Final Results - Year Ended 31 December 1999

Rolls-Royce PLC 2 March 2000 2 March 2000 ROLLS-ROYCE DELIVERS CONSISTENT GROWTH 1999 annual results 1999 1998 _____________________________________________________________________________ Sales from continuing operations £4,744m £4,326m +10% Profit before tax £360m £325m +11% Underlying earnings per share* 19.52p 16.91p +15% Dividend 7.25p 6.55p +11% Order book £11.5bn £10.4bn +11% Net cash balances, before acquisitions £301m £302m *see note 2 _____________________________________________________________________________ Sir Ralph Robins, Chairman, said: 'We have reported another year of double digit earnings growth, in challenging conditions. This strong performance reinforces our position in civil aerospace, defence, marine and energy markets. These are growing markets, in which we are gaining market share. During 1999 we strengthened the company through investment in new products and services and by acquisitions. With the acquisition of Vickers we have become a world leader in marine propulsion and we expect to achieve strong growth in this market. Conditions remain challenging in 2000. However we have entered the year with an £11.5 billion order book and an increasingly efficient company. We continue to target double digit earnings growth.' Enquiries Peter Barnes-Wallis Director of Corporate Communications 0171 222 9020 Rolls-Royce home page: www.rolls-royce.com -- 2 -- Delivering long term value 1999 was a significant and successful year for Rolls-Royce. The company made continued progress with its consistent, long term strategy of building shareholder value by increasing its share of clearly defined growth markets, both through organic growth and acquisitions. Underlying earnings per share increased from 16.91p to 19.52p - marking another year of double digit earnings growth. This was achieved in the face of higher research and development investment and an acceleration of the company's restructuring programme. The acquisition of Vickers during the year has more than doubled the company's marine business. Rolls-Royce will benefit from being the first company to anticipate the changing needs of the marine market. It has become a world leader in marine propulsion systems, with the ability to offer fully integrated power systems across naval and commercial markets. In the civil aerospace sector, the company delivered a record 1,080 engines in 1999, as a result of its increasingly broad range of competitive products. Rolls-Royce strengthened its leading position in the corporate and regional airlines sector with the assumption of full control of BMW Rolls-Royce, which had previously operated as a joint venture. At the same time, BMW increased its shareholding in Rolls-Royce to over ten per cent. New risk and revenue sharing partners were attracted to the company's programmes. These partners typically bring additional financial and engineering resource and share the costs and potential rewards of developing new products for growing markets. Their participation endorses the future embedded value Rolls-Royce has created from products which will have market lives measured in decades. In 1999, some 40 per cent of sales came from services and aftermarket activities. The company has developed successful businesses offering financial and aftermarket services in response to the rapid growth of its customer base, the growing number of products in service and the increasing requirement from customers for through-life support. The company continues to drive for improved productivity and efficiency. The Better Performance Faster programme moved from net investment to net saving in 1999, as the benefits of investment were realised. In addition, the company substantially increased its investment in restructuring. During 2000 it will further accelerate restructuring to create improvements in efficiency. -- 3 -- Rolls-Royce started the year 2000 with an £11.5 billion order book, a leading position in growth markets and an increasingly efficient company. This year will be as challenging as 1999, against a background of the continuing cost of restructuring, the possibility of adverse exchange rates and a predicted reduction in large engine deliveries. 2000 also presents significant opportunities arising from the company's broad product portfolio, new risk and revenue sharing partners, the continuing drive to reduce costs and the growing contribution from the newly acquired businesses. Rolls-Royce continues to target double digit earnings growth. Rolls-Royce plc 1999 annual results The Group reported an 11 per cent increase in profit before tax, to £360 million, after writing off £13m goodwill. Sales were £4,744 million, ten per cent higher than sales from continuing operations in 1998. Acquisitions contributed £161 million to sales and, after associated restructuring charges, reduced profit before tax by £1 million. The Group reported a record order book, of £11.5 billion (1998; £10.4 billion). A further £1.7 billion (1998; £2.2 billion) had been announced but not signed at the year end. Acquisitions contributed £1.7 billion to the order book. Before acquisitions, sales from continuing operations increased by six per cent. Aerospace sales were nine per cent higher and industrial sales were down by five per cent. Civil aerospace sales were 19 per cent higher than in 1998. This resulted from a record 1,080 (1998; 911) civil engine deliveries and a nine per cent growth in civil spares sales. Defence aerospace sales reduced by five per cent. Industrial sales benefited from growth in oil and gas and marine systems, offset by a decline in power generation sales and the global recession in the materials handling business, which is expected to be disposed of during 2000. Gross margins on continuing operations improved to 20 per cent (1998; 18.6 per cent), due to a number of factors, including the benefits from the Better Performance Faster programme. Aerospace trading profit increased by 29 per cent, to £555 million and industrial businesses' trading profit declined by £28 million to £36 million. Industrial businesses were affected by £17 million restructuring charges and a trading loss in materials handling. Oil and gas and marine systems made strong positive contributions. The level of segmental analysis will be increased in 2000 to reflect the major market sectors which the company serves. 1999 figures, in the new segmental analysis, have been provided in note 1 to enable future comparisons to be made. -- 4 -- The company's treasury operations reduced the expected adverse impact of dollar sterling exchange rates in 1999. The deterioration in the achieved exchange rate resulted in a £2 million reduction of profit, compared to the rate achieved in 1998. In 2000, the company is, again, expected to face adverse exchange rates, which could lead to a maximum deterioration of £30 million, compared to the average exchange rates achieved in 1999. The company accelerated its restructuring activities in the second half of 1999, incurring a total charge for the year of £55 million (1998; £15 million). This cost has been recorded within cost of sales. Significant additional restructuring is anticipated in 2000 as the company takes every opportunity to create further improvements in efficiency. Gross research and development investment, including contributions from partners and customers, was £626 million (1998; £668 million). Net research and development investment increased, as expected, to £215 million, (1998; £173 million)of which £2 million related to acquisitions. Investment is expected to increase in 2000, as a result of acquisitions. The net positive impact of risk and revenue sharing partners was £133 million (1998; £99 million). Cash flow for the year was neutral, before the impact of acquisitions. This reflected a significant inflow in the second half as net working capital was reduced and aircraft assets were acquired by the Pembroke Group, the company's 50 per cent owned aircraft leasing joint venture. Cash from trading activities, before research and development, increased by 25 per cent, to £574 million. At the year end the company reported net debt, including the impact of acquisitions, of £694 million, representing gearing of 35 per cent. Shareholders' funds were £1,988 million (1998; £1,705 million), including the issue of 40 million new shares. The recommended final dividend is 4.55 pence per share, making a total for the year of 7.25 pence per share, an increase of 11 per cent over 1998. The final dividend is payable on 3 July 2000, to shareholders on the register on 2 May 2000. The ex-dividend date is 25 April 2000. -- 5 - Review of operations Civil aerospace - 1999 sales £2654 million; profit £232 million Rolls-Royce has developed the broadest range of aero-engines in the world, available for more than 30 current airframes, a five-fold increase compared to the position at the start of the 1990s. Engine deliveries have increased from less than 400 in 1990 to a record 1,080 in 1999, establishing Rolls-Royce as the second largest civil aero engine manufacturer in the world. The strength of the company's product portfolio will enable deliveries to grow further in 2000, to about 1,120 engines, although the expected reduction in large engine deliveries will result in a fall in the equivalent thrust delivered. Deliveries of 1,250 engines are expected in 2001, with the equivalent thrust delivered exceeding the 1999 level. The Trent has continued to be the engine of choice for both the Boeing 777 and the Airbus Industrie A330. It has now secured the market leading position on these airframes, with a 42 per cent share overall. On the Boeing 777, Rolls-Royce won additional business from existing customers and recently gained El Al as a new Trent 800 customer. The Trent 800 has demonstrated outstanding performance and, in February this year, passed one million hours in service. Nine new Trent 700 customers from Europe, the Middle East, North America and Asia took delivery of their A330 aircraft during 1999. The Trent 500, under development for the A340-500/-600 aircraft, ran for the first time, achieving its 60,000lb certification thrust. Orders and options in excess of $5 billion have been received from ten customers for this engine. Production deliveries are scheduled to start in 2001 and will grow to more than 120 engine deliveries in 2002. The International Aero Engines' V2500, in which Rolls-Royce is a major shareholder, had an excellent year and now has more than 75 customers world-wide with sales to date exceeding $18 billion. The company made strong progress in the rapidly growing market for corporate and regional airlines. In October the BR715 entered service on the Boeing 717. This engine is the sole powerplant for the B717, which has secured firm and option orders for more than 250 aircraft. The AE3007 is playing a key role as the sole source powerplant for the Embraer RJ135, RJ140 and RJ145 family of aircraft. The total firm and option order book for these twin-engined aircraft is now almost 1,000. During 1999 the five hundredth AE3007 engine was delivered and by the end of the year AE3007 engines had completed nearly 2 million flight hours. -- 6 -- Defence - 1999 sales £1138 million; profit £181 million Rolls-Royce has a strong position in all the key defence market sectors - combat, VSTOL, light attack, trainer, transport, helicopters, maritime reconnaissance and aerial surveillance. In all these markets, customers are increasingly seeking a full spectrum of aviation support and services. Rolls-Royce is well placed to respond to these new requirements with innovative products for customer support. The company foresees strong demand for military aero engines over the next ten years and, through its presence on the principal new programmes, is well positioned to take advantage of this growth. Production of the EJ200 has commenced for Eurofighter 2000. The four-nation Eurojet consortium, in which Rolls-Royce is the major participant, has received firm orders for an initial 363 EJ200 engines out of a total European requirement for 1,500 engines. The first engines will be delivered to the customers this year and output is expected to grow to 40 engines in 2001. The United States Joint Strike Fighter programme is one of the world's largest defence procurement programmes. Rolls-Royce participates in all of the proposed configurations of this aircraft. The Rolls-Royce developed LiftFan performed well during testing and, in 1999, successfully demonstrated its full range of performance characteristics. This fan-only system is a unique development and includes some of the largest bladed disks (blisks) ever made. Strong progress was also made on the F-120 alternate engine, where Rolls-Royce is teamed with General Electric. A $440 million contract was awarded for design and test of this engine. The Hawk advanced trainer, powered by the Rolls-Royce Turbomeca Adour, continues to attract new orders. During 1999 NATO Flight Training Canada placed a £100 million contract with the company for the supply and through-life support of the Adour engine. The company also secured a contract worth £150 million for the through-life support of Adour engines for Australia's Hawk aircraft. The contract covers the 33 aircraft ordered by Australia, the first of which will be delivered in 2000. The AE1107C is now in production for the V-22 Osprey tilt rotor. The customer's service needs will be met by an innovative fleet hour agreement, the first of its kind between Rolls-Royce and a US defence organisation. Further in-service support agreements included a five year partnership, valued at £30 million, covering RTM 322 helicopter engines for all three UK armed forces and the introduction of JETScan technology for the RB199 fleet. JETScan is an engine oil system diagnosis tool for improving flight safety and minimising maintenance. In December Rolls-Royce secured one of the first contracts to be announced under the UK's smart procurement initiative when the Ministry of Defence placed an order worth up to £350 million to upgrade Pegasus engines for RAF Harrier GR 7 aircraft. This new style of contract provides major cost, performance and reliability improvements to the customer. -- 7 -- Marine systems - 1999 sales £385 million; profit £37 million Rolls-Royce has become a world leader in marine propulsion systems. The acquisition of Vickers has added a strong commercial marine business to the company's existing naval business. The ability of Rolls-Royce to offer fully integrated power systems across naval and commercial markets will open up significant opportunities. This expanded capability matches the needs of the changing marine market as customers increasingly demand integrated propulsion system design and supply. The company's extended range of marine capabilities includes project management, design and integration, ship control and instrumentation, procurement and equipment supply, installation and commissioning, integrated logistics and platform support. Rolls-Royce supports its broad range of capabilities with a comprehensive product range. Power is available from gas turbines, diesel engines and electric motors. Propulsion equipment includes market leading products such as Kamewa and Bird Johnson water jets, Ulstein propellers and Bergen diesels. New markets addressed by the company in the commercial sector include cargo shipping, cruise, fishing, tugs and offshore support vessels. In the naval market sector, Rolls-Royce is undertaking propulsion system development for all planned Royal Navy platforms, including Type 45, Future Attack Submarine, Future Carrier and Future Surface Combatant. In 1999 the company was selected to provide power systems for the Royal Navy's ASTUTE class of submarine, with a contract to design, build and supply three sets of turbo generators which will provide the submarines with electrical power for sensors, services and weapons systems. All three ASTUTE submarines will be powered by Rolls-Royce nuclear steam raising plant. The company made good progress with the WR-21 engine, which is the only advanced-cycle marine gas turbine under development in the world. The engine has now completed development testing. During the year the company launched a new marine gas turbine, the 601K in the 6-8MW class, primarily designed to power corvette and fast patrol craft. In August Rolls-Royce achieved a significant breakthrough in the commercial market when the marine Trent was selected for a $1 billion contract to power the future FastShip cargo vessel. Each of five vessels will be powered by five marine Trents driving Kamewa water jets. The gas turbines and water jets will each be rated at 50 MW, the most powerful in the world. The company leads the world in the field of podded electric systems and achieved an order book of more than 30 Mermaid units in 1999. Two Mermaid propulsion systems have recently been successfully mounted on the first of four Millennium series cruise ships for Celebrity Cruises. -- 8 -- The company's marine systems business has developed a strong services capability, building upon the generic skills developed in other sectors. Total care packages such as Power by the Hour are offered. One of the first applications will be FastShip for which a 20 year support package has been proposed. Energy - 1999 sales £482 million; loss £39 million Rolls-Royce is investing in its energy businesses, concentrating on applications in the oil and gas sector and power generation equipment up to 75MW. These markets are addressed through a broad range of diesels and gas turbines and a comprehensive project development capability. The company's oil and gas business had a strong year. The acquisition of Cooper Cameron's rotating compressor business enhances the company's position as a leader in the oil and gas industry for pumping and compression and offshore power generation. Customers in these markets increasingly require innovative package solutions. The acquisition will enable Rolls-Royce to provide customers with improved products and integrated aftermarket services. In power generation the company increased its investment in new products. The latest addition to the portfolio of advanced medium speed diesels, the Allen 5016, was launched in September and is already attracting interest from potential customers world-wide. The company's continuing investment in the industrial Trent resulted in increased in-service availability of the engines, with the fleet achieving 20,000 running hours in 1999. Whilst development of this product has taken longer than originally anticipated, market interest remains strong. By the end of the year, five Trent power stations were in operation. Good progress has been made with reducing emissions and the company expects to introduce a fully compliant combustor in 2000. Continuing investment in this area will benefit the company's complete range of industrial gas turbine products. Rolls-Royce has 2,500 industrial gas turbines in active service and expects this to grow as a consequence of the increased demand for distributed power and its investment in a broader range of products. The service element of this activity will assume a greater importance as customers increasingly outsource the maintenance and operation of equipment. Services Financial and aftermarket service activities account for 40 per cent of the company's sales. Rolls-Royce continued to grow these businesses in 1999, offering a broader range of customer services and generating increased revenue. -- 9 -- Financial Services - 1999 Sales £37 million; profit £24 million Rolls-Royce & Partners Finance, established in 1989, is the world's largest specialist aero-engine leasing company. It successfully completed its first full year as a joint venture with GATX Capital. At the end of the year the joint venture owned 144 aero-engines, all of which are on lease to customers around the world. Pembroke Group also completed a successful first full year of trading as a Rolls-Royce joint venture company. It specialises in aircraft leasing and management and, at the end of 1999, owned 48 aircraft and managed a further 45 on behalf of customers. Rolls-Royce Power Ventures continued to develop its portfolio of power development projects. Successes in 1999 included the entry into service of a diesel power station in the Caribbean and a new contract to supply diesel generating sets to gold mining operations in Tanzania. The company has attracted new partners into development projects and will be seeking further opportunities to sell down shares in projects, thus unlocking value and releasing capital. Aftermarket Services - sales and profit figures are included in the relevant market sectors. Rolls-Royce overhauls more than 1,500 aero-engines and 4,500 modules each year. The company repairs 47 different engine types for 400 customers through an international network of repair and overhaul operations based at 16 locations on four continents. The company's aero repair and overhaul business continued to grow in 1999 as a result of its comprehensive international network of repair bases and the growing installed base of engines. Rolls-Royce won more than 100 repair and overhaul contracts during the year. In September, the acquisition for $73 million of National Airmotive Corporation, one of the United States' leading aero and industrial engine repair and overhaul businesses, strengthened the company's position in the aftermarket. National Airmotive is an authorised maintenance centre for a variety of engines, including the Rolls-Royce T56 and Model 250 engines, both of which have large fleets in service. The recently announced joint venture with SR Technics, a sister company of Swissair, expanded the company's global network for Trent support, complementing existing facilities in the United States, Hong Kong, Singapore and the United Kingdom. -- 10 -- Rolls-Royce formed a joint venture company, Data Systems & Solutions (DS&S), with Science Applications International Corporation. DS&S provides systems integration, integrated asset management and maintenance solutions to customers in aerospace, defence, marine and energy markets. DS&S won $82 million worth of new business in 1999 with customers as diverse as Condor, the German charter airline, and the Ignalina nuclear power station in Lithuania. DS&S now monitors 453 engines for 17 customers. Key development areas are the efficient capture of data, the enhancement of analytical tools and the delivery of information to customers via the internet. -- 11 -- Group profit and loss account for the year ended December 31, 1999 Other Continuing Total Total Acquisitions operations 1999 1998 Notes £m £m £m £m ____________________________________________________________________________ Turnover: Group and share of joint ventures 161 4,646 4,807 4,687 Sales to joint ventures - 799 799 701 Less share of joint ventures' turnover - (862) (862) (892) ____________________________________________________________________________ Group turnover 1 161 4,583 4,744 4,496 Cost of sales (124) (3,663) (3,787) (3,689) ____________________________________________________________________________ Gross profit 37 920 957 807 Commercial, marketing and product support costs (7) (188) (195) (162) General and administrative costs (21) (150) (171) (156) Research and development(net)* (2) (213) (215) (173) ____________________________________________________________________________ Group operating profit 7 369 376 316 Share of operating profit of joint ventures - 31 31 17 Loss on sale of businesses - (14) (14) (40) Profit from the sale to BMW of the automotive trademark registrations of the Rolls-Royce name - - - 40 Profit on sale of fixed assets 2 - 20 20 9 ____________________________________________________________________________ Profit on ordinary activities before Interest 1 7 406 413 342 ___________________ Net interest payable - Group (35) (12) - joint ventures (18) (5) ___________________________________ __________________ Profit on ordinary activities before taxation 360 325 Taxation (74) (65) ___________________________________ __________________ Profit on ordinary activities after taxation 286 260 Equity minority interests in subsidiary undertakings (2) (2) ___________________________________ __________________ Profit attributable to ordinary shareholders 284 258 Dividends (112) (99) ___________________________________ __________________ Transferred to reserves 172 159 ___________________________________ __________________ *Research and development (gross) (626) (668) Earnings per ordinary share: 2 Underlying 19.52p 16.91p Basic 18.86p 17.25p Diluted basic 18.62p 17.10p -- 12 -- Group Balance sheet at December 31, 1999 ______________________ 1999 1998 £m £m _____________________________________________________________________ Fixed assets Intangible assets - purchased goodwill 873 8 Tangible assets 1,753 1,217 Investments - subsidiary undertakings - - - joint ventures 151 134 share of gross assets 958 855 share of gross liabilities (807) (721) - other 31 15 ______________________________________________________________________ 2,808 1,374 ______________________________________________________________________ Current assets Stocks 1,274 1,041 Debtors - amounts falling due within one year 1,321 975 - amounts falling due after one year 371 372 Short-term deposits and investments 464 722 Cash at bank and in hand 521 297 ______________________________________________________________________ 3,951 3,407 Creditors - amounts falling due within one year Borrowings (408) (177) Other creditors (2,467) (1,961) ________________________________________________________________________ Net current assets 1,076 1,269 ________________________________________________________________________ Total assets less current liabilities 3,884 2,643 Creditors - amounts falling due after one year Borrowings (1,271) (540) Other creditors (109) (63) Provisions for liabilities and charges (503) (323) ______________________________________________________________________ 2,001 1,717 ______________________________________________________________________ Capital and reserves Called up share capital 309 301 Share premium account 615 548 Revaluation reserve 112 114 Other reserves 140 132 Profit and loss account 812 610 ______________________________________________________________________ Equity shareholders' funds 1,988 1,705 Equity minority interests in subsidiary undertakings 13 12 ______________________________________________________________________ 2,001 1,717 ______________________________________________________________________ -- 13 -- Group cash flow statement for the year ended December 31, 1999 Notes 1999 1998 £m £m ________________________________________________________________________ Net cash inflow from operating activities A 359 285 Dividends received from joint ventures 6 11 Returns on investments and servicing of finance B (32) (10) Taxation paid (38) (34) Capital expenditure and financial investment C (199) (309) Acquisitions and disposals D (666) 87 Equity dividends paid (88) (65) ________________________________________________________________________ Cash (outflow)/inflow before use of liquid resources and financing (658) (35) Management of liquid resources E 261 (336) Financing F 622 113 ________________________________________________________________________ Increase/(decrease) in cash 225 (258) ________________________________________________________________________ Reconciliation of net cash flow to movement in net funds Increase/(decrease) in cash 225 (258) Cash (inflow)/outflow from (decrease)/increase in liquid resources (261) 336 Cash inflow from increase in borrowings (618) (99) ________________________________________________________________________ Change in net funds resulting from cash flows (654) (21) Borrowings of businesses acquired (332) - Loans disposed of with subsidiary undertakings (including reclassification to joint ventures) - 112 Zero-coupon bonds 2005/2007 (9.0% Interest accretion) (3) (2) Exchange adjustments (7) - ________________________________________________________________________ Movement in net funds (996) 89 Net funds at January 1 302 213 ________________________________________________________________________ Net funds at December 31 (694) 302 ________________________________________________________________________ -- 14 -- Reconciliation of operating profit to operating cash flow 1999 1998 £m £m Operating profit 376 316 Depreciation of tangible fixed assets 105 113 Amortisation of purchased goodwill 5 - Loss/(profit) on disposals of tangible fixed assets 4 (1) Decrease in provisions for liabilities and charges (34) (89) Decrease in stocks 39 (102) Increase in debtors (113) (82) Decrease in creditors (23) 130 ________________________________________________________________________ A Net cash inflow from operating activities 359 285 ________________________________________________________________________ Returns on investments and servicing of finance Interest received 26 47 Interest paid (51) (50) Interest element of finance lease payments (7) (7) ________________________________________________________________________ B Net cash outflow for returns on investments and servicing of finance (32) (10) ________________________________________________________________________ Capital expenditure and financial investment Purchases of tangible fixed assets (381) (387) Disposals of tangible fixed assets 187 41 Sale to BMW of the automotive trademark registrations of the Rolls-Royce name - 40 Other investments (5) (3) ________________________________________________________________________ C Net cash outflow for capital expenditure and financial investment (199) (309) ________________________________________________________________________ Acquisitions and disposals Acquisitions of businesses (653) - Disposals of businesses - including cash balances disposed of - 132 Deferred consideration in respect of prior year disposals 14 - Investments in joint ventures (16) (44) Loans to joint ventures (11) - Loan repayments from joint ventures - 5 Acquisition of non-equity minority interests in subsidiary undertakings - (6) ________________________________________________________________________ D Net cash outflow for acquisitions and disposals (666) 87 ________________________________________________________________________ Management of liquid resources Decrease/(increase) in short-term deposits 262 (333) Increase in government securities and corporate bonds (1) (3) ________________________________________________________________________ E Net cash inflow/(outflow) from management of liquid resources 261 (336) ________________________________________________________________________ Financing Borrowings due within one year - repayment of notes - (150) - increase in bank loans 88 87 Borrowings due after one year - repayment of loans (196) (4) - new loans 734 177 Capital element of finance lease payments (8) (11) ________________________________________________________________________ Net cash inflow from increase in borrowings 618 99 Issue of ordinary shares 4 14 ________________________________________________________________________ F Net cash inflow from financing 622 113 ________________________________________________________________________ -- 15 -- Group statement of total recognised gains and losses for the year ended December 31, 1999 1999 1998 £m £m ________________________________________________________________________ Profit attributable to the shareholders of Rolls-Royce plc 284 258 Exchange adjustments on foreign currency net investments 17 (12) ________________________________________________________________________ Total recognised gains for the year 301 246 ________________________________________________________________________ Group historical cost profits and losses for the year ended December 31, 1999 ________________________________________________________________________ 1999 1998 £m £m ________________________________________________________________________ Profit on ordinary activities before taxation 360 325 Realisation of property revaluation gains of previous years - 5 Difference between the historical cost depreciation charge and the actual depreciation charge for the year calculated on the revalued amount 2 2 ________________________________________________________________________ Historical cost profit on ordinary activities before taxation 362 332 ________________________________________________________________________ Historical cost transfer to reserves 174 167 ________________________________________________________________________ Reconciliations of movements in Group shareholders' funds for the year ended December 31, 1999 1999 1998 £m £m ________________________________________________________________________ At January 1 1,705 1,443 Total recognised gains for the year 301 246 Ordinary dividends (net of scrip dividend adjustments) (101) (76) New ordinary share capital issued (net of expenses) 75 14 Goodwill transferred to the profit and loss account in respect of disposal of businesses 8 78 ________________________________________________________________________ At December 31 1,988 1,705 ________________________________________________________________________ -- 16 -- Notes 1. Segmental Analysis Group turnover Profit before Net assets* interest _____________________________________________ 1999 1998 1999 1998 1999 1998 £m £m £m £m £m £m ________________________________________________________________________ Analysis by businesses: Aerospace 3,774 3,476 442 370 1,543 1,036 Industrial 922 767 (7) 35 1,149 390 Business to be disposed 48 83 (22) - 3 10 ________________________________________________________________________ 4,744 4,326 413 405 2,695 1,436 Industrial - discontinued operations - 170 - (63) - (21) ________________________________________________________________________ 4,744 4,496 413 342 2,695 1,415 ________________________________________________________________________ Geographical analysis by origin: United Kingdom 3,663 3,575 334 238 1,506 1,059 Other 1,081 921 79 104 1,189 356 ________________________________________________________________________ 4,744 4,496 413 342 2,695 1,415 ________________________________________________________________________ Geographical analysis by destination: United Kingdom 956 1,022 Rest of Europe 658 415 USA 1,625 1,619 Canada 104 120 Asia 796 827 Africa 106 193 Australasia 228 116 Other 271 184 _______________________________________ 4,744 4,496 _______________________________________ Exports from United Kingdom 2,737 2,582 Sales to overseas subsidiaries (213) (213) Sales by overseas subsidiaries 1,260 1,101 Sales by overseas joint arrangements 4 4 _______________________________________ Total overseas 3,788 3,474 _______________________________________ *Net assets exclude net debt of £694m (1998 net funds of £302m). Discontinued operations include the 3 October 1998 disposal of the Transmission and Distributions business. In 2000 the company will adopt a new segmental analysis. The revised analysis, below, is provided to enable future comparisons. Turnover PBIT 1999 1999 £m £m ____________________________________________________________________________ Civil aerospace 2,654 232 Defence 1,138 181 Marine systems 385 37 Energy 482 (39) Financial services* 37 24 To be disposed 48 (22) ____________________________________________________________________________ 4,744 413 ____________________________________________________________________________ *Gross turnover of financial services companies and joint ventures is £82m. -- 17 -- 2. Earnings per ordinary share Basic earnings per ordinary share are calculated by dividing the profit attributable to ordinary shareholders of £284 million (1998 £258m) by 1,506 million (1998 1,496 million) ordinary shares, being the average number of ordinary shares in issue during the year, excluding own shares held under trust which have been treated as if they have been cancelled. Underlying earnings per ordinary share have been calculated as follows: 1999 Pence £m Profit attributable to ordinary shareholders 18.86 284 Exclude: Net loss on sale of businesses 0.93 14 Profit on sale of fixed assets* (1.13) (17) Amortisation of goodwill 0.33 5 Restructuring of acquired business 0.40 6 Related tax effect 0.13 2 _____ ___ Underlying earnings per share 19.52 294 _____ ___ *excluding lease engines and aircraft sold by financial services companies. Diluted basic earnings per ordinary share are calculated by dividing the profit attributable to ordinary shareholders of £284m (1998 £258m) by 1,525 million (1998 1,509 million) ordinary shares, being 1,506 million (1998 1,496 million) as above adjusted by the bonus element of existing share options of 19 million (1998 13 million). 3. Group Employees at the period end 31 December 31 December 1999 1998 Number Number Aerospace 32,200 30,000 Industrial 17,400 10,300 49,600 40,300 Note: Acquisitions and disposals accounted for a net increase of 10,900 employees. The underlying reduction of 1,600 was spread across the Group. 4. The financial information above does not constitute the Group's statutory accounts for the year ended December 31, 1999 or 1998. Statutory accounts for 1998 have been delivered to the Registrar of Companies, whereas those for 1999 will be delivered following the annual general meeting. The auditors have reported on those accounts; their reports were unqualified and did not contain a statement under section 237(2) or (3) of the Companies Act 1985.

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