REG - Rolls-Royce Holdings - Rolls-Royce 2016 Full Year Results <Origin Href="QuoteRef">RR.L</Origin> - Part 5
14/02/2017 07:07
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Business continuityBreakdown of external supply chain or internal facilities that could be caused by destruction of key facilities, natural disaster, regional conflict, financial insolvency of a critical supplier or scarcity of materials which would reduce the ability to meet customer commitments, win future business or achieve operational results. • Continuing our investment in adequate capacity and modern equipment and facilities.• Identifying and assessing points of weakness in our internal and external supply chain, our IT systems and the skills of our people.• Selecting stronger
suppliers, developing dual sources or dual capability.• Developing and testing site-level incident management and business recovery plans.• Providing improved response to supply chain disruption through customer excellence centres.•
Understanding potential changes to supply chain responsiveness and resilience resulting from Brexit and change to the US administration (eg. due to logistics delays).
IT vulnerabilityBreach of IT security causing controlled or critical data to be lost, made inaccessible, corrupted or accessed by unauthorised users. • Implementing 'defence in depth' through deployment of multiple layers of software and processes including web gateways, filtering, firewalls, intrusion, advanced persistent threat detectors and integrated reporting.• Running security and network
operations centres.• Actively sharing IT security information through industry, government and security forums.
Competitive positionThe presence of large, financially strong competitors in the majority of our markets means that the Group is susceptible to significant price pressure for original equipment or services even where our markets are mature or the competitors few. Our main competitors have access to significant government funding programmes as well as the ability to invest heavily in technology and industrial capability. • Accessing and developing key technologies and service offerings which differentiate us competitively.• Focusing on being responsive to our customers and improving the quality, delivery and reliability of our products and services.• Partnering
with others effectively.• Driving down cost and improving margins.• Protecting credit lines.• Investing in innovation, manufacturing and production, and continuing governance of technology programmes.• Maintaining a healthy balance sheet to
enable access to cost-effective sources of third-party funding.• Understanding our competitors.• Understanding the potential implications on our competitiveness resulting from Brexit and change to the US administration.
Political riskGeopolitical factors that lead to an unfavourable business climate and significant tensions between major trading parties or blocs which could impact the Group's operations. For example: explicit trade protectionism, differing tax or regulatory regimes, potential for conflict; or broader political issues. • Where possible, locating our facilities and supply chain in countries with a low level of political risk and/or ensuring that we maintain dual capability.• Diversifying global operations to avoid excessive concentration of risks in particular
areas.• The Group's international network and its businesses proactively monitoring local situations.• Maintaining a balanced business portfolio with high barriers to entry and a diverse customer base.• Proactively influencing regulation where
it affects us.• Steering committee, chaired by Group President, to co-ordinate activities across the Group and minimise the impact of Brexit.• Monitoring the potential impact of changes following the change to the US administration, relating to tax
policy, trade and relationships with the UK government.
Major programme deliveryFailure to deliver a major programme on time, within budget, to specification, or technical performance falling significantly short of customer expectations, or not delivering the planned business benefits, would have potentially significant adverse financial and reputational consequences, including the risk of impairment of the carrying value of the Group's intangible assets and the impact of potential litigation. • Major programmes are subject to Board approval.• Reviewing major programmes at levels and frequencies appropriate to their criticality and performance, against key financial and non-financial deliverables and potential risks throughout the
programmes lifecycles.• Conducting technical audits at pre-defined points which are performed by a team that is independent from the programme.• Requiring programmes to address the actions arising from reviews, and audits and then monitoring and
controlling progress through to closure.• Applying knowledge management principles to provide benefit to current and future programmes.
ComplianceNon-compliance by the Group with legislation or other regulatory requirements in the heavily regulated environment in which it operates (for example: export controls; use of controlled chemicals and substances; and anti-bribery and corruption legislation) compromising the ability to conduct business in certain jurisdictions and exposing the Group to potential: reputational damage; financial penalties; debarment from government contracts for a period of time; and/or suspension of export privileges (including export credit financing), each of which could have a material adverse effect • Taking an uncompromising approach to compliance.• Operating an extensive compliance programme. This programme and the Global Code of Conduct are disseminated throughout the Group and are updated from time to time to ensure their continued
relevance, and to ensure that they are complied with, both in spirit and to the letter. The Global Code of Conduct and the Group's compliance programme are supported by appropriate training.• Strengthening of the ethics, anti-bribery and corruption,
compliance and export control teams.• A legal team is in place to manage regulatory investigations.• Engaging with external regulatory authorities.• Implementing a comprehensive Registration, Evaluation, Authorisation and restriction of
CHemicals (REACH) compliance programme. This includes establishing appropriate data systems and processes, working with our suppliers, customers and trade associations and conducting research on alternative materials.
Market and financial shockThe Group is exposed to a number of market risks, some of which are of a macro-economic nature (eg. oil price, exchange rates) and some of which are more specific to the Group (eg. liquidity and credit risks, credit rating, profitability post IFRS 15, reduction in air travel or disruption to other customer operations). Significant extraneous market events could also materially damage the Group's competitiveness and/or creditworthiness.This would affect operational results or the outcomes of financial transactions. • Maintaining a healthy balance sheet, through managing cash balances and debt levels and maturities.• Providing financial flexibility by maintaining high levels of liquidity and an investment grade credit rating.• Sustaining a balanced
portfolio through earning revenue both from the sale of original equipment and aftermarket services, providing a broad product range and addressing diverse markets that have differing business cycles.• Deciding where and what currencies to source in,
and where and how much credit risk is extended or taken. The Group has a number of treasury policies that are designed to hedge residual risks using financial derivatives (foreign exchange, interest rates and commodity price risk.• Review debt
financing and hedging in light of volatility in external financial markets caused by external events, such as Brexit and change of US administration.
Talent and capabilityInability to attract and retain the critical capabilities and skills needed in sufficient numbers and to effectively organise, deploy and incentivise our people to deliver our strategy, business plan and projects. • Attracting, rewarding and retaining the right people with the right skills globally in a planned and targeted way, including regular benchmarking of remuneration.• Developing and enhancing organisational, leadership, technical and functional
capability to deliver global programmes and transformational change.• Continuing a strong focus on individual development and succession planning.• Proactively monitoring retirement in key areas and actively managing the development and career
paths of our people with a special focus on employees with the highest potential.• Embedding a lean, agile high performance culture that tightly aligns Group strategy with individual and team objectives.• Retaining, incentivising and effectively
deploying the critical capabilities, skills and people needed to deliver our strategic priorities, plans and projects whilst implementing the Group's major programme to transform its business, to be resilient and to act with pace and simplicity.•
Tracking engagement through our annual employee opinion survey and a commitment to drive year-on-year improvement to the employee experience and communications.• Reviewing employee mobility as part of Brexit steering group.
Talent and capabilityInability to attract and retain the critical capabilities and skills needed in sufficient numbers and
to effectively organise, deploy and incentivise our people to deliver our strategy, business plan and projects.
• Attracting, rewarding and retaining the right people with the right skills globally in a planned and targeted way,
including regular benchmarking of remuneration.• Developing and enhancing organisational, leadership, technical and
functional capability to deliver global programmes and transformational change.• Continuing a strong focus on
individual development and succession planning.• Proactively monitoring retirement in key areas and actively managing
the development and career paths of our people with a special focus on employees with the highest potential.• Embedding
a lean, agile high performance culture that tightly aligns Group strategy with individual and team objectives.•
Retaining, incentivising and effectively deploying the critical capabilities, skills and people needed to deliver our
strategic priorities, plans and projects whilst implementing the Group's major programme to transform its business, to be
resilient and to act with pace and simplicity.• Tracking engagement through our annual employee opinion survey and a
commitment to drive year-on-year improvement to the employee experience and communications.• Reviewing employee
mobility as part of Brexit steering group.
Annual General Meeting
All holders of ordinary shares may attend the Company's AGM at which the Chairman and Chief Executive present a review of
the key business developments during the year. This year's AGM will be held at 11.00am on Thursday 4 May 2017 at the Pride
Park Stadium, Pride Park, Derby, DE24 8XL. Shareholders can ask questions of the Board on the matters put to the meeting,
including the Annual Report and the running of the Company generally. All Directors are invited to attend each AGM. Unless
unforeseen circumstances arise, all committee chairmen will be present to take questions at the AGM.
Payments to shareholders
The Company issues non-cumulative redeemable preference shares (C Shares) as an alternative to paying a cash dividend.
Shareholders can choose to:
• redeem all C Shares for cash;
• redeem all C Shares for cash and reinvest the proceeds in the C Share Reinvestment Plan (CRIP); or
• keep the C Shares.
The CRIP is operated by Computershare Investor Services PLC (the Registrar). The Registrar will purchase ordinary shares in
the market for shareholders electing to reinvest their C Share proceeds. Shareholders wishing to participate in the CRIP or
redeem their C Shares in July 2017 must ensure that their instructions are lodged with the Registrar no later than 5pm BST
on 1 June 2017 (CREST holders must submit their election in CREST before 3pm BST on 1 June 2017). Redemption will take
place on 5 July 2017.
At the AGM, the Directors will recommend an issue of 71 C Shares with a total nominal value of 7.1p for each ordinary
share. The C Shares will be issued on 3 July 2017 to shareholders on the register on 28 April 2017 and the final day of
trading with entitlement to C Shares is 26 April 2017. Together with the interim issue on 4 January 2017 of 46 C Shares for
each ordinary share with a total nominal value of 4.6p, this is the equivalent of a total annual payment to ordinary
shareholders of 11.7p for each ordinary share.
Directorate change
Further to the announcement on page 8 in respect of Colin Smith, the remuneration details required to be made available
under section 430 (2B) of the Companies Act 2006 are available on the corporate governance section of our website
www.rolls-royce.com
Annual report and financial statements
The statements below have been prepared in connection with the Company's full Annual Report for the year ended 31 December
2016. Certain parts thereof are not included in this announcement.
Going concern
The going concern assessment considers whether it is appropriate to prepare the financial statements on a going concern
basis.
The Group meets its funding requirements through a mixture of shareholders' funds, bank borrowings, bonds and notes. At 31
December 2016, the Group had borrowing facilities of £5.3bn and total liquidity of £5.1bn, including cash and cash
equivalents of £2.8bn and undrawn facilities of £2.3bn. £170m of the facilities mature in 2017.
The Group's forecasts and projections, taking into account reasonably possible changes in trading performance, show that
the Group has sufficient financial resources. The Directors have reasonable expectations that the Company and the Group are
well placed to manage business risks and to continue in operational existence for the foreseeable future (which accounting
standards require to be at least a year from the date of this report) and have not identified any material uncertainties to
the Company's and the Group's ability to do so.
On the basis described above, the Directors consider it appropriate to adopt the going concern basis in preparing the
consolidated financial statements (in accordance with the 'Guidance on Risk Management, Internal Control and Related
Financial and Business Reporting' published by the Financial Reporting Council in September 2014).
Responsibility statements under the Disclosure Guidance and Transparency Rules
Each of the persons who is a Director at the date of approval of this report confirms that to the best of his or her
knowledge:
i. each of the Group and parent company financial statements, prepared in accordance with IFRS and UK Accounting
Standards respectively, gives a true and fair view of the assets, liabilities, financial position and profit or loss of the
Company and the undertakings included in the consolidation taken as a whole;
ii. the Strategic Report and Directors' Report include a fair review of the development and performance of the business
and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a
description of the principal risks and uncertainties that they face; and
iii. the Annual Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for
shareholders to assess the Group's position and performance, business model and strategy.
By order of the Board
Warren EastChief Executive13 February 2017 David SmithChief Financial Officer13 February 2017
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