
business (excluding the UK marine defence business) is a single CGU.
The Marine business has continued to be impacted by the low crude oil price and over supply of vessels to its offshore
support customers. The downturn has been deeper and more prolonged than forecast a year ago and, as a consequence, the
Group has recognised an impairment loss of £200m to the carrying value of goodwill of the CGU. This is included in cost of
sales in the income statement, but excluded from the underlying results. The impairment loss is based on a value in use
calculation using cash flows forecast over a ten-year period (which are considered to take account of the cyclicality of
the market). The impairment test indicated a recoverable amount of £473m (including allowance for identified risks of £18m)
compared with a pre-impairment carrying value of £673m.
The Group has also recognised other impairments to goodwill of £19m, including £14m in relation to its North American civil
nuclear business. This reflects the current weakness in the services market, although the Directors expect these to recover
in the medium term.
Certification costs and participation fees, development expenditure and contractual aftermarket rights have been reviewed
for impairment in accordance with the requirements of IAS 36 Impairment of Assets. Where an impairment test was considered
necessary, it has been performed on the following basis:
· The carrying values have been assessed by reference to value in use. These have been estimated using cash flows from
the most recent forecasts prepared by management, which are consistent with past experience and external sources of
information on market conditions over the lives of the respective programmes.
· The key assumptions underlying cash flow projections are assumed market share, programme timings, unit cost
assumptions, discount rates, and foreign exchange rates.
· The pre-tax cash flow projections have been discounted at 9-13% (2015: 9-13%), based on the Group's weighted average
cost of capital, adjusted for the estimated programme risk, for example taking account of whether or not the forecast cash
flows arise from contracted business.
No impairment is required on this basis. However, a combination of adverse changes in assumptions (eg. market size and
share, unit costs and programme delays) and other variables (eg. discount rate and foreign exchange rates), could result in
impairment in future years.
9 Property, plant and equipment
Land and buildings£m Plant and equipment£m Aircraft and engines£m In course of construction£m Total£m
Cost:
At 1 January 2016 1,375 3,894 339 708 6,316
Exchange differences 141 352 12 55 560
Reclassification of joint ventures to joint operations 7 87 - - 94
Additions - purchased 25 124 51 426 626
Additions arising from TotalCare Flex arrangements (non-cash) - - 75 - 75
Disposal of businesses (1) (3) - - (4)
Reclassifications 131 230 63 (424) -
Disposals/write-offs (11) (85) (49) - (145)
At 31 December 2016 1,667 4,599 491 765 7,522
Accumulated amortisation:
At 1 January 2016 416 2,284 125 1 2,826
Exchange differences 44 182 4 - 230
Reclassification of joint ventures to joint operations 1 52 - - 53
Charge for the year 63 333 28 - 424
Impairment 1 - - 1 2
Disposal of businesses - (2) - - (2)
Reclassifications - (9) 9 - -
Disposals/write-offs (10) (75) (40) - (125)
At 31 December 2016 515 2,765 126 2 3,408
Net book value at:
31 December 2016 1,152 1,834 365 763 4,114
31 December 2015 959 1,610 214 707 3,490
10 Financial assets and liabilities
Other financial assets and liabilities comprise:
Derivatives
Foreign exchange contracts£m Commodity contracts£m Interest rate contracts1£m Total£m Financial RRSAs£m TotalCare Flex£m C Shares£m Total£m
At 31 December 2016
Non-current assets 13 5 364 382 - - - 382
Current assets 4 1 - 5 - - - 5
Current liabilities (566) (24) - (590) (33) - (28) (651)
Non-current liabilities (5,002) (38) (6) (5,046) (68) (15) - (5,129)
(5,551) (56) 358 (5,249) (101) (15) (28) (5,393)
At 31 December 2015
Non-current assets 3 - 80 83 - - - 83
Current assets 29 - - 29 - - - 29
Current liabilities (244) (39) - (283) (19) - (29) (331)
Non-current liabilities (1,428) (65) (67) (1,560) (91) - - (1,651)
(1,640) (104) 13 (1,731) (110) - (29) (1,870)
1 Includes the foreign exchange impact of cross-currency interest rate swaps.
Derivative financial instruments 2016 2015
Foreign exchange£m Commodity£m Interest rate£m Total£m Total£m
At 1 January (1,640) (104) 13 (1,731) (630)
Currency options at inception1 (33) - - (33) (20)
Movements in fair value hedges - - 345 345 (35)
Movements in other derivative contracts (4,436) 16 - (4,420) (1,306)
Contracts settled 558 32 - 590 260
At 31 December (5,551) (56) 358 (5,249) (1,731)
(1,731)
1 The Group wrote currency options to sell USD and buy GBP as part of a commercial agreement. The fair value of this
option on inception was treated as a discount to the customer.
Financial risk and revenue sharing arrangements (RRSAs) and other financial liabilities Financial RRSAs TotalCare Flex
2016£m 2015£m 2016£m
At 1 January (110) (145) --
Exchange adjustments included in OCI 5 - -
Additions - - (14)
Financing charge1 (6) (8) (1)
Excluded from underlying profit
Changes in forecast payments1 5 11
Exchange adjustments1 (13) (3) (3)
Cash paid to partners 18 35 -
Other - - 3
At 31 December (101) (110) (15)
(15)
1 Included in net financing.
Fair values of financial instruments equate to book values with the following exceptions:
2016 2015
Book value Fair value Book value Fair value
£m £m £m £m
Borrowings (3,357) (3,317) (3,302) (3,312)
Financial RRSAs (101) (109) (110) (110)
Fair values
The fair value of a financial instrument is the price at which an asset could be exchanged, or a liability settled, between
knowledgeable, willing parties in an arms-length transaction. Fair values have been determined with reference to available
market information at the balance sheet date, using the methodologies described below.
· Unlisted non-current investments primarily comprise bank deposits where the fair value approximates to the book
value.
· The fair values of trade receivables and payables, short-term investments and cash and cash equivalents are assumed
to approximate to cost either due to the short-term maturity of the instruments or because the interest rate of the
investments is reset after periods not exceeding six months.
· Fair values of derivative financial assets and liabilities are estimated by discounting expected future contractual
cash flows using prevailing interest rate curves. Amounts denominated in foreign currencies are valued at the exchange rate
prevailing at the balance sheet date. These financial instruments are included on the balance sheet at fair value, derived
from observable market prices (Level 2 as defined by IFRS 13 Fair Value Measurement).
· Borrowing, financial RRSAs and TotalCare Flex liabilities are carried at amortised cost. Fair values are estimated by
discounting expected future contractual cash flows using prevailing interest rate curves. Amounts denominated in foreign
currencies are valued at the exchange rate prevailing at the balance sheet date. For financial RRSAs, the contractual cash
flows are based on future trading activity, which is estimated based on latest forecasts.
Borrowings
During the year, the Group has repaid £434m of short-term borrowings, including the £200m 73/8% Notes, which matured in
June.
11 Pensions and other post-retirement benefits
Movements in the net post-retirement position recognised in the balance sheet were as follows:
UK schemes Overseas schemes Total
£m £m £m
At 1 January 2016 1,043 (1,120) (77)
Exchange adjustments - (208) (208)
Current service cost and administrative expenses1 (169) (50) (219)
Past service credit/(cost) 22 (1) 21
Settlements1 (302) (10) (312)
Financing recognised in the income statement 41 (38) 3
Contributions by employer 185 86 271
Actuarial gains/(losses) recognised in OCI2 (1,810) (26) (1,836)
Returns on plan assets excluding financing recognised in OCI2 2,326 5 2,331
Other - (3) (3)
At 31 December 2016 1,336 (1,365) (29)
Analysed as:
Post-retirement scheme surpluses - included in non-current assets 1,336 10 1,346
Post-retirement scheme deficits - included in non-current liabilities - (1,375) (1,375)
1,336 (1,365) (29)
(29)
1 £306m of costs have been excluded from the underlying results, comprising: £301m settlement cost on the buy-out of the
Vickers Group Pension Scheme; £3m of administrative expenses on restructuring all the UK defined benefit plans; and £2m
settlement cost in relation to winding-up lump sums on small pensions as a consequence of the restructuring.
2 The net actuarial gains in the UK arose principally due to changes in the yield curves used to value the assets and the
liabilities.
12 Contingent liabilities
On 6 December 2012, the Company announced that it had passed information to the Serious Fraud Office (SFO), following a
request from the SFO for information about allegations of malpractice in overseas markets. On 23 December 2013, the Company
announced that it had been informed by the SFO that it had commenced a formal investigation. Since the initial
announcement, the Company continued its investigations and engaged with the SFO and other authorities in the UK, the US and
elsewhere in relation to the matters of concern.
In January 2017, after full cooperation, the Company concluded deferred prosecution agreements with the SFO and the US
Department of Justice and a leniency agreement with the MPF, the Brazilian federal prosecutors which are described on page
5. Prosecutions of individuals may follow and investigations may be commenced in other jurisdictions. In addition, we could
still be affected by actions from customers and customers' financiers. The Directors are not currently aware of any matters
that are likely to lead to a financial loss, but cannot anticipate all the possible actions that may be taken or their
potential consequences.
In connection with the sale of its products the Group will, on some occasions, provide financing support for its customers -
generally in respect of civil aircraft. The Group's commitments relating to these financing arrangements, which are spread
over many years, relate to a number of customers and a broad product portfolio and are generally secured on the asset
subject to the financing. These include commitments of US$3.2bn (31 December 2015: US$3.1bn) to provide borrowing
facilities to enable customers to purchase aircraft (of which approximately US$421m could be called in 2017). These
facilities may only be used if the customer is unable to obtain financing elsewhere and are priced at a premium to the
market rate. Consequently the directors do not consider that there is a significant exposure arising from the provision of
these facilities.
Commitments on delivered aircraft in excess of the amounts provided are shown in the table below. These are reported on a
discounted basis at the Group's borrowing rate to reflect better the time span over which these exposures could arise. These
amounts do not represent values that are expected to crystallise. The commitments are denominated in US dollars. As the
Group does not generally adopt cash flow hedge accounting for future foreign exchange transactions, this amount is
reported, together with the sterling equivalent at the reporting date spot rate. The values of aircraft providing security
are based on advice from a specialist aircraft appraiser.
31 December 2016 31 December 2015
£m $m £m $m
Gross contingent liabilities 238 293 269 399
Value of security1 (103) (126) (136) (201)
Indemnities (74) (91) (79) (118)
Net commitments 61 76 54 80
Net commitments with security reduced by 20%2 86 106 78 115
1 Security includes unrestricted cash collateral of: 38 47 35 52
2 Although sensitivity calculations are complex, the reduction of the relevant security by 20% illustrates the sensitivity
of the contingent liability to changes in this assumption.
Contingent liabilities exist in respect of guarantees provided by the Group in the ordinary course of business for product
delivery, performance and reliability. The Group has, in the normal course of business, entered into arrangements in
respect of export finance, performance bonds, countertrade obligations and minor miscellaneous items. Various Group
undertakings are parties to legal actions and claims which arise in the ordinary course of business, some of which are for
substantial amounts. As a consequence of the insolvency of an insurer as previously reported, the Group is no longer fully
insured against known and potential claims from employees who worked for certain of the Group's UK-based businesses for a
period prior to the acquisition of those businesses by the Group. While the outcome of some of these matters cannot
precisely be foreseen, the directors do not expect any of these arrangements, legal actions or claims, after allowing for
provisions already made, to result in significant loss to the Group.
On 11 July 2016, the Group announced that it will purchase the outstanding 53.1% shareholding in ITP owned by SENER Grupo
de Ingeniería SA ("SENER"). This follows a decision by SENER to exercise its put option. On 28 November 2016, and following
due diligence, the Group confirmed the valuation of E720m. Under the agreement, consideration will be settled over a
two-year period following completion in eight evenly spaced instalments of equal value. The updated agreement allows
flexibility to settle the consideration either in cash, in the form of Rolls-Royce shares or any mixture of the two, as
preferred by Rolls-Royce. A decision as to whether each payment will be settled in cash, shares or cash and shares will be
determined by Rolls-Royce during the payment period.
Completion remains subject to regulatory clearances and is expected in 2017.
13 Related party transactions
Transactions with related parties are shown in note 24 of the 2016 Annual Report. Significant transactions in the current
financial period are as follows:
2016 2015
£m £m
Sales of goods and services to joint ventures and associates 2,022 1,896
Purchases of goods and services from joint ventures and associates (1,881) (2,266)
Included in sales of goods and services to joint ventures and associates are sales of spare engines amounting to £356m
(2015: £189m).
Profit recognised in the year on such sales amounted to £119m (2015: £71m), including profit on current year sales and
recognition of profit deferred on similar sales in previous years. On an underlying basis (at actual achieved rates on
settled derivative transactions), the amounts were £97m (2015: £67m).
14 Derivation of summary funds flow statement
The table below shows the derivation of the summary funds flow statement (lines marked *) on page 27 from the consolidated
cash flow statement on page 30.
2016 2015
£m £m £m £m Source
* Underlying profit before tax (PBT) - opposite 813 1,432
Depreciation of property, plant and equipment 426 378 Cash flow statement
Amortisation of intangible assets 628 432 Cash flow statement
Impairment of goodwill (219) (75) Reversal of underlying adjustment (above)
Impairment of investments − 2 Cash flow statement
Acquisition accounting (115) (124) Reversal of underlying adjustment (above)
* Depreciation and amortisation 720 613
(Increase)/decrease in inventories (161) 63 Cash flow statement
Decrease/(increase) in trade and other receivables 312 (836) Cash flow statement adjusted for non-underlying exchanges differences of £258m
(Decrease)/increase in trade and other payables (273) 242 Cash flow statement adjusted for non-underlying exchanges differences of £507m
Revaluation of trading assets 67 (13) Reversal of underlying adjustment (above)
* Movement on net working capital (55) (544)
Additions of intangible assets (631) (408) Cash flow statement
Purchases of property, plant and equipment (585) (487) Cash flow statement
Government grants received 15 8 Cash flow statement
* Expenditure on property, plant and equipment and intangible assets (1,201) (887)
Realised losses on hedging instruments 426 287 Reversal of underlying adjustment (above)
Net unrealised fair value to changes to derivatives − (9) Reversal of underlying adjustment (above)
Foreign exchange on contract accounting 77 (9) Reversal of underlying adjustment (above)
Exceptional restructuring (129) (49) Reversal of underlying adjustment (above)
Other (1) (1) Reversal of underlying adjustment (above)
Underlying financing 102 60 Reversal of charge in underlying PBT (above)
Non-underlying exchange differences on receivables (258) − Reversal of adjustment above
Non-underlying exchange differences on payables 507 − Reversal of adjustment above
Loss on disposal of property, plant and equipment 5 8 Cash flow statement
Joint ventures (43) (37) Joint venture dividends less share of results - cash flow statement
Increase/(decrease) in provisions 44 (151) Cash flow statement
Cash flows on other financial assets and liabilities (608) (305) Cash flow statement
Share based payments 35 5 Cash flow statement
Additions of unlisted investments − (6) Cash flow statement
Disposal of intangible assets 8 4 Cash flow statement
Disposal of property, plant and equipment 8 33 Cash flow statement
Investments in joint ventures and associates (30) (15) Cash flow statement
Net interest (72) (55) Interest received and paid - cash flow statement
Net funds of joint ventures reclassified to joint operations (4) − Net cash and borrowings reclassified - cash flow statement
Issue of ordinary shares 1 32 Cash flow statement
Purchase of ordinary shares for share schemes (21) (21) Cash flow statement, 2015 includes £19m from share buyback
* Other 47 (229)
* Trading cash flow 324 385
Net defined benefit plans - underlying operating charge 204 213 Cash flow statement
Cash funding of defined benefit plans (271) (259) Cash flow statement
* Contributions to defined benefit schemes in excess of underlying PBT charge (67) (46)
* Tax (157) (160) Cash flow statement
* Free cash flow 100 179
* Shareholder payments (301) (421) Redemption of C Shares - cash flow statement
* Share buyback − (414) Cash flow statement, excluding £19m retained for share incentive schemes
* Increase in share in joint ventures (154) - Cash flow statement
* Discontinued operations - (121) Cash flow statement
* Other acquisitions and disposals 1 (3) Cash flow statement
* Foreign exchange 240 3 Cash flow statement
* Change in net debt (114) (777)
Free cash flow is a measure of financial performance of the business's cash flow to see what is available for distribution
among those stakeholders funding the business (including debt holders and shareholders). Free cash flow is calculated as
trading cash flow less recurring tax and post-employment benefit expenses excluding capital expenditures and excludes
payments made to shareholders, amounts spent (or received) on business acquisitions, exceptional restructuring costs and
foreign exchange changes on net funds. The Board considers that free cash flow reflects cash generated from the Group's
underlying trading.
2016 2015
£m £m £m £m Source
Reported operating profit 44 1,499
Realised losses on hedging instruments (426) (287) Reported to underlying adjustment (note 2)
Net unrealised fair value to changes to derivatives − 9 Reported to underlying adjustment (note 2)
Foreign exchange on contract accounting (77) 9 Reported to underlying adjustment (note 2)
Revaluation of trading assets and liabilities (67) 13 Reported to underlying adjustment (note 2)
Effect of acquisition accounting 115 124 Reported to underlying adjustment (note 2)
UK pension restructuring 306 − Reported to underlying adjustment (note 2)
Impairment of goodwill 219 75 Reported to underlying adjustment (note 2)
Exceptional restructuring 129 49 Reported to underlying adjustment (note 2)
Financial penalties from agreements with investigating bodies 671 − Reported to underlying adjustment (note 2)
Other 1 1 Reported to underlying adjustment (note 2)
Adjustments to reported operating profit 871 (7)
Underlying profit before financing 915 1,492
Underlying financing (102) (60) Underlying income statement (note 2)
Underlying profit before tax 813 1,432
The table below shows a reconciliation of free cash flow to the change in cash and cash equivalents presented in the
consolidated cash flow statement on page 30.
2016 2015
£m £m £m £m
Change in cash and cash equivalents (691) 320
Shareholder payments 301 421
Share buy back − 433
Less amount retained for share incentive schemes − (19)
Returns to shareholders 301 835
Net cash flow from changes in borrowings and finance leases 345 (1,095)
Increase/decrease in short-term investments 1 (5)
Increase in share in joint ventures 154 −
Debt of joint ventures reclassified as joint operations (9) −
Disposal of discontinued operations − 121
Acquisition of businesses 6 5
Disposal of other businesses (7) (2)
Changes in group structure 144 124
Free cash flow 100 179
Principal risks and uncertainties
The following table describes the principal risks facing the Group, notwithstanding that there are other risks that may
occur and may impact the achievement of the Group's objectives:
Disruptive technologies and business modelsDisruptive technologies, new entrants with alternative business models or disruptions to key markets or customers could reduce our ability to win sustainable future business, achieve operating results and realise future growth opportunities. • Horizon and emerging technology scanning, and understanding our competitors, including patent searches.• Investing in innovation and new technologies.• Focusing on enhancing our skills and capabilities to maintain our technology leadership.•
Forming strategic partnerships and conducting joint research programmes.• Establishing our digital business.
Product failureProduct not meeting safety expectations, or causing significant impact to customers or theenvironment through failure in quality control. • Ensuring a culture that puts safety first.• Applying our engineering design and validation process from initial design, through production and into service.• Reviewing the scope and effectiveness of the Group's product safety policies to
ensure that they operate to the highest industry standards.• Operating a safety management system (SMS), governed by the product safety review board, and subject to continual improvement based on experience and industry best practice.• Product
safety training is an integral part of our SMS.• Improving our supply chain quality.
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