Interim Results
31 July 2003
ROLLS-ROYCE GROUP plc INTERIM RESULTS 2003
Steady progress
"Our aftermarket revenues have continued to grow and currently account for half
of Group sales. Our civil flying hours increased year on year despite the
depressed civil market.
"We are benefiting from the investments made in new products and markets over
the past decade and the growth in our installed engine base following gains in
market share.
"The Group has made good progress with its cost reduction programmes and has
responded effectively to the impact of recent events, including the Iraq war
and SARS. We are demonstrating the value of our consistent strategy and broader
portfolio."
Sir John Rose, Chief Executive Rolls-Royce Group plc
Profit and cash flow consistent with guidance
* Underlying profit before tax £115 million* (h1 2002: £104m)
* Headline profit before tax £59 million (h1 2002: £33m)
* Average net debt £895 million (h1 2002: £990m)
* Half year-end net debt £675 million (h1 2002: £770m)
* Dividend maintained
Aftermarket services revenues increased by 9 per cent
* £1.3bn, 50 per cent of Group sales (h1 2002: £1.2bn)
Record order book
* £4.0bn order intake (h1 2002: £5.2bn)
* Firm and announced backlog £19.0bn (h1 2002: £18.6bn)
* Aftermarket services £6.5bn (h1 2002: £5.4bn)
Balanced business portfolio
* Civil - aftermarket growing
* Defence - progress on key programmes
* Marine - steady profit growth
* Energy - return to profit
*before exceptional and non-trading items (see note 3)
Overview
Results for the half-year ended June 30 2003 were consistent with previous
guidance and reflected both the balanced nature of the company's business and
the restructuring actions taken to mitigate the downturn in civil aerospace.
Underlying profit before tax was £115 million, an increase of 11 per cent, and
underlying earnings per share were 4.97 pence (h1 2002: 4.60p). Basic earnings
per share were 2.09 pence (h1 2002: 0.99p)
Net debt was £675 million (h1 2002: £770m), reflecting a cash outflow of £80
million (h1 2002: £269m) during the first half. Average net debt for the period
was £895 million (h1 2002: £990 million).
Group aftermarket services revenues grew by nine per cent and, at £1.3 billion,
accounted for 50 per cent of total revenues. Aftermarket revenues have grown by
10 per cent per annum compound over the last five years. Engine flying hours
for the Rolls-Royce fleet of civil engines to the end of May increased by six
per cent compared to the same period in 2002.
Engine deliveries across the Group were 14 per cent lower than in the first
half of 2002. This reflected the phasing of deliveries in the defence sector
and delivery deferrals in the civil sector, particularly for corporate and
regional aircraft. Engine deliveries for the full year are expected to be at a
similar level to those in 2002 with higher defence deliveries offsetting a 10
per cent decline in civil deliveries.
The order book remained strong, at a record level of £17.6 billion (h1 2002: £
16.7 billion), following an order intake of £4.0 billion (h1 2002: £5.2bn). A
further £1.4 billion worth of business was announced (h1 2002: £1.9 billion),
resulting in a firm and announced order backlog of £19.0 billion (h1 2002: £
18.6 billion). Aftermarket services accounted for 34 per cent of the firm and
announced order backlog (h1 2002: 29 per cent).
The company has made good progress with its cost reduction programmes,
including facilities rationalisation, supply chain restructuring and lead-time
reduction. Headcount was 36,200, a net reduction of 1,100 during the first
half. The headcount is expected to be reduced to around 35,000 by the year-end,
in line with previous guidance. During this difficult period, the company's
employees have continued to demonstrate strong teamwork and commitment.
A robust business model
Over the last five years, aftermarket services revenues have grown by 10 per
cent per annum compound. The company expects further growth as the installed
base of 54,000 engines continues to expand and mature.
The Rolls-Royce business model is entering a new phase as the requirement for
new engine development reduces and aftermarket revenues continue to increase.
With its broad range of new engines, the company has been successful in
increasing its market share and capturing the aftermarket services opportunity
this creates. During the first six months of 2003, half the company's sales
came from the aftermarket, supported by four original equipment businesses -
civil, defence, marine and energy - each of which has established market
positions.
The company's competitive advantage in the provision of aftermarket services is
based on its unique knowledge of its products' attributes and performance. The
investments made in the global repair and overhaul network and in enhanced
services have enabled the company to offer tailored, long-term support packages
to its customers. More than 400 long-term aftermarket service agreements have
been secured, representing 24 per cent of the order book. This will continue to
support aftermarket sales growth.
Outlook
The company's defence, marine and energy businesses, which represent 54 per
cent of Group sales, are performing in line with expectations. The
after-effects of the Iraq war, coupled with the impact of SARS, have impacted
the civil aerospace business, causing some deferrals of original equipment
deliveries. However, year to date Rolls-Royce civil engine flying hours have
increased compared to the same period in 2002, confirming that the company's
aftermarket can continue to grow even in a depressed cycle for original
equipment.
On March 4 the company provided financial guidance for 2003. This guidance was
subject to the uncertainty over Iraq and the outcome of consultations with
employees, aimed at limiting the financial impact of the company's pension fund
deficit. Based on trading performance across all its businesses over the first
half of the year and its current view of market conditions, the company is
reiterating this guidance for profit growth with positive cash flow.
Enquiries
Peter Barnes-Wallis Colin Duncan
Director of Financial Communications Director of Corporate Communications
Tel: 0207 222 9020
www.rolls-royce.com
An interview on the results with Rolls-Royce Chief Executive, Sir John Rose, is
available on video, audio and text on www.Rolls-Royce.com and www.cantos.com.
Photographs of directors and products are available at www.newscast.co.uk
Sector review
Civil aerospace: Sales £1,198m; underlying profit before interest £46m
Civil aerospace aftermarket revenues grew by 15 per cent. The company's forward
view based on long-term contracts and repair and overhaul bookings continues to
support its expectation that aftermarket revenues for 2003 will be higher than
in 2002. Aftermarket revenues represented 57 per cent of civil aerospace sales
in the first half.
The Rolls-Royce fleet flying hours increased by six per cent to the end of May
compared to the same period last year, continuing a trend of outperforming the
industry. Since January 2001, Rolls-Royce engine flying hours have increased by
40 per cent relative to the industry.
The company is now planning for engine deliveries in 2003 to be about 10 per
cent lower than in 2002, primarily due to further reductions in regional and
corporate aircraft deliveries.
Good progress was made across the product portfolio, with a 33 per cent share
of engine orders in the first half. In particular, new orders were announced
for 182 Trent engines, the highest number in any first half since the programme
was launched.
The installed base of civil jet engines has increased by more than 50 per cent
over the last five years and stood at 10,200 at the end of the first half. Its
increasing maturity was demonstrated by the RB211-535, which passed 30 million
flying hours, including 10 million take offs and landings, and by the delivery
of the 1000th BR700 series engine. The company's global repair and overhaul
network was enhanced by a joint venture with Lufthansa Technik AG, specialising
in repair and overhaul of three types of Trent engine.
Defence: Sales £642m; underlying profit before interest £60m
Rolls-Royce further strengthened its position as the number two defence aero
engine manufacturer adding to its strong presence on the world's new
programmes.
The company continued to develop its aftermarket services, which represented 51
per cent of defence sales. During the first half, additional orders were
announced for Mission Ready Management Solutions (MRMS), which brought the
total of MRMS business booked so far to more than $500 million.
As a member of the Europrop International consortium, the company will develop
the engines for the new European transport aircraft, the A400M. T he value to
Rolls-Royce amounts to more than $500 million. Also in the transport sector,
the company was awarded new contracts, worth more than $350 million, for AE
1107C-Liberty engines for the Bell Boeing V-22 for the US Marine Corps. A
six-year agreement was concluded with Lockheed Martin covering 248 AE 2100 D
engines for C-130J aircraft for the US Department of Defense.
Good progress on the F-35 Joint Strike Fighter included production of the first
Rolls-Royce LiftFanâ„¢ blisk (bladed disk) for the System Development and
Demonstration phase of the programme.
The Japanese Defense Agency selected the RTM322 engine for its fleet of EH101
helicopters, maintaining the engine's position as the leading powerplant for
modern, medium-sized helicopters.
Bahrain signed a contract for six Hawk Advanced Jet Training aircraft, to be
powered by the Adour Mk 951 engine , which is currently completing flight
certification trials for South Africa.
Marine: Sales £456m; underlying profit before interest £37m
The Marine business continues to develop its world leading position in
commercial and naval markets. Aftermarket services represented 30 per cent of
marine sales in the first half. Submarine support work, in particular, is
providing significant opportunities for growth in services.
The company entered the US Navy large gas turbine market with the selection of
the MT30 gas turbine for the land based demonstrator for the US Navy's DD(X)
destroyer programme. The company's Kamewa waterjets were also successful in the
US, being selected for the X-craft, an experimental high-speed aluminium
catamaran.
The advanced WR-21 marine gas turbine, already selected for the Royal Navy's
Type 45 frigates, was successfully demonstrated in Japan at the KHI test
facility. The company is also supplying the world's most powerful waterjets for
a Japanese passenger and cargo-carrying ferry.
Following a long period of growth, sales in the offshore support vessel market
have begun to level off. However, the company's order book for the delivery of
ship designs and equipment remains robust at 45 vessels, worth more than £200
million. As well as designing the ships, Rolls-Royce provides a full range of
equipment including engines, propulsion systems, rudders, steering gear, deck
machinery and automation and monitoring systems.
Energy: Sales £276m; underlying profit before interest £10m
A strong worldwide oil and gas exploration and production market, coupled with
reduced costs, enabled the company's energy business to return to profitability
in the first half of 2003.
Aftermarket services represented 42 per cent of sales. The energy business is
pursuing a strategy for aftermarket growth, particularly in Long-Term Service
Agreements and Engineered Solutions. Significant investments in facilities,
resources and information technology capabilities are being made to support
this growth.
The oil and gas business continued to strengthen its position in emerging
markets. Orders exceeding $155 million have been received to date for the Azeri
oil and gas project being developed in the Caspian Sea, and new orders were
received for equipment to be installed offshore west Africa. For onshore
applications, compression and power generation units were ordered for
installation in Thailand. Rolls-Royce pipeline compressors were chosen for use
on the Interconnector, the major gas pipeline linking the UK and mainland
Europe.
The industrial Trent 60 Wet Low Emissions launch unit is operating at the Derby
cogeneration facility. The retrofit programme for the Dry Low Emissions
industrial Trent 50 is progressing with all but one of the facilities scheduled
for completion this year. The final site is scheduled for completion in the
first quarter, 2004.
Financial Services: Sales £27m; underlying profit before interest £7m
The Financial Services businesses comprise engine leasing, aircraft leasing and
power project development. The reduced contribution at the half-year was
largely attributable to Pembroke, the aircraft leasing joint venture, as a
result of the disposal of its subsidiary, AFT, which owned Fokker aircraft.
Rolls-Royce and Partners Finance, the company's engine leasing joint venture,
owned 256 engines, of which 98 per cent by value were on lease to 33 customers.
Following the disposal of its AFT subsidiary, Pembroke Group owned 30 aircraft,
of which 96 per cent by value were on lease,
Rolls-Royce Power Ventures is the company's power project developer. It has a
portfolio of 12 projects in operation and a further five in construction or
commissioning. First half highlights included the commencement of commercial
operations at its Energobaltic joint venture in Poland.
Financial review
The firm order book was £17.6bn (h1 2002: £16.7bn). In addition, a further £
1.4bn had been announced (h1 2002: £1.9bn). Aftermarket services represented 34
per cent of the firm and announced order book (h1 2002: 29 per cent).
Sales reduced by six per cent to £2,599m (h1 2002: £2,756m).
Underlying profit before tax was £115m (h1 2002: £104m). Underlying earnings
per share increased by eight per cent, to 4.97p.
Gross research and development investment was £304m (h1 2002: £277m). Net
research and development investment was £145m (h1 2002: £138m).
Receipts from risk and revenue sharing partners (RRSPs), shown as other
operating income, were £74m (h1 2002: £79m). Payments to RRSPs, charged in cost
of sales, amounted to £53m (h1 2002: £52m). As the company has previously
indicated, the market success of engine programmes developed with RRSPs will
result in payments to partners exceeding the level of receipts from partners
for new programmes for the first time in 2003.
Rationalisation costs of £15m (h1 2002: £70m) were charged against the
provision established in previous years and £29m (h1 2002: £44m) was charged
against profit and excluded from underlying earnings.
The taxation charge was £25m (h1 2002: £17m). After adjusting for exceptional
and non-trading items, the tax charge on an underlying basis was £34m,
representing 30 per cent of underlying profit before tax. (h1 2002: £30m,
representing 29 per cent of underlying profit before tax).
Cash outflow during the first half was £80m (h1 2002: £269m), after
rationalisation expenditure of £35m (h1 2002: £109m). Average net debt was £
895m (h1 2002: £990m). Net debt at the half year was £675m (h1 2002: £770m).
Net working capital was £523m (h1 2002: £908m), an increase of £129m (h1 2002:
£244m) in the first half; inventory increased by £85m (h1 2002: decrease £19m);
debtors reduced by £79m (h1 2002: £2m); and creditors reduced by £123m (h1
2002: £265). The impact of long-term contract accounting for TotalCare Packages
was a £52m increase in debtors (h1 2002: £91m) and a £19m increase in creditors
(h1 2002: £19m).
Provisions were £782m, (h1 2002: £839m), largely reflecting utilisation of the
rationalisation provision.
There were no material changes to the Group's gross and net contingent
liabilities during the first half of 2003.
The company is consulting employees with a view to limiting the financial
impact of the company's pension fund deficit. The results of these
consultations will be incorporated in the full actuarial review of the
Rolls-Royce Pension Fund, which is now underway and is due for completion by
the year-end. The company expects any additional funding requirements will be
contained within existing guidance.
The interim dividend is 3.18 pence per share (2002 3.18p). The dividend is
payable on January 5 2004 to shareholders on the register on October 17 2003.
The ex-dividend date is October 15 2003.
Enquiries
Peter Barnes-Wallis Colin Duncan
Director of Financial Communications Director of Corporate Communications
Tel: 0207 222 9020
www.rolls-royce.com
Group Profit and Loss Account
For the half year to 30 June 2003
Half Year Half Year Year to
to to 31 December
30 June 2003 30 June 2002 2002
£m £m £m
Turnover: Group and share of joint ventures 2,665 3,004 6,072
Sales to joint ventures 487 343 948
Less share of joint ventures' turnover (553) (591) (1,232)
_________________________________________________________________________________________
Group turnover (note 1) 2,599 2,756 5,788
Cost of sales and other operating income and (2,371) (2,564) (5,323)
costs*
Research and development (net)** (145) (138) (297)
_________________________________________________________________________________________
Group operating profit 83 54 168
Share of operating profit of joint ventures 23 36 66
_________________________________________________________________________________________
Total operating profit 106 90 234
Operating profit before exceptional item 135 134 309
Exceptional item (note 2) (29) (44) (75)
Loss on sale of businesses (2) (3) (22)
Profit on sale of fixed assets - 1 -
_________________________________________________________________________________________
Profit on ordinary activities before interest 104 88 212
(note 1)
Net interest payable - Group (33) (37) (72)
- joint ventures (12) (18) (35)
_________________________________________________________________________________________
Profit on ordinary activities before taxation * 59 33 105
**
Taxation (25) (17) (52)
_________________________________________________________________________________________
Profit on ordinary activities after taxation 34 16 53
and attributable to ordinary shareholders
Dividends - interim 3.18p (2002 interim 3.18p (53) (52) (133)
final 5.00p)
_________________________________________________________________________________________
Transferred from reserves (19) (36) (80)
_________________________________________________________________________________________
* includes Other Operating Income 74 79 158
** Research and development (gross) (304) (277) (590)
*** Underlying profit before taxation (note 3) 115 104 255
Earnings per ordinary share (note 3)
Underlying 4.97p 4.60p 11.10p
Basic 2.09p 0.99p 3.29p
Diluted basic 2.08p 0.98p 3.26p
Group Statement of Total Recognised Gains and Losses
_________________________________________________________________________________________
Profit attributable to ordinary shareholders 34 16 53
Exchange adjustments on foreign currency net
investments 18 60 15
_________________________________________________________________________________________
Total recognised gains for the period 52 76 68
_________________________________________________________________________________________
Summary Group Balance Sheet
Half Year Half Year Year to
to to 31 December
30 June 2003 30 June 2002 2002
£m £m £m
Fixed assets
Intangible 870 861 868
Tangible 1,848 1,684 1,876
Investments - joint ventures 202 221 195
______________________________________________ ____________ ____________ ____________
share of gross assets 1,123 1,327 1,160
share of gross liabilities (927) (1,113) (971)
goodwill 6 7 6
______________________________________________ ____________ ____________ ____________
- other 65 52 71
_________________________________________________________________________________________
2,985 2,818 3,010
Current assets
Stocks 1,243 1,203 1,158
Debtors 2,334 2,448 2,413
Short term deposits and investments 216 180 84
Cash at bank and in hand 454 400 634
_________________________________________________________________________________________
4,247 4,231 4,289
Creditors
Amounts falling due within one year - (365) (331) (275)
Borrowings
- Other Creditors (2,590) (2,484) (2,727)
Amounts falling due after one year - Borrowings (980) (1,019) (1,038)
- Other Creditors (464) (259) (450)
Provisions for liabilities and charges (782) (839) (772)
_________________________________________________________________________________________
Net assets 2,051 2,117 2,037
_________________________________________________________________________________________
Capital and Reserves
Equity shareholders' funds 2,049 2,114 2,035
Equity minority interests in subsidiary 2 3 2
undertakings
_________________________________________________________________________________________
2,051 2,117 2,037
_________________________________________________________________________________________
Reconciliation of Movements in Shareholders' Funds
£m £m £m
At 1 January 2,035 2,068 2,068
Total recognised gains for the period 52 76 68
Ordinary dividends (net of scrip dividend (38) (35) (110)
adjustments)
New ordinary share capital issued (net of - 1 1
expenses)
Goodwill transferred to the profit and loss
account in respect of disposals of businesses - 4 8
_________________________________________________________________________________________
At period end 2,049 2,114 2,035
_________________________________________________________________________________________
Summary Group Cash Flow Statement
Half Year Half Year Year to
to to 31 December
30 June 2003 30 June 2002 2002
£m £m £m
Net cash inflow/(outflow) from operating 140 (107) 611
activities
Dividends received from joint ventures 4 - 12
Returns on investments and servicing of finance (42) (60) (84)
Taxation paid (22) (8) (41)
Capital expenditure and financial investment (92) (67) (381)
Acquisitions and disposals - (5) (20)
Equity dividends paid (36) (34) (109)
_________________________________________________________________________________________
Cash outflow before use of liquid resources and (48) (281) (12)
financing
Management of liquid resources (133) 121 217
Financing (54) (42) (81)
_________________________________________________________________________________________
(Decrease)/increase in cash (235) (202) 124
_________________________________________________________________________________________
Reconciliation of net cash flow to movement in
net funds
(Decrease)/increase in cash (235) (202) 124
Cash outflow/(inflow) from increase/(decrease)
in liquid resources 133 (121) (217)
Cash outflow from decrease in borrowings 54 43 82
_________________________________________________________________________________________
Change in net funds resulting from cash flows (48) (280) (11)
Borrowings of businesses acquired - - (52)
Finance lease additions (9) - (32)
Amortisation of zero-coupon bonds (2) (1) (5)
Exchange adjustments (21) 12 6
_________________________________________________________________________________________
Movement in net funds (80) (269) (94)
Net debt at 1 January (595) (501) (501)
_________________________________________________________________________________________
Net debt at period end (675) (770) (595)
_________________________________________________________________________________________
Reconciliation of operating profit to operating
cash flows
Operating profit 83 54 168
Amortisation of intangible assets 28 30 74
Depreciation of tangible fixed assets 96 96 236
Increase/(decrease) in provisions for
liabilities and charges 10 (58) (125)
(Increase)/decrease in working capital/
creditors due after more than one year (77) (229) 258
_________________________________________________________________________________________
Net cash inflow/(outflow) from operating 140 (107) 611
activities
_________________________________________________________________________________________
Notes
Half Year Half Year Year to
to to 31 December
30 June 2003 30 June 2002 2002
£m £m £m
1. Analysis by business segment
Group turnover
Civil aerospace 1,198 1,314 2,739
Defence* 642 659 1,376
Marine 456 461 984
Energy 276 298 639
Financial services 27 24 50
_________________________________________________________________________________________
2,599 2,756 5,788
_________________________________________________________________________________________
* includes Vickers Defence Systems - 44 70
Profit before interest
Civil aerospace 20 20 87
Defence* 53 76 161
Marine 20 20 54
Energy 6 (40) (70)
Financial services 5 12 (20)
_________________________________________________________________________________________
104 88 212
_________________________________________________________________________________________
* includes Vickers Defence Systems - 27 50
Underlying profit before interest**
Civil aerospace 46 55 150
Defence 60 85 183
Marine 37 35 82
Energy 10 (30) (41)
Financial services 7 14 (12)
_________________________________________________________________________________________
160 159 362
_________________________________________________________________________________________
**before exceptional and non-trading items
Net assets/liabilities - excluding net debt
Civil aerospace 1,295 1,370 1,219
Defence (4) 159 25
Marine 584 555 550
Energy 401 392 348
Financial services 450 411 490
_________________________________________________________________________________________
Net assets*** 2,726 2,887 2,632
_________________________________________________________________________________________
*** Net assets excludes net debt of £675m (2002 half year £770m, 2002 full year
£595m)
2. Exceptional items
This relates to exceptional rationalisation costs, largely comprising the
continuation of previously announced severance programmes.
3. Earnings per ordinary share
Basic earnings per ordinary share are calculated by dividing the profit
attributable to ordinary shareholders of £34 million (2002 half year £16m, full
year £53m) by 1,629 million (2002 half year, 1,610 million, full year 1,612
million) ordinary shares, being the average number of ordinary shares in issue
during the period, excluding own shares held under trust which have been
treated as if they had been cancelled.
Underlying earnings per ordinary share have been calculated as follows.
Half Year to 30 June 2003
£m £m Pence
Profit before taxation 59
Profit attributable to ordinary shareholders 34 2.09
Exclude:
Exceptional rationalisation 29 29 1.78
Net loss on sale of 2 2 0.12
businesses
Amortisation of goodwill 25 25 1.53
Related tax effect (9) (0.55)
________________________________________________________________________________________
Underlying profit before taxation 115
Underlying profit attributable to 81
shareholders
Underlying earnings per share 4.97
Half Year to 30 June 2002
£m £m Pence
Profit before taxation 33
Profit attributable to ordinary shareholders 16 0.99
Exclude:
Exceptional rationalisation 44 44 2.73
Net loss on sale of 3 3 0.19
businesses
Loss on sale of fixed 1 1 0.06
assets *
Amortisation of goodwill 23 23 1.43
Related tax effect (13) (0.80)
________________________________________________________________________________________
Underlying profit before taxation 104
Underlying profit attributable to 74
shareholders
Underlying earnings per share 4.60
* excluding lease engines and aircraft sold by financial services companies
Year to 31 December 2002
£m £m Pence
Profit before taxation 105
Profit attributable to ordinary shareholders 53 3.29
Exclude:
Exceptional rationalisation 75 75 4.65
Net loss on sale of 22 22 1.36
businesses
Loss on sale of fixed assets 1 1 0.06
*
Amortisation of goodwill 52 52 3.23
Related tax effect - (24) (1.49)
________________________________________________________________________________________
Underlying profit before taxation 255
Underlying profit attributable to 179
shareholders
Underlying earnings per share 11.10
* excluding lease engines and aircraft sold by financial services companies
Diluted earnings per ordinary share, are calculated by dividing the profit
attributable to ordinary shareholders of £34m (2002 half year £16m, full year £
53m) by 1,636 million (2002 half year 1,632 million, full year 1,624 million)
ordinary shares, being 1,629 million (2002 half year 1,610 million, full year
1,612 million) as above adjusted by the bonus element of existing share options
of 7 million
(2002 half year 22 million, full year 12 million).
4. Group employees at the period end
30 June 30 June 31 Dec
2003 2002 2002
Number Number Number
Civil Aerospace 20,300 21,400 21,100
Defence 5,100 6,100 5,100
Marine systems 6,400 6,400 6,500
Energy 4,300 4,900 4,500
Financial services 100 200 100
_________________________________________________________________________________________
36,200 39,000 37,300
5. Sales financing contingent liabilities
In connection with the sale of its products the Group will on some occasions
provide financing support for its customers. The Group's contingent liabilities
related to financing arrangements are spread over many years and relate to a
number of customers and a broad product portfolio. The contingent liabilities
represent the exposure the Group has in respect of delivered aircraft,
regardless of the point in time at which such exposures may arise. Exposures
are not reduced to a net present value.
During the first half of 2003 there were no material changes to the maximum
gross and net contingent liabilities.
6. Pensions
The Accounting Standards Board has deferred the full implementation of FRS 17,
pending the introduction of International Accounting Standards.
The Group's funding requirements for its schemes are derived from tri-annual
independent actuarial valuations. For the principal Rolls-Royce Pension Fund,
the March 2003 actuarial valuation is in progress. The Group is currently
undertaking consultations with employees over a number of mitigating actions in
connection with the provision of pension benefits. The objective of these
actions is to contain the additional funding costs within the guidance
previously provided.
The other two Rolls-Royce pension funds are, together, less than a third of the
size of the principal fund. The Vickers Group Pension Scheme and the
Rolls-Royce Group Pension Scheme are due for actuarial review in March 2004 and
April 2004 respectively. Whilst at the date of their most recent three-yearly
actuarial valuations these funds were in surplus, the company has also
commenced consultations to limit the potential growth of liabilities in the
larger of these two schemes.
7. Preparation of interim financial statements
The results for each half-year are unaudited. The comparative figures for the
year to 31 December 2002 have been abridged from the Group's financial
statements for that year, which have been delivered to the Registrar of
Companies. The auditors have reported on those financial statements; their
report was unqualified and did not contain a statement under s237(2)or (3) of
the Companies Act 1985.
During the period Rolls-Royce Group plc was introduced as the new holding
company of the Rolls-Royce Group by way of a Scheme of Arrangement under
section 425 of the Companies Act 1985. This has been accounted for as a capital
reorganisation and merger accounting principles have been applied, as if the
company had always been the holding company of the Group. The interim financial
statements for the six months ended 30 June 2003 were approved by the Board on
30 July 2003.
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