REG - Rolls-Royce Holdings - ROLLS-ROYCE HOLDINGS PLC 2016 HALF YEAR RESULTS <Origin Href="QuoteRef">RR.L</Origin> - Part 3
28/07/2016 07:07
- Part 3: For the preceding part double click ID:nRSb4559Fb
- (6)
Additions of intangible assets 8 (232) (134) (408)
Disposals of intangible assets - - 4
Purchases of property, plant and equipment (307) (258) (487)
Government grants received - 1 8
Disposals of property, plant and equipment 10 6 33
Acquisitions of businesses - (5) (5)
Disposal of discontinued operations - (99) (121)
Disposals of businesses 1 - 2
Increase in share in joint ventures (154) - -
Other investments in joint ventures and associates (11) (5) (15)
Cash and cash equivalents in joint ventures reclassified as joint operations 5 - -
Net cash outflow from investing activities (688) (494) (995)
Cash flows from financing activities
Repayment of loans 10 (325) (1) (54)
Proceeds from increase in loans - 47 1,150
Capital element of finance lease payments - - (1)
Net cash flow from (decrease)/increase in borrowings (325) 46 1,095
Interest received 7 5 5
Interest paid (54) (48) (58)
Interest element of finance lease payments (1) - (2)
Increase in short-term investments 1 - 5
Issue of ordinary shares and cash received on share-based payments vesting - 31 32
Purchase of ordinary shares - share buyback -- (433) (433)
Purchase of ordinary shares for share schemes (20) (1) (2)
Redemption of C Shares (168) (165) (421)
Net cash (outflow)/inflow from financing activities (560) (565) 221
Net (decrease)/increase in cash and cash equivalents (1,044) (1,232) 320
Cash and cash equivalents at 1 January 3,176 2,862 2,862
Exchange gains/(losses) on cash and cash equivalents 155 (49) (6)
Cash and cash equivalents at period end 2,287 1,581 3,176
3,176
Half-yearto 30 June2016£m Half-yearto 30 June2015£m Year to31 December2015£m
Reconciliation of movements in cash and cash equivalents to movements in net funds
Net (decrease)/increase in cash and cash equivalents (1,044) (1,232) 320
Net cash flow from decrease/(increase) in borrowings 325 (46) (1,095)
Net cash flow from decrease in short-term investments (1) - (5)
Change in net funds resulting from cash flows (720) (1,278) (780)
Net funds joint ventures reclassified to joint operations (9) - -
Exchange gains/(losses) on net funds 128 (31) 3
Fair value adjustments (319) 83 45
Movement in net funds (920) (1,226) (732)
Net funds at 1 January excluding the fair value of swaps (124) 608 608
Net funds at period end excluding the fair value of swaps (1,044) (618) (124)
Fair value of swaps hedging fixed rate borrowings 332 (25) 13
Net funds at period end (712) (643) (111)
The movement in net funds (defined by the Group as including the items shown below) is as follows:
Reclassifications
At 1 January 2016£m Funds flow£m Exchange differences£m Fair value adjustments £m Joint ventures to joint operations£m Other£m At 30 June
2016£m
Cash at bank and in hand 662 161 65 - 5 - 893
Money market funds 783 (258) 13 - - - 538
Short-term deposits 1,731 (952) 77 - - - 856
Cash and cash equivalents 3,176 (1,049) 155 - 5 - 2,287
Investments 2 (1) - - - - 1
Current borrowings (excluding overdrafts) (417) 325 (12) - (9) (4) (117)
Non-current borrowings (2,833) - (10) (319) - 4 (3,158)
Finance leases (52) - (5) - - - (57)
Net funds excluding the fair value of swaps (124) (725) 128 (319) (4) - (1,044)
Fair value of swaps hedging fixed rate borrowings 13 319 332
Net funds (111) (725) 128 - (4) - (712)
Condensed consolidated statement of changes in equity
For the half-year ended 30 June 30, 2016
Attributable to ordinary shareholders
Share capital Share premium Capital redemption reserve Cash flow hedging reserve Other reserves 1 Retained earnings 2 Total Non-controlling interests Total equity
£m £m £m £m £m £m £m £m £m
At 1 January 2015 376 179 159 (81) 78 5,671 6,382 5 6,387
Total comprehensive income for the period - - - (12) (283) (112) (407) - (407)
Arising on issues of ordinary shares - 1 - - - -- 1 - 1
Issue of C Shares - - (170) - - 1 (169) - (169)
Redemption of C Shares - - 166 - - (166) - - -
Ordinary shares purchased - buyback 4 - - - - - (433) (433) - (433)
Ordinary shares cancelled 4 (9) - 9 - - - - - -
Ordinary shares purchased - other - - - - - (1) (1) - (1)
Share-based payments - direct to equity 3 - - - - - 35 35 - 35
Related tax movements - - - - - (3) (3) - (3)
Other changes in equity in the period (9) 1 5 - - (567) (570) - (570)
At June 30, 2015 367 180 164 (93) (205) 4,992 5,405 5 5,410
Total comprehensive income for the period - - - (7) 154 (270) (123) - (123)
Issue of C Shares - - (260) - - 1 (259) - (259)
Redemption of C Shares - - 257 - - (257) - - -
Ordinary shares purchased - - - - - (1) (1) - (1)
Share-based payments - direct to equity 3 - - - - - (5) (5) - (5)
Disposal of business - - - - - - - (3) (3)
Related tax movements - - - - - (3) (3) - (3)
Other changes in equity in the period - - (3) - - (265) (268) (3) (271)
At 31 December 2015 367 180 161 (100) (51) 4,457 5,014 2 5,016
Total comprehensive income for the period - - - (5) 559 (1,551) (997) - (997)
Issue of C Shares - - (171) - - 1 (170) - (170)
Redemption of C Shares - - 169 - - (169) - - -
Ordinary shares purchased - - - - - (20) (20) - (20)
Share-based payments - direct to equity 3 - - - - - 14 14 - 14
Related tax movements - - - - - (1) (1) - (1)
Other changes in equity in the period - - (2) - - (175) (177) - (177)
At 30 June 2016 367 180 159 (105) 508 2,731 3,840 2 3,842
1 Other reserves include a merger reserve of £3m and a translation reserve of £505m.
2 At 30 June 2016, 6,821,060 ordinary shares with a book value of £56m were held for the purposes of share-based payment
plans and included in retained earnings. During the period, the Company acquired 2,847,750 ordinary shares through
purchases on the London Stock Exchange for use in share-based payment plans.
3 Share-based payments- direct to equity is the net of the credit to equity in respect of the share-based charge to the
income statement and the actual cost of shares vesting in the period, excluding those vesting from shares already held.
4 Following the completion of the sale of the Energy business to Siemens on 1 December 2014 and further to the
announcement on 19 June 2014 of a £1bn share buyback, the Company put in place a programme to enable the purchase of its
ordinary shares. The aim of the buyback was to reduce the issued share capital of the Company, helping enhance returns for
shareholders. In the period to 31 December 2014, 8,215,000 shares were purchased at an average price of 840p. These shares
were cancelled. In the period to 30 June 2015, 46,016,303 shares were purchased at an average price of 937p. 44,016,303 of
these shares were cancelled and 2,000,000 were retained for use in share-based payment plans.
1 Basis of preparation and accounting policies
Reporting entity
Rolls-Royce Holdings plc is a company domiciled in the UK. These condensed consolidated half-year financial statements of
the Company as at and for the six months ended 30 June 2016 comprise the Company and its subsidiaries (together referred to
as the "Group") and the Group's interests in joint arrangements and associates.
The consolidated financial statements of the Group as at and for the year ended 31 December 2015 (2015 Annual Report) are
available upon request from the Company Secretary, Rolls----Royce Holdings plc, 62 Buckingham Gate, London SW1E 6AT.
Statement of compliance
These condensed consolidated half-year financial statements have been prepared in accordance with IAS 34 Interim Financial
Reporting as adopted by the European Union. They do not include all of the information required for full annual statements,
and should be read in conjunction with the 2015 Annual Report.
The comparative figures for the financial year 31 December 2015 are not the Group's statutory accounts for that financial
year. Those accounts have been reported on by the Group's auditors and delivered to the registrar of companies. The report
of the auditors was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention
by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498(2) or (3) of
the Companies Act 2006.
The Board of directors approved the condensed consolidated half-year financial statements on 27 July 2016.
Significant accounting policies
The accounting policies applied by the Group in these condensed consolidated half-year financial statements are the same as
those that applied to the consolidated financial statements of the Group for the year ended 31 December 2015 (International
Financial Reporting Standards issued by the International Accounting Standards Board (IASB), as adopted for use in the EU
effective at 31 December 2015).
During the period, the Group has reassessed the categorisation of joint arrangements. As a result of this review, certain
entities, previously classified as joint ventures, have been reclassified as joint operations from 1 January 2016. This
reclassification does not affect profit before tax or net assets, but the Group's share of the individual income statement
and balance sheet categories are included on a proportional basis, rather than as a single figure. The adjustment to the
opening balance was to reclassify £57m of investments in joint ventures to: property, plant and equipment (£41m), inventory
(£19m), receivables (£18m), cash (£5m), payables (£17m) and borrowings (£9m). In addition, following a review of
consistency, £92m of accruals have been reclassified as provisions. Prior figures have not been restated.
Key sources of estimation uncertainty
In applying the accounting policies, management has made appropriate estimates in many areas, and the actual outcome may
differ from those calculated. The key sources of estimation uncertainty at the balance sheet date were the same as those
that applied to the consolidated financial statements of the Group for the year ended 31 December 2015.
2 Analysis by business segment
The analysis by Divisions (business segment) is presented in accordance with IFRS 8 Operating segments, on the basis of
those segments whose operating results are regularly reviewed by the Board (the Chief Operating Decision Maker as defined
by IFRS 8).
Civil development, manufacture, marketing and sales of commercial aero engines and aftermarket
services.
Defence development, manufacture, marketing and sales of military aero engines and aftermarket services.
Power Systems development, manufacture, marketing and sales of reciprocating engines and power systems.
Marine development, manufacture, marketing and sales of marine-power propulsion systems and aftermarket
services.
Nuclear development, manufacture, marketing and sales of nuclear systems for civil power generation and
naval propulsion systems.
The operating results are prepared on an underlying basis, which the Board considers reflects better the economic substance
of the Group's trading during the year. The principles adopted to determine the underlying results are:
Underlying revenues - Where revenues are denominated in a currency other than the functional currency of the Group
undertaking, these reflect the achieved exchange rates arising on settled derivative contracts.
Underlying profit before financing - Where transactions are denominated in a currency other than the functional currency of
the Group undertaking, this reflects the transactions at the achieved exchange rates on settled derivative contracts. In
addition, adjustments have been made to exclude one-off past-service credits on post-retirement schemes, exceptional
restructuring, profits or losses on acquisitions and disposals and eliminating charges recognised as a result of
recognising assets in acquired businesses at fair value.
Underlying profit before taxation - In addition to those adjustments in underlying profit before financing:
- Include amounts realised from settled derivative contracts and revaluation of relevant assets and liabilities to
exchange rates forecast to be achieved from future settlement of derivative contracts.
- Exclude unrealised amounts arising from revaluations required by IAS 39 Financial Instruments: Recognition and
Measurement, changes in value of financial RRSA contracts arising from changes in forecast payments, and the net impact of
financing costs related to post-retirement scheme benefits.
Taxation - the tax effect of the adjustments above are excluded from the underlying tax charge. In addition changes in the
amount of recoverable advance corporation tax recognised that arises from the above adjustments are also excluded.
This analysis also includes a reconciliation of the underlying results to those reported in the consolidated income
statement.
The 2016 underlying results below are shown at 2015 exchange rates, with the adjustment to 2016 exchange rates shown
separately.
Civil Defence Power Systems Marine Nuclear Inter-segment Total reportable segments
£m £m £m - 45 6 51
Profit before financing and taxation at 2015 exchange rates 157 (18) 139 98 237
Translation to 2016 exchange rates 18 1 19 (19) -
Loss on disposal of businesses - - - (1) (1)
Profit before financing and taxation 175 (17) 158 78 236
Net financing (54) (54) (2,332) (2,386)
Profit before taxation (71) 104 (2,254) (2,150)
Taxation (27) (27) 405 378
Profit for the period (98) 77 (1,849) (1,772)
Attributable to:
Ordinary shareholders 77 (1,849) (1,772)
Non-controlling interests - - -
For the half-year ended 30 June 2015
Revenue from original equipment 3,052 10 3,062 50 3,112
Revenue from aftermarket services 3,177 17 3,194 64 3,258
Total revenue 6,229 27 6,256 114 6,370
Gross profit 1,325 7 1,332 (63) 1,269
Other operating income - - - 5 5
Commercial and administrative costs (471) (25) (496) (26) (522)
Restructuring (45) - (45) 45 -
Research and development costs (380) 2 (378) (26) (404)
Share of results of joint ventures and associates 47 (4) 43 (12) 31
Profit before financing and taxation 476 (20) 456 (77) 379
Net financing (17) (17) (52) (69)
Profit before taxation (37) 439 (129) 310
Taxation (102) (102) 152 50
Profit for the period (139) 337 23 360
Attributable to:
Ordinary shareholders 337 23 360
Non-controlling interests - - -
For the year ended 31 December 2015
Revenue from original equipment 6,648 76 6,724 215 6,939
Revenue from aftermarket services 6,610 20 6,630 156 6,786
Total revenue 13,258 96 13,354 371 13,725
Gross profit 3,118 64 3,182 84 3,266
Other operating income - - - 10 10
Commercial and administrative costs (949) (55) (1,004) (55) (1,059)
Restructuring (37) (2) (39) 39 -
Research and development costs (764) (1) (765) (53) (818)
Share of results of joint ventures and associates 123 (5) 118 (18) 100
Profit on disposal of businesses - - - 2 2
Profit before financing and taxation 1,491 1 1,492 9 1,501
Net financing (60) (60) (1,281) (1,341)
Profit before taxation (59) 1,432 (1,272) 160
Taxation (351) (351) 275 (76)
Profit for the period (410) 1,081 (997) 84
Attributable to:
Ordinary shareholders 1,080 (997) 83
Non-controlling interests 1 - 1
* Other businesses comprise former Energy businesses not included in the disposal to Siemens in 2014.
Total assets Total liabilities Net assets/(liabilities)
30 June 2016£m 30 June 2015£m 31December 2015£m 30 June 2016£m 30 June 2015£m 31December 2015£m 30 June 2016£m 30 June 2015£m 31December 2015£m
Civil 13,261 11,210 11,774 (11,671) (7,073) (8,709) 1,590 4,137 3,065
Defence 1,535 1,389 1,449 (1,643) (1,668) (1,698) (108) (279) (249)
Power Systems 3,680 3,228 3,384 (1,084) (975) (1,017) 2,596 2,253 2,367
Marine 1,528 1,515 1,488 (816) (877) (783) 712 638 705
Nuclear 289 351 303 (304) (337) (324) (15) 14 (21)
Inter-segment (452) (731) (850) 435 712 850 (17) (19) -
Reportable segments 19,841 16,962 17,548 (15,083) (10,218) (11,681) 4,758 6,744 5,867
Other businesses 48 118 120 (43) (101) (120) 5 17 -
Net funds 2,620 1,646 3,252 (3,332) (2,289) (3,363) (712) (643) (111)
Tax assets/(liabilities) 633 435 341 (983) (1,075) (1,004) (350) (640) (663)
Post-retirement scheme surpluses/(deficits) 1,545 1,016 1,063 (1,404) (1,084) (1,140) 141 (68) (77)
24,687 20,177 22,324 (20,845) (14,767) (17,308) 3,842 5,410 5,016
Group employees at period end 30 June 2016 * 30 June2015 31 December 2015
Civil 23,600 23,100 23,100
Defence 6,200 6,400 6,400
Power Systems 10,300 10,700 10,400
Marine 5,300 6,100 5,600
Nuclear 4,300 4,100 4,200
Other - 200 100
49,700 50,600 49,800
* As described in Note 1, the Group has reclassified certain joint ventures to joint operations from 1 January 2016. This
has had the effect of increasing the reported Group employees at 30 June 2016 by 800.
Underlying revenue adjustments Half-year to 30 June 2016£m Half-year to 30 June 2015£m Year to 31 December 2015£m
Underlying revenue 6,143 6,256 13,354
Recognise revenue at exchange rate on date of transaction 319 114 371
Revenue per consolidated income statement 6,462 6,370 13,725
Underlying profit adjustments Half-year to 30 June 2016 Half-year to 30 June 2015 Year to 31 December 2015
Profit before financing£m Net financing£m Taxation£m Profit before financing£m Net financing£m Taxation£m Profit before financing£m Net financing£m Taxation£m
Underlying performance re-presented 158 (54) (27) 456 (17) (102) 1,492 (60) (351)
Realised losses/(gains) on settled derivative contracts 1 131 5 (25) 145 (28) (24) 287 (35) (51)
Net unrealised fair value changes to derivative contracts 2 4 (2,155) 377 (12) (89) 19 (9) (1,306) 270
Effect of currency on contract accounting 32 - (6) (32) - 6 (9) - 2
Revaluation of trading assets and liabilities 40 (176) 26 (26) 55 (7) (13) 20 (6)
Financial RRSAs - exchange differences and changes in forecast payments - (8) 1 - (3) 1 - 8 (1)
Effect of acquisition accounting (62) - 17 (63) - 19 (124) - 31
Impairment of goodwill - - - (69) - -- (75) - -
Net post-retirement scheme financing - 3 (1) - 13 (5) - 32 (12)
Disposal of business (1) - - (3) - 15 2 - 15
Exceptional restructuring 3 (68) - 13 (11) - 2 (49) - 11
Other 2 (1) 3 (6) - 4 (1) - (2)
Recognition of advance corporation tax - - - - - 122 - - -
Reduction in rate of UK corporation tax - - - - - - - - 18
Total underlying adjustments 78 (2,332) 405 (77) (52) 152 9 (1,281) 275
Reported per consolidated income statement 236 (2,386) 378 379 (69) 50 1,501 (1,341) (76)
1 The adjustments for realised losses/(gains) on settled derivative contracts include adjustments to reflect the
losses/(gains) in the same period as the related trading cash flows.
2 The adjustments for unrealised fair value changes to derivative contracts include those included in equity accounted
joint ventures and exclude those for which the related trading contracts have been cancelled when the fair value changes
are recognised immediately in underlying profit.
3 Restructuring is excluded from underlying performance when it concerns the closure of a significant business or site or
a fundamental reorganisation of the business.
3 Research and development
Half-year to 30 June 2016 Half-year to 30 June 2015 Year to 31 December 2015
£m £m £m
Expenditure in the period (433) (405) (831)
Capitalised as intangible assets 54 9 51
Amortisation of capitalised costs (71) (66) (136)
Net cost (450) (462) (916)
Entry fees received 59 57 83
Entry fees deferred in respect of charges in future periods (27) (22) (28)
Recognition of previously deferred entry fees 14 23 43
Net cost recognised in the income statement (404) (404) (818)
Underlying adjustments relating to the effects of acquisition accounting and foreign exchange 24 26 53
Net underlying cost recognised in the income statement (380) (378) (765)
4 Net financing
Half-year to 30 June 2016 Half-year to 30 June 2015 Year to 31 December 2015
Per consolidated income statement Underlying financing Per consolidated income statement Underlying financing Per consolidated income statement Underlying financing
£m £m £m £m £m £m
Financing income
Interest receivable 7 7 4 4 12 12
Net fair value gains on foreign currency contracts 1 - - -- - -
Financial RRSAs - foreign exchange differences and changes in forecast payments - - - - 21 -
Net fair value gains on commodity contracts 6 - - - - -
Financing on post-retirement scheme surpluses 22 - 31 - 65 -
Net foreign exchange gains - - 51 24 17 32
36 7 86 28 115 44
Financing costs
Interest payable (42) (42) (32)
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