TIDMRR.
RNS Number : 6258H
Rolls-Royce Holdings plc
05 August 2021
5 August 2021
ROLLS-ROYCE HOLDINGS PLC - 2021 Half Year Results
Delivering on financial priorities and looking forwards to a
lower carbon future
-- Good start to the year with improving cash flow and profits from continuing operations
- Underlying operating profit GBP307m, up from a GBP(1,630)m
loss in 2020 H1
- Free cash flow GBP(1,174)m, significantly better than prior
year (2020 H1: GBP(2,862)m)
- Strong liquidity position with no maturities before 2024
-- Focused on delivering to plan and driving results
- Restructuring delivering results and expected to achieve
>GBP1bn savings in 2021
- Disposal programme progressing well towards targeted proceeds
of at least GBP2bn
- Target to turn free cash flow positive during the second half
2021
- On track to improve FY2021 free cash flow to approximately
GBP(2.0)bn (2020: GBP(4.2)bn)
-- Net zero pathway launched confirming our targets and
commitment to play a leading role in the transition of the markets
we serve to net zero carbon emissions by 2050
Warren East, Chief Executive said: " Our continued focus on the
elements within our control, together with a good performance from
Defence and order intake recovery in Power Systems have enabled us
to deliver solid progress in the first half. The benefits of our
fundamental restructuring programme in Civil Aerospace are evident
in our reduced cash outflow and improved operational efficiency.
This leaner cost base together with a strong liquidity position
gives us confidence in our ability to withstand uncertainties
around the pace of recovery in international travel and benefit
from the eventual rebound. We are making disciplined investments in
the new opportunities to drive future growth, particularly in net
zero power where we are leading the way with innovation and
engineering excellence. Our net zero pathway and targets, announced
in June, set out our plan to enable the sectors in which we operate
achieve net zero by 2050 by driving step-change improvements in
engine efficiency, helping accelerate the take-up of sustainable
fuels and developing new technologies. "
First half 2021 Group financial performance
GBP million Statutory Statutory Underlying Underlying
2021 H1 2020 H1 2021 H1 2020 H1
----------------------------------- ---------- ---------- ----------- -----------
Revenue 5,159 5,673 5,227 5,410
----------------------------------- ---------- ---------- ----------- -----------
Gross profit/(loss) 814 (590) 1,097 (965)
----------------------------------- ---------- ---------- ----------- -----------
Operating profit/(loss) 38 (1,617) 307 (1,630)
----------------------------------- ---------- ---------- ----------- -----------
Profit/(loss) before taxation 114 (5,213) 133 (3,203)
----------------------------------- ---------- ---------- ----------- -----------
Profit/(loss) from continuing
operations 394 (5,261) 104 (3,293)
----------------------------------- ---------- ---------- ----------- -----------
(Loss)/profit from discontinued
operations (1) (1) (117) 43 (33)
----------------------------------- ---------- ---------- ----------- -----------
Profit/(loss) for the period 393 (5,378) 147 (3,326)
----------------------------------- ---------- ---------- ----------- -----------
Earnings/(loss) per share (pence)
(2) 4.72p (96.12)p 1.76p (59.44)p
----------------------------------- ---------- ---------- ----------- -----------
2021 H1 2020 H1 Change
-------------------------------------- -------- ------------ --------
Group free cash flow (FCF) (1,151) (2,801) 1,650
-------------------------------------- -------- ------------ --------
Group free cash flow from continuing
operations (1,174) (2,862) 1,688
-------------------------------------- -------- ------------ --------
Reported movements in net debt
from cash flows
(ex. lease liabilities) (1,503) (3,152) 1,649
-------------------------------------- -------- ------------ --------
30 June 31 December
2021 2020 Change
-------------------------------------- -------- ------------ --------
Net debt (ex. lease liabilities) (3,083) (1,533) (1,550)
-------------------------------------- -------- ------------ --------
For footnotes referenced in tables on pages 1-14, see page
15.
Business unit underlying performance summary
Underlying performance excludes the impact of period-end
mark-to-market adjustments , the effect of acquisition accounting
and business disposals, impairment of goodwill and other
non-current and current assets, and exceptional items. Adjustments
between the underlying income statement and the reported income
statement are set out in note 2 in the condensed consolidated
interim financial statements on page 28.
GBP million Organic Underlying
Underlying Change operating
revenue (3) profit/(loss) Organic Change (3)
------------------------------ ----------- -------- --------------- -------------------
Civil Aerospace (4) 2,168 (336) 39 1,860
------------------------------ ----------- -------- --------------- -------------------
Defence 1,721 266 269 72
------------------------------ ----------- -------- --------------- -------------------
Power Systems (5) 1,181 (49) 41 9
------------------------------ ----------- -------- --------------- -------------------
Other businesses (6) 152 21 5 22
------------------------------ ----------- -------- --------------- -------------------
Corporate / eliminations (7) 5 12 (47) (7)
------------------------------ ----------- -------- --------------- -------------------
Continuing operations 5,227 (86) 307 1,956
------------------------------ ----------- -------- --------------- -------------------
ITP Aero (4) 317 (79) 7 7
------------------------------ ----------- -------- --------------- -------------------
Inter-segment eliminations (171) 76 (23) 16
------------------------------ ----------- -------- --------------- -------------------
Total Group 5,373 (89) 291 1,979
------------------------------ ----------- -------- --------------- -------------------
Group underlying revenue from continuing operations of GBP5.2bn,
down 2%, reflected a more balanced contribution from the business
units compared with the prior period. It included a positive
GBP160m Civil Aerospace LTSA revenue catch-up compared with a
GBP(866)m negative revenue catch-up in first half 2020.
Group underlying operating profit from continuing operations of
GBP307m included significant cost savings from the restructuring
programme, primarily in Civil Aerospace, and favourable timing and
mix of activity in Defence and Power Systems. The prior period
comparative underlying loss of GBP(1.6)bn included GBP(1.2)bn of
one-off charges mostly related to the impact of COVID-19 on Civil
Aerospace.
In Civil Aerospace, our first half operational performance saw
an overall improvement with a recovery in business aviation and
domestic large engine flying activity together with substantial
cost benefits from our fundamental restructuring programme, which
is reducing the size of our cost base by around a third. Large
engine LTSA flying hours were 43% of the 2019 level, up from the
34% in H2 2020; 92 large engine major shop visits were completed
and 100 large engines were delivered. We have already seen a return
to 2019 levels of flying activity for our business aviation engines
and for large engines operated on domestic flying routes. However,
international travel is recovering more gradually, hindered by
global variation in vaccination rates and ongoing travel
restrictions. We are continuing to mitigate this through the
actions within our control.
Our Defence business continues to perform well with resilient
demand that has not been impacted by COVID-19. First half
performance benefitted from improving operational performance which
enabled the earlier delivery of spare engines and higher spare
parts sales, which historically have been more second half
weighted. This favourable timing and mix in the first half is
expected to result in a stronger first half versus second half
performance, hence our full year expectations for Defence are
unchanged. Our strong order book in Defence gives us confidence in
our outlook with GBP1.2bn order intake in period and more than 70%
of 2022 expected revenues covered by the order book.
In Power Systems, revenues were broadly stable in the first half
with an increase in services offset by a reduction in original
equipment (OE) deliveries. Operating profit benefitted from a rise
in higher-margin aftermarket spare parts, partly offset by low
factory utilisation on OE manufacturing. Order intake was up 19% to
GBP1.4bn (2020 H1: GBP1.2bn), with a 1.2x book-to-bill ratio,
showing recovery in our end markets led by demand in marine,
governmental and power generation markets. Interest in lower carbon
solutions is growing and we are increasing our relative R&D
investment in these products. The recovery in OE order intake is
expected to be realised as revenue over the next 6-12 months.
Delivering on our commitments
Our ongoing focus on areas within our control - cost reduction,
liquidity and operational improvement -enabled us to deliver a
significant improvement in first half profit and cash flow while
continuing to invest in new products, including new low carbon
technology and solutions to decarbonise our end markets.
- Restructuring : We delivered further good progress on our
fundamental restructuring programme with around 8,000 roles now
having been removed and we expect to deliver more than GBP1bn of
savings in FY2021 as compared with FY2019. This keeps us on track
to achieve our aim of a reduction of at least 9,000 roles and run
rate savings of more than GBP1.3bn by the end of 2022.
- Disposal Programme : Our disposal programme, which aims to
achieve at least GBP2bn in proceeds is progressing well. The
planned sale of ITP Aero is moving forwards and we continue to work
closely with all key stakeholders. Although the disposal of Bergen
Engines was interrupted in the first half, we remain committed to
its sale and this week announced a new disposal agreement with
enterprise value of EUR63m and EUR40m cash on its balance sheet
will remain with the Group. We expect to complete the disposal of
the Civil Nuclear Instrumentation & Control business later this
year.
Strong liquidity position and improvement in free cash flow
Our liquidity position is strong with GBP7.5bn of liquidity
including GBP3.0bn in cash at the end of the half year after
repaying the 2021 EUR750m loan notes and the GBP300m Covid
Corporate Financing Facility (CCFF) loan in the first half. Net
debt (before leases) was GBP(3.1)bn at the period end. This week
the Group signed an extension to the 2022 GBP1bn unused loan
facility to 2024, consequently the Group has no debt maturities
before 2024 (excluding ITP Aero).
Free cash outflow of GBP(1.2)bn represented a significant
improvement on the prior year period of GBP(2.9)bn, which included
a GBP(1.1)bn negative impact from the cessation of invoice
factoring. The GBP0.6bn underlying improvement reflected good
progress on cost reduction, stronger operating performance and
reduced capital expenditure.
Our GBP2.0bn UKEF-backed 2025 loan facility, which we drew down
in the first half, restricts us from declaring or making
shareholder payments until 2023. In 2023, payments can resume
provided certain conditions are satisfied. Therefore, no interim
shareholder payment will be made for 2021.
Our priorities for capital allocation are to rebuild the balance
sheet and to invest in the business to grow returns ahead of
returning surplus cash to shareholders. We are focused on
generating appropriate value on our disposals and improving free
cash flow. This will reduce net debt and take us towards our
ambition to return to an investment grade credit profile in the
medium term.
Outlook and financial guidance
We continue to expect to turn free cash flow positive sometime
during the second half of this year and to achieve an improvement
in full year free cash outflow to around GBP(2.0)bn (FY2020:
GBP(4.2)bn). This is driven by our actions to reduce costs,
continued strength in Defence, growth in Power Systems and a
gradual recovery in Civil Aerospace. Our guidance remains sensitive
to the timing of OE concession outflows on already delivered
widebody engines, as we previously highlighted in our full year
results in March.
Looking further ahead, we are confident that when border
restrictions are lifted the recovery of international travel will
accelerate. Free cash flow of at least GBP750m (before disposals)
is still achievable in a 12-month period when EFH exceed 80% of
2019 levels, supported by our lower cost base in Civil Aerospace
which is now a third smaller. However, based on current industry
forecasts for the pace of recovery in international travel, this is
likely to occur beyond the initial expected timeframe of 2022. We
are positive on the near-term opportunities in Defence and Power
Systems and in our new business areas in electricals and small
modular reactors (SMR). We will remain agile in our response to
external factors , continuing to deliver on our restructuring,
rebuilding our balance sheet while investing in our future.
Our net zero commitment and new low-carbon growth
opportunities
In June, we announced our net zero pathway setting our short and
medium-term targets and showing how we will focus our technological
capabilities to play a leading role in enabling significant
elements of the global economy to reach net zero carbon by 2050. To
achieve this, we are developing new technologies, enabling an
accelerated take-up of sustainable fuels and driving step-change
improvements in fuel efficiency, within aviation, shipping and
power generation. By 2030, we plan to make all our new products
compatible with net zero and by 2050 all our products in operation
will be compatible.
In addition to meeting the net zero challenge for our existing
activities, we are also investing in new opportunities and markets,
laying the foundations for future growth beyond our current
portfolio.
We are at the forefront of the development of electrical
aerospace propulsion systems which are opening up exciting
incremental growth opportunities with significant commercial
potential. Earlier this year we announced an agreement with Wideroe
and Tecnam to power an electric regional aircraft by 2026. We are
testing our 2.5MW power generation system for potential use in
hybrid-electric aerospace propulsion. Our urban air mobility
partner, Vertical Aerospace, took a step forwards in June with the
announcement of its planned US listing and up to $4bn in pre-orders
for up to 1,000 eVTOL aircraft.
Rolls-Royce SMR power stations have been designed to deliver low
cost, net zero carbon nuclear power and are on a pathway to be
connected to the UK grid in the early 2030s with the further
opportunity of substantial export potential. In addition to stable
base load power, they will be able to provide energy for the
net-zero manufacture of green hydrogen and synthetic fuels. We are
now approaching the second phase of the programme, which will
include entering the UK licensing process later this year,
supported by new third party investment that unlocks multi-year UK
Government matched funding of GBP210m.
To enable our net zero ambitions and to drive new business
growth in low-carbon technologies we are increasing the proportion
of gross R&D spend on lower carbon and net zero technologies to
75% by 2025.
This announcement has been determined to contain inside
information.
LSE: RR.; ADR: RYCEY; LEI: 213800EC7997ZBLZJH69
Enquiries:
Investors Media :
:
Isabel Green +44 7880 160976 Richard Wray +44 7810 850055
Photographs and broadcast-standard video are available at
www.rolls-royce.com .
A PDF copy of this report can be downloaded from
www.rolls-royce.com/investors .
This half year results announcement contains forward-looking
statements. Any statements that express forecasts, expectations and
projections are not guarantees of future performance and will not
be updated. By their nature, these statements involve risk and
uncertainty, and a number of factors could cause material
differences to the actual results or developments. This report is
intended to provide information to shareholders, is not designed to
be relied upon by any other party, or for any other purpose and
Rolls-Royce Holdings plc and its directors accept no liability to
any other person other than under English law.
Results webcast and conference call
A webcast will be held at 08:30 (BST) today and details of how
to join are provided below. Conference call details are also
available for those who would prefer to dial-in. Downloadable
materials will also be available on the Investor Relations section
of the Rolls-Royce website.
Webcast details
To register for the webcast, including Q&A participation,
please visit the following link:
https://edge.media-server.com/mmc/p/4rvsdubk
Please use this same link to access the webcast replay which
will be made available shortly after the event concludes.
Conference call details
UK dial-in: +44 (0) 203 009 5709 / US dial-in: +1 646 787
1226
International dial-in for all participants: +44 (0) 203 009
5709
Participant passcode: 5215 215
Downloadable materials
Please visit the Investor Relations section of the Rolls-Royce
website to download our Half Year Results materials:
https://www.rolls-royce.com/investors/results-and-events.aspx
Group Statutory Results
Statutory Income Statement
GBP million Statutory Statutory
2021 H1 2020 H1 Change
--------------------------------------------- --------- --------- ------
Revenue 5,159 5,673 (514)
--------------------------------------------- --------- --------- ------
Gross profit/(loss) 814 (590) 1,404
--------------------------------------------- --------- --------- ------
Operating profit/(loss) 38 (1,617) 1,655
--------------------------------------------- --------- --------- ------
(Loss)/gain on acquisition/disposal (7) 2 (9)
--------------------------------------------- --------- --------- ------
Financing income/(costs) 83 (3,598) 3,681
--------------------------------------------- --------- --------- ------
Profit/(loss) before taxation 114 (5,213) 5,327
--------------------------------------------- --------- --------- ------
Taxation 280 (48) 328
--------------------------------------------- --------- --------- ------
Profit/(loss) for the period from continuing
operations 394 (5,261) 5,655
--------------------------------------------- --------- --------- ------
Loss for the period from discontinued
operations (1) (1) (117) 116
--------------------------------------------- --------- --------- ------
Profit/(loss) for the period 393 (5,378) 5,771
--------------------------------------------- --------- --------- ------
Earnings/(loss) per share (p) (2) 4.72 (96.12) 100.84
--------------------------------------------- --------- --------- ------
Statutory revenue of GBP5.2bn, down 9%, reflected a more
balanced contribution from the business units compared with the
prior period. Civil Aerospace revenue declined, as lower large
engine OE deliveries and shop visit volumes offset the non-repeat
of large negative LTSA catch-ups. Defence revenue grew strongly
helped by favourable timing of high margin spare parts and spare
engine sales and Power Systems revenue was broadly stable with an
increase in aftermarket services offset by lower OE deliveries.
Revenue included a positive GBP160m Civil Aerospace LTSA catch-up
compared with a GBP(866)m negative revenue catch-up in the prior
period. The large negative LTSA catch-up in 2020 H1 reflected the
impact of COVID-19 on our expected flying hours and aircraft
retirement risk.
Gross profit returned to profit of GBP814m compared with a prior
period loss of GBP(590)m as the restructuring programme achieved
substantial cost savings, particularly in Civil Aerospace, and
Defence delivered strong growth in higher margin products. It also
included a GBP166m Civil Aerospace LTSA catch-up to profit compared
with an GBP(814)m negative charge in 2020 H1.
Operating profit improved significantly to GBP38m from a prior
period GBP(1.6)bn loss. The prior period included one-off charges
comprising negative catch-ups, impairments and write-offs. R&D
charges decreased from GBP(678)m to GBP(390)m primarily as a
consequence of one-off impairments in the prior period. Self-funded
R&D expenditure was GBP(396)m, down 10%. C&A costs of
GBP(424)m were broadly flat.
Profit before tax of GBP114m included higher charges from
interest bearing debt and committed undrawn facilities compared
with the prior year period. It also benefitted from a GBP25m
non-cash profit from revaluation of the hedge book compared with a
prior period revaluation loss of GBP(2.6)bn.
Profit from continuing operations of GBP394m included a tax
credit of GBP280m. The tax credit mainly relates to the
remeasurement of the opening UK deferred tax balances from 19% to
25%, following the enactment of the change in UK corporation tax
rate, together with the tax on profits and losses in overseas
jurisdictions.
Discontinued operations : ITP Aero has been classified as
discontinued in the 2021 H1 results.
EPS of 4.72p (2020 H1: (96.12)p) reflected the improvement in
profit and an increase in weighted average number of shares
compared with the prior period, which was restated and adjusted for
the bonus factor of 2.91 to reflect the bonus element of the rights
issue in 2020.
Statutory Balance Sheet
GBP million ITP Aero
classified
as HfS As Reported Change
30 June 31 December ITP 31 December excluding
2021 2020 Aero 2020 ITP Aero
-------------------------------------- -------- -------------- -------- ------------- -----------
Intangible assets 4,063 4,191 954 5,145 (128)
-------------------------------------- -------- -------------- -------- ------------- -----------
Property, plant and equipment 3,992 4,184 331 4,515 (192)
-------------------------------------- -------- -------------- -------- ------------- -----------
Right-of-use assets 1,266 1,391 14 1,405 (125)
-------------------------------------- -------- -------------- -------- ------------- -----------
Joint ventures and associates 413 393 1 394 20
-------------------------------------- -------- -------------- -------- ------------- -----------
Contact assets and liabilities (8,836) (8,945) 23 (8,922) 109
-------------------------------------- -------- -------------- -------- ------------- -----------
Working capital (9) 1,229 473 97 570 756
-------------------------------------- -------- -------------- -------- ------------- -----------
Provisions (1,720) (1,907) (38) (1,945) 187
-------------------------------------- -------- -------------- -------- ------------- -----------
Net debt (10) (4,941) (3,558) (69) (3,627) (1,383)
-------------------------------------- -------- -------------- -------- ------------- -----------
Net financial assets and liabilities
(10) (2,605) (3,077) (34) (3,111) 472
-------------------------------------- -------- -------------- -------- ------------- -----------
Net post-retirement scheme
surpluses/(deficits) (530) (673) - (673) 143
-------------------------------------- -------- -------------- -------- ------------- -----------
Tax 1,653 1,224 71 1,295 429
-------------------------------------- -------- -------------- -------- ------------- -----------
Held for sale (11) 1,402 1,410 (1,350) 60 (8)
-------------------------------------- -------- -------------- -------- ------------- -----------
Other net assets and liabilities 24 19 - 19 5
-------------------------------------- -------- -------------- -------- ------------- -----------
Net liabilities (4,590) (4,875) - (4,875) 285
-------------------------------------- -------- -------------- -------- ------------- -----------
Other items
-------------------------------------- -------- -------------- -------- ------------- -----------
US$ hedge book (US$bn) 24 25
-------------------------------------- -------- -------------- -------- ------------- -----------
Civil LTSA asset 847 726
-------------------------------------- -------- -------------- -------- ------------- -----------
Civil LTSA liability (6,895) (6,841)
-------------------------------------- -------- -------------- -------- ------------- -----------
Civil net LTSA liability (6,048) (6,115)
-------------------------------------- -------- -------------- -------- ------------- -----------
Key drivers of balance sheet movements (adjusted for assets held
for sale (HfS)) were:
Intangible assets: Net decrease of GBP(128)m included additions
of GBP89m primarily related to programme development in Civil
Aerospace and Power Systems, and investment in the development of
software applications across the business. There was an adverse
foreign exchange impact of GBP(124)m and amortisation for the
period was GBP(154)m.
Property, plant and equipment: Net decrease of GBP(192)m
included additions of GBP95m, more than offset by GBP(239)m
depreciation and a foreign exchange impact of GBP(65)m. Additions
were GBP83m lower as a result of continued focus on prioritisation
of business critical infrastructure projects and efforts to reduce
capital intensity in Civil Aerospace with the ongoing cost
reduction programme.
Right-of-use assets: Net reduction of GBP(125)m was driven by
GBP(137)m depreciation charged in the period partly offset by
additions of GBP10m.
Contract assets and liabilities: The net liability balance
decreased by GBP(109)m, of which GBP67m related to the Civil
Aerospace net LTSA balance change, and included positive LTSA
catch-ups of GBP160m, offset by LTSA revenue billed being ahead of
revenue recognised in the period of GBP(52)m and foreign exchange
movements of GBP(41)m.
Working capital : The GBP1,229m net current asset position
reflected a GBP756m movement driven by a GBP239m increase in
inventory for planned second half sales, and a GBP758m decrease in
payables driven by lower concessions and Risk and Revenue Sharing
Partner (RRSPs) payables in Civil Aerospace and the final financial
penalty payment of GBP156m related to agreements reached in January
2017. Partly offset by a GBP(241)m decrease in receivables
reflecting the phasing of trading and customer receipts.
Provisions: The GBP187m decrease primarily reflected the
utilisation of restructuring provisions of GBP59m and Trent 1000
provisions of GBP148m during the period.
Net debt: Reduced by GBP(1.4)bn to GBP(4.9)bn primarily driven
by free cash outflow of GBP(1.2)bn.
Net financial assets and liabilities: There was an increase of
GBP472m, primarily related to settled contracts in the period of
GBP333m and the fair value movement in foreign exchange and other
derivatives.
Net post-retirement scheme surpluses/deficits: GBP143m movement
driven by an increase in the UK scheme surplus reflecting company
contributions offset by actuarial changes and a decrease in the
overseas schemes deficit mainly attributable to actuarial changes
and foreign exchange. See note 16.
Group Underlying Results
The commentary and income statement below describe underlying
performance, with percentage and absolute change figures presented
on an organic basis, unless otherwise stated. Adjustments between
the underlying income statement and the reported income statement
are set out in note 2 to the condensed consolidated interim
financial statements on page 28.
Underlying Income Statement
GBP million 2021 H1 2020 H1 Change Organic M&A FX
Change (8)
(3)
------------------------------------ -------- -------- -------- -------- ----- ------
Underlying revenue 5,227 5,410 (183) (86) 24 (121)
------------------------------------ -------- -------- -------- -------- ----- ------
Underlying OE revenue 2,239 2,728 (489) (466) 24 (47)
------------------------------------ -------- -------- -------- -------- ----- ------
Underlying services revenue 2,988 2,682 306 380 - (74)
------------------------------------ -------- -------- -------- -------- ----- ------
Underlying gross profit/(loss) 1,097 (965) 2,062 2,082 8 (28)
------------------------------------ -------- -------- -------- -------- ----- ------
Gross margin % 21.0% (17.8%) 38.8%pt 38.7%pt
------------------------------------ -------- -------- -------- -------- ----- ------
Commercial and administration
costs (444) (435) (9) (7) (8) 6
------------------------------------ -------- -------- -------- -------- ----- ------
Research and development
costs (386) (321) (65) (71) - 6
------------------------------------ -------- -------- -------- -------- ----- ------
Joint ventures and associates 40 91 (51) (48) - (3)
------------------------------------ -------- -------- -------- -------- ----- ------
Underlying operating profit/(loss) 307 (1,630) 1,937 1,956 - (19)
------------------------------------ -------- -------- -------- -------- ----- ------
Underlying operating margin 5.9% (30.1%) 36.0%pt 36.1%pt
------------------------------------ -------- -------- -------- -------- ----- ------
Financing costs (174) (1,573) 1,399 1,397 - 2
------------------------------------ -------- -------- -------- -------- ----- ------
Underlying profit/(loss)
before tax 133 (3,203) 3,336 3,353 - (17)
------------------------------------ -------- -------- -------- -------- ----- ------
Taxation (29) (90) 61 61 - -
------------------------------------ -------- -------- -------- -------- ----- ------
Profit/(loss) for the
period from continuing
operations 104 (3,293) 3,397 3,414 - (17)
------------------------------------ -------- -------- -------- -------- ----- ------
Profit/(loss) for the
period from discontinued
operations 43 (33) 76 75 - 1
------------------------------------ -------- -------- -------- -------- ----- ------
Underlying profit/(loss)
for the period 147 (3,326) 3,473 3,489 - (16)
------------------------------------ -------- -------- -------- -------- ----- ------
Underlying earnings/(loss)
per share (p) (2) 1.76 (59.44) 61.20 61.42
------------------------------------ -------- -------- -------- -------- ----- ------
Underlying revenue of GBP5.2bn reflected a more balanced
contribution from our business units. Services revenue increased
14% while OE fell 17%. Services revenue included a GBP160m Civil
Aerospace LTSA revenue catch-up compared with GBP(866)m in the
prior period.
Underlying gross profit of GBP1.1bn reflected the benefit of
cost reductions and a GBP166m Civil Aerospace LTSA catch-up . The
prior period loss of GBP(965)m included GBP(1.2)bn of one-off
charges, mainly relating to negative Civil Aerospace LTSA
catch-ups.
Underlying operating profit was GBP307m, with a return to profit
reflecting the higher gross profit in the period. The R&D
charge increase demonstrates the continued focus on early stage
technology and innovation. The lower JV and associates contribution
reflected the impact of lower services activity on our MRO joint
venture businesses.
Underlying profit before tax included financing costs of
GBP(174)m with higher charges relating to interest bearing debt and
committed undrawn facilities compared with the prior period. In
2020 H1, a GBP(1.5)bn one-off underlying finance charge was taken
to close out over hedged positions on the USD hedge book.
Underlying profit included a tax charge of GBP(29)m (2020 H1:
GBP(90)m), an underlying rate of 21.8% compared with (2.8)% in the
prior period.
Underlying EPS reflected the improvement in profit and an
increase in weighted average number of shares compared with the
prior period, which was restated and adjusted for the bonus factor
of 2.91 to reflect the bonus element of the rights issue in
2020.
Group Funds Flow Statement
GBP million 2021 H1 2020 H1 Change
---------------------------------------------------------------------------------------- -------- -------- --------
Underlying operating profit/(loss) - total Group 291 (1,669) 1,960
---------------------------------------------------------------------------------------- -------- -------- --------
Depreciation, amortisation and impairment 480 499 (19)
---------------------------------------------------------------------------------------- -------- -------- --------
Lease payments (capital plus interest) (171) (190) 19
---------------------------------------------------------------------------------------- -------- -------- --------
Expenditure on intangible assets (71) (176) 105
---------------------------------------------------------------------------------------- -------- -------- --------
Expenditure on property, plant and equipment (124) (221) 97
---------------------------------------------------------------------------------------- -------- -------- --------
Change in inventory (219) (301) 82
---------------------------------------------------------------------------------------- -------- -------- --------
Movement in receivables/payables/contract balances (excluding Civil LTSA) (420) (1,541) 1,121
---------------------------------------------------------------------------------------- -------- -------- --------
Civil Aerospace net LTSA balance change (108) 788 (896)
---------------------------------------------------------------------------------------- -------- -------- --------
Movement on provisions (136) 132 (268)
---------------------------------------------------------------------------------------- -------- -------- --------
Cash flows on settlement of excess foreign exchange contracts (303) (88) (215)
---------------------------------------------------------------------------------------- -------- -------- --------
Fees on undrawn facilities and net interest (116) (26) (90)
---------------------------------------------------------------------------------------- -------- -------- --------
Cash flow on financial instruments net of realised losses included in operating profit (52) (33) (19)
---------------------------------------------------------------------------------------- -------- -------- --------
Other (6) (35) 29
---------------------------------------------------------------------------------------- -------- -------- --------
Trading cash flow (955) (2,861) 1,906
---------------------------------------------------------------------------------------- -------- -------- --------
Contributions to defined benefit pensions in excess of underlying PBT charge (94) 94 (188)
---------------------------------------------------------------------------------------- -------- -------- --------
Taxation paid (102) (34) (68)
---------------------------------------------------------------------------------------- -------- -------- --------
Group free cash flow (1,151) (2,801) 1,650
---------------------------------------------------------------------------------------- -------- -------- --------
Free cash flow from continuing operations (1,174) (2,862) 1,688
---------------------------------------------------------------------------------------- -------- -------- --------
Free cash flow from discontinuing operations 23 61 (38)
---------------------------------------------------------------------------------------- -------- -------- --------
Shareholder payments (2) (90) 88
---------------------------------------------------------------------------------------- -------- -------- --------
Disposals and acquisitions (30) 2 (32)
---------------------------------------------------------------------------------------- -------- -------- --------
Exceptional group restructuring (134) (87) (47)
---------------------------------------------------------------------------------------- -------- -------- --------
Payment of financial penalties (156) (135) (21)
---------------------------------------------------------------------------------------- -------- -------- --------
Other (30) (41) 11
---------------------------------------------------------------------------------------- -------- -------- --------
Movement in net funds from cash flows (excluding lease liabilities) (1,503) (3,152) 1,649
---------------------------------------------------------------------------------------- -------- -------- --------
Capital element of lease payments 147 149 (2)
---------------------------------------------------------------------------------------- -------- -------- --------
Movement in net funds from cash flows (1,356) (3,003) 1,647
---------------------------------------------------------------------------------------- -------- -------- --------
Change in short-term investments (1) 6 (7)
---------------------------------------------------------------------------------------- -------- -------- --------
Net cash flow from changes in borrowings and lease liabilities 914 2,637 (1,723)
---------------------------------------------------------------------------------------- -------- -------- --------
Statutory cash flow (443) (360) (83)
---------------------------------------------------------------------------------------- -------- -------- --------
Key changes in the funds flow items are described below:
Expenditure on intangible assets: Expenditure of GBP(71)m
included GBP(42)m capitalised R&D (30 June 2020: GBP(152)m),
lower than prior period reflecting the maturity of Civil Aerospace
engine programmes.
Capital expenditure: Investment of GBP(124)m was GBP97m lower
than prior period as a result of continued focus on prioritisation
of business critical infrastructure projects and efforts to reduce
capital intensity in Civil Aerospace in line with the ongoing cost
reduction programme.
Increase in inventory: The GBP219m increase in the period was
primarily driven by planned inventory build in Power Systems to
meet expected sales volumes in the second half of the year
alongside a modest increase in Civil Aerospace expected to mostly
unwind in the second half.
Movement in receivables/payables/contract balances (excluding
Civil LTSA):
The movement of GBP(420)m was primarily driven by Civil
Aerospace. This included reduced deposits as well as lower amounts
owed to suppliers, JVs and RRSPs, driven in part by the reduced
level of OE volumes. In addition, there was a decrease in the Civil
Aerospace OE engine concessions payable, due to the timing of
concession payments and aircraft deliveries, albeit the decrease
was lower than expected as some aircraft deliveries were delayed.
It also includes increased receivables in Defence reflecting the
timing of customer receipts.
Movement in underlying Civil Aerospace net LTSA creditor: In H1
2021, there was a GBP108m reduction in the net LTSA balance as
revenues recognised exceeded invoiced flying hour receipts. This
included GBP160m positive contract catch-ups, which increased
revenue recognised during the period. These catch-ups were
principally driven by improved shop visit cost expectations in
Business Aviation and the impact of specific customer negotiations
with airlines.
Movement on provisions: The GBP(136)m movement reflected a
decrease in the provision balance primarily driven by Trent 1000
provision utilisation and progress on the restructuring
programme.
Cash flows on settlement of excess derivative contracts: Relates
to the cash settlement costs in the period to 30 June 2021 for the
offsetting foreign exchange contracts that were entered into to
reduce the size of the US Dollar hedge book. The cash settlement
costs of GBP1.7bn occur across 2020-2026, of which GBP1.2bn remains
to be paid in future periods.
Interest and fees: The net payment of GBP(116)m in the period
was higher than the prior period, reflecting GBP(81)m of net
interest paid (2020 H1: GBP(26)m) and commitment fees on undrawn
facilities.
Contributions to defined benefit pensions: In H1 2021, cash
contributions were GBP94m higher than the pensions charge in the
income statement (H1 2020: GBP94m lower) reflecting payment
deferrals from 2020 into H1 2021 .
Taxation: Net cash tax payments in 2021 H1 were GBP(102)m (2020
H1: GBP(34)m). The increase in 2021 H1 is mainly due to the timing
of certain payments. Net tax payments in 2021 H2 are expected to be
significantly lower.
Disposals and acquisitions: The GBP(30)m outflow related to
costs associated with disposal activity.
Exceptional restructuring: Payments of GBP(134)m related to the
restructuring programme and associated initiatives, of which GBP20m
related to restructuring capital expenditure.
Payment of financial penalties: The final payment of GBP(156)m
relating to the deferred prosecution agreement (DPA) in the UK was
made in January 2021.
Other underlying adjustments: Outflow of GBP(30)m includes
timing of cash flows on a prior period disposal where the Group
retains the responsibility for collecting cash before passing it on
to the acquirer, along with other smaller items.
Net cash flow from changes in borrowings and lease liabilities:
During the period, the Group drew down on its GBP2.0bn loan which
is supported by an 80% guarantee from UK Export Finance and repaid
GBP300m of commercial paper under the Covid Corporate Financing
Facility and EUR750m (GBP639m) loan notes in line with repayment
terms.
Civil Aerospace
GBP million 2021 H1 Organic Change (3) FX 2020 H1 (4) Change Organic Change (3)
----------------------------------- -------- ------------------- ----- ------------ -------- -------------------
Underlying revenue 2,168 (336) (12) 2,516 (14%) (13%)
----------------------------------- -------- ------------------- ----- ------------ -------- -------------------
Underlying OE revenue 722 (466) 1 1,187 (39%) (39%)
----------------------------------- -------- ------------------- ----- ------------ -------- -------------------
Underlying services revenue 1,446 130 (13) 1,329 9% 10%
----------------------------------- -------- ------------------- ----- ------------ -------- -------------------
Underlying gross profit/(loss) 380 1,940 (8) (1,552) (124%) (125%)
----------------------------------- -------- ------------------- ----- ------------ -------- -------------------
Gross margin % 17.5% 79.4%pt (61.7%) 79.2%pt
----------------------------------- -------- ------------------- ----- ------------ -------- -------------------
Commercial and administrative
costs (145) 25 2 (172) (16%) (15%)
----------------------------------- -------- ------------------- ----- ------------ -------- -------------------
Research and development costs (237) (60) 3 (180) 32% 33%
----------------------------------- -------- ------------------- ----- ------------ -------- -------------------
Joint ventures and associates 41 (45) (2) 88 (53%) (52%)
----------------------------------- -------- ------------------- ----- ------------ -------- -------------------
Underlying operating profit/(loss) 39 1,860 (5) (1,816) (102%) 1,860
----------------------------------- -------- ------------------- ----- ------------ -------- -------------------
Underlying operating margin % 1.8% 74.1%pt (72.2%) 74.0%pt
----------------------------------- -------- ------------------- ----- ------------ -------- -------------------
Key operational metrics: 2021 H1 2020 H1 Change
------------------------------------------ -------- -------- -------
Large engine deliveries 100 137 (27%)
------------------------------------------ -------- -------- -------
Business jet engine deliveries 48 103 (53%)
------------------------------------------ -------- -------- -------
Total engine deliveries 148 240 (38%)
------------------------------------------ -------- -------- -------
Large engine LTSA flying hours (million) 3.2 3.9 (18%)
------------------------------------------ -------- -------- -------
Large engine LTSA major refurbs 92 161 (43%)
------------------------------------------ -------- -------- -------
Large engine LTSA check & repairs 192 310 (38%)
------------------------------------------ -------- -------- -------
Total large engine LTSA shop visits 284 471 (40%)
------------------------------------------ -------- -------- -------
Civil Aerospace operational performance in the first half was in
line with expectations. Large engine LTSA flying hours were 43% of
the 2019 level, a 9 percentage point improvement from second half
2020. Domestic large engine flying hours exceeded 2019 levels in
May and made up approximately 20% of the large engine activity in
the period. Business aviation flying recovered to 2019 levels by
the end of the first half. Engine deliveries were down from the
prior period, reflecting the build schedules of widebody airframer
customers and the transition between engine programmes for business
aviation.
-- Underlying revenue of GBP2.2bn, down 13% on the prior period.
OE revenue of GBP722m was down 39% reflecting the reduction in
engine delivery volumes required to fulfil airframer customer build
schedules. Services revenue of GBP1.4bn was up 10% on the prior
year period and included GBP160m positive LTSA catch-ups (2020 H1:
GBP(866)m negative contract catch-ups), offset by lower shop visit
volumes.
-- Underlying gross profit of GBP380m benefitted from strong
operating cost performance resulting from our restructuring
programme and GBP166m positive LTSA catch-ups. The GBP(1.6)bn gross
loss in 2020 H1 included GBP(1.2)bn of largely COVID-related
one-time charges including GBP(814)m negative LTSA catch-ups.
-- Underlying operating profit of GBP39m reflected the good
progress on restructuring cost savings, which were mostly related
to direct costs, offset by the higher R&D charge and lower
contribution from JVs and associates.
-- Trading cash outflow was GBP(1,064)m in the first half, a
significant improvement on 2020 H1 reflecting the return to
underlying profitability, including restructuring savings, as well
as a reduction in working capital related outflows driven partly by
the non-repeat of the H1 2020 unwind of invoice factoring. OE
concession outflows were higher than the prior period, driving a
GBP239m reduction in the concession liability on the balance
sheet.
Outlook
The timing of civil aviation recovery, particularly for
international travel, remains uncertain and sensitive to the
developments of the COVID-19 virus. For 2021, we expect the
recovery in business aviation and domestic flying to be sustained
and a continuation of the gradual improvement in international
flying, which is constrained by the border restrictions in place
worldwide. We are encouraged by forward indicators, including
vaccination programmes and expect the recovery to accelerate once
restrictions are lifted.
Defence
Organic Organic
2021 Change Change
GBP million H1 (3) FX 2020 H1 Change (3)
------------------------------- ------ -------- ----- -------- ------- --------
Underlying revenue 1,721 266 (98) 1,553 11% 17%
------------------------------- ------ -------- ----- -------- ------- --------
Underlying OE revenue 719 83 (42) 678 6% 12%
------------------------------- ------ -------- ----- -------- ------- --------
Underlying services
revenue 1,002 183 (56) 875 15% 21%
------------------------------- ------ -------- ----- -------- ------- --------
Underlying gross profit 395 80 (17) 332 19% 24%
------------------------------- ------ -------- ----- -------- ------- --------
Gross margin % 23.0% 1.3%pt 21.4% 1.6%pt
------------------------------- ------ -------- ----- -------- ------- --------
Commercial and administrative
costs (79) (5) 2 (76) 4% 7%
------------------------------- ------ -------- ----- -------- ------- --------
Research and development
costs (47) - 2 (49) (4%) -
------------------------------- ------ -------- ----- -------- ------- --------
Joint ventures and associates - (3) - 3 - -
------------------------------- ------ -------- ----- -------- ------- --------
Underlying operating
profit 269 72 (13) 210 28% 35%
------------------------------- ------ -------- ----- -------- ------- --------
Underlying operating
margin % 15.6% 2.0%pt 13.5% 2.1%pt
------------------------------- ------ -------- ----- -------- ------- --------
Our Defence business continues to perform well with resilient
demand for OE and services. First half growth was helped by the
earlier timing of spare engine and spare parts sales, which
typically have been in the second half in prior years. This
favourable timing and mix in the first half is expected to result
in a stronger first half versus second half performance, and our
full year expectations for Defence are unchanged. The timing of
order deposits resulted in a lower cash conversion in the first
half compared with the prior year period but our full year
expectation is unchanged.
Order intake was GBP1.2bn, representing a book-to-bill ratio of
0.7x. The order book is strong following several years' of high
intake. Order cover for 2022 is in excess of 70%.
-- Underlying revenue increased by 17% to GBP1.7bn. This was
driven by improved operational performance that enabled earlier
delivery of high margin spare parts and spare engine sales,
historically weighted towards the second half. Actions taken to
support the supply chain in 2020 have supported an improvement in
on-time delivery to customers, with services revenue up 21% and OE
revenue up 12%.
-- Underlying gross profit of GBP395m was 24% higher
year-over-year and the gross margin expanded 1.3%pt to 23.0%. This
reflected a positive mix towards higher margin spare parts and
spare engine sales.
-- Underlying operating profit increased by 35% to GBP269m, with
margin 2.0%pt higher at 15.6%. This reflected the beneficial
phasing of revenue and profit, together with strong cost
control.
Outlook
We expect revenue and profit to be broadly stable in 2021, with
a stronger first half versus second half performance reflecting the
earlier timing of sales in addition to an increase in R&D
investment expected during the second half, in line with customer
requirements and project phasing.
Our largest customers, the US DoD and the UK MoD, remain
committed to the modernisation of their fleets with a particular
focus on technology and an emerging interest in reducing their
carbon footprint. Our work on the Tempest programme in the UK is
progressing well and we have tendered a strong solution for the
B-52 new engine programme in the US, which is being assessed by the
DoD with a decision on selection expected in the second half of
this year.
Power Systems
Organic Organic
Change M&A 2020 H1 Change
GBP million 2021 H1 (3) (8) FX (5) Change (3)
------------------------------- -------- -------- ----- ---- -------- ------- --------
Underlying revenue 1,181 (49) 24 (8) 1,214 (3%) (4%)
------------------------------- -------- -------- ----- ---- -------- ------- --------
Underlying OE revenue 718 (105) 24 (5) 804 (11%) (13%)
------------------------------- -------- -------- ----- ---- -------- ------- --------
Underlying services
revenue 463 56 - (3) 410 13% 13%
------------------------------- -------- -------- ----- ---- -------- ------- --------
Underlying gross profit 301 34 8 (4) 263 14% 13%
------------------------------- -------- -------- ----- ---- -------- ------- --------
Gross margin % 25.5% 3.8%pt 21.7% 3.8%pt
------------------------------- -------- -------- ----- ---- -------- ------- --------
Commercial and administrative
costs (190) (37) (8) 3 (148) 28% 25%
------------------------------- -------- -------- ----- ---- -------- ------- --------
Research and development
costs (69) 12 - 1 (82) (16%) (14%)
------------------------------- -------- -------- ----- ---- -------- ------- --------
Joint ventures and associates (1) - - (1) 0 - -
------------------------------- -------- -------- ----- ---- -------- ------- --------
Underlying operating
profit 41 9 - (1) 33 24% 26%
------------------------------- -------- -------- ----- ---- -------- ------- --------
Underlying operating
margin % 3.5% 0.8%pt 2.7% 0.8%pt
------------------------------- -------- -------- ----- ---- -------- ------- --------
Power Systems saw increased activity levels during the first
half with improved order intake and growth in aftermarket revenue.
This encouraging start to the recovery supports our expectations
for OE recovery starting in the second half.
-- Order intake of GBP1.4bn was 19% higher than the prior period
and represented a book-to-bill ratio of 1.2x in the period. Year on
year growth was strongest in marine, governmental and power
generation end markets. Lower carbon solutions are gaining interest
from customers as we continue to develop our product offerings in
this area aligned with market progress and customer demand.
-- Underlying revenue broadly unchanged at GBP1.2bn with 13%
growth in aftermarket services as economic activity recovers in our
end markets, offset by a 13% reduction in OE revenue, in line with
expectations.
-- Underlying gross profit of GBP301m was 13% higher benefitting
from a positive mix effect due to the rise in higher-margin
aftermarket spare parts and reallocation of certain direct costs to
commercial and administrative costs. This was partly offset by
lower utilisation in the period.
-- Underlying operating profit of GBP41m with a margin of 3.5%,
0.8%pts higher than prior period, reflecting the positive mix of
activity. The increase in commercial and administrative costs was
largely due to one-off items in the period that are not expected to
repeat and timing differences which are expected to unwind as well
as the reallocation of certain costs from gross profit. The
reduction in R&D in the first half reflected the timing of
projects and is expected to increase in the second half.
Outlook
Revenues are expected to return to growth in the second half of
2021 as the encouraging recovery in order intake converts into
sales. This will help improve factory utilisation and drive margin
recovery in the second half despite the expected increase in
R&D spend. Our strategy to focus on market share growth in
China resulted in increased order intake compared with the prior
year which we expect to convert into strong sales growth in China
for the full year. Our target to return to 2019 levels of revenue
by 2022 is unchanged and supported by the order intake recovery we
have seen year to date.
ITP Aero
ITP Aero is classified as a discontinued business and held for
sale in the 2021 H1 results.
Organic Organic
Change 2020 H1 Change
GBP million 2021 H1 (3) FX (4) Change (3)
------------------------------- -------- -------- ---- -------- ------- --------
Underlying revenue 317 (79) (2) 398 (20%) (20%)
------------------------------- -------- -------- ---- -------- ------- --------
Underlying OE revenue 271 (47) (1) 319 (15%) (15%)
------------------------------- -------- -------- ---- -------- ------- --------
Underlying services revenue 46 (32) (1) 79 (42%) (41%)
------------------------------- -------- -------- ---- -------- ------- --------
Underlying gross profit 48 12 (1) 37 30% 32%
------------------------------- -------- -------- ---- -------- ------- --------
Gross margin % 15.1% 5.9%pt 9.3% 5.8%pt
------------------------------- -------- -------- ---- -------- ------- --------
Commercial and administrative
costs (26) (4) 1 (23) 13% 17%
------------------------------- -------- -------- ---- -------- ------- --------
Research and development
costs (15) - - (15) - -
------------------------------- -------- -------- ---- -------- ------- --------
Joint ventures and associates - (1) - 1 - -
------------------------------- -------- -------- ---- -------- ------- --------
Underlying operating
profit 7 7 - - - -
------------------------------- -------- -------- ---- -------- ------- --------
Underlying operating
margin % 2.2% 2.2%pt 0.0% 2.2%pt
------------------------------- -------- -------- ---- -------- ------- --------
ITP Aero has performed well in challenging conditions in the
first half with resilience in demand for its defence activities
(approximately 30% of revenue) but low levels of demand for its
civil aerospace activities (approximately 70% of revenue), impacted
by the continued effect of COVID-19 on original equipment
manufacturer (OEM) customers.
-- Underlying revenue was GBP317m, down 20% in 2020 H1,
reflecting the continued impact of COVID-19 on the civil aerospace
market. Defence revenue remained resilient.
-- Underlying gross profit of GBP48m, up 32%, benefitted from a
favourable mix of higher margin products, particularly in
defence.
-- Underlying operating profit was GBP7m, a small improvement on
the break-even result in 2020 H1 driven mostly by the increase in
gross profit and saving from headcount reductions in 2020.
-- Hucknall and fabrications: As part of the footprint review
and reorganisation of the Group's Civil Aerospace activities
announced in 2020, approximately 700 people and all activities
carried out at Rolls-Royce's Hucknall site in the UK transferred to
ITP Aero in May 2021 along with certain fabrication supply chain
activities.
Notes to financial tables and commentary on pages 1-14:
(1) Discontinued operations relate to the statutory and
underlying results of ITP Aero and are presented net of internal
sales and related consolidation adjustments.
(2) 2020 H1 earnings per share has been adjusted to reflect the
2.91 bonus element of the rights issue that was completed on 12
November 2020.
(3) Organic change at constant translational currency (constant
currency) applying FY20 average rates to 2020 H1 and 2021 H1,
excluding M&A. All commentary is provided on an organic basis
unless otherwise stated.
(4) The underlying results for Civil Aerospace and ITP Aero for
2020 H1 have been restated to reflect the transfer of the Hucknall
site with associated fabrications activities from Civil Aerospace
to ITP Aero during 2021.
(5) The underlying results for Power Systems for 2020 have been
restated to reclassify the Civil Nuclear Instrumentation &
Control business as other businesses, consistent with FY20.
(6) Other businesses include the results of the Bergen Engines
AS business, the results of the Civil Nuclear Instrumentation &
Control business, the results of the North America Civil Nuclear
business until the date of disposal on 31 January 2020 and the
results of the Knowledge Management System business until the date
of disposal on 3 February 2020.
(7) The underlying results of Corporate and inter-segment
activities includes the results of the Group's SMR, electrical and
UK civil nuclear activities.
(8) M&A includes 2020 Power Systems acquisitions comprising
of Kinolt Group S.A and Servowatch Systems Limited (SSL).
(9) Working capital includes inventory, trade receivables,
payables and similar assets and liabilities.
(10) Net debt includes GBP57m (2020: GBP251m) of the fair value
of derivatives included in fair value hedges and the element of
fair value relating to exchange differences on the underlying
principal of derivatives in cash flow hedges.
(11) Relates to Bergen Engines AS and the Civil Nuclear
Instrumentation & Control business which were classified as
disposal groups held for sale at 31 December 2020 together with ITP
Aero held for sale at 30 June 2021.
Condensed consolidated interim financial statements
Condensed consolidated income statement
For the half-year ended 30 June 2021
Restated
Half-year to 30 June 2021 Half-year to
30 June 2020 (1)
Notes GBPm GBPm
------------------------------------------ --- --------------------------- ------------------ ---------
Continuing operations
------------------------------------------ --- --------------------------- ------------------ ---------
Revenue 2 5,159 5,673
------------------------------------------------ --------------------------- ------------------ ---------
Cost of sales (2) (4,345) (6,263)
------------------------------------------------ --------------------------- ------------------ ---------
Gross profit/(loss) 2 814 (590)
------------------------------------------------ --------------------------- ------------------ ---------
Commercial and administrative costs 2 (424) (421)
------------------------------------------------ --------------------------- ------------------ ---------
Research and development costs 2, 3 (390) (678)
------------------------------------------------ --------------------------- ------------------ ---------
Share of results of joint ventures and
associates 38 72
------------------------------------------------ --------------------------- ------------------ ---------
Operating profit/(loss) 38 (1,617)
------------------------------------------------ --------------------------- ------------------ ---------
(Loss)/gain arising on acquisition and
disposal of businesses 19 (7) 2
------------------------------------------------ --------------------------- ------------------ ---------
Profit/(loss) before financing and taxation 31 (1,615)
------------------------------------------------ --------------------------- ------------------ ---------
Financing income (3) 4 280 23
------------------------------------------------ --------------------------- ------------------ ---------
Financing costs (3) 4 (197) (3,621)
------------------------------------------------ --------------------------- ------------------ ---------
Net financing income/(costs) 83 (3,598)
------------------------------------------------ --------------------------- ------------------ ---------
Profit/(loss) before taxation 114 (5,213)
------------------------------------------------ --------------------------- ------------------ ---------
Taxation 5 280 (48)
------------------------------------------------ --------------------------- ------------------ ---------
Profit/(loss) for the period from continuing
operations 394 (5,261)
------------------------------------------------ --------------------------- ------------------ ---------
Discontinued operations
------------------------------------------ --- --------------------------- ------------------ ---------
Profit/(loss) for the period 16 (117)
------------------------------------------------ --------------------------- ------------------ ---------
Costs of disposal of discontinued
operations (17) -
------------------------------------------ --- --------------------------- ------------------ ---------
Loss for the period from discontinued
operations 19 (1) (117)
------------------------------------------------ --------------------------- ------------------ ---------
Profit/(loss) for the period 393 (5,378)
------------------------------------------------ --------------------------- ------------------ ---------
Attributable to:
------------------------------------------ --- --------------------------- ------------------ ---------
Ordinary shareholders 393 (5,380)
------------------------------------------------ --------------------------- ------------------ ---------
Non-controlling interests - 2
------------------------------------------------ --------------------------- ------------------ ---------
Profit/(loss) for the period 393 (5,378)
------------------------------------------------ --------------------------- ------------------ ---------
Other comprehensive (expense)/income (145) 683
------------------------------------------------ --------------------------- ------------------ ---------
Total comprehensive income/(expense) for the
period 248 (4,695)
------------------------------------------------ --------------------------- ------------------ ---------
Profit/(loss) per ordinary share attributable to
ordinary shareholders: 6
------------------------------------------------ --------------------------- ------------------ ---------
From continuing operations:
------------------------------------------ --- --------------------------- ------------------ ---------
Basic (4) 4.73p (94.03)p
------------------------------------------------ --------------------------- ------------------ ---------
Diluted (4) 4.72p (94.03)p
------------------------------------------------ --------------------------- ------------------ ---------
From continuing and discontinued
operations:
------------------------------------------ --- --------------------------- ------------------ ---------
Basic (4) 4.72p (96.12)p
------------------------------------------------ --------------------------- ------------------ ---------
Diluted (4) 4.71p (96.12)p
------------------------------------------------ --------------------------- ------------------ ---------
Underlying earnings per ordinary share are shown
in note 6.
------------------------------------------------ --------------------------- ------------------ ---------
(1) The comparative figures have been restated to reflect ITP
Aero being classified as a discontinued operation. Further detail
can be found in note 19.
(2) Cost of sales includes a net charge for expected credit
losses of GBP48m (2020: GBP104m).
(3) Included within financing are fair value changes on
derivative contracts. Further details can be found in notes 2, 4
and 13.
(4) The comparative figures for earnings per share have been
adjusted to reflect the bonus element of the rights issue that
completed on 12 November 2020 - see note 6. Payments to ordinary
shareholders in respect of the period are GBPnil (2020:
GBPnil).
Condensed consolidated statement of comprehensive income
For the half-year ended 30 June 2021
Half-year to
Half-year to 30 June 2021 30 June 2020
Notes GBPm GBPm
------------------------------------------------------------------ ------ -------------------------- --------------
Profit/(loss) for the period 393 (5,378)
------------------------------------------------------------------ ------ -------------------------- --------------
Other comprehensive income (OCI)
------------------------------------------------------------------ ------ -------------------------- --------------
Actuarial movements in post-retirement schemes 16 (12) 393
------------------------------------------------------------------ ------ -------------------------- --------------
Share of OCI of joint ventures and associates (4) (1)
------------------------------------------------------------------ ------ -------------------------- --------------
Related tax movements 16 (130)
------------------------------------------------------------------ ------ -------------------------- --------------
Items that will not be reclassified to profit or loss - 262
------------------------------------------------------------------ ------ -------------------------- --------------
Foreign exchange translation differences on foreign operations (174) 444
------------------------------------------------------------------ ------ -------------------------- --------------
Reclassified to income statement on disposal of businesses - 3
------------------------------------------------------------------ ------ -------------------------- --------------
Movement on fair values debited to cash flow hedge reserve (41) (6)
------------------------------------------------------------------ ------ -------------------------- --------------
Reclassified to income statement from cash flow hedge reserve 38 (19)
------------------------------------------------------------------ ------ -------------------------- --------------
Share of OCI of joint ventures and associates 32 (9)
------------------------------------------------------------------ ------ -------------------------- --------------
Related tax movements - 8
------------------------------------------------------------------ ------ -------------------------- --------------
Items that may be reclassified to profit or loss (145) 421
------------------------------------------------------------------ ------ -------------------------- --------------
Total other comprehensive (expense)/income (145) 683
------------------------------------------------------------------ ------ -------------------------- --------------
Total comprehensive income/(expense) for the period 248 (4,695)
------------------------------------------------------------------ ------ -------------------------- --------------
Attributable to:
------------------------------------------------------------------ ------ -------------------------- --------------
Ordinary shareholders 248 (4,697)
------------------------------------------------------------------ ------ -------------------------- --------------
Non-controlling interests - 2
------------------------------------------------------------------ ------ -------------------------- --------------
Total comprehensive income/(expense) for the period 248 (4,695)
------------------------------------------------------------------ ------ -------------------------- --------------
Total comprehensive income/(expense) for the period attributable
to ordinary shareholders
arises from:
------------------------------------------------------------------ ------ -------------------------- --------------
Continuing operations 316 (4,646)
------------------------------------------------------------------ ------ -------------------------- --------------
Discontinued operations (68) (51)
------------------------------------------------------------------ ------ -------------------------- --------------
Total comprehensive income/(expense) for the period attributable
to ordinary shareholders 248 (4,697)
------------------------------------------------------------------ ------ -------------------------- --------------
Condensed consolidated balance sheet
At 30 June 2021
30 June 31 December
2021 2020
Notes GBPm GBPm
------------------------------------------------- ------ --------- ------------
ASSETS
------------------------------------------------- ------ --------- ------------
Intangible assets 7 4,063 5,145
------------------------------------------------- ------ --------- ------------
Property, plant and equipment 8 3,992 4,515
------------------------------------------------- ------ --------- ------------
Right-of-use assets 9 1,266 1,405
------------------------------------------------- ------ --------- ------------
Investments - joint ventures and associates 413 394
------------------------------------------------- ------ --------- ------------
Investments - other 24 19
------------------------------------------------- ------ --------- ------------
Other financial assets 13 537 687
------------------------------------------------- ------ --------- ------------
Deferred tax assets 2,062 1,826
------------------------------------------------- ------ --------- ------------
Post-retirement scheme surpluses 16 914 907
------------------------------------------------- ------ --------- ------------
Non-current assets 13,271 14,898
------------------------------------------------- ------ --------- ------------
Inventories 3,673 3,690
------------------------------------------------- ------ --------- ------------
Trade receivables and other assets 10 5,068 5,455
------------------------------------------------- ------ --------- ------------
Contract assets 12 1,402 1,510
------------------------------------------------- ------ --------- ------------
Taxation recoverable 79 117
------------------------------------------------- ------ --------- ------------
Other financial assets 13 40 107
------------------------------------------------- ------ --------- ------------
Short-term investments 1 -
------------------------------------------------- ------ --------- ------------
Cash and cash equivalents 2,915 3,452
------------------------------------------------- ------ --------- ------------
Current assets 13,178 14,331
------------------------------------------------- ------ --------- ------------
Assets held for sale 19 2,306 288
------------------------------------------------- ------ --------- ------------
TOTAL ASSETS 28,755 29,517
------------------------------------------------- ------ --------- ------------
LIABILITIES
------------------------------------------------- ------ --------- ------------
Borrowings and lease liabilities 14 (221) (1,272)
------------------------------------------------- ------ --------- ------------
Other financial liabilities 13 (663) (608)
------------------------------------------------- ------ --------- ------------
Trade payables and other liabilities 11 (5,720) (6,653)
------------------------------------------------- ------ --------- ------------
Contract liabilities 12 (3,811) (4,187)
------------------------------------------------- ------ --------- ------------
Current tax liabilities (96) (154)
------------------------------------------------- ------ --------- ------------
Provisions for liabilities and charges 15 (568) (826)
------------------------------------------------- ------ --------- ------------
Current liabilities (11,079) (13,700)
------------------------------------------------- ------ --------- ------------
Borrowings and lease liabilities 14 (7,693) (6,058)
------------------------------------------------- ------ --------- ------------
Other financial liabilities 13 (2,462) (3,046)
------------------------------------------------- ------ --------- ------------
Trade payables and other liabilities 11 (1,792) (1,922)
------------------------------------------------- ------ --------- ------------
Contract liabilities 12 (6,427) (6,245)
------------------------------------------------- ------ --------- ------------
Deferred tax liabilities (392) (494)
------------------------------------------------- ------ --------- ------------
Provisions for liabilities and charges 15 (1,152) (1,119)
------------------------------------------------- ------ --------- ------------
Post-retirement scheme deficits 16 (1,444) (1,580)
------------------------------------------------- ------ --------- ------------
Non -current liabilities (21,362) (20,464)
------------------------------------------------- ------ --------- ------------
Liabilities associated with assets held for sale 19 (904) (228)
------------------------------------------------- ------ --------- ------------
TOTAL LIABILITIES (33,345) (34,392)
------------------------------------------------- ------ --------- ------------
NET LIABILITIES (4,590) (4,875)
------------------------------------------------- ------ --------- ------------
EQUITY
------------------------------------------------- ------ --------- ------------
Called-up share capital 1,674 1,674
------------------------------------------------- ------ --------- ------------
Share premium 1,012 1,012
------------------------------------------------- ------ --------- ------------
Capital redemption reserve 164 162
------------------------------------------------- ------ --------- ------------
Cash flow hedging reserve (63) (94)
------------------------------------------------- ------ --------- ------------
Merger reserve 650 650
------------------------------------------------- ------ --------- ------------
Translation reserve 348 524
------------------------------------------------- ------ --------- ------------
Accumulated losses (8,399) (8,825)
------------------------------------------------- ------ --------- ------------
Equity attributable to ordinary shareholders (4,614) (4,897)
------------------------------------------------- ------ --------- ------------
Non-controlling interests 24 22
------------------------------------------------- ------ --------- ------------
TOTAL EQUITY (4,590) (4,875)
------------------------------------------------- ------ --------- ------------
Condensed consolidated cash flow statement
For the half-year ended 30 June 2021
Half-year to
Half-year to 30 June 2021 30 June 2020
Notes GBPm GBPm
------------------------------------------------------------------ ------ -------------------------- --------------
Reconciliation of cash flows from operating activities
------------------------------------------------------------------ ------ -------------------------- --------------
Operating profit/(loss) from continuing operations 38 (1,617)
------------------------------------------------------------------ ------ -------------------------- --------------
Operating loss from discontinued operations (93) (152)
------------------------------------------------------------------ ------ -------------------------- --------------
Operating loss (1) (55) (1,769)
------------------------------------------------------------------ ------ -------------------------- --------------
Loss on disposal of property, plant and equipment 2 19
------------------------------------------------------------------ ------ -------------------------- --------------
Share of results of joint ventures and associates (38) (73)
------------------------------------------------------------------ ------ -------------------------- --------------
Dividends received from joint ventures and associates 14 28
------------------------------------------------------------------ ------ -------------------------- --------------
Amortisation and impairment of intangible assets 7 159 550
------------------------------------------------------------------ ------ -------------------------- --------------
Depreciation and impairment of property, plant and equipment 8 243 495
------------------------------------------------------------------ ------ -------------------------- --------------
Depreciation and impairment of right-of-use assets 9 128 513
------------------------------------------------------------------ ------ -------------------------- --------------
Adjustment of amounts payable under residual value guarantees
within lease liabilities (2) (3) (42)
------------------------------------------------------------------ ------ -------------------------- --------------
Impairment of and other movements on investments 2 19
------------------------------------------------------------------ ------ -------------------------- --------------
Decrease in provisions (211) (130)
------------------------------------------------------------------ ------ -------------------------- --------------
Increase in inventories (219) (301)
------------------------------------------------------------------ ------ -------------------------- --------------
Movement in trade receivables/payables and other
assets/liabilities (136) (1,925)
------------------------------------------------------------------ ------ -------------------------- --------------
Movement in contract assets/liabilities (178) 642
------------------------------------------------------------------ ------ -------------------------- --------------
Financial penalties paid (3) (156) (135)
------------------------------------------------------------------ ------ -------------------------- --------------
Cash flows on other financial assets and liabilities held for
operating purposes (45) (35)
------------------------------------------------------------------ ------ -------------------------- --------------
Interest received 3 12
------------------------------------------------------------------ ------ -------------------------- --------------
Net defined benefit post-retirement cost/(credit) recognised in
loss before financing 16 26 (116)
------------------------------------------------------------------ ------ -------------------------- --------------
Cash funding of defined benefit post-retirement schemes 16 (131) (38)
------------------------------------------------------------------ ------ -------------------------- --------------
Share-based payments 18 1
------------------------------------------------------------------ ------ -------------------------- --------------
Net cash outflow from operating activities before taxation (577) (2,285)
------------------------------------------------------------------ ------ -------------------------- --------------
Taxation paid (102) (34)
------------------------------------------------------------------ ------ -------------------------- --------------
Net cash outflow from operating activities (679) (2,319)
------------------------------------------------------------------ ------ -------------------------- --------------
Cash flows from investing activities
------------------------------------------------------------------ ------ -------------------------- --------------
Net movement in unlisted investments (6) (14)
------------------------------------------------------------------ ------ -------------------------- --------------
Additions of intangible assets 7 (89) (204)
------------------------------------------------------------------ ------ -------------------------- --------------
Disposals of intangible assets 7 2 10
------------------------------------------------------------------ ------ -------------------------- --------------
Purchases of property, plant and equipment (126) (226)
------------------------------------------------------------------ ------ -------------------------- --------------
Disposals of property, plant and equipment 5 1
------------------------------------------------------------------ ------ -------------------------- --------------
Disposals of right-of-use assets - 7
------------------------------------------------------------------ ------ -------------------------- --------------
Acquisition of businesses 19 - (8)
------------------------------------------------------------------ ------ -------------------------- --------------
Disposal of businesses 19 (8) 10
------------------------------------------------------------------ ------ -------------------------- --------------
Movement in investments in joint ventures and associates and other
movements on investments (2) (4)
------------------------------------------------------------------ ------ -------------------------- --------------
Movement in short-term investments (1) -
------------------------------------------------------------------ ------ -------------------------- --------------
Net cash outflow from investing activities (225) (428)
------------------------------------------------------------------ ------ -------------------------- --------------
Cash flows from financing activities
------------------------------------------------------------------ ------ -------------------------- --------------
Repayment of loans (4) (942) (21)
------------------------------------------------------------------ ------ -------------------------- --------------
Proceeds from increase in loans (4) 2,003 2,807
------------------------------------------------------------------ ------ -------------------------- --------------
Capital element of lease payments (147) (149)
------------------------------------------------------------------ ------ -------------------------- --------------
Net cash flow from increase in borrowings and leases 914 2,637
------------------------------------------------------------------ ------ -------------------------- --------------
Interest paid (84) (38)
------------------------------------------------------------------ ------ -------------------------- --------------
Interest element of lease payments (31) (39)
------------------------------------------------------------------ ------ -------------------------- --------------
Fees paid on undrawn facilities (35) -
------------------------------------------------------------------ ------ -------------------------- --------------
Cash flows on settlement of excess derivative contracts (5) 4 (303) (88)
------------------------------------------------------------------ ------ -------------------------- --------------
Movement in short-term investments - 6
------------------------------------------------------------------ ------ -------------------------- --------------
Purchase of ordinary shares - (1)
------------------------------------------------------------------ ------ -------------------------- --------------
NCI on formation of subsidiary 2 -
------------------------------------------------------------------ ------ -------------------------- --------------
Redemption of C Shares (2) (90)
------------------------------------------------------------------ ------ -------------------------- --------------
Net cash inflow from financing activities 461 2,387
------------------------------------------------------------------ ------ -------------------------- --------------
Change in cash and cash equivalents (443) (360)
------------------------------------------------------------------ ------ -------------------------- --------------
Cash and cash equivalents at 1 January 3,496 4,435
------------------------------------------------------------------ ------ -------------------------- --------------
Exchange (losses)/gains on cash and cash equivalents (75) 156
------------------------------------------------------------------ ------ -------------------------- --------------
Cash and cash equivalents at 30 June (6) 2,978 4,231
------------------------------------------------------------------ ------ -------------------------- --------------
Condensed consolidated cash flow statement continued
For the half-year ended 30 June 2021
(1) During the period, the Group received GBP10m (30 June 2020:
GBP17m) from the British Government as part of the UK furlough
scheme. This was recognised within operating profit/(loss).
(2) Where the cost of meeting residual value guarantees is less
than that previously estimated, as costs have been mitigated or
liabilities waived by the lessor, the lease liability has been
remeasured. Where the value of this remeasurement exceeds the value
of the right-of-use asset, the reduction in the lease liability is
credited to cost of sales.
(3) Relates to penalties paid on agreements with investigating bodies.
(4) Repayment of loans includes repayment of GBP300m commercial
paper under the Covid Corporate Financing Facility (CCFF) and
EUR750m (GBP639m) loan notes in line with repayment terms. Proceeds
from increase in loans includes the draw down of a GBP2,000m loan
(supported by an 80% guarantee from UK Export Finance). Further
details are provided in note 15.
(5) During the period, the Group incurred a cash outflow of
GBP303m as a result of settling foreign exchange contracts that
were originally in place to sell $3,297m receipts. Further detail
is provided in note 4.
(6) The Group considers overdrafts (repayable on demand) and
cash held for sale to be an integral part of its cash management
activities and these are included in cash and cash equivalents for
the purposes of the cash flow statement.
In deriving the condensed consolidated cash flow statement,
movements in balance sheet line items have been adjusted for
non-cash items. The cash flow in the period includes the sale of
goods and services to joint ventures and associates - see note
18.
Half-year to
Half-year to 30 June 2021 30 June 2020
GBPm GBPm
-------------------------------------------------------------------------- -------------------------- --------------
Reconciliation of movements in cash and cash equivalents to movements in
net debt
-------------------------------------------------------------------------- -------------------------- --------------
Change in cash and cash equivalents (443) (360)
-------------------------------------------------------------------------- -------------------------- --------------
Cash flow from increase in borrowings and leases (914) (2,637)
-------------------------------------------------------------------------- -------------------------- --------------
Less: settlement of related derivatives included in fair value of swaps
below 6 -
-------------------------------------------------------------------------- -------------------------- --------------
Cash flow from decrease/(increase) in short-term investments 1 (6)
-------------------------------------------------------------------------- -------------------------- --------------
Change in net debt resulting from cash flows (1,350) (3,003)
-------------------------------------------------------------------------- -------------------------- --------------
New leases and other non-cash adjustments to lease liabilities and
borrowings (17) 18
-------------------------------------------------------------------------- -------------------------- --------------
Exchange gains/(losses) on net debt 2 (2)
-------------------------------------------------------------------------- -------------------------- --------------
Fair value adjustments 144 (302)
-------------------------------------------------------------------------- -------------------------- --------------
Reclassifications 19 -
-------------------------------------------------------------------------- -------------------------- --------------
Movement in net debt (1,202) (3,289)
-------------------------------------------------------------------------- -------------------------- --------------
Net debt at 1 January (3,827) (1,236)
-------------------------------------------------------------------------- -------------------------- --------------
Net debt at 30 June excluding the fair value of swaps (5,029) (4,525)
-------------------------------------------------------------------------- -------------------------- --------------
Fair value of swaps hedging fixed rate borrowings 57 456
-------------------------------------------------------------------------- -------------------------- --------------
Net debt at 30 June (4,972) (4,069)
-------------------------------------------------------------------------- -------------------------- --------------
Condensed consolidated cash flow statement continued
For the half-year ended 30 June 2021
The movement in net debt (defined by the Group as including the
items shown below) is as follows:
At 1 Funds Exchange Fair value Reclassifi-cations Other
January flow differences adjustments (2) movements At 30 June
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------- ---------- ---------- ------------ ------------ ------------------- ---------- -----------
2021
-------------------- ---------- ---------- ------------ ------------ ------------------- ---------- -----------
Cash at bank and in
hand 940 (122) (13) - (38) - 767
-------------------- ---------- ---------- ------------ ------------ ------------------- ---------- -----------
Money market funds 669 (527) - - - - 142
-------------------- ---------- ---------- ------------ ------------ ------------------- ---------- -----------
Short-term deposits 1,843 221 (58) - - - 2,006
-------------------- ---------- ---------- ------------ ------------ ------------------- ---------- -----------
Cash and cash
equivalents (per
balance sheet) 3,452 (428) (71) - (38) - 2,915
-------------------- ---------- ---------- ------------ ------------ ------------------- ---------- -----------
Cash and cash
equivalents
included within
assets held for
sale 51 (16) (4) - 38 - 69
-------------------- ---------- ---------- ------------ ------------ ------------------- ---------- -----------
Overdrafts (7) 1 - - - - (6)
-------------------- ---------- ---------- ------------ ------------ ------------------- ---------- -----------
Cash and cash
equivalents
(per cash flow
statement) 3,496 (443) (75) - - - 2,978
-------------------- ---------- ---------- ------------ ------------ ------------------- ---------- -----------
Short-term
investments - 1 - - - - 1
-------------------- ---------- ---------- ------------ ------------ ------------------- ---------- -----------
Other current
borrowings (1,006) 948 1 36 18 - (3)
-------------------- ---------- ---------- ------------ ------------ ------------------- ---------- -----------
Non-current
borrowings (4,274) (2,003) 45 108 88 (3) (6,039)
-------------------- ---------- ---------- ------------ ------------ ------------------- ---------- -----------
Borrowings included
within liabilities
held for sale - - - - (77) - (77)
-------------------- ---------- ---------- ------------ ------------ ------------------- ---------- -----------
Lease liabilities (2,043) 145 31 - 15 (14) (1,866)
-------------------- ---------- ---------- ------------ ------------ ------------------- ---------- -----------
Lease liabilities
included within
liabilities held
for sale - 2 - - (25) - (23)
-------------------- ---------- ---------- ------------ ------------ ------------------- ---------- -----------
Financial
liabilities (7,323) (908) 77 144 19 (17) (8,008)
-------------------- ---------- ---------- ------------ ------------ ------------------- ---------- -----------
Net debt excluding
fair value of swaps (3,827) (1,350) 2 144 19 (17) (5,029)
-------------------- ---------- ---------- ------------ ------------ ------------------- ---------- -----------
Fair value of swaps
hedging fixed rate
borrowings (1) 251 (6) (41) (147) - - 57
-------------------- ---------- ---------- ------------ ------------ ------------------- ---------- -----------
Net debt (3,576) (1,356) (39) (3) 19 (17) (4,972)
-------------------- ---------- ---------- ------------ ------------ ------------------- ---------- -----------
Net debt (excluding
lease liabilities) (1,533) (3,083)
-------------------- ---------- ---------- ------------ ------------ ------------------- ---------- -----------
2020
-------------------- ---------- ---------- ------------ ------------ ------------------- ---------- -----------
Cash at bank and in
hand 825 110 36 - - - 971
-------------------- ---------- ---------- ------------ ------------ ------------------- ---------- -----------
Money market funds 1,095 (44) - - - - 1,051
-------------------- ---------- ---------- ------------ ------------ ------------------- ---------- -----------
Short-term deposits 2,523 (426) 120 - - - 2,217
-------------------- ---------- ---------- ------------ ------------ ------------------- ---------- -----------
Cash and cash
equivalents (per
balance sheet) 4,443 (360) 156 - - - 4,239
-------------------- ---------- ---------- ------------ ------------ ------------------- ---------- -----------
Overdrafts (8) - - - - - (8)
-------------------- ---------- ---------- ------------ ------------ ------------------- ---------- -----------
Cash and cash
equivalents
(per cash flow
statement) 4,435 (360) 156 - - - 4,231
-------------------- ---------- ---------- ------------ ------------ ------------------- ---------- -----------
Short-term
investments 6 (6) - - - - -
-------------------- ---------- ---------- ------------ ------------ ------------------- ---------- -----------
Other current
borrowings (427) (283) (3) (31) (690) - (1,434)
-------------------- ---------- ---------- ------------ ------------ ------------------- ---------- -----------
Non-current
borrowings (2,896) (2,503) (5) (271) 690 - (4,985)
-------------------- ---------- ---------- ------------ ------------ ------------------- ---------- -----------
Lease liabilities (2,354) 149 (150) - - 18 (2,337)
-------------------- ---------- ---------- ------------ ------------ ------------------- ---------- -----------
Financial
liabilities (5,677) (2,637) (158) (302) - 18 (8,756)
-------------------- ---------- ---------- ------------ ------------ ------------------- ---------- -----------
Net debt excluding
fair value of swaps (1,236) (3,003) (2) (302) - 18 (4,525)
-------------------- ---------- ---------- ------------ ------------ ------------------- ---------- -----------
Fair value of swaps
hedging fixed rate
borrowings 243 - - 213 - - 456
-------------------- ---------- ---------- ------------ ------------ ------------------- ---------- -----------
Net debt (993) (3,003) (2) (89) - 18 (4,069)
-------------------- ---------- ---------- ------------ ------------ ------------------- ---------- -----------
Net funds/(debt)
(excluding lease
liabilities) 1,361 (1,732)
-------------------- ---------- ---------- ------------ ------------ ------------------- ---------- -----------
(1) Fair value of swaps hedging fixed rate borrowings reflects
the impact of derivatives on repayments of the principal amount of
debt. Net debt therefore includes the fair value of derivatives
included in fair value hedges (30 June 2021: GBP141m, 31 December
2020: GBP293m) and the element of fair value relating to exchange
differences on the underlying principal of derivatives in cash flow
hedges (30 June 2021: GBP(84)m, 31 December 2020: GBP(42)m).
(2) Reclassifications include the transfer of ITP Aero to held
for sale and fees of GBP29m paid in previous periods for the
GBP2,000m loan (supported by an 80% guarantee from UK Export
Finance) that have been reclassified to borrowings on the draw down
of the facility during the current period.
Condensed consolidated statement of changes in equity
For the half-year ended 30 June 2021
Attributable to ordinary shareholders
Cash
Capital flow
Share Share redemption hedging Merger Translation Accumulated Non-controlling Total
capital premium reserve reserve reserve reserve losses (1) Total interests (NCI) equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------- -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
At 1 January 2021 1,674 1,012 162 (94) 650 524 (8,825) (4,897) 22 (4,875)
----------------- -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
Profit for the
period - - - - - - 393 393 - 393
----------------- -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
Foreign exchange
translation
differences on
foreign
operations - - - - - (174) - (174) - (174)
----------------- -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
Movement on
post-retirement
schemes - - - - - - (12) (12) - (12)
----------------- -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
Fair value
movement on cash
flow hedges - - - (41) - - - (41) - (41)
----------------- -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
Reclassified to
income statement
from cash flow
hedge reserve - - - 38 - - - 38 - 38
----------------- -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
OCI of joint
ventures and
associates - - - 32 - - (4) 28 - 28
----------------- -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
Related tax
movements - - - 2 - (2) 16 16 - 16
----------------- -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
Total
comprehensive
income/(expense)
for the period - - - 31 - (176) 393 248 - 248
----------------- -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
Issues of
ordinary shares - - - - - - - - - -
----------------- -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
Redemption of C
Shares (2) - - 2 - - - (2) - - -
----------------- -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
Share-based
payments -
direct to equity
(3) - - - - - - 18 18 - 18
----------------- -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
NCI on formation
of subsidiary - - - - - - - - 2 2
----------------- -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
Related tax
movements - - - - - - 17 17 - 17
----------------- -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
Other changes in
equity in the
period - - 2 - - - 33 35 2 37
----------------- -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
At 30 June 2021 1,674 1,012 164 (63) 650 348 (8,399) (4,614) 24 (4,590)
----------------- -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
At 1 January 2020 386 319 159 (96) 650 397 (5,191) (3,376) 22 (3,354)
----------------- -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
(Loss)/profit for
the period - - - - - - (5,380) (5,380) 2 (5,378)
----------------- -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
Foreign exchange
translation
differences on
foreign
operations - - - - - 444 - 444 - 444
----------------- -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
Reclassified to
the income
statement on
disposal of
businesses - - - - - 3 - 3 - 3
----------------- -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
Movement on
post-retirement
schemes - - - - - - 393 393 - 393
----------------- -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
Fair value
movement on cash
flow hedges - - - (6) - - - (6) - (6)
----------------- -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
Reclassified to
income statement
from cash flow
hedge reserve - - - (19) - - - (19) - (19)
----------------- -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
OCI of joint
ventures and
associates - - - (9) - - (1) (10) - (10)
----------------- -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
Related tax
movements - - - 6 - 2 (130) (122) - (122)
----------------- -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
Total
comprehensive
income/(expense)
for the period - - - (28) - 449 (5,118) (4,697) 2 (4,695)
----------------- -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
Arising on issues
of ordinary
shares - - - - - - - - - -
----------------- -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
Issue of C Shares
(2) - - (89) - - - 1 (88) - (88)
----------------- -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
Redemption of C
Shares - - 91 - - - (91) - - -
----------------- -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
Ordinary shares
purchased - - - - - - (1) (1) - (1)
----------------- -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
Shares issued to
employee share
trust - - - - - - - - - -
----------------- -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
Share-based
payments -
direct to equity
(3) - - - - - - 1 1 - 1
----------------- -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
Related tax
movements - - - - - - 13 13 - 13
----------------- -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
Other changes in
equity in the
period - - 2 - - - (77) (75) - (75)
----------------- -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
At 30 June 2020 386 319 161 (124) 650 846 (10,386) (8,148) 24 (8,124)
----------------- -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
(1) At 30 June 2021, 34,938,153 ordinary shares with a net book
value of GBP78m (30 June 2020: 9,345,059 ordinary shares with a net
book value of GBP80m) were held for the purpose of share-based
payment plans and included in accumulated losses. During the
period, 4,928,564 ordinary shares with a net book value of GBP11m
(30 June 2020: 3,217,241 ordinary shares with a net book value of
GBP28m) vested in share-based payment plans. During the period, the
Company acquired none (30 June 2020: 85,724) of its ordinary shares
via reinvestment of dividends received on its own shares and
purchased none (30 June 2020: none) of its ordinary shares through
purchases on the London Stock Exchange.
(2) In Rolls-Royce Holdings plc's own Financial Statements, C
Shares are issued from the merger reserve. This reserve was created
by a scheme of arrangement in 2011. As this reserve is eliminated
on consolidation, in the consolidated financial statements, the C
Shares are shown as being issued from the capital redemption
reserve.
(3) Share-based payments - direct to equity is the share-based
payment charge for the period less the actual cost of vesting
excluding those vesting from own shares and cash received on
share-based schemes vesting.
Notes to the interim financial statements
1 Basis of preparation and accounting policies
Reporting entity
Rolls-Royce Holdings plc (the 'Company') is a public company
incorporated under the Companies Act 2006 and domiciled in the UK.
These condensed consolidated interim financial statements of the
Group as at and for the six months ended 30 June 2021 consist of
the consolidation of the financial statements of the Group and its
subsidiaries (together referred to as the "Group") and include the
Group's interest in jointly controlled and associated entities.
The consolidated financial statements of the Group as at and for
the year ended 31 December 2020 (Annual Report 2020) are available
upon request from the Company Secretary, Rolls-Royce Holdings plc,
Kings Place, 90 York Way, London, N1 9FX. The Board of Directors
approved the condensed consolidated interim financial statements on
5 August 2021.
Statement of compliance
These condensed consolidated interim financial statements have
been prepared on the basis of the policies set out in the 2020
Annual Report and in accordance with UK adopted IAS 34 Interim
Financial Reporting and the Disclosure Guidance and Transparency
Rules sourcebook of the UK's Financial Conduct Authority. They do
not include all of the information required for full annual
statements and should be read in conjunction with the 2020 Annual
Report.
The interim figures up to 30 June 2021 and 2020 are unaudited.
The 2020 financial statements, which were prepared in accordance
with international accounting standards in conformity with the
requirements of the Companies Act 2006 and IFRS adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European Union,
have been reported on by the Group's auditors and delivered to the
registrar of companies. There are no differences for the Group in
applying each of these accounting frameworks. 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 financial statements for the year ending 31 December 2021
will be prepared in accordance with IFRS as adopted by the UK
Endorsement Board. This change in basis of preparation is required
by UK company law for the purposes of financial reporting as a
result of the UK's exit from the EU on 31 January 2020 and the
cessation of the transition period on 31 December 2020. This change
does not constitute a change in accounting policy, rather a change
in framework which is required to group the use of IFRS in company
law. There is no impact on the recognition, measurement or
disclosure between the two frameworks in the period reported.
Changes to accounting policies
In April 2021 the IFRS Interpretations Committee published its
final agenda decision on Configuration and Customisation costs in a
Cloud Computing Arrangement. The agenda decision considers how a
customer accounts for configuration or customisation costs where an
intangible asset is not recognised in a cloud computing
arrangement. The agenda decision does not have a material impact on
the Group in respect of the current period or prior periods.
During 2021, a transition project, in relation to IBOR reform,
to assess and implement changes to systems, processes, risk and
valuation models, as well as managing related tax and accounting
implications has been initiated. The Group's risk exposure that is
directly affected by the interest rate benchmark reform is its
portfolio of long-term borrowings of GBP6.1bn and a number of its
foreign exchange contracts. The borrowings are hedged, using
interest rate swaps and cross-currency interest rate swaps, for
changes in fair value and cash flows attributable to the relevant
benchmark interest rate. The Group will be making amendments to the
contractual terms of IBOR-referenced floating-rate debt, swaps and
foreign exchange contracts, and updating any relevant hedge
designations in the second half of the year. A number of the
Group's lease liabilities are based on a LIBOR index. These are
predominantly referencing USD LIBOR which is not expected to cease
until 2023. These contracts will be amended in due course.
Discontinued operations
A discontinued operation is defined in IFRS 5 Non-current assets
held for sale and discontinued operations as a component of an
entity that has been disposed of or is classified as held for sale,
represents a separate major line of business or geographical area
of operations, is part of a single co-ordinated plan to dispose of
such a line of business or is a subsidiary acquired exclusively
with a view to resale. The results of discontinued operations are
required to be presented separately in the statement of profit or
loss with the comparative period restated to show results
attributable to continuing operations.
Assets and businesses are classified as held for sale when their
carrying amounts are recovered through sale rather than through
continuing use.
As at 30 June 2021, the ITP Aero business has been classified as
held for sale following activities undertaken in the period to
transfer assets (including the Civil Aerospace Hucknall site with
associated fabrications activities) within the Group from Civil
Aerospace to ITP Aero in preparation for sale. The comparative
balance sheet has not been restated. ITP Aero continues to be
disclosed as an operating segment of the business in line with IFRS
8 Operating Segments and consequently has been classified as a
discontinued operation at 30 June 2021. See notes 2 and 19 for more
detail. Bergen Engines AS and Civil Nuclear Instrumentation &
Control are recognised as disposal groups held for sale but do not
meet the criteria of a discontinued operation.
Post balance sheet events
The Group entered into an agreement to sell Bergen Engines on 3
August 2021. Further detail is included in note 19. On 4 August
2021, the Group finalised an amendment to extend a GBP1bn bank loan
facility from a maturity date of 15 October 2022 to a maturity date
of 15 January 2024.
1 Basis of preparation and accounting policies continued
Going concern
In assessing the adoption of the going concern basis in the
condensed consolidated interim financial statements, the Directors
have considered the Group's forecast cash flows and available
liquidity over an eighteen-month period to February 2023, taking
into account the Group's principal risks and uncertainties.
The COVID-19 pandemic continues to have an impact on the Group
due to ongoing global travel restrictions. The speed of vaccination
programmes and efficacy of vaccines against different variants of
the virus means that uncertainty remains in the short-term over the
timing of recovery of demand, in particular in relation to the
civil aviation industry. This has been considered by the Directors
in assessing the adoption of the going concern basis in the
condensed consolidated interim financial statements. Recognising
the challenges of reliably estimating and forecasting the timing of
recovery of demand, the Directors have considered a base case
forecast (reflecting the Directors current expectations of future
trading) and a severe but plausible downside forecast (which
envisages a "stress" or "downside" situation).
Since the start of the pandemic the Group has taken action to
reduce cash expenditure and maintain liquidity. A major
restructuring programme was launched in 2020 to reshape and resize
the Group to deliver forecast annualised savings of at least
GBP1.3bn by the end of 2022, with a plan to remove at least 9,000
roles across the Group. At 30 June 2021, approximately 8,000 roles
had been removed. The Group raised GBP7.3bn of additional funding
during 2020 through a combination of equity and debt and in March
2021, secured a further GBP1bn term-loan facility, 80% of which is
guaranteed by UK Export Finance (UKEF), repayable in March
2026.
Liquidity and borrowings
At 30 June 2021, the Group had liquidity of GBP7.5bn including
cash and cash equivalents of GBP3.0bn and undrawn facilities of
GBP4.5bn.
On 4 August 2021, the Group finalised an amendment to extend the
GBP1bn bank loan facility (currently undrawn) from a maturity date
of 15 October 2022 to a maturity date of 15 January 2024.
The Group's committed borrowing facilities at 30 June 2021 and
28 February 2023 are set out below. None of the facilities are
subject to any financial covenants or rating triggers which could
accelerate repayment.
(GBPm) 30 June 2021 28 February 2023
--------------------------------------------------------- ------------- -----------------
Issued Bond Notes (1) 3,995 3,995
--------------------------------------------------------- ------------- -----------------
Other loans 81 37
--------------------------------------------------------- ------------- -----------------
UKEF GBP2bn loan (2) and UKEF GBP1bn loan (undrawn) (3) 3,000 3,000
--------------------------------------------------------- ------------- -----------------
Revolving Credit Facility (undrawn) (4) 2,500 2,500
--------------------------------------------------------- ------------- -----------------
Bank Loan Facility (undrawn) (5) 1,000 1,000
--------------------------------------------------------- ------------- -----------------
Total committed borrowing facilities 10,576 10,532
--------------------------------------------------------- ------------- -----------------
(1) The value of Issued Bond Notes reflects the impact of
derivatives on repayments of the principal amount of debt. The
bonds mature by May 2028.
(2) The GBP2,000m UKEF loan matures in August 2025.
(3) The GBP1,000m UKEF loan maturities in March 2026 (currently
undrawn).
(4) The GBP2,500m Revolving Credit Facility matures in April
2025 (currently undrawn).
(5) The GBP1,000m Bank Loan Facility matures in January 2024
(currently undrawn).
Taking into account the maturity of borrowing facilities, the
Group has committed facilities of at least GBP10.5bn available
throughout the period to 28 February 2023.
Forecasts
The Group's base case forecast assumes the continuation of a
steady recovery in customer confidence in the aftermath of the
COVID-19 pandemic. Vaccination programmes are rolled out but the
efficacy of vaccines over different variants and differing
governmental quarantine and testing requirements and travel
restrictions are expected to hinder the recovery of demand in the
short term, in particular in relation to the civil aviation
industry.
The downside forecast assumes that Civil widebody engine flying
hours (EFHs) remain at current levels when compared with 2019 EFHs
over the 18-month period to February 2023, with recovery subdued
due to ongoing infection rates and an increase in new variants of
the virus, resulting in caution in opening borders to international
travel and no upward trend in EFH until March 2023, resulting in a
much slower recovery in demand compared with the base case.
The proceeds of at least GBP2bn from planned disposals, as
announced in August 2020, have not been included when assessing the
going concern, although completion of these disposals is
anticipated within the eighteen-month period being considered.
Conclusion
After reviewing the current liquidity position, the cash flow
forecasts modelled under both the base case and downside, and the
stress testing of potential risks and uncertainties, the Directors
consider that the Group has sufficient liquidity to continue in
operational existence for a period of at least eighteen months from
the date of this report and are therefore satisfied that it is
appropriate to adopt the going concern basis of accounting in
preparing the financial statements.
1 Basis of preparation and accounting policies continued
Climate change
In preparing the condensed consolidated interim financial
statements, the Directors have considered the impact of climate
change, particularly in the context of the disclosures included in
the Strategic Report in the 2020 Annual Report and the stated net
zero targets. These considerations did not have a material impact
on the financial reporting judgements and estimates, consistent
with the assessment that climate change is not expected to have a
significant impact on the Group's going concern assessment to
February 2023 nor the viability of the Group over the next five
years. The following specific points were considered:
- The Group continues to invest in new technologies including
hybrid electric solutions in Power Systems, continued development
of the more efficient UltraFan aero engine, testing of sustainable
aviation fuels, small modular reactors (SMRs) and hybrid and fully
electric propulsion.
- The Group continues to invest in onsite renewable energy
generation solutions for the Group's facilities and investment is
included in the five year forecasts to enable the Group to meet
it's 2030 target for zero greenhouse gas emissions (scope 1 and 2)
from operations and facilities.
- Management has considered the impact of climate change on a
number of key estimates within the financial statements,
including:
- the estimates of future cash flows used in impairment
assessments of the carrying value of non-current assets (such as
programme intangible assets and goodwill);
- the estimates of future profitability used in assessing the
recoverability of deferred tax assets in the UK (see note 5);
and
- the long-term contract accounting assumptions, such as the
level of EFHs assumed, which consider the future expectations of
consumer and airline customer behaviour (see note 12).
Key areas of judgement and sources of estimation uncertainty
The determination of the Group's accounting policies requires
judgement. The subsequent application of these policies requires
estimates and the actual outcome may differ from that calculated.
The key areas of judgement and sources of estimation uncertainty as
at 31 December 2020, that were assessed as having a significant
risk of causing material adjustment to the carrying amounts of
assets and liabilities are set out in note 1 to the Financial
Statements in the 2020 Annual Report and are summarised below.
During the period, the Group has reassessed these and where
necessary updated the key judgements and estimation uncertainties.
Sensitivities for key sources of estimation uncertainty are
disclosed where this is appropriate and practicable.
Area Key judgements Key sources of estimation Sensitivities performed
uncertainty
---------------- ---------------- ----------------------------- ------------------------------------------------------------
Revenue Whether Civil Estimates of future Based upon the stage
recognition Aerospace OE revenue and costs of completion of all
and contract and aftermarket of long-term contractual widebody LTSA contracts
assets and contracts arrangements. within Civil Aerospace
liabilities should Uncertainty remains as at 30 June 2021,
be combined. in the short-term the following changes
How performance over the timing of in estimate would result
on long-term recovery of demand, in catch-up adjustments
aftermarket in particular in being recognised in
contracts relation to the civil the period in which
should be aviation industry, the estimates change
measured. in the aftermath (at underlying rates):
Whether any of the COVID-19 pandemic. * A reduction in forecast EFHs of 15% over the
costs Estimates of future remaining term of the contracts would decrease LTSA
should be revenue within Civil income and to a lesser extent costs, resulting in a
treated Aerospace are based catch-up adjustment of GBP100m - GBP130m. An
as wastage. upon future EFH forecasts, estimated 90% of this would be expected to be a
Whether sales influenced by assumptions reduction in revenue with the remainder relating to
of spare over the time period onerous contracts which would be an increase in cost
engines and profile over of sales.
to joint which the aerospace
ventures industry will recover.
are at fair * A 5% increase or decrease in shop visit costs over
value. the life of the contracts would lead to a catch-up
adjustment of GBP140m.
* A 2% increase or decrease in revenue over the life of
the contracts would lead to a catch-up adjustment of
GBP200m.
---------------- ---------------- ----------------------------- ------------------------------------------------------------
Risk and Determination
revenue of the nature
sharing of entry fees
arrangements received.
---------------- ---------------- ----------------------------- ------------------------------------------------------------
Taxation Estimates are necessary A 5% change in margin
to assess whether in the main Civil Aerospace
it is probable that widebody programmes
sufficient suitable or a 5% change in the
taxable profits will number of shop visits
arise in the UK to (driven by EFHs which
utilise the deferred are influenced by a
tax assets. This number of factors including
is largely driven climate change) over
by the Civil Aerospace the remaining life of
business and the the programmes, would
estimates described result in an increase/decrease
above in 'revenue in the deferred tax
recognition'. asset recognised by
around GBP150m, which
equates to around a
GBP1.2bn change in profit.
---------------- ---------------- ----------------------------- ------------------------------------------------------------
Business Identification
combinations of acquired
assets
and
liabilities.
---------------- ---------------- ----------------------------- ------------------------------------------------------------
Discontinued Whether the ITP
operations Aero business
and assets meets the
held for sale criteria
to be
classified
as held for
sale
and a
discontinued
operation.
---------------- ---------------- ----------------------------- ------------------------------------------------------------
Research and Determination
development of the point
in time where
costs incurred
on an internal
programme
development
meet the
criteria
for
capitalisation
or ceasing
capitalisation.
Determination
of the basis
for amortising
capitalised
development
costs.
---------------- ---------------- ----------------------------- ------------------------------------------------------------
Leases Determination Estimates of the The lease liability
of the lease payments required at 30 June 2021 included
term. to meet residual GBP339m relating to
value guarantees the cost of meeting
at the end of engine these residual value
leases. Amounts due guarantees in the Civil
can vary depending Aerospace business.
on the level of utilisation Up to GBP13m is payable
of the engines, overhaul in the next 12 months,
activity prior to GBP139m is due over
the end of the contract, the following four years
and decisions taken and the remaining balance
on whether ongoing after five years.
access to the assets
is required at the
end of the lease
term.
---------------- ---------------- ----------------------------- ------------------------------------------------------------
Impairment Determination The carrying value A slower than expected
of non-current of of intangible assets recovery in the aftermath
assets cash-generating (including programme-related of the COVID-19 pandemic
units for intangible assets) could result in a deterioration
assessing is dependent on the in future cash flow
impairment of estimates of future forecasts that support
goodwill. cash flows which programme intangible
are influenced by assets. A 5% deterioration
assumptions over in EFHs (and hence future
the recovery of the cash flows) across the
industries in which life of the Civil Aerospace
the Group operate programmes would result
and the discount in programme intangible
rates applied. assets that have previously
been subject to impairment
incurring an additional
impairment of GBP50m.
For intangible assets
where there is existing
headroom in the impairment
test (and thus no impairment)
but where deteriorations
in key assumptions over
the next 12 months could
lead to an impairment,
any of the following
individual changes in
assumptions would cause
the recoverable amount
of the programme assets
to equal the carrying
value:
* A reduction in engine sales that are forecast but not
contracted by 64%.
* An increase in costs of 8%.
---------------- ---------------- ----------------------------- ------------------------------------------------------------
Provisions Whether any Estimates of the A 12-month delay in
costs time to resolve the the availability of
should be technical issues the modified HPT blade
treated on the Trent 1000, could lead to a GBP60m-GBP100m
as wastage. including the development increase in the Trent
of the modified HPT 1000 exceptional costs
blade and estimates provision.
to Trent 1000 long-term A reduction in Civil
contracts assessed Aerospace widebody flying
as onerous. hours of 15% over the
Estimates of the remaining term of the
future revenues and contracts and the associated
costs to fulfil onerous decrease in revenues
contracts. and costs could lead
to a GBP10m - GBP15m
increase in the provision
for contract losses.
---------------- ---------------- ----------------------------- ------------------------------------------------------------
Post-retirement The valuation of A reduction in the discount
benefits the Group's defined rate from 1.95% to 1.70%
benefit pension schemes could lead to an increase
are based on assumptions in the defined benefit
determined with independent obligations of the RR
actuarial advice. UK Pension Fund of approximately
The size of the net GBP425m. This would
surplus is sensitive be expected to be broadly
to the actuarial offset by changes in
assumptions, which the value of scheme
include the discount assets, as the scheme's
rate used to determine investment policies
the present value are designed to mitigate
of the future obligation, this risk.
longevity, and the A one-year increase
number of plan members in life expectancy from
who take the option 21.7 years (male aged
to transfer their 65) and from 23.1 years
pension to a lump (male aged 45) would
sum on retirement increase the defined
or who choose to benefit obligations
take the Bridging of the RR UK Pension
Pension Option. Fund by approximately
GBP380m.
Where applicable, it
is assumed that 40%
(31 December 2020: 40%)
of members of the RR
UK Pension Fund will
transfer out of the
fund on retirement with
a share of funds transfer
value. An increase of
5% in this assumption
would increase the defined
benefit obligation by
GBP30m.
---------------- ---------------- ----------------------------- ------------------------------------------------------------
2 Analysis by business segment
The analysis by 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 (who act as
the Chief Operating Decision Maker as defined by IFRS 8). The
Group's four divisions are set out below.
Civil Aerospace
* development, manufacture, marketing and sales of
commercial aero engines and aftermarket services
Power Systems
* development, manufacture, marketing and sales of
reciprocating engines, power systems and nuclear
systems for civil power generation
Defence
* development, manufacture, marketing and sales of
military aero engines, naval engines, submarine
nuclear power plants and aftermarket services
ITP Aero
* design, research and development, manufacture and
casting, assembly and test of aeronautical engines
and gas turbines, and maintenance, repair and
overhaul (MRO) services
For the year ended 31 December 2020, the four divisions set out
above were identified as core businesses, with other smaller
businesses identified as non-core businesses. From 1 January 2021,
the identification of core and non-core businesses has ceased with
non-core businesses now included within the category of 'other
businesses'. The figures in the segmental analysis are shown in
total to include other businesses.
Other businesses include the trading results of the Bergen
Engines AS business (the Group signed a sales agreement on 3 August
2021), the results of the Civil Nuclear Instrumentation &
Control business (the Group signed a sales agreement on 7 December
2020), the results of the North America Civil Nuclear business
until the date of disposal on 31 January 2020 and the results of
the Knowledge Management System business until the date of disposal
on 3 February 2020. The segmental analysis for 2020 has been
restated to reflect the 2021 definition of other businesses.
During the period to 30 June 2021, activity previously managed
as part of the Civil Aerospace segment has been transferred to ITP
Aero. The activity transferred from Civil Aerospace to ITP Aero
relates to the change in ownership of the Hucknall site with
associated fabrications activities. This transfers the production
of fabrications, combustors and fan outlet guide vanes manufactured
in Hucknall from Civil Aerospace to ITP Aero. The segmental
analysis for 2020 has been restated to reflect these activities in
the ITP Aero segment in line with 2021. As a result of this
transfer and the commitment to sell ITP Aero, it has been
classified as held for sale at 30 June 2021 and as a discontinued
operation for both statutory and underlying results.
Underlying results
The Group presents the financial performance of the businesses
in accordance with IFRS 8 and consistently with the basis on which
performance is communicated to the Board each month.
Underlying results are presented by recording all relevant
revenue and cost of sales transactions at the average exchange rate
achieved on effective settled derivative contracts in the period
that the cash flow occurs. The impact of the revaluation of
monetary assets and liabilities using the exchange rate that is
expected to be achieved by the use of the effective hedge book is
recorded within underlying cost of sales. Underlying financing
excludes the impact of revaluing monetary assets and liabilities to
period end exchange rates. Transactions between segments are
presented on the same basis as underlying results and eliminated on
consolidation. Unrealised fair value gains and losses on foreign
exchange contracts, which are recognised as they arise in the
statutory results, are excluded from underlying results. To the
extent that the previously forecast transactions are no longer
expected to occur, an appropriate portion of the unrealised fair
value gain/(loss) on foreign exchange contracts is recorded
immediately in the underlying results.
2 Analysis by business segment continued
Amounts receivable/(payable) on interest rate swaps which are
not designated as hedge relationships for accounting purposes are
reclassified from fair value movement on a statutory basis to
interest receivable/(payable) on an underlying basis, as if they
were in an effective hedge relationship.
In the period to 30 June 2021, the Group was a net purchaser (30
June 2020: net purchaser) of USD, with the consequence that the
achieved exchange rate GBP:USD of 1.39 (30 June 2020: 1.24) on
settled contracts was similar to the average spot rate in the
period. In the second half of 2021, the Group expects to return to
being a net seller of USD, at an expected achieved exchange rate
GBP:USD of 1.59 based on the USD hedge book.
Estimates of future USD cash flows have been determined using
the Group's base-case forecast. These USD cash flows have been used
to establish the extent of future USD hedge requirements. In 2020,
the Group took action to reduce the size of the USD hedge book by
$11.8bn across 2020-2026, resulting in an underlying charge of
GBP1.7bn being recognised within underlying finance costs and the
associated cash settlement costs occurring over the period
2020-2026. In the period to 30 June 2021, the Group took the
opportunity to further reduce the size of the USD hedge book by an
additional $0.9bn by settling the mark-to market at zero cost. The
derivatives relating to this underlying charge have been
subsequently excluded from the effective hedge book, and therefore
are also excluded from the calculation of the average exchange rate
achieved in the current and future periods. This charge was
reversed in arriving at statutory performance on the basis that the
cumulative fair value changes on these derivative contracts are
recognised as they arise.
In the period to 30 June 2021, cash settlement costs of GBP303m
were incurred (30 June 2020: GBP88m).
Underlying performance excludes the following:
- the effect of acquisition accounting and business
disposals;
- impairment of goodwill and other non-current and current
assets where the reasons for the impairment are outside of normal
operating activities;
- exceptional items; and
- other items which are market driven and outside of the control
of management.
Acquisition accounting, business disposals and impairment
These are excluded from underlying results so that the current
period and comparative results are directly comparable.
Exceptional items
Items are classified as exceptional where the Directors believe
that presentation of the results in this way is more relevant to an
understanding of the Group's financial performance, as exceptional
items are identified by virtue of their size, nature or
incidence.
In determining whether an event or transaction is exceptional,
management considers quantitative as well as qualitative factors
such as the frequency or predictability of occurrence. Examples of
exceptional items include one-time costs and charges in respect of
aerospace programmes, costs of restructuring programmes and
one-time past service charges and credits on post-retirement
schemes.
Subsequent changes in exceptional items recognised in a prior
period will also be recognised as exceptional. All other changes
will be recognised within underlying performance.
Exceptional items are not allocated to segments and may not be
comparable to similarly titled measures used by other
companies.
Other items
The financing component of the defined benefit pension scheme
cost is determined by market conditions and has therefore been
included as a reconciling difference between underlying performance
and statutory performance.
Penalties paid on agreements with investigating bodies are
considered to be one-off in nature and are therefore excluded from
underlying performance.
The tax effects of the adjustments above are excluded from the
underlying tax charge. In addition, changes in tax rates or changes
in the amount of recoverable advance corporation tax recognised are
also excluded.
See page 31 for the reconciliation between underlying
performance and statutory performance.
2 Analysis by business segment continued
The following analysis sets out the results of the Group's
businesses on the basis described above and also includes a
reconciliation of the underlying results to those reported in the
condensed consolidated income statement.
Corporate and Total underlying
Civil Aerospace inter-segment from continuing
- (1) Power Systems (2) Defence Other businesses (3) operations
GBPm GBPm GBPm GBPm GBPm GBPm
----------------- ----------------- ----------------- ------- ---------------- ---------------- ----------------
For the half-year
ended 30 June
2021
----------------- ----------------- ----------------- ------- ---------------- ---------------- ----------------
Underlying
revenue from
sale of original
equipment 722 718 719 79 1 2,239
----------------- ----------------- ----------------- ------- ---------------- ---------------- ----------------
Underlying
revenue from
aftermarket
services 1,446 463 1,002 73 4 2,988
----------------- ----------------- ----------------- ------- ---------------- ---------------- ----------------
Total underlying
revenue 2,168 1,181 1,721 152 5 5,227
----------------- ----------------- ----------------- ------- ---------------- ---------------- ----------------
Gross profit 380 301 395 20 1 1,097
----------------- ----------------- ----------------- ------- ---------------- ---------------- ----------------
Commercial and
administrative
costs (145) (190) (79) (10) (20) (444)
----------------- ----------------- ----------------- ------- ---------------- ---------------- ----------------
Research and
development
costs (237) (69) (47) (5) (28) (386)
----------------- ----------------- ----------------- ------- ---------------- ---------------- ----------------
Share of results
of joint
ventures and
associates 41 (1) - - - 40
----------------- ----------------- ----------------- ------- ---------------- ---------------- ----------------
Underlying
operating
profit/(loss) 39 41 269 5 (47) 307
----------------- ----------------- ----------------- ------- ---------------- ---------------- ----------------
For the half-year
ended 30 June
2020
----------------- ----------------- ----------------- ------- ---------------- ---------------- ----------------
Underlying
revenue from
sale of original
equipment 1,187 804 678 64 (5) 2,728
----------------- ----------------- ----------------- ------- ---------------- ---------------- ----------------
Underlying
revenue from
aftermarket
services 1,329 410 875 70 (2) 2,682
----------------- ----------------- ----------------- ------- ---------------- ---------------- ----------------
Total underlying
revenue 2,516 1,214 1,553 134 (7) 5,410
----------------- ----------------- ----------------- ------- ---------------- ---------------- ----------------
Gross
(loss)/profit (1,552) 263 332 9 (17) (965)
----------------- ----------------- ----------------- ------- ---------------- ---------------- ----------------
Commercial and
administrative
costs (172) (148) (76) (16) (23) (435)
----------------- ----------------- ----------------- ------- ---------------- ---------------- ----------------
Research and
development
costs (180) (82) (49) (10) - (321)
----------------- ----------------- ----------------- ------- ---------------- ---------------- ----------------
Share of results
of joint
ventures and
associates 88 - 3 - - 91
----------------- ----------------- ----------------- ------- ---------------- ---------------- ----------------
Underlying
operating
(loss)/profit (1,816) 33 210 (17) (40) (1,630)
----------------- ----------------- ----------------- ------- ---------------- ---------------- ----------------
(1) The underlying results for Civil Aerospace and ITP Aero
(shown as underlying results from discontinued operations below)
for 30 June 2020 have been restated to reflect the changes to
activity during 2021 as described above.
(2) The underlying results for Power Systems for 30 June 2020
have been restated to reclassify the Civil Nuclear Instrumentation
& Control business as Other businesses.
(3) The underlying results of Corporate and inter-segment
activities include the results of the Group's SMR, electrical and
UK nuclear activities. As the Group increases its investment in
these important new technologies it is anticipated that the result
of these activities will be combined and presented as an additional
segment in the full-year financial statements in line with how
performance will be reviewed by the entity's Chief Operating
Decision Maker.
2 Analysis by business segment continued
Reconciliation to statutory results
Discontinued operations
Total
underlying Underlying
from adjustments and Discontinued Group
continuing Total adjustments operations statutory
operations ITP Aero Inter-segment underlying to FX (1) results
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------ ----------- ---------- ------------- ------------ --------------- ------------ -----------
For the half-year
ended 30 June 2021
------------------ ----------- ---------- ------------- ------------ --------------- ------------ -----------
Revenue from sale
of original
equipment 2,239 271 (139) 2,371 (4) (132) 2,235
------------------ ----------- ---------- ------------- ------------ --------------- ------------ -----------
Revenue from
aftermarket
services 2,988 46 (32) 3,002 (64) (14) 2,924
------------------ ----------- ---------- ------------- ------------ --------------- ------------ -----------
Total revenue 5,227 317 (171) 5,373 (68) (146) 5,159
------------------ ----------- ---------- ------------- ------------ --------------- ------------ -----------
Gross
profit/(loss) 1,097 48 (23) 1,122 (340) 32 814
------------------ ----------- ---------- ------------- ------------ --------------- ------------ -----------
Commercial and
administrative
costs (444) (26) - (470) 3 43 (424)
------------------ ----------- ---------- ------------- ------------ --------------- ------------ -----------
Research and
development costs (386) (15) - (401) (7) 18 (390)
------------------ ----------- ---------- ------------- ------------ --------------- ------------ -----------
Share of results
of joint ventures
and associates 40 - - 40 (2) - 38
------------------ ----------- ---------- ------------- ------------ --------------- ------------ -----------
Operating
profit/(loss) 307 7 (23) 291 (346) 93 38
------------------ ----------- ---------- ------------- ------------ --------------- ------------ -----------
Loss arising on
the acquisition
and disposal of
businesses - - - - (7) - (7)
------------------ ----------- ---------- ------------- ------------ --------------- ------------ -----------
Profit/(loss)
before financing
and taxation 307 7 (23) 291 (353) 93 31
------------------ ----------- ---------- ------------- ------------ --------------- ------------ -----------
Net financing (174) 1 - (173) 257 (1) 83
------------------ ----------- ---------- ------------- ------------ --------------- ------------ -----------
Profit/(loss)
before taxation 133 8 (23) 118 (96) 92 114
------------------ ----------- ---------- ------------- ------------ --------------- ------------ -----------
Taxation (29) 54 4 29 342 (91) 280
------------------ ----------- ---------- ------------- ------------ --------------- ------------ -----------
Discontinued
operations - - - - - (1) (1)
------------------ ----------- ---------- ------------- ------------ --------------- ------------ -----------
Profit/(loss) for
the period 104 62 (19) 147 246 - 393
------------------ ----------- ---------- ------------- ------------ --------------- ------------ -----------
Profit for the
period from
continuing
operations 104 394
------------------ ----------- ---------- ------------- ------------ --------------- ------------ -----------
Profit/(loss) for
the period from
discontinued
operations 43 (1)
------------------ ----------- ---------- ------------- ------------ --------------- ------------ -----------
Attributable to:
------------------ ----------- ---------- ------------- ------------ --------------- ------------ -----------
Ordinary
shareholders 147 246 - 393
------------------ ----------- ---------- ------------- ------------ --------------- ------------ -----------
Non-controlling
interests - - - -
------------------ ----------- ---------- ------------- ------------ --------------- ------------ -----------
For the half-year
ended 30 June 2020
------------------ ----------- ---------- ------------- ------------ --------------- ------------ -----------
Revenue from sale
of original
equipment 2,728 319 (197) 2,850 (36) (122) 2,692
------------------ ----------- ---------- ------------- ------------ --------------- ------------ -----------
Revenue from
aftermarket
services 2,682 79 (50) 2,711 299 (29) 2,981
------------------ ----------- ---------- ------------- ------------ --------------- ------------ -----------
Total revenue 5,410 398 (247) 5,561 263 (151) 5,673
------------------ ----------- ---------- ------------- ------------ --------------- ------------ -----------
Gross
(loss)/profit (965) 37 (39) (967) 280 97 (590)
------------------ ----------- ---------- ------------- ------------ --------------- ------------ -----------
Commercial and
administrative
costs (435) (23) - (458) 15 22 (421)
------------------ ----------- ---------- ------------- ------------ --------------- ------------ -----------
Research and
development costs (321) (15) - (336) (376) 34 (678)
------------------ ----------- ---------- ------------- ------------ --------------- ------------ -----------
Share of results
of joint ventures
and associates 91 1 - 92 (19) (1) 72
------------------ ----------- ---------- ------------- ------------ --------------- ------------ -----------
Operating
(loss)/profit (1,630) - (39) (1,669) (100) 152 (1,617)
------------------ ----------- ---------- ------------- ------------ --------------- ------------ -----------
Gain on the
disposal of
businesses - - - - 2 - 2
------------------ ----------- ---------- ------------- ------------ --------------- ------------ -----------
(Loss)/profit
before financing
and taxation (1,630) - (39) (1,669) (98) 152 (1,615)
------------------ ----------- ---------- ------------- ------------ --------------- ------------ -----------
Net financing (1,573) (2) - (1,575) (2,025) 2 (3,598)
------------------ ----------- ---------- ------------- ------------ --------------- ------------ -----------
(Loss)/profit
before taxation (3,203) (2) (39) (3,244) (2,123) 154 (5,213)
------------------ ----------- ---------- ------------- ------------ --------------- ------------ -----------
Taxation (90) 1 7 (82) 71 (37) (48)
------------------ ----------- ---------- ------------- ------------ --------------- ------------ -----------
Discontinued
operations - - - - - (117) (117)
------------------ ----------- ---------- ------------- ------------ --------------- ------------ -----------
Loss for the
period (3,293) (1) (32) (3,326) (2,052) - (5,378)
------------------ ----------- ---------- ------------- ------------ --------------- ------------ -----------
Loss for the
period from
continuing
operations (3,293) (5,261)
------------------ ----------- ---------- ------------- ------------ --------------- ------------ -----------
Loss for the
period from
discontinued
operations (33) (117)
------------------ ----------- ---------- ------------- ------------ --------------- ------------ -----------
Attributable to:
------------------ ----------- ---------- ------------- ------------ --------------- ------------ -----------
Ordinary
shareholders (3,327) (2,053) - (5,380)
------------------ ----------- ---------- ------------- ------------ --------------- ------------ -----------
Non-controlling
interests 1 1 - 2
------------------ ----------- ---------- ------------- ------------ --------------- ------------ -----------
(1) Discontinued operations relate to the statutory results of
ITP Aero and are presented net of internal sales, internal margin
and related consolidation adjustments. Included within the
operating loss of GBP93m is GBP17m of costs of disposal incurred
related to the disposal group.
2 Analysis by business segment continued
Disaggregation of revenue from contracts with customers
Analysis by type Total underlying
and basis of Civil Aerospace Power Systems Corporate and from continuing
recognition (1) (2) Defence Other businesses inter-segment operations
GBPm GBPm GBPm GBPm GBPm GBPm
----------------- ---------------- ---------------- ------- ---------------- ---------------- ----------------
For the half-year
ended 30 June
2021
----------------- ---------------- ---------------- ------- ---------------- ---------------- ----------------
Original
equipment
recognised at a
point in time 721 707 301 79 1 1,809
----------------- ---------------- ---------------- ------- ---------------- ---------------- ----------------
Original
equipment
recognised over
time 1 11 418 - - 430
----------------- ---------------- ---------------- ------- ---------------- ---------------- ----------------
Aftermarket
services
recognised at a
point in time 193 404 419 73 4 1,093
----------------- ---------------- ---------------- ------- ---------------- ---------------- ----------------
Aftermarket
services
recognised over
time 1,197 59 583 - - 1,839
----------------- ---------------- ---------------- ------- ---------------- ---------------- ----------------
Total underlying
customer
contract revenue 2,112 1,181 1,721 152 5 5,171
----------------- ---------------- ---------------- ------- ---------------- ---------------- ----------------
Other underlying
revenue 56 - - - - 56
----------------- ---------------- ---------------- ------- ---------------- ---------------- ----------------
Total underlying
revenue 2,168 1,181 1,721 152 5 5,227
----------------- ---------------- ---------------- ------- ---------------- ---------------- ----------------
For the half-year
ended 30 June
2020
----------------- ---------------- ---------------- ------- ---------------- ---------------- ----------------
Original
equipment
recognised at a
point in time 1,187 786 248 64 (5) 2,280
----------------- ---------------- ---------------- ------- ---------------- ---------------- ----------------
Original
equipment
recognised over
time - 18 430 - - 448
----------------- ---------------- ---------------- ------- ---------------- ---------------- ----------------
Aftermarket
services
recognised at a
point in time 746 351 364 70 (2) 1,529
----------------- ---------------- ---------------- ------- ---------------- ---------------- ----------------
Aftermarket
services
recognised over
time 477 59 511 - - 1,047
----------------- ---------------- ---------------- ------- ---------------- ---------------- ----------------
Total underlying
customer
contract revenue 2,410 1,214 1,553 134 (7) 5,304
----------------- ---------------- ---------------- ------- ---------------- ---------------- ----------------
Other underlying
revenue 106 - - - - 106
----------------- ---------------- ---------------- ------- ---------------- ---------------- ----------------
Total underlying
revenue 2,516 1,214 1,553 134 (7) 5,410
----------------- ---------------- ---------------- ------- ---------------- ---------------- ----------------
(1) The underlying results for Civil Aerospace and ITP Aero
(shown as underlying results from discontinued operations below)
for 30 June 2020 have been restated to reflect the changes to
activity during 2021 as described above.
(2) The underlying results for Power Systems for 30 June 2020
have been restated to reclassify the Civil Nuclear Instrumentation
& Control business as Other businesses.
Discontinued operations
Total Underlying
underlying adjustments
from and Group
continuing Total adjustments Discontinued statutory
operations ITP Aero Inter-segment underlying to FX operations (1) results
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------- ------------- --------- -------------- ----------- ------------- -------------- --------------
For the
half-year
ended 30 June
2021
-------------- ------------- --------- -------------- ----------- ------------- -------------- --------------
Original
equipment
recognised at
a point in
time 1,809 247 (129) 1,927 (8) (118) 1,801
-------------- ------------- --------- -------------- ----------- ------------- -------------- --------------
Original
equipment
recognised
over time 430 24 (10) 444 1 (14) 431
-------------- ------------- --------- -------------- ----------- ------------- -------------- --------------
Aftermarket
services
recognised at
a point in
time 1,093 15 (3) 1,105 1 (12) 1,094
-------------- ------------- --------- -------------- ----------- ------------- -------------- --------------
Aftermarket
services
recognised
over time 1,839 31 (29) 1,841 (57) (2) 1,782
-------------- ------------- --------- -------------- ----------- ------------- -------------- --------------
Total customer
contract
revenue 5,171 317 (171) 5,317 (63) (146) 5,108
-------------- ------------- --------- -------------- ----------- ------------- -------------- --------------
Other revenue 56 - - 56 (5) - 51
-------------- ------------- --------- -------------- ----------- ------------- -------------- --------------
Total revenue 5,227 317 (171) 5,373 (68) (146) 5,159
-------------- ------------- --------- -------------- ----------- ------------- -------------- --------------
For the
half-year
ended 30 June
2020
-------------- ------------- --------- -------------- ----------- ------------- -------------- --------------
Original
equipment
recognised at
a point in
time 2,280 296 (181) 2,395 (36) (115) 2,244
-------------- ------------- --------- -------------- ----------- ------------- -------------- --------------
Original
equipment
recognised
over time 448 23 (16) 455 - (7) 448
-------------- ------------- --------- -------------- ----------- ------------- -------------- --------------
Aftermarket
services
recognised at
a point in
time 1,529 48 (39) 1,538 73 (9) 1,602
-------------- ------------- --------- -------------- ----------- ------------- -------------- --------------
Aftermarket
services
recognised
over time 1,047 31 (11) 1,067 226 (20) 1,273
-------------- ------------- --------- -------------- ----------- ------------- -------------- --------------
Total customer
contract
revenue 5,304 398 (247) 5,455 263 (151) 5,567
-------------- ------------- --------- -------------- ----------- ------------- -------------- --------------
Other revenue 106 - - 106 - - 106
-------------- ------------- --------- -------------- ----------- ------------- -------------- --------------
Total revenue 5,410 398 (247) 5,561 263 (151) 5,673
-------------- ------------- --------- -------------- ----------- ------------- -------------- --------------
(1) Discontinued operations relate to the statutory results of
ITP Aero and are presented net of internal sales and related
consolidation adjustments.
2 Analysis by business segment continued
Underlying profit
adjustments Half-year to 30 June 2021 Half-year to 30 June 2020
--------------------------------------------- ---------------------------------------------
Profit/(loss) (Loss)/profit
before Net before Net
Revenue financing financing Taxation Revenue financing financing Taxation
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------ --- ------- ------------- --------- ---------- ------- ------------- --------- ----------
Total underlying
performance 5,373 291 (173) 29 5,561 (1,669) (1,575) (82)
----------------------- ------- ------------- --------- ---------- ------- ------------- --------- ----------
Impact of settled
derivative
contracts on
trading
transactions (1) A (68) (297) 164 10 263 664 (669) (2)
------------------ --- ------- ------------- --------- ---------- ------- ------------- --------- ----------
Unrealised fair
value changes on
derivative
contracts held
for trading (2) A - (4) 66 (1) - (4) (2,729) 191
------------------ --- ------- ------------- --------- ---------- ------- ------------- --------- ----------
Unrealised net
(gain)/losses on
closing future
over-hedged
position (3) A - - (8) - - - 1,369 (106)
------------------ --- ------- ------------- --------- ---------- ------- ------------- --------- ----------
Realised net
(gain)/losses on
closing future
over-hedged
position (3) A - - (7) - - - 88 -
------------------ --- ------- ------------- --------- ---------- ------- ------------- --------- ----------
Unrealised fair
value change to
derivative
contracts held
for financing (4) A - - 38 (10) - - (88) -
------------------ --- ------- ------------- --------- ---------- ------- ------------- --------- ----------
Exceptional
programme
credits/(charges)
(5) B - - - - - 498 (21) -
------------------ --- ------- ------------- --------- ---------- ------- ------------- --------- ----------
Impact of discount
rate changes (6) B - - - - - - 30 -
------------------ --- ------- ------------- --------- ---------- ------- ------------- --------- ----------
Exceptional
restructuring
charge (7) B - (10) - (6) - (366) - 9
------------------ --- ------- ------------- --------- ---------- ------- ------------- --------- ----------
Impairments (8) C - 1 - - - (966) - 125
------------------ --- ------- ------------- --------- ---------- ------- ------------- --------- ----------
Other write-offs C - - - - - (99) - 39
------------------ --- ------- ------------- --------- ---------- ------- ------------- --------- ----------
Effect of
acquisition
accounting (9) C - (50) - 13 - (66) - 17
------------------ --- ------- ------------- --------- ---------- ------- ------------- --------- ----------
Pension
past-service
credit (10) D - 11 - (4) - 248 - (87)
------------------ --- ------- ------------- --------- ---------- ------- ------------- --------- ----------
Other D - 3 4 (6) - (9) (5) 1
------------------ --- ------- ------------- --------- ---------- ------- ------------- --------- ----------
Included in operating
(loss)/profit (68) (346) 257 (4) 263 (100) (2,025) 187
----------------------- ------- ------------- --------- ---------- ------- ------------- --------- ----------
(Loss)/gains
arising on the
acquisitions
and disposals of
businesses (11) C - (7) - - - 2 - -
------------------ --- ------- ------------- --------- ---------- ------- ------------- --------- ----------
Impact of tax rate
change (12) - - - 346 - - - 160
----------------------- ------- ------------- --------- ---------- ------- ------------- --------- ----------
De-recognition of UK
losses - - - - - - - (276)
----------------------- ------- ------------- --------- ---------- ------- ------------- --------- ----------
Total underlying
adjustments (68) (353) 257 342 263 (98) (2,025) 71
----------------------- ------- ------------- --------- ---------- ------- ------------- --------- ----------
Discontinued operations (146) 93 (1) (91) (151) 152 2 (37)
----------------------- ------- ------------- --------- ---------- ------- ------------- --------- ----------
Statutory performance
per condensed
consolidated income
statement 5,159 31 83 280 5,673 (1,615) (3,598) (48)
----------------------- ------- ------------- --------- ---------- ------- ------------- --------- ----------
A - FX, B - Exceptional, C - M&A and impairment, D -
Other
(1) The impact of measuring revenues and costs and the impact of
valuation of assets and liabilities using the period end exchange
rate rather than the achieved rate or the exchange rate that is
expected to be achieved by the use of the hedge book reduced
statutory revenues by GBP68m (30 June 2020: increased revenues by
GBP263m) and reduced profit before financing and taxation by
GBP297m (30 June 2020: reduced loss by GBP664m). Underlying
financing excludes the impact of revaluing monetary assets and
liabilities at the period end exchange rate.
(2) The underlying results exclude the fair value changes on
derivative contracts held for trading. These fair value changes are
subsequently recognised in the underlying results when the
contracts are settled.
(3) In 2020, the Group took action to reduce the size of the USD
hedge book by $11.8bn across 2020-2026, resulting in an underlying
charge of GBP1.7bn at 31 December 2020 (30 June 2020: GBP1.5bn). In
2021, this estimate was updated to reflect the actual cash cost and
resulted in a GBP15m gain to underlying finance costs in the period
to 30 June 2021. Further detail is provided in note 4.
(4) Includes the losses on hedge ineffectiveness in the year of
GBP2m (30 June 2020: losses of GBP15m) and net fair value gains of
GBP40m (30 June 2020: losses of GBP73m) on any interest rate swaps
not designated into hedging relationships for accounting
purposes.
(5) In the comparative period at 30 June 2020, the estimated
Trent 1000 abnormal wastage costs reduced by GBP498m as a result of
COVID-19, with improvements in the position on contract losses and
lower expected costs associated with remediation shop visits and
customer disruption.
(6) During the period to 30 June 2021, the movement in discount
rates on onerous contracts has resulted in an immaterial charge
which has been recognised in underlying profit.
(7) During the period to 30 June 2021, the Group recorded an
exceptional restructuring charge of GBP10m which included a charge
of GBP38m associated with initiatives to enable the restructuring
which have been charged directly to the income statement. Further
details are provided in note 15.
(8) The Group has assessed the carrying value of its assets.
Further details are provided in notes 7, 8 and 9.
(9) The effect of acquisition accounting includes the
amortisation of intangible assets arising on previous
acquisitions.
(10) A past service credit of GBP7m has been recorded following
the final details on the additional transitional protections being
agreed during the period and GBP4m as a result of transferring
employment of 236 employees in anticipation of a business
disposal.
(11) (Losses)/gains arising on the acquisitions and disposals of
businesses are set out in note 19.
(12) The increase in the UK tax rate from 19% to 25% has been
substantively enacted at the balance sheet date. The opening UK
deferred tax balances have therefore been re-measured at 25%. This
results in a credit to the income statement in 2021 of GBP328m,
with an additional GBP18m credit arising in discontinued
operations. The 2020 tax credit relates to the increase in the UK
tax rate from 17% to 19%. Included in the GBP160m credit in 2020 is
GBP1m that relates to discontinued operations.
2 Analysis by business segment continued
Balance sheet analysis
Total
ITP Aero reportable
transferred segments
Civil ITP Total to held excluding
Aerospace Power Aero reportable for sale held for
(1) Systems Defence (1) segments (2) sale
---------------------- --------------- --------- --------- --------- ------------ ------------- ---------------
At 30 June 2021
---------------------- --------------- --------- --------- --------- ------------ ------------- ---------------
Segment assets 15,673 3,461 3,274 1,931 24,339 (1,859) 22,480
---------------------- --------------- --------- --------- --------- ------------ ------------- ---------------
Interests in joint
ventures and
associates 357 11 45 1 414 (1) 413
---------------------- --------------- --------- --------- --------- ------------ ------------- ---------------
Segment liabilities (20,495) (1,459) (2,889) (958) (25,801) 538 (25,263)
---------------------- --------------- --------- --------- --------- ------------ ------------- ---------------
Net
(liabilities)/assets (4,465) 2,013 430 974 (1,048) (1,322) (2,370)
---------------------- --------------- --------- --------- --------- ------------ ------------- ---------------
At 31 December
2020
---------------------- --------------- --------- --------- --------- ------------ ------------- ---------------
Segment assets 16,632 3,497 3,116 2,090 25,335 - 25,335
---------------------- --------------- --------- --------- --------- ------------ ------------- ---------------
Interests in joint
ventures and
associates 363 11 19 1 394 - 394
---------------------- --------------- --------- --------- --------- ------------ ------------- ---------------
Segment liabilities (22,331) (1,358) (3,085) (1,036) (27,810) - (27,810)
---------------------- --------------- --------- --------- --------- ------------ ------------- ---------------
Net
(liabilities)/assets (5,336) 2,150 50 1,055 (2,081) - (2,081)
---------------------- --------------- --------- --------- --------- ------------ ------------- ---------------
(1) The financial position for Civil Aerospace and ITP Aero for
31 December 2020 have been restated to reflect the transfer of
activity during 2021 as described above.
(2) ITP Aero segmental net assets transferred to held for sale
exclude intercompany balances.
Reconciliation to the balance sheet
30 June
2021 31 December 2020
GBPm GBPm
------------------------------------------------------- -------- ----------------
Reportable segment assets excluding held for sale 22,480 25,335
----------------------------------------------------------- -------- ----------------
Other businesses 5 7
----------------------------------------------------------- -------- ----------------
Corporate and inter-segment (2,566) (3,102)
----------------------------------------------------------- -------- ----------------
Interests in joint ventures and associates 413 394
----------------------------------------------------------- -------- ----------------
Assets held for sale (1) 2,306 288
----------------------------------------------------------- -------- ----------------
Cash and cash equivalents 2,915 3,452
----------------------------------------------------------- -------- ----------------
Short-term investments 1 -
----------------------------------------------------------- -------- ----------------
Fair value of swaps hedging fixed rate borrowings 146 293
----------------------------------------------------------- -------- ----------------
Deferred and income tax assets 2,141 1,943
----------------------------------------------------------- -------- ----------------
Post-retirement scheme surpluses 914 907
----------------------------------------------------------- -------- ----------------
Total assets 28,755 29,517
----------------------------------------------------------- -------- ----------------
Reportable segment liabilities excluding held for sale (25,263) (27,810)
----------------------------------------------------------- -------- ----------------
Other businesses (6) (5)
----------------------------------------------------------- -------- ----------------
Corporate and inter-segment 2,763 3,251
----------------------------------------------------------- -------- ----------------
Liabilities associated with assets held for sale (1) (904) (228)
----------------------------------------------------------- -------- ----------------
Borrowings and lease liabilities (7,914) (7,330)
----------------------------------------------------------- -------- ----------------
Fair value of swaps hedging fixed rate borrowings (89) (42)
----------------------------------------------------------- -------- ----------------
Deferred and income tax liabilities (488) (648)
----------------------------------------------------------- -------- ----------------
Post-retirement scheme deficits (1,444) (1,580)
----------------------------------------------------------- -------- ----------------
Total liabilities (33,345) (34,392)
----------------------------------------------------------- -------- ----------------
Net liabilities (4,590) (4,875)
----------------------------------------------------------- -------- ----------------
(1) As at 30 June 2021, assets and liabilities relating to ITP
Aero, Bergen Engines AS and Civil Nuclear Instrumentation &
Control have been classified as held for sale. For further details
see note 19.
3 Research and development
Half-year to 30 June 2021 Restated Half-year to 30 June 2020
GBPm GBPm
----------------------------------------------------- -------------------------- -----------------------------------
Gross research and development costs (549) (580)
----------------------------------------------------- -------------------------- -----------------------------------
Contributions and fees (1) 153 138
----------------------------------------------------- -------------------------- -----------------------------------
Expenditure in the period (396) (442)
----------------------------------------------------- -------------------------- -----------------------------------
Capitalised as intangible assets 41 150
----------------------------------------------------- -------------------------- -----------------------------------
Amortisation and impairment of capitalised costs (2) (35) (386)
----------------------------------------------------- -------------------------- -----------------------------------
Net cost recognised in the income statement (390) (678)
----------------------------------------------------- -------------------------- -----------------------------------
Underlying adjustments relating to the effects of
acquisition accounting, impairment and foreign
exchange (3) 7 376
----------------------------------------------------- -------------------------- -----------------------------------
Discontinued operations (18) (34)
----------------------------------------------------- -------------------------- -----------------------------------
Net underlying cost recognised in the income
statement (401) (336)
----------------------------------------------------- -------------------------- -----------------------------------
(1) Includes government funding.
(2) See note 7 for analysis of amortisation and impairment.
During the period, amortisation of GBP5m has been incurred within
the disposal group recognised as a discontinued operation.
(3) During the period to 30 June 2021, no impairment of research
and development was recorded. In the comparative period to 30 June
2020, impairment charges of GBP351m were recorded, relating to the
financial and operational impact of COVID-19.
4 Net financing
Restated
Half-year to 30 June 2021 Half-year to 30 June 2020
----------------------------------------------
Per consolidated Underlying financing Per consolidated Underlying financing
income statement (1) income statement (1)
GBPm GBPm GBPm GBPm
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Interest receivable 3 3 10 11
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Net fair value gains
on foreign currency
contracts 25 - - -
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Net fair value gains
on non-hedge accounted
interest rate swaps
(2) 40 - - -
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Net fair value gains
on commodity contracts 41 - - -
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Financing on
post-retirement
scheme surpluses 7 - 13 -
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Net foreign exchange
gains 164 - - -
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Realised net gains on
closing over-hedged
position (3) - 7 - -
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Unrealised net gains
on closing over-hedged
position (3) - 8 - -
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Financing income 280 18 23 11
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Interest payable (106) (112) (79) (74)
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Net fair value losses
on foreign currency
contracts - - (2,631) -
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Net fair value losses
on non-hedge accounted
interest rate swaps
(2) - - (73) -
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Unrealised net losses
on closing future
over-hedged position - - - (1,369)
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Realised net losses on
closing over-hedged
position - - - (88)
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Financial charge
relating to financial
RRSAs - - (1) (1)
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Net fair value losses
on commodity contracts - - (98) -
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Financing on
post-retirement
scheme deficits (10) - (14) -
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Net foreign exchange
losses - - (669) -
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Fees on undrawn
facilities (35) (35) (9) (9)
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Other financing
charges (46) (44) (47) (45)
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Financing costs (197) (191) (3,621) (1,586)
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Net financing
income/(costs) 83 (173) (3,598) (1,575)
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Analysed as:
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Net interest payable (103) (109) (69) (63)
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Net fair value
gains/(losses) on
derivative contracts 106 15 (2,802) (1,457)
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Net post-retirement
scheme financing (3) - (1) -
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Net foreign exchange
gains/(losses) 164 - (669) -
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Net other financing (81) (79) (57) (55)
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Net financing
income/(costs) 83 (173) (3,598) (1,575)
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
(1) See note 2 for definition of underlying results.
(2) The condensed consolidated income statement shows the net
fair value gain/(loss) on any interest rate swaps not designated
into hedging relationships for accounting purposes. Underlying
financing reclassifies the interest payable (30 June 2020: payable)
on these interest rates swaps from fair value movement to interest
payable.
(3) The GBP15m gain recognised relates to the actual cost of the
reduction in the size of the USD hedge book in the period. For
further detail, see below.
In 2020, in response to the deterioration in the medium-term
outlook caused by COVID-19 and the related reduction in anticipated
net US Dollar cash inflows, the Group took action to reduce the
size of the US Dollar hedge book by $11.8bn by transacting
offsetting foreign exchange contracts across 2020-2026. An
underlying charge of GBP1,689m relating to the total $11.8bn
reduction in the size of the US Dollar hedge book was included
within underlying financing costs in 2020.
In 2021, this estimate was updated to reflect the actual cash
cost of GBP1,674m resulting in a GBP15m credit included within
underlying financing costs.
The cash settlement costs of GBP1,674m will occur over the
period 2020-2026, GBP186m was incurred in 2020 and GBP303m was
incurred in the period to 30 June 2021. The Group estimates that
future cash outflows of GBP149m will occur in the remainder of
2021, GBP326m in 2022, and GBP710m spread over 2023 to 2026.
The Group also took action to reduce the size of the US Dollar
hedge book by an additional $0.9bn by settling the mark-to market
at zero cost.
5 Taxation
The income tax expense has been calculated by applying the
annual effective tax rate for each jurisdiction to the half-year
profits of each jurisdiction.
The tax credit for the half-year is GBP280m on a statutory
profit before taxation of GBP114m (30 June 2020: tax charge of
GBP48m on a statutory loss before taxation of GBP5,213m), giving a
statutory rate of (245.6%) (30 June 2020: (0.9%)). The key driver
of the tax credit in 2021 is the impact of the increase in the UK
tax rate. The key driver of the tax charge in 2020 is the
non-recognition of deferred tax on UK losses arising in the year,
partially offset by the credit arising on the change in the UK tax
rate. Additionally, in 2020 some of the deferred tax asset relating
to UK losses previously recognised has been derecognised.
Tax reconciliation - continuing operations:
Restated
Half-year to 30 June 2021 Half-year to 30 June 2020
---------------------------- -----------------------------
GBPm Tax rate GBPm Tax rate
--------------------------------------------------------- ----------- --------------- ------------- --------------
Profit/(loss) before taxation 114 (5,213)
--------------------------------------------------------- ----------- --------------- ------------- --------------
Nominal tax charge/(credit) at UK corporation tax rate of
19% 22 19.0% (990) 19.0%
--------------------------------------------------------- ----------- --------------- ------------- --------------
Tax losses in year not recognised in deferred tax (1) (7) (6.1%) 707 (13.6%)
--------------------------------------------------------- ----------- --------------- ------------- --------------
Derecognition of deferred tax - 0.0% 433 (8.3%)
--------------------------------------------------------- ----------- --------------- ------------- --------------
Increase in deferred taxes resulting from change in UK
tax rate (328) (287.6%) (159) 3.1%
--------------------------------------------------------- ----------- --------------- ------------- --------------
Other 33 29.1% 57 (1.1%)
--------------------------------------------------------- ----------- --------------- ------------- --------------
Statutory tax (credit)/charge and rate (280) (245.6%) 48 (0.9%)
--------------------------------------------------------- ----------- --------------- ------------- --------------
Analysis of statutory tax (credit)/charge:
--------------------------------------------------------- ----------- --------------- ------------- --------------
Underlying items (29) 82
--------------------------------------------------------- ----------- --------------- ------------- --------------
Non-underlying items (see note 2) (342) (71)
--------------------------------------------------------- ----------- --------------- ------------- --------------
Discontinued operations (see note 19) 91 37
--------------------------------------------------------- ----------- --------------- ------------- --------------
(280) 48
--------------------------------------------------------- ----------- --------------- ------------- --------------
(1) Includes UK losses not recognised and movement on
unrecognised deferred tax assets relating to foreign exchange and
commodity financial assets and liabilities.
Deferred tax assets are recognised to the extent it is probable
that future taxable profits will be available against which to
recover the asset. Where necessary, this is based on management's
assumptions relating to the amounts and timing of future taxable
profits. The Board continually reassesses the appropriateness of
recovering deferred tax assets relating to losses and other tax
credits, which includes a consideration of the level of future
profits and the time period over which they are recovered.
Sensitivity analyses are also performed as part of the
assessment. At 30 June 2021, sensitivity analyses showed that
either a 5% reduction in margins across all applicable Civil
widebody programmes or a 5% reduction in shop visit volumes, which
could be driven by fewer flying hours as a result of climate
change, would result in a decrease in the deferred tax asset in
respect of UK losses by around GBP150m, which equates to around a
GBP1.2bn reduction in profit.
As a consequence of the impact of COVID-19 on existing Civil
Aerospace widebody engine programmes, taking into account the
sensitivity analyses performed, and in light of the inherent
uncertainty in estimating such long-term forecasts, the Group has
not recognised any deferred tax assets in respect of 2021 UK
losses.
Deferred tax assets arising on additional unrealised losses on
derivative contracts that remain hedged have also been assessed
resulting in a net increase in the deferred tax asset of GBP43m,
mainly driven by the change in UK corporate tax rate.
Both of these assessments are in line with the approach set out
in note 5 of the 2020 Annual Report, and also take into account a
25% probability of there being a severe but plausible downside
scenario in relation to the commercial aviation industry. The
Spring Budget 2021 announced that the UK corporation tax rate will
increase from 19% to 25% from 1 April 2023. The tax rate increase
was substantively enacted on 24 May 2021. The prior year UK
deferred tax assets and liabilities were calculated at 19%, as this
was the enacted rate at the 2020 balance sheet date. As the 25%
rate has been substantively enacted before 30 June 2021, the UK
deferred tax assets and liabilities have been remeasured at
25%.
The resulting credits or charges have been recognised in the
income statement except to the extent that they relate to items
previously credited or charged to equity. Accordingly, in 2021,
GBP328m has been credited to the income statement and GBP18m has
been credited directly to equity.
The unrecognised deferred tax assets on UK losses, foreign
exchange financial assets and liabilities and other deductible
temporary differences have increased by GBP373m, GBP116m, and
GBP11m respectively due to the increase in the UK tax rate to
25%.
6 Earnings per ordinary share
Basic earnings per share (EPS) is calculated by dividing the
profit/(loss) 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.
In the current period, the potentially dilutive share options
element has been assessed as 18 million shares. Where a continuing
loss is recognised, the effect of potentially dilutive ordinary
shares is anti-dilutive.
Half-year to 30 June 2021 Half-year to 30 June 2020
------------------------- ------------------------------------------- --------------------------------------------
Potentially dilutive Potentially dilutive
Basic share options Diluted Basic share options Diluted
------------------------- ------- ------------------------ -------- -------- ------------------------ --------
Profit/(loss)
attributable to ordinary
shareholders (GBPm):
------------------------- ------- ------------------------ -------- -------- ------------------------ --------
Continuing operations 394 394 (5,263) (5,263)
------------------------- ------- ------------------------ -------- -------- ------------------------ --------
Discontinued operations (1) (1) (117) (117)
------------------------- ------- ------------------------ -------- -------- ------------------------ --------
393 393 (5,380) (5,380)
------------------------- ------- ------------------------ -------- -------- ------------------------ --------
Weighted average number
of ordinary shares
(millions) 8,331 18 8,349 5,597 - 5,597
------------------------- ------- ------------------------ -------- -------- ------------------------ --------
EPS (pence):
------------------------- ------- ------------------------ -------- -------- ------------------------ --------
Continuing operations 4.73 (0.01) 4.72 (94.03) - (94.03)
------------------------- ------- ------------------------ -------- -------- ------------------------ --------
Discontinued operations (0.01) - (0.01) (2.09) - (2.09)
------------------------- ------- ------------------------ -------- -------- ------------------------ --------
4.72 (0.01) 4.71 (96.12) - (96.12)
------------------------- ------- ------------------------ -------- -------- ------------------------ --------
The reconciliation between underlying EPS and basic EPS is as
follows:
Half-year to 30 June 2021 Half-year to 30 June 2020
---------------------------- ----------------------------
Pence GBPm Pence GBPm
-------------------------------------------------------- ---------------- ---------- ------------- -------------
Underlying EPS / Underlying profit/(loss) attributable
to ordinary shareholders 1.76 147 (59.44) (3,327)
-------------------------------------------------------- ---------------- ---------- ------------- -------------
Total underlying adjustments to profit/(loss) before tax
(note 2) (1.15) (96) (37.93) (2,123)
-------------------------------------------------------- ---------------- ---------- ------------- -------------
Related tax effects 4.11 342 1.27 71
-------------------------------------------------------- ---------------- ---------- ------------- -------------
Related NCI effects - - (0.02) (1)
-------------------------------------------------------- ---------------- ---------- ------------- -------------
EPS / profit/(loss) attributable to ordinary
shareholders 4.72 393 (96.12) (5,380)
-------------------------------------------------------- ---------------- ---------- ------------- -------------
Diluted underlying EPS 1.76 (59.44)
-------------------------------------------------------- ---------------- ---------- ------------- -------------
Basic and diluted earnings per share figures for the comparative
period have been restated and adjusted for the bonus factor of 2.91
to reflect the bonus element of the November 2020 rights issue, in
accordance with IAS 33 Earnings per Share. Amounts as originally
stated at 30 June 2020 were (280.06)p basic and diluted earnings
per share and (173.19)p basic and diluted underlying earnings per
share.
7 Intangible assets
Certification Development Customer
Goodwill costs expenditure relationships Software (3) Other Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------ -------- ------------------ ------------------ ------------------ ------------ ----- -------
Cost:
------------------ -------- ------------------ ------------------ ------------------ ------------ ----- -------
At 1 January 2021 1,112 963 3,564 1,403 968 893 8,903
------------------ -------- ------------------ ------------------ ------------------ ------------ ----- -------
Additions - 1 42 - 28 18 89
------------------ -------- ------------------ ------------------ ------------------ ------------ ----- -------
Transferred to
assets held for
sale (1) - (6) (179) (868) (15) (59) (1,127)
------------------ -------- ------------------ ------------------ ------------------ ------------ ----- -------
Disposals - (22) - - (3) (1) (26)
------------------ -------- ------------------ ------------------ ------------------ ------------ ----- -------
Reclassifications - - - - 6 (6) -
------------------ -------- ------------------ ------------------ ------------------ ------------ ----- -------
Reclassifications
from PPE - - - - 6 - 6
------------------ -------- ------------------ ------------------ ------------------ ------------ ----- -------
Exchange
differences (41) (2) (72) (58) (5) (26) (204)
------------------ -------- ------------------ ------------------ ------------------ ------------ ----- -------
At 30 June 2021 1,071 934 3,355 477 985 819 7,641
------------------ -------- ------------------ ------------------ ------------------ ------------ ----- -------
Accumulated amortisation and
impairment:
---------------------------- ------------------ ------------------ ------------------ ------------ ----- -------
At 1 January 2021 38 429 1,803 478 607 403 3,758
------------------ -------- ------------------ ------------------ ------------------ ------------ ----- -------
Charge for the
period (2) - 11 40 42 47 14 154
------------------ -------- ------------------ ------------------ ------------------ ------------ ----- -------
Impairment - - - - - 5 5
------------------ -------- ------------------ ------------------ ------------------ ------------ ----- -------
Transferred to
assets held for
sale (1) - (4) (51) (176) (10) - (241)
------------------ -------- ------------------ ------------------ ------------------ ------------ ----- -------
Disposals - (21) - - (2) (1) (24)
------------------ -------- ------------------ ------------------ ------------------ ------------ ----- -------
Reclassifications - - (1) - - 1 -
------------------ -------- ------------------ ------------------ ------------------ ------------ ----- -------
Reclassifications
from PPE - - - - 6 - 6
------------------ -------- ------------------ ------------------ ------------------ ------------ ----- -------
Exchange
differences - (1) (48) (17) (3) (11) (80)
------------------ -------- ------------------ ------------------ ------------------ ------------ ----- -------
At 30 June 2021 38 414 1,743 327 645 411 3,578
------------------ -------- ------------------ ------------------ ------------------ ------------ ----- -------
Net book value:
------------------ -------- ------------------ ------------------ ------------------ ------------ ----- -------
30 June 2021 1,033 520 1,612 150 340 408 4,063
------------------ -------- ------------------ ------------------ ------------------ ------------ ----- -------
1 January 2021 1,074 534 1,761 925 361 490 5,145
------------------ -------- ------------------ ------------------ ------------------ ------------ ----- -------
(1) Bergen Engines AS, the Civil Nuclear Instrumentation &
Control business and ITP Aero have been classified as disposal
groups held for sale at 30 June 2021. Bergen Engines AS and the
Civil Nuclear Instrumentation & Control business were
classified as held for sale at 31 December 2020 - see note 19.
(2) Charged to cost of sales and commercial and administrative
costs except development costs, which are charged to research and
development costs.
(3) Includes GBP103m (31 December 2020: GBP110m) of software
under course of construction which is not amortised.
Intangible assets have been reviewed for impairment in
accordance with IAS 36 Impairment of Assets. Assessments have
considered potential triggers of impairment such as external
factors including climate change, significant changes with an
adverse effect on a programme and by analysing latest management
forecasts against those prepared in 2020 to identify any
deterioration in performance. Where a trigger event has been
identified, an impairment test has been carried out. Where an
impairment was required the test was 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 based
on estimates of market share, trading assumptions and long-term
economic forecasts. The uncertainty over the recovery from COVID-19
has been modelled by including downside forecasts at an appropriate
weighting taking into account the business segment being
considered.
There have been no individually material impairment charges or
reversals recognised in the period.
8 Property, plant and equipment
In course of
Land and buildings Plant and equipment Aircraft and engines construction Total
GBPm GBPm GBPm GBPm GBPm
----------------------- ------------------ ------------------- -------------------- ----------------------- -----
Cost:
----------------------- ------------------ ------------------- -------------------- ----------------------- -----
At 1 January 2021 1,994 5,442 1,025 451 8,912
----------------------- ------------------ ------------------- -------------------- ----------------------- -----
Additions 4 27 - 64 95
----------------------- ------------------ ------------------- -------------------- ----------------------- -----
Transferred to assets
held for sale (1) (122) (301) (22) (8) (453)
----------------------- ------------------ ------------------- -------------------- ----------------------- -----
Disposals/write-offs (11) (96) (1) - (108)
----------------------- ------------------ ------------------- -------------------- ----------------------- -----
Reclassifications (2) 91 102 - (193) -
----------------------- ------------------ ------------------- -------------------- ----------------------- -----
Reclassifications to
intangible assets (2) - (6) - - (6)
----------------------- ------------------ ------------------- -------------------- ----------------------- -----
Exchange differences (32) (83) (5) (4) (124)
----------------------- ------------------ ------------------- -------------------- ----------------------- -----
At 30 June 2021 1,924 5,085 997 310 8,316
----------------------- ------------------ ------------------- -------------------- ----------------------- -----
Accumulated
depreciation and
impairment:
----------------------- ------------------ ------------------- -------------------- ----------------------- -----
At 1 January 2021 679 3,336 374 8 4,397
----------------------- ------------------ ------------------- -------------------- ----------------------- -----
Charge for the period
(3) 36 176 27 - 239
----------------------- ------------------ ------------------- -------------------- ----------------------- -----
Impairment (4) (1) (1) - 2 -
----------------------- ------------------ ------------------- -------------------- ----------------------- -----
Transferred to assets
held for sale (1) (22) (123) (5) - (150)
----------------------- ------------------ ------------------- -------------------- ----------------------- -----
Disposals/write-offs (5) (92) - - (97)
----------------------- ------------------ ------------------- -------------------- ----------------------- -----
Reclassifications (2) (13) 12 - 1 -
----------------------- ------------------ ------------------- -------------------- ----------------------- -----
Reclassifications to
intangible assets (2) - (6) - - (6)
----------------------- ------------------ ------------------- -------------------- ----------------------- -----
Exchange differences (9) (49) (1) - (59)
----------------------- ------------------ ------------------- -------------------- ----------------------- -----
At 30 June 2021 665 3,253 395 11 4,324
----------------------- ------------------ ------------------- -------------------- ----------------------- -----
Net book value at:
----------------------- ------------------ ------------------- -------------------- ----------------------- -----
30 June 2021 1,259 1,832 602 299 3,992
----------------------- ------------------ ------------------- -------------------- ----------------------- -----
1 January 2021 1,315 2,106 651 443 4,515
----------------------- ------------------ ------------------- -------------------- ----------------------- -----
(1) Bergen Engines AS, the Civil Nuclear Instrumentation &
Control business and ITP Aero have been classified as disposal
groups held for sale at 30 June 2021. Bergen Engines AS and the
Civil Nuclear Instrumentation & Control business were
classified as held for sale at 31 December 2020 - see note 19.
(2) Includes reclassifications of assets under construction to
the relevant classification in property, plant and equipment or
intangible assets when available for use.
(3) Depreciation is charged to cost of sales and commercial and
administrative costs or included in the cost of inventory as
appropriate.
(4) The carrying values of tangible assets have been assessed
during the period in line with IAS 36. As a result of this
assessment(,) there are no individually material impairment charges
or reversals in the period.
9 Right-of-use assets
Land and buildings Plant and equipment Aircraft and engines Total
GBPm GBPm GBPm GBPm
----------------------------------------- ------------------ ------------------- -------------------- -----
Cost:
----------------------------------------- ------------------ ------------------- -------------------- -----
At 1 January 2021 447 150 1,833 2,430
----------------------------------------- ------------------ ------------------- -------------------- -----
Additions/modification of leases 9 4 (3) 10
----------------------------------------- ------------------ ------------------- -------------------- -----
Transferred to assets held for sale (1) (16) (2) - (18)
----------------------------------------- ------------------ ------------------- -------------------- -----
Disposals (8) (4) - (12)
----------------------------------------- ------------------ ------------------- -------------------- -----
Exchange differences (6) (3) (3) (12)
----------------------------------------- ------------------ ------------------- -------------------- -----
At 30 June 2021 426 145 1,827 2,398
----------------------------------------- ------------------ ------------------- -------------------- -----
Accumulated depreciation and impairment:
========================================= ================== =================== ==================== =====
At 1 January 2021 159 60 806 1,025
----------------------------------------- ------------------ ------------------- -------------------- -----
Charge for the period 22 15 100 137
----------------------------------------- ------------------ ------------------- -------------------- -----
Impairment (2) (3) (6) - (9)
----------------------------------------- ------------------ ------------------- -------------------- -----
Transferred to assets held for sale (1) (4) (1) - (5)
----------------------------------------- ------------------ ------------------- -------------------- -----
Disposals (8) (4) - (12)
----------------------------------------- ------------------ ------------------- -------------------- -----
Exchange differences (2) (1) (1) (4)
----------------------------------------- ------------------ ------------------- -------------------- -----
At 30 June 2021 164 63 905 1,132
----------------------------------------- ------------------ ------------------- -------------------- -----
Net book value at:
----------------------------------------- ------------------ ------------------- -------------------- -----
30 June 2021 262 82 922 1,266
----------------------------------------- ------------------ ------------------- -------------------- -----
1 January 2021 288 90 1,027 1,405
----------------------------------------- ------------------ ------------------- -------------------- -----
(1) Bergen Engines AS, the Civil Nuclear Instrumentation &
Control business and ITP Aero have been classified as disposal
groups held for sale at 30 June 2021. Bergen Engines AS and the
Civil Nuclear Instrumentation & Control business were
classified as held for sale at 31 December 2020 - see note 19.
(2) The carrying values of right-of-use assets have been
assessed during the period in line with IAS 36. As a result of this
assessment, an impairment reversal of GBP9m has been recognised
through non-underlying profit. The reversal relates to an element
of the non-underlying impairments recorded in 2020 in Civil
Aerospace for site rationalisation where there has been a
subsequent change in strategy to continue production on that
site.
10 Trade receivables and other assets
Current Non-current Total
---------------- ------------------------------ ------------------------------ ------------ ----------------
30 June 2021 31 December 2020 30 June 2021 31 December 2020 30 June 2021 31 December 2020
GBPm GBPm GBPm GBPm GBPm GBPm
---------------- ------------ ---------------- ------------ ---------------- ------------ ----------------
Trade
receivables 2,347 2,479 - - 2,347 2,479
---------------- ------------ ---------------- ------------ ---------------- ------------ ----------------
Receivables due
on risk and
revenue sharing
arrangements
(RRSAs) 716 603 13 82 729 685
---------------- ------------ ---------------- ------------ ---------------- ------------ ----------------
Amounts owed by
joint ventures
and associates 456 486 13 16 469 502
---------------- ------------ ---------------- ------------ ---------------- ------------ ----------------
Costs to obtain
contracts with
customers 16 12 44 50 60 62
---------------- ------------ ---------------- ------------ ---------------- ------------ ----------------
Other taxation
and social
security
receivable 178 225 22 6 200 231
---------------- ------------ ---------------- ------------ ---------------- ------------ ----------------
Other
receivables (1) 554 639 19 20 573 659
---------------- ------------ ---------------- ------------ ---------------- ------------ ----------------
Prepayments 339 412 351 425 690 837
---------------- ------------ ---------------- ------------ ---------------- ------------ ----------------
4,606 4,856 462 599 5,068 5,455
---------------- ------------ ---------------- ------------ ---------------- ------------ ----------------
(1) Other receivables include unbilled recoveries relating to overhaul activity.
The expected credit losses for trade receivables and other
assets has increased by GBP29m to GBP281m (31 December 2020:
GBP252m). This increase is mainly driven by the Civil Aerospace
business of GBP27m, of which GBP14m relates to specific customers
and GBP13m relates to updates to the recoverability of other
receivables.
The Group's expected credit loss provision movements are as
follows:
Half-year to 30 June 2021 Year-ended 31 December 2020
GBPm GBPm
------------------------------------------------------------ --------------------------
At 1 January (252) (138)
Increases in loss allowance recognised in the income
statement during the period (81) (119)
Loss allowance utilised 15 5
Releases of loss allowance previously provided 33 13
Other net movements 2 (13)
Transferred to held for sale 2 -
------------------------------------------------------------
At 30 June (281) (252)
------------------------------------------------------------
11 Trade payables and other liabilities
Current Non-current Total
30 June 2021 31 December 2020 30 June 2021 31 December 2020 30 June 2021 31 December 2020
GBPm GBPm GBPm GBPm GBPm GBPm
Trade payables 1,247 1,418 - - 1,247 1,418
------------------ ---------------- ------------ ---------------- ------------
Payables due on
RRSAs 500 697 - - 500 697
------------------ ---------------- ------------ ---------------- ------------
Amounts owed to
joint ventures
and associates 657 583 - - 657 583
------------------ ---------------- ------------ ---------------- ------------
Customer
concession
credits 1,254 1,536 557 514 1,811 2,050
------------------ ---------------- ------------ ---------------- ------------
Warranty credits 123 173 228 196 351 369
------------------ ---------------- ------------ ---------------- ------------
Accruals 1,069 1,322 110 117 1,179 1,439
------------------ ---------------- ------------ ---------------- ------------
Deferred receipts
from RRSA
workshare
partners 26 17 491 507 517 524
------------------ ---------------- ------------ ---------------- ------------
Government grants 11 16 56 66 67 82
------------------ ---------------- ------------ ---------------- ------------
Other taxation and
social security 117 127 6 7 123 134
------------------ ---------------- ------------ ---------------- ------------
Other payables (1) 716 764 344 515 1,060 1,279
------------------ ---------------- ------------ ---------------- ------------
5,720 6,653 1,792 1,922 7,512 8,575
------------------ ---------------- ------------ ---------------- ------------
(1) Other payables includes financial penalties from agreements
with investigating bodies, parts purchase obligations, payroll
liabilities, HMG levies and deferred consideration for recent
acquisitions.
The Group's payment terms with suppliers vary on the products
and services being sourced, the competitive global markets the
Group operates in and other commercial aspects of suppliers'
relationships. Industry average payment terms vary between 90-120
days. The Group offers reduced payment terms for smaller suppliers,
so that they are paid in 30 days. In line with aerospace industry
practice, the Group offers a supply chain financing (SCF) programme
in partnership with banks to enable suppliers, including joint
ventures, who are on standard 75-day payment terms to receive their
payments sooner. The SCF programme is available to suppliers at
their discretion and does not change rights and obligations with
suppliers nor the timing of payment of suppliers. At 30 June 2021,
suppliers had drawn GBP449m under the SCF scheme (31 December 2020:
GBP582m).
12 Contract assets and liabilities
Current Non-current (1) Total
30 June 2021 31 December 2020 30 June 2021 31 December 2020 30 June 2021 31 December 2020
GBPm GBPm GBPm GBPm GBPm GBPm
Contract assets
Contract assets
with customers 496 416 651 660 1,147 1,076
------------------ ---------------- ------------ ---------------- ------------
Participation fee
contract assets 24 48 231 386 255 434
------------------ ---------------- ------------ ---------------- ------------
520 464 882 1,046 1,402 1,510
(1) Contract assets and contract liabilities have been presented
on the face of the balance sheet in line with the operating cycle
of the business. Contract liabilities are further split according
to when the related performance obligation is expected to be
satisfied and therefore when revenue is estimated to be recognised
in the income statement. Further disclosure of contract assets is
provided in the table above, which shows within current the element
of consideration that will become unconditional in the next
year.
Contract assets with customers include GBP847m (31 December
2020: GBP726m) of Civil Aerospace LTSA assets, with most of the
remaining balance relating to Defence. The main drivers of the
increase in the Group balance are: recognition of revenue relating
to performance obligations satisfied in previous years of GBP31m in
Civil Aerospace (as the level of variable consideration that will
be received has increased as uncertainty has reduced following
commercial negotiations); and revenue recognised in Civil Aerospace
in the period exceeding amounts billed by GBP41m. No impairment
losses in relation to these contract assets (31 December 2020:
none) have arisen during the period to 30 June 2021.
Participation fee contract assets have reduced by GBP179m (31
December 2020: reduced by GBP165m) due to ITP Aero being
reclassified as a disposal group held for sale which had an impact
of GBP153m, amortisation exceeding additions by GBP12m and foreign
exchange on consolidation of overseas entities of GBP14m. No
impairment losses of participation fee contract assets (31 December
2020: none) have arisen during the period to 30 June 2021.
Current Non-current Total
30 June 2021 31 December 2020 30 June 2021 31 December 2020 30 June 2021 31 December 2020
GBPm GBPm GBPm GBPm GBPm GBPm
Contract
liabilities 3,811 4,187 6,427 6,245 10,238 10,432
---------------- ------------ ---------------- ------------
Contract liabilities have decreased by GBP194m. The main driver
of the change in the Group balance is a result of ITP Aero contract
liabilities being reclassified as a disposal group held for sale
having an impact of GBP173m.
Civil Aerospace contract liabilities have increased by GBP15m.
This consists of an increase in relation to LTSA liabilities of
GBP54m to GBP6,895m (31 December 2020: GBP6,841m), offset by the
utilisation of deposits. LTSA revenue billed has been ahead of
revenue recognised in the period and together with foreign exchange
movements have increased the LTSA liabilities by GBP183m, offset by
GBP129m of LTSA revenue recognised relating to performance
obligations satisfied in previous years, which were principally
driven by improved shop visit cost expectations in Business
Aviation and the impact of specific customer negotiations with
airlines.
13 Financial assets and liabilities
Carrying value of other financial assets and liabilities
Derivatives
Foreign
exchange Commodity Interest rate Total Financial
contracts contracts contracts (1) derivatives RRSAs Other C Shares Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 30 June
2021
Non-current
assets 361 9 152 522 - 15 - 537
Current assets 16 11 1 28 - 12 - 40
Assets 377 20 153 550 - 27 - 577
Current
liabilities (607) (1) (1) (609) (1) (27) (26) (663)
Non-current
liabilities (2,293) (1) (117) (2,411) (6) (45) - (2,462)
Liabilities (2,900) (2) (118) (3,020) (7) (72) (26) (3,125)
(2,523) 18 35 (2,470) (7) (45) (26) (2,548)
At 31 December
2020
Non-current
assets 396 18 258 672 - 15 - 687
Current assets 45 7 42 94 - 13 - 107
Assets 441 25 300 766 - 28 - 794
Current
liabilities (522) (17) (11) (550) (5) (25) (28) (608)
Non-current
liabilities (2,790) (19) (113) (2,922) (76) (48) - (3,046)
Liabilities (3,312) (36) (124) (3,472) (81) (73) (28) (3,654)
(2,871) (11) 176 (2,706) (81) (45) (28) (2,860)
(1) Includes the foreign exchange impact of cross-currency interest rate swaps.
13 Financial assets and liabilities continued
Derivative financial instruments
Movements in fair value of derivative financial assets and
liabilities were as follows:
Year-ended
Half-year to 30 June 2021 31 December 2020
Interest rate Interest rate
Foreign instruments - instruments -
exchange Commodity hedge accounted non-hedge
instruments contracts (2) accounted Total Total
GBPm GBPm GBPm GBPm GBPm GBPm
At 1 January (2,871) (11) 233 (57) (2,706) (2,849)
Movements in fair
value hedges - - (129) - (129) 139
Movements in cash
flow hedges (13) 4 (38) - (47) (36)
Movements in
other derivative
contracts (1) 25 41 - 40 106 (160)
Contracts settled 348 (1) (21) 7 333 200
Reclassification
to held for sale (12) (15) - - (27) -
At period/year
end (2,523) 18 45 (10) (2,470) (2,706)
(1) Included in net financing.
(2) Includes the foreign exchange impact of cross-currency interest rate swaps.
Financial risk and revenue sharing arrangements (RRSAs) and
other financial assets and liabilities
Financial RRSAs Other liabilities Other assets
Year-ended
Half-year to 31 December Half-year to Year-ended 31 Half-year to Year-ended 31
30 June 2021 2020 30 June 2021 December 2020 30 June 2021 December 2020
GBPm GBPm GBPm GBPm GBPm GBPm
At 1 January (81) (110) (73) (72) 15 16
Exchange
adjustments
included in OCI 3 (6) 3 (2) - -
Additions - - (2) (17) - -
Financing charge
(1) - (3) - (13) - -
Excluded from
underlying
profit:
Changes in
forecast
payments (1) - (3) - - - -
Exchange
adjustments (1) - - - - - -
Cash paid 2 39 - 18 - (1)
Other - - - 13 - -
Reclassification
to held for sale 69 2 - - - -
At period/year end (7) (81) (72) (73) 15 15
(1) Included in financing.
Fair values of financial instruments equate to book values with
the following exceptions:
Half-year to 30 June 2021 Year-ended 31 December 2020
Book value Fair value Book value Fair value
GBPm GBPm GBPm GBPm
Borrowings - Level 1 (4,057) (4,070) (4,886) (4,814)
Borrowings - Level 2 (1,991) (2,071) (401) (403)
Financial RRSAs - Level 3 (7) (10) (81) (89)
13 Financial assets and liabilities continued
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.
- Non-current investments - other comprise unconsolidated
companies and are measured at fair value.
- Money market funds, included within cash and cash equivalents,
are valued using Level 1 methodology. Fair values are assumed to
approximately equal 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.
- The fair values of held to collect trade receivables and
similar items, trade payables and other similar items, other
non-derivative financial assets and liabilities, 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 and
trade receivable held to collect or sell (30 June 2021: GBP11m; 31
December 2020: GBP938m) are estimated by discounting expected
future contractual cash flows using prevailing interest rate curves
or cost of borrowing, as appropriate. 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).
During the period to 30 June 2021, the Group reassessed which trade
receivables are held to collect or sell. The Group's intent is to
no longer utilise invoice discounting and consequently, balances
are generally not classified as held to collect or sell. A small
amount of invoice discounting has continued within Power Systems at
the request and cost of the customer.
- Borrowings are carried at amortised cost. Amounts denominated
in foreign currencies are valued at the exchange rate prevailing at
the balance sheet date. The fair value of borrowings is estimated
using quoted prices (Level 1 as defined by IFRS 13) or by
discounting contractual future cash flows (Level 2 as defined by
IFRS 13).
- The fair values of RRSAs and other liabilities are estimated
by discounting expected future cash flows. The contractual cash
flows are based on future trading activity, which is estimated
based on latest forecasts (Level 3 as defined by IFRS 13).
- Other assets are included on the balance sheet at fair value,
derived from observable market prices or latest forecast (Level 2/3
as defined by IFRS 13). At 30 June 2021, Level 3 assets totalled
GBP15m (31 December 2020: GBP15m).
- The fair value of lease liabilities are estimated by
discounting future contractual cash flows using either the interest
rate implicit in the lease or the Group's incremental cost of
borrowing (Level 2 as defined by IFRS 13).
In 2019, the Group adopted the 'Amendments to IFRS 9, IAS 39 and
IFRS 7 Interest Rate Benchmark Reform' issued in September 2019. In
calculating the change in fair value attributable to the hedged
risk for the fixed-rate borrowings, the Group has made the
following assumptions that reflect its current expectations:
- The Group has assumed that pre-existing fallback provisions in
the borrowings do not apply to IBOR reform;
- Borrowings move to a risk free rate during 2022, and the
spread will be similar to the spread included in the interest rate
swaps used as hedging instruments; and
- No other changes to the terms of the hedged borrowings are
anticipated.
14 Borrowings and lease liabilities
Current Non-current Total
------------------------------
30 June 2021 31 December 2020 30 June 2021 31 December 2020 30 June 2021 31 December 2020
GBPm GBPm GBPm GBPm GBPm GBPm
Unsecured
Overdrafts 6 7 - - 6 7
Bank loans (1) 3 9 1,972 10 1,975 19
Commercial paper
(2) - 300 - - - 300
Loan notes (3) - 680 4,057 4,206 4,057 4,886
Other loans - 17 10 58 10 75
Total unsecured 9 1,013 6,039 4,274 6,048 5,287
Lease liabilities 212 259 1,654 1,784 1,866 2,043
Total borrowings
and lease
liabilities 221 1,272 7,693 6,058 7,914 7,330
All outstanding items described above as notes are listed on the
London Stock Exchange.
(1) On the 15 June 2021, the Group drew down the GBP2,000m loan
maturing in 2025 (supported by an 80% guarantee from UK Export
Finance).
(2) On the 27 April 2020, the Group issued commercial paper of
GBP300m to the Covid Corporate Financing Facility (CCFF), a fund
operated by the Bank of England on behalf of HM Treasury. These
borrowings were repaid on 17 March 2021.
(3) On the 18 June 2021, the Group repaid EUR 750m (GBP639m)
loan notes in line with repayment terms.
During the period, the Group entered into a new GBP1,000m loan
maturing in 2026 (supported by an 80% guarantee from UK Export
Finance and available to draw until March 2025). This facility was
undrawn at 30 June 2021.
Under the terms of certain recent loan facilities, the Company
is restricted from declaring, making or paying distributions to
shareholders on or prior to 31 December 2022 and from declaring,
making or paying distributions to shareholders from 1 January 2023
unless certain conditions are satisfied. The restrictions on
distributions do not prevent shareholders from redeeming C Shares
issued in January 2020 or prior to that.
15 Provisions
Charged to
At income Transferred to Exchange At 30 June
1 January 2021 statement (1) Reversed Utilised held for sale differences 2021
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Trent 1000
exceptional
costs 321 24 - (148) - - 197
Contract losses 808 84 (30) (16) (13) (4) 829
Restructuring 236 3 (28) (59) (5) (3) 144
Warranties and
guarantees 327 50 (3) (43) (11) (12) 308
Customer
financing 17 - - - - - 17
Insurance 60 10 (16) (5) - - 49
Tax related
interest and
penalties 33 - - - - - 33
Employer
liability
claims 50 1 - (1) (1) - 49
Other 93 14 (1) (9) - (3) 94
1,945 186 (78) (281) (30) (22) 1,720
Current
liabilities 826 568
Non-current
liabilities 1,119 1,152
(1) The charge to the income statement includes GBP16m in
underlying profit/(loss) as a result of the unwinding of the
discounting of provisions previously recognised.
Trent 1000 exceptional costs
In November 2019, the Group announced the outcome of testing and
a thorough technical and financial review of the
Trent 1000 TEN programme, following technical issues which were
identified in 2019, resulting in a revised timeline and a more
conservative estimate of durability for the improved HP turbine
blade for the TEN variant. In the period, the Group has utilised
GBP148m of the Trent 1000 exceptional costs provision. This
represents customer disruption costs settled in cash and credit
notes, and remediation shop visit costs. The remaining provision is
expected to be utilised over the period 2021 to 2023.
15 Provisions continued
Contract losses
Provisions for contract losses are recorded when the direct
costs to fulfil a contract are assessed as being greater than the
expected revenue. In the period, additional contract losses for the
Group of GBP84m have been recognised as a result of a change in
future cost estimates. The Group continues to monitor the contract
loss provision for changes in the market and revises the provision
as required. Provisions for contract losses are expected to be
utilised over the term of the customer contracts, typically within
10-15 years.
Restructuring
In May 2020, the Group announced a fundamental restructuring
programme in response to the financial and operational impact
caused by COVID-19 with a plan to remove 9,000 roles across the
Group. During the period, GBP59m of the provision was utilised as
part of these plans and GBP28m of the provision released following
reassessment of the anticipated cost per role. The provision is
expected to be utilised by the end of 2022.
Customer financing
Customer financing provisions have been made to cover guarantees
provided for asset value and/or financing where it is probable that
a payment will be made.
In addition to the provisions recognised, the Group has
contingent liabilities for customer financing arrangements where
the payment is not probable as described below. 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 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
$1.8bn (31 December 2020: $1.9bn) (on a discounted basis) to
provide facilities to enable customers to purchase aircraft (of
which approximately $307m could be called during 2021). 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.
Significant events impacting the international aircraft financing
market, including the COVID-19 pandemic, the failure by customers
to meet their obligations under such financing agreements, or
inadequate provisions for customer financing liabilities may
adversely affect the Group's financial position.
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 better reflect
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 USD. 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.
At 30 June 2021 At 31 December 2020
GBPm $m GBPm $m
Gross commitments 31 43 38 52
Value of security (10) (14) (14) (19)
Guarantees (2) (2) (5) (6)
Net commitments 19 27 19 27
Net commitments with security reduced by 20% (1) 21 29 22 30
(1) 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.
16 Pensions and other post-retirement and long-term employee benefits
The net post-retirement scheme deficit as at 30 June 2021 is
calculated on a year to date basis, using the latest valuation as
at 31 December 2020, updated to 30 June 2021 for the principal
schemes.
Movements in the net post-retirement position recognised in the
balance sheet were as follows:
Amounts recognised in the balance sheet in respect of defined
benefit schemes
UK schemes Overseas schemes Total
GBPm GBPm GBPm
At 1 January 2021 883 (1,569) (686)
Exchange adjustments - 54 54
Current service cost and administrative expenses (4) (33) (37)
Past service credit 11 - 11
Financing recognised in the income statement 7 (10) (3)
Contributions by employer 99 32 131
Actuarial gains recognised in OCI (1) 501 142 643
Returns on plan assets excluding financing recognised in OCI (1) (609) (46) (655)
Transfers - (1) (1)
At 30 June 2021 888 (1,431) (543)
Post-retirement scheme surpluses - included in non-current assets (2) 888 26 914
Post-retirement scheme deficits - included in non-current liabilities - (1,444) (1,444)
Post-retirement scheme deficits - included in liabilities held for sale - (13) (13)
888 (1,431) (543)
(1) The UK scheme recognised a net loss of GBP108m in OCI in the
period to 30 June 2021 which has been driven by a higher discount
rate offset by returns on plan assets.
(2) The surplus in the Rolls-Royce UK Pension Fund ( RRUKPF) is
recognised as, on ultimate wind-up when there are no longer any
remaining members, any surplus would be returned to the Group,
which has the power to prevent the surplus being used for other
purposes in advance of this event.
Changes to UK defined benefit scheme
On the 29 July 2020, the Group announced a consultation with the
active members of the UK scheme on a proposal to close the scheme
to future accrual on 31 December 2020. As at 31 December 2020, a
non-underlying past-service credit of GBP67m was recognised.
Following the confirmation of the scheme closure, the Group held
discussions with the employees' representatives and the Trustee
regarding additional transitional protections that could be granted
from the scheme. At 30 June 2021, GBP7m has been recognised as a
non-underlying past service credit which relates to the differences
between the final details agreed and the obligation estimated at 31
December 2020.
In the period to 30 June 2021, 236 employed deferred members
have transferred employment in anticipation of a business disposal.
As a consequence of this, a GBP4m non-underlying past service
credit has been recognised.
Sensitivities
A reduction in the discount rate from 1.95% to 1.70% could lead
to an increase in the defined benefit obligations of the RR UK
Pension Fund of approximately GBP425m. This would be expected to be
broadly offset by changes in the value of scheme assets, as the
scheme's investment policies are designed to mitigate this
risk.
A one-year increase in life expectancy from 21.7 years (male
aged 65) and from 23.1 years (male aged 45) would increase the
defined benefit obligations of the RR UK Pension Fund by
approximately GBP380m.
Where applicable, it is assumed that 40% (31 December 2020: 40%)
of members of the RR UK Pension Fund will transfer out of the fund
on retirement with a share of funds transfer value. An increase of
5% in this assumption would increase the defined benefit obligation
by GBP30m.
17 Contingent liabilities
Contingent liabilities in respect of customer financing
commitments are described in note 15.
In January 2017, after full cooperation, the Company concluded
deferred prosecution agreements (DPA) with the SFO and the US
Department of Justice (DoJ) and a leniency agreement with the MPF,
the Brazilian federal prosecutors. Following the expiry of its
term, the DPA with the DoJ was dismissed by the US District Court
on 19 May 2020. Certain authorities are investigating members of
the Group for matters relating to misconduct in relation to
historical matters. The Group is responding appropriately. Action
may be taken by further authorities against the Company or
individuals. In addition, the Group 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
material financial loss over and above the penalties imposed to
date, but cannot anticipate all the possible actions that may be
taken or their potential consequences.
Contingent liabilities exist in respect of guarantees provided
by the Group in the ordinary course of business for product
delivery, commitments made for future service demand in respect of
maintenance, repair and overhaul, and performance and reliability.
The Group has, in the normal course of business, entered into
arrangements in respect of export nance, performance bonds,
countertrade obligations and minor miscellaneous items. Various
Group undertakings are parties to legal actions and claims
(including with tax authorities) 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 signi cant loss to the
Group.
18 Related parties
Half-year to Half-year to 30 June 2020
30 June 2021 GBPm
GBPm
Sales of goods and services to joint ventures and associates 1,434 2,171
Purchases of goods and services from joint ventures and associates (1,772) (2,514)
(1) Sales of goods and services to joint ventures and associates
and purchases of goods and services from joint ventures and
associates are included at the average exchange rate, consistent
with the statutory income statement. In prior periods these have
been included at the achieved rate on settled derivative contracts,
consistent with note 2.
Included in sales of goods and services to joint ventures and
associates are sales of spare engines amounting to GBP6m (30 June
2020: GBP20m). Profit recognised in the period on such sales
amounted to GBP13m (30 June 2020: GBP30m), including profit on
current period sales and recognition of profit deferred on similar
sales in previous periods. On an underlying basis (at actual
achieved rates on settled derivative transactions), the amounts
were GBP13m (30 June 2020: GBP31m).
19 Disposals, businesses held for sale and discontinued operations
Disposals
Disposal completed in prior periods
On 1 June 2018, the Group sold its L'Orange business, part of
Rolls-Royce Power Systems, to Woodward Inc. for EUR673m. Under the
sale agreement, the cash consideration may be adjusted by up to
+/-EUR44m, based on L'Orange aftermarket sales over the five-year
period to 31 May 2023. This is reviewed at each reporting date over
the adjustment period. A liability of EUR28m (31 December 2020:
EUR29m) is recognised for amounts that are expected to be payable
in relation to the years 2021-2023. Cash of EUR9m has been paid
during the period with an increase in the liability of EUR8m
(GBP7m) reflected as an adjustment to the sales proceeds. The
maximum adjustment to sales proceeds has now been provided for in
all future years to 2023.
Businesses held for sale
On 28 February 2020, the Group announced the decision to carry
out a strategic review of Bergen Engines AS, the Group's
medium-speed gas and diesel engine business. Bergen formed part of
the Power Systems business and from 31 December 2020 it has been
classified as held for sale. After the termination of the sale with
TMH Group in March 2021, the sales process recommenced, and on 3
August 2021 the Group signed an agreement to sell Bergen to global
engineering group Langley Holdings plc for an enterprise value of
EUR63m. The agreement is subject to the satisfaction of certain
closing conditions and the Norwegian government have been notified
of the proposed sale. Effective completion is scheduled for 31
December 2021. Bergen has been assessed for impairment in line with
IFRS 5 Non-current Assets Held for Sale and Discontinued Operations
with reference to its fair value less costs to sell. An impairment
of GBP8m has been recognised of which GBP5m has been charged to
non-underlying profit. As at 30 June 2021, Bergen had an additional
GBP27m of cash which, as part of bank pooling arrangements, was
held by another Group company and consequently is not included in
the disposal group as the resulting intra-group balances are
eliminated on consolidation. On completion, it is expected that
EUR40m of cash will be retained by Rolls-Royce and any remaining
amount will be included in the disposal group.
19 Businesses held for sale and discontinued operations continued
.
On 7 December 2020, the Group signed an agreement for the sale
of Civil Nuclear Instrumentation & Control business to
Framatome. Consequently, in accordance with IFRS 5, the business
has been classified as held for sale at 30 June 2021 and its
carrying value assessed against the anticipated proceeds and
disposal costs. The sale is expected to complete in the second half
of the year.
On 27 August 2020, the Group announced its intention to sell ITP
Aero. During the period to 30 June 2021, the Hucknall site with
associated fabrications activities, that were previously reported
as part of the Civil Aerospace segment, have been transferred to
ITP Aero (see note 2 for more detail) and other preparatory work
has been performed such that as at 30 June 2021 ITP Aero was
available for immediate sale in its present condition and there is
an active programme to locate a buyer and complete the planned
sale, as such, the business has been classified as a disposal group
held for sale. The assets of ITP Aero have been assessed for
impairment in line with the requirements of IFRS 5 and no
impairment has been recognised. ITP Aero had an additional GBP315m
of cash which was held by another Group company at 30 June 2021 and
consequently is not included in the disposal group as the resulting
intra-group balances are eliminated on consolidation. On
completion, such cash is expected to be included in the disposal
group.
The table below summarises the categories of assets and
liabilities classified as held for sale.
ITP Civil
Aero Bergen Nuclear Total
GBPm GBPm GBPm GBPm
Intangible assets 886 - 16 902
Property, plant and equipment 303 - 6 309
Right-of-use assets 13 - 7 20
Investment in associates and
joint ventures 1 - - 1
Deferred tax assets 222 2 4 228
Inventory 237 91 15 343
Trade receivables and other
assets 345 52 37 434
Cash and cash equivalents 38 27 4 69
Assets held for sale 2,045 172 89 2,306
Trade payables and other liabilities (487) (93) (71) (651)
Provisions for liabilities and
charges (30) (12) (4) (46)
Borrowings and lease liabilities (92) (3) (5) (100)
Deferred tax
liabilities (92) (2) - (94)
Post-retirement scheme deficits - - (13) (13)
Liabilities associated with assets
held for sale (701) (110) (93) (904)
Net assets/(liabilities) held
for sale 1,344 62 (4) 1,402
Discontinued operations
ITP Aero represents a separate major line of business and has
been managed as a separate operating segment up to 30 June 2021
(see note 2). For the period ended 30 June 2021, following ITP Aero
being classified as a disposal group held for sale and in line with
IFRS 5, ITP Aero has been classified as a discontinued
operation.
The financial performance and cash flow information presented
reflects the operations for the period that have been classified as
discontinued operations.
Half-year Half-year
to 30 to 30
June 2021 June 2020
GBPm GBPm
Revenue 146 151
Operating loss (1) (76) (152)
Loss before taxation (1) (75) (154)
Income tax credit (1) 91 37
Profit/(loss) for the period from discontinued
operations on ordinary activities 16 (117)
Costs on disposal of discontinued operations (17) -
Loss for the period from discontinued operations (1) (117)
Net cash inflow from operating activities
(2) 4 8
Net cash outflow from investing activities (12) (13)
Net cash outflow from financing activities (1) (9)
Exchange gains/losses 3 (5)
Net change in cash and cash equivalents (6) (19)
(1) Profit/(loss) from discontinued operations on ordinary
activities is presented net of internal margin, related
consolidation adjustments and amortisation of intangible assets
arising on previous acquisition. The tax credit in 2021 includes a
credit relating to the recognition of a deferred tax asset on
losses. In the period to 30 June 2020, results included a number of
write-offs and programme impairments.
(2) Cash flows from operating activities include GBP17m costs of
disposal paid during the period to 30 June 2021 that were not a
movement in the cash balance of the disposal group.
20 Derivation of summary funds flow statement from statutory cash flow statement
Half-year to 30 June 2021 Half-year to 30 June 2020
GBPm GBPm GBPm GBPm Source
Underlying operating
profit/(loss) from continuing
operations 307 (1,630) Note 2
Underlying operating loss from
discontinued operations (16) (39) Note 2
Underlying operating
profit/(loss) (see note 2) 291 (1,669) Note 2
Amortisation and impairment of
intangible assets 159 550 Cash flow statement (CFS)
Depreciation and impairment of
property, plant and equipment 243 495 CFS
Depreciation and impairment of
right-of-use assets 128 513 CFS
Adjustment to residual value
guarantees in lease
liabilities (3) (42) CFS
Impairment of joint ventures 2 15 Note 13
Reversal of non-underlying
impairments of non-current Reversal of underlying
assets 1 (966) adjustment (note 2)
Reversal of underlying
Acquisition accounting (50) (66) adjustment (note 2)
Depreciation and amortisation 480 499
CFS less exceptional
Additions of intangible assets (71) (176) restructuring (see below)
Purchases of property, plant
and equipment (124) (221) CFS
CFS (capital and interest
Lease payments (capital plus payments adjusted for
interest) (171) (190) foreign exchange (FX))
Increase in inventories (219) (301) CFS
CFS adjusted for the impact
of exceptional programme
charges and exceptional
restructuring
shown on the basis of the FX
Movement in rate achieved on settled
receivables/payables (223) (1,313) derivative contracts
CFS adjusted for the impact
of exceptional programme
charges and FX and excluding
Civil LTSAs
Movement in contract balances (88) (150) (shown separately below)
Movement in Civil LTSA
balances within movement of
Underlying movement in Civil contract balances in CFS
Aerospace LTSA contract less impact of
balances (108) 788 FX
Adjustment to reflect the
Revaluation of trading assets impact of the FX contracts
(excluding exceptional items) (154) (152) held on receivables/payables
Realised cash flows on FX
contracts not included in
underlying operating profit
less cash
Realised derivatives in flows on settlement of
financing 45 74 excess derivative contracts
Movement on
receivables/payables/contract
balances (528) (753)
CFS adjusted for the impact
of exceptional programme
charges and anticipated
recoveries, exceptional
restructuring and FX
Movement on provisions (136) 132 contracts held
Net interest received and paid (81) (26) CFS
Fees paid on undrawn
facilities (35) - CFS
Cash flows on settlement of
excess derivative contracts (303) (88) CFS
Cash flows on other
financial instruments (CFS)
not allocated to lease
Cash flows on financial payments or exceptional
instruments net of realised programme expenditure
losses included in operating adjusted for the impact of
profit (52) (33) FX not held for trading
Principally disposals of
non-current assets, joint
venture trading and the
effect of share-based
Other (6) (35) payments
Trading cash flow (955) (2,861)
Underlying operating profit
charge in excess of
contributions to defined
benefit schemes (94) 94 CFS
Tax (102) (34) CFS
Group free cash flow (1,151) (2,801)
Free cash flow from continuing
operations (1,174) (2,862)
Free cash flow from
discontinued operations 23 61
CFS (includes dividends to
Shareholder payments (2) (90) NCI)
Acquisition of businesses - (8) CFS
Disposal of businesses (8) 10 CFS
GBP114m related to severance
costs and GBP20m capital
expenditure (30 June 2020:
Exceptional restructuring GBP54m and
costs (134) (87) GBP33m respectively)
DPA payments (156) (135) CFS
Difference in fair values of
derivative contracts held for
financing (3) (89) CFS
Payments of lease principal
less new leases and other
non-cash adjustments to lease CFS adjusted for the impact
liabilities 154 167 of FX
CFS less allocation to
Foreign exchange (70) (2) leases above
Cash outflow on M&A spend
and timing of cash flows on
a prior period disposal. See
Other (26) (41) below.
Change in net debt (1,396) (3,076)
Change in net debt (1,396) (3,076)
Non-cash lease impact (154) (167)
Reclassification of other
financial liabilities to
borrowings - 150
Change in net debt excluding
lease liabilities (1,550) (3,093)
20 Derivation of summary funds flow statement from statutory cash flow statement continued
The information for the period ended 30 June 2020 has been
re-presented to be on a comparable basis with the presentation
adopted at the period ended 30 June 2021. There is no change to
trading or free cash flow. In summary, foreign exchange
transactions have been represented within line items to be
consistent with presentation throughout the financial
statements.
Free cash flow is a measure of financial performance of the
business' 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. It
excludes payments made to shareholders, amounts spent (or received)
on business acquisitions, financial penalties paid and foreign
exchange changes on net funds. The Board considers that free cash
flow reflects cash generated from the Group's underlying
trading.
The table below shows a reconciliation of free cash flow to the
change in cash and cash equivalents presented in the condensed
consolidated cash flow statement on page 19.
Half-year to 30 June 2021 Half-year to 30 June 2020
GBPm GBPm GBPm GBPm Source
Change in cash and cash
equivalents (443) (360) CFS
Net cash flow from changes in
borrowings and lease
liabilities (914) (2,637) CFS
Movement in short-term
investments 1 (6) CFS
Movement in net debt from
cash flows (1,356) (3,003)
Exclude: Capital element of
lease repayments (147) (149) CFS
Movement in net debt from
cash flows (excluding lease
liabilities) (1,503) (3,152)
Returns to shareholders 2 90 CFS
Acquisition of businesses - 8 CFS
Disposal of businesses 8 (10) CFS
GBP22m related to costs
Other acquisitions and incurred on central M&A
disposals 22 - activity
Changes in group structure 30 (2)
Penalties paid on agreements
with investigating bodies 156 135 CFS
GBP114m related to
severance costs and GBP20m
capital expenditure (30
Exceptional restructuring June 2020: GBP54m and
costs 134 87 GBP33m respectively)
Timing of cash flows on a
prior period disposal where
the Group retains the
responsibility
for collecting cash before
passing it on to the
acquirer and other smaller
Other 30 41 items
Group free cash flow (1,151) (2,801)
Principal risks and uncertainties
Our risk management system is described on pages 46 and 47 of our
2020 Annual Report as a continuous process that requires risk owners
to constantly reassess risks and include learning from incidents
to drive improvements in our control environment.
We continue to review our principal risks and how we manage them
to reflect the evolving nature of the COVID-19 pandemic. The principal
risks facing the Group for the remaining six months of the financial
year are reported on pages 47 to 51 of our Annual Report 2020 and
are summarised below:
Safety Business continuity
Failure to: i) meet the expectations The major disruption of the Group's
of our customers to provide safe operations, which results in our
products; or ii) create a place failure to meet agreed customer
to work which minimises the risk commitments and damages our prospects
of harm to our people, those who of winning future orders. Disruption
work with us, and the environment, could be caused by a range of events,
would adversely affect our reputation for example: extreme weather or
and long-term sustainability. natural hazards (for example earthquakes,
Climate change floods); political events; financial
We recognise the urgency of the insolvency of a critical supplier;
climate challenge and have committed scarcity of materials; loss of data;
to net zero carbon by 2050. The fire; or infectious disease. The
principal risk to meeting these consequences of these events could
commitments is the need to transition have an adverse impact on our people,
our products and services to a our internal facilities or our external
lower carbon economy. Failure to supply chain.
transition from carbon-intensive Competitive environment
products and services at pace could Existing competitors: the presence
impact our ability to win future of competitors in the majority of
business; achieve operating results; our markets means that the Group
attract and retain talent; secure is susceptible to significant price
access to funding; realise future pressure for original equipment
growth opportunities; or force or services. Our main competitors
government intervention to limit have access to significant government
emissions. funding programmes as well as the
Compliance ability to invest heavily in technology
Non-compliance by the Group with and industrial capability.
legislation, the terms of DPAs Existing products: failure to achieve
or other regulatory requirements cost reduction, contracted technical
in the heavily regulated environment specification, product (or component)
in which we operate (for example, life or falling significantly short
export controls; data privacy; of customer expectations, would
use of controlled chemicals and have potentially significant adverse
substances; anti-bribery and corruption; financial and reputational consequences,
and tax and customs legislation). including the risk of impairment
This could affect our ability to of the carrying value of the Group's
conduct business in certain jurisdictions intangible assets and the impact
and would potentially expose the of potential litigation.
Group to: reputational damage; New programmes: failure to deliver
financial penalties; debarment an NPI project on time, within budget,
from government contracts for a to technical specification or falling
period of time; and suspension significantly short of customer
of export privileges (including expectations would have potentially
export credit financing), each significant adverse financial and
of which could have a material reputational consequences.
adverse effect. Disruptive technologies (or new
entrants with alternative business
Cyber threat models): could reduce our ability
An attempt to cause harm to the to sustainably win future business,
Group, its customers, suppliers achieve operating results and realise
and partners through the unauthorised future growth opportunities.
access, manipulation, corruption, Market shock
or destruction of data, systems The Group is exposed to a number
or products through cyberspace. of market risks, some of which are
of a macroeconomic nature (e.g.
Financial shock economic growth rates) and some
The Group is exposed to a number of which are more specific to the
of financial risks, some of which Group (for example, reduction in
are of a macroeconomic nature (for air travel or defence spending,
example, foreign currency, oil or disruption to other customer
price, interest rates) and some operations). A large proportion
of which are more specific to the of our business is reliant on the
Group (for example, liquidity and civil aviation industry, which is
credit risks). Significant extraneous cyclical in nature.
market events could also materially
damage the Group's competitiveness Demand for our products and services
and/or creditworthiness and our could be adversely affected by factors
ability to access funding. This such as current and predicted air
would affect operational results traffic, fuel prices and age/replacement
or the outcomes of financial transactions. rates of customer fleets.
Restructuring Political risk
Failure to deliver our restructuring, Geopolitical factors that lead to
including changing our behaviours an unfavourable business climate
could result in: missed opportunities; and significant tensions between
dissatisfied customers; disengaged major trading parties or blocs which
employees; ineffective use of our could impact the Group's operations.
scarce resources; and increasing Examples include: changes in key
the likelihood of other principal political relationships; explicit
risks occurring. This could lead trade protectionism, differing tax
to a business that is overly dependent or regulatory regimes, potential
on a small number of products and for conflict or broader political
customers; failure to achieve our issues; and heightened political
vision; non-delivery of financial tensions.
targets; and not meeting investor
expectations. Talent and capability
Inability to identify, attract,
retain and apply the critical capabilities
and skills needed in appropriate
numbers to effectively organise,
deploy and incentivise our people
would threaten the delivery of our
strategies.
Payments to shareholders
The Board decided in 2020 that, given the uncertain macro
outlook, they would not recommend a final shareholder payment for
2019 or make an interim shareholder payment for 2020. In addition,
under the terms of certain of its recent loan facilities, the
Company is restricted from declaring, making or paying
distributions to shareholders on or prior to 31 December 2022 and
from declaring, making or paying distributions to shareholders from
1 January 2023 unless certain conditions are satisfied. The
restrictions on distributions do not prevent shareholders from
redeeming C Shares issued in January 2020 or prior to that.
Shareholders wishing to redeem their existing C Shares must
lodge instructions with the Registrar to arrive no later than
5.00pm on 1 December 2021 (CREST holders must submit their election
in CREST by 2.55pm). The payment of C Share redemption monies will
be made on 5 January 2022 and the CRIP purchase will begin as soon
as practicable after 6 January 2022.
Statement of Directors' responsibilities
The Directors confirm that, to the best of their knowledge:
-- the condensed consolidated interim financial statements have
been prepared in accordance with IAS 34 Interim Financial Reporting
as adopted by the UK;
-- the interim management report includes a fair review of the information required by:
(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being
an indication of important events that have occurred during the
first six months of the financial year and their impact on the
condensed consolidated interim financial statements; and a
description of the principal risks and uncertainties for the
remaining six months of the year; and
(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being
related party transactions that have taken place in the first six
months of the current financial year and that have materially
affected the financial position or performance of the entity during
that period; and any changes in the related party transactions
described in the last Annual Report that could do so.
The Directors of Rolls-Royce Holdings plc at 11 March 2021 are
listed in its Annual Report 2020 on pages 64 to 66. Subsequently,
Stephen Daintith resigned as a Director on 19 March 2021 and Frank
Chapman, Lewis Booth and Jasmin Staiblin resigned on 13 May 2021.
Panos Kakoullis was appointed as a Director on 3 May 2021 and Anita
Frew was appointed on 1 July 2021.
By order of the Board
Warren East Panos Kakoullis
Chief Executive Chief Financial Officer
5 August 2021 5 August 2021
Independent review report to Rolls-Royce Holdings plc
Report on the condensed consolidated interim financial
statements
Our conclusion
We have reviewed Rolls-Royce Holdings plc's condensed
consolidated interim financial statements (the "interim financial
statements") in the 2021 Half Year Results of Rolls-Royce Holdings
plc for the 6 month period ended 30 June 2021 (the "period").
Based on our review, nothing has come to our attention that
causes us to believe that the interim financial statements are not
prepared, in all material respects, in accordance with UK adopted
International Accounting Standard 34, 'Interim Financial Reporting'
and the Disclosure Guidance and Transparency Rules sourcebook of
the United Kingdom's Financial Conduct Authority.
What we have reviewed
The interim financial statements comprise:
-- the Condensed consolidated balance sheet as at 30 June 2021;
-- the Condensed consolidated income statement and Condensed
consolidated statement of comprehensive income for the period then
ended;
-- the Condensed consolidated cash flow statement for the period then ended;
-- the Condensed consolidated statement of changes in equity for the period then ended; and
-- the explanatory notes to the interim financial statements.
The interim financial statements included in the 2021 Half Year
Results of Rolls-Royce Holdings plc have been prepared in
accordance with UK adopted International Accounting Standard 34,
'Interim Financial Reporting' and the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial
Conduct Authority.
Responsibilities for the interim financial statements and the
review
Our responsibilities and those of the directors
The 2021 Half Year Results, including the interim financial
statements, is the responsibility of, and has been approved by the
directors. The directors are responsible for preparing the 2021
Half Year Results in accordance with the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial
Conduct Authority.
Our responsibility is to express a conclusion on the interim
financial statements in the 2021 Half Year Results based on our
review. This report, including the conclusion, has been prepared
for and only for the company for the purpose of complying with the
Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority and for no other purpose. We
do not, in giving this conclusion, accept or assume responsibility
for any other purpose or to any other person to whom this report is
shown or into whose hands it may come save where expressly agreed
by our prior consent in writing.
What a review of interim financial statements involves
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and,
consequently, does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the 2021 Half
Year Results and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
London
5 August 2021
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END
IR SSMFULEFSEEA
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