TIDMRR.
RNS Number : 6381C
Rolls-Royce Holdings plc
24 February 2022
24 February 2022
ROLLS-ROYCE HOLDINGS PLC - 2021 Full Year Results
A better balanced and more sustainable business
-- Improved financial performance driven by growth and cost reduction
- Underlying operating profit of GBP414m (statutory GBP513m),
recovered from prior year loss
- Free cash flow substantially improved and ahead of
expectations
-- Delivering on our commitments
- Restructuring run-rate savings of more than GBP1.3bn delivered
one year ahead of schedule
- Disposals on-track with total expected proceeds of around
GBP2bn
-- Investing to drive further growth and deliver sustainable value
- FY 2021 GBP(1.2)bn gross R&D on market-leading technology
for new and existing markets
- Focused investments in net zero opportunities to deliver
long-term sustainable value
Warren East, Chief Executive said: " We have improved our
financial and operational performance, continued to deliver on our
commitments and created a better balanced business capable of
sustainable growth. We have achieved the benefits of our
restructuring programme a year ahead of schedule, positioning Civil
Aerospace to capitalise on increasing international travel. In
Defence, we have seen growth driven by strong demand in all our
markets and in Power Systems we achieved record order intake in the
last quarter. The positive momentum we are generating gives us
confidence both in our expectations for 2022 and our future growth.
We have also made significant progress with our new businesses in
electrical power and small modular reactors, both of which have the
potential to create very significant long-term value. We are
continuing to make disciplined investments to develop new and
existing technologies, which will enable us to seize the
significant commercial opportunity presented by the global energy
transition driving sustainable returns."
Full Year 2021 Group financial performance
GBP million, continuing operations Restated Restated
Statutory Statutory Underlying Underlying
2021 2020 2021 2020
------------------------------------ ---------- ----------- ----------- ------------
Revenue 11,218 11,491 10,947 11,430
------------------------------------ ---------- ----------- ----------- ------------
Gross profit/(loss) 2,136 (187) 1,996 (613)
------------------------------------ ---------- ----------- ----------- ------------
Operating profit/(loss) 513 (1,972) 414 (2,008)
------------------------------------ ---------- ----------- ----------- ------------
Operating margin % 4.6% (17.2)% 3.8% (17.6)%
------------------------------------ ---------- ----------- ----------- ------------
Profit/(loss) for the year 124 (3,101) 10 (4,039)
------------------------------------ ---------- ----------- ----------- ------------
Earnings per share (p) 1.48 (51.81) 0.11 (67.48)
------------------------------------ ---------- ----------- ----------- ------------
GBP million 2021 2020 Change
------------------------------------------- ------------ -------- --------
Free cash flow from continuing operations (1,485) (4,255) 2,770
------------------------------------------- ------------ -------- --------
Group free cash flow (1,442) (4,185) 2,743
------------------------------------------- ------------ -------- --------
GBP million 31 Dec
31 Dec 2021 2020 Change
------------------------------------------- ------------ -------- --------
Net debt (including lease liabilities) (5,157) (3,576) (1,581)
------------------------------------------- ------------ -------- --------
Improved financial performance driven by cost reduction and
market growth
Underlying revenue from continuing operations of GBP10.9bn,
reflected a more balanced contribution from the business units
compared with the prior year. It included a positive GBP214m Civil
Aerospace LTSA revenue catch-up compared with a GBP(1.1)bn negative
revenue catch-up in 2020.
Underlying operating profit from continuing operations of
GBP414m included significant cost savings from the restructuring
programme, primarily in Civil Aerospace, continued resilient
performance in Defence and strong growth in Power Systems as it
benefitted from recovering end markets. The prior year comparative
underlying loss of GBP(2.0)bn included GBP(1.3)bn of one-off
charges mostly related to the impact of COVID-19 on Civil
Aerospace.
Free cash outflow from continuing operations of GBP(1.5)bn and
trading cash outflow from continuing operations of GBP(1.2)bn were
substantially improved on the prior year helped by robust progress
on cost reduction, stronger operating performance including higher
flying hour receipts in Civil Aerospace and reduced capital
expenditure. Working capital outflows of GBP(0.8)bn, which were
mostly driven by concession payments and lower OE deliveries in
Civil Aerospace, improved on the prior year due to the non-repeat
of GBP(1.1)bn negative impact from the cessation of invoice
factoring in 2020.
Business unit underlying performance summary
Organic Underlying Organic
Underlying Change operating Change Trading
GBP million revenue (1) (loss)/profit (1) cash flow Change
------------------------ ----------- -------- --------------- -------- ----------- -------
Civil Aerospace (2,
3) 4,536 (491) (172) 2,371 (1,670) 2,840
------------------------ ----------- -------- --------------- -------- ----------- -------
Defence 3,368 155 457 13 377 79
------------------------ ----------- -------- --------------- -------- ----------- -------
Power Systems (3) 2,749 89 242 67 219 57
------------------------ ----------- -------- --------------- -------- ----------- -------
New Markets (3) 2 (2) (70) (27) (56) (1)
------------------------ ----------- -------- --------------- -------- ----------- -------
Other businesses
(3, 4) 303 40 2 22 (43) (13)
------------------------ ----------- -------- --------------- -------- ----------- -------
Corporate/eliminations (11) (5) (45) 20 (38) 25
------------------------ ----------- -------- --------------- -------- ----------- -------
Total (continuing
operations) 10,947 (214) 414 2,466 (1,211) 2,987
------------------------ ----------- -------- --------------- -------- ----------- -------
For footnotes referenced in tables on pages 2-13, see page
14.
Civil Aerospace Our fundamental restructuring programme has been
largely completed resulting in higher productivity and sustainably
lower costs, better suited to the current environment and
positioned well for future growth. The launch of the Airbus A350
freighter in 2021 represents a significant opportunity for our
Trent XWB engine, with 58 engine orders secured for the A350F since
its launch. In Business Aviation, we achieved two key new
selections with our Pearl 10X chosen by Dassault for the Falcon 10X
and our Pearl 700 chosen by Gulfstream for the G800. In 2021, we
powered 7.4m large engine flying hours, up 11% on 2020 with gradual
recovery in international flying activity, which continued to be
impacted by COVID-19 travel restrictions.
Defence Our longstanding commitment to strategic investments in
Defence products and facilities has resulted in a strong order book
and is driving longer-term sustainable growth. In 2021, we secured
new work for the coming decades in the US with the award of the
B-52 engine replacement contract, and we remain in a competitive
process for the Future Long-Range Assault Aircraft (FLRAA)
programme. Our profitability and strong cash conversion are
supporting increased investment to meet the customer demand for
products that deliver advances in technology and
sustainability.
Power Systems End market demand increased significantly for our
Power Systems business in the second half of 2021 as the impacts of
COVID-19 reduced. Order intake accelerated, with record order
intake in the fourth quarter, driving book to bill of 1.2x in 2021
and good order cover for 2022. Significant awards included a power
solution for a hyperscale data centre customer and a
first-of-a-kind net zero microgrid which will combine fuel cells
and hydrogen combustion engines for the Port of Duisburg in
Germany.
New Markets We have created a new reporting segment for our
early-stage businesses with high growth potential, focused on
addressing new market opportunities being created by the transition
to net zero. Rolls-Royce SMR reached a major milestone with grant
funding and new equity investors supporting entry into the UK's
Generic Design Assessment (GDA) process. Rolls-Royce Electrical
achieved key product advances with a world speed record for our
all-electric aircraft. We believe our two New Markets businesses
could generate more than GBP5bn combined annual revenue by the
early 2030s .
Delivering on our commitments
We have met our GBP1.3bn run-rate savings target a year ahead of
schedule and delivered on our Group restructuring commitment with
the removal of more than 9,000 roles from continuing operations.
Our focus now is on ensuring the benefits are sustained. Our
restructuring programme has fundamentally changed the way we work
in our Civil Aerospace business, reducing the size of the business
by around a third and creating a more productive, more efficient
business poised for future growth.
We are committed to rebuilding our balance sheet. We have
announced four disposals which are expected to generate around
GBP2bn in proceeds (including retained cash). Three of the
disposals have completed, two in 2021 and the other one since the
start of 2022. The final and largest of the disposals, ITP Aero, is
progressing well and we expect completion in the first half of
2022. Disposal proceeds, together with underlying free cash flow
generation from the Group, will be used to reduce net debt, in line
with our ambition to return to an investment grade credit profile
in the medium term.
Our liquidity position is strong with GBP7.1bn of liquidity
including GBP2.6bn in cash at the end of the year after repaying
the 2021 EUR750m bond and the GBP300m Covid Corporate Financing
Facility (CCFF) commercial paper. Net debt was GBP(5.2)bn including
leases (2020:GBP(3.6)bn). Net debt excluding leases was GBP(3.4)bn
(2020:GBP(1.5)bn).
Some of our loan facilities place restrictions and conditions on
payments to shareholders. The restrictions mean no shareholder
payment will be made for 2021. From 2023, the Board may recommend
shareholder payments, subject to satisfaction of the conditions and
our consideration of progress made to strengthen the balance sheet.
We aim to be able to recommend shareholder payments in the medium
term.
Investing to drive growth and deliver sustainable value
Our technology and engineering expertise gives us a critical
role in enabling the transition to a low carbon global economy. We
are focused on producing the technology breakthroughs society needs
to decarbonise the global economy and capture the economic
opportunity this transition represents. We are doing that by making
our existing products compatible with net zero and pioneering new
technologies that can meet accelerating demand for net zero power,
as well as identifying additional applications for our current
portfolio of technologies. Our investment in small modular reactors
(SMRs) and electrical propulsion create net zero solutions and
opportunities in new end markets, as we aim to maximise the future
market potential for our technological and industrial solutions and
products.
In 2021, our gross R&D costs totalled GBP(1.2)bn
(2020:GBP(1.2)bn), GBP366m of which was paid for by contributions
from third parties. Our continued prioritisation of targeted
investment, even in the most challenging years, drove commercial
success in 2021 including the Pearl engine selections, the B-52
engine replacement contract, the first all-hydrogen microgrid, a
world speed record for electric flight and entry into the UK GDA
for our SMRs.
Outlook and financial guidance
We are well positioned for the anticipated growth in our end
markets as the impact of the COVID-19 pandemic eases. This, along
with continued good contribution from Defence, gives us confidence
that we will see positive momentum in our financial performance in
2022 despite the challenges and risks around the pace of market
recovery, global supply chain disruption and rising inflation. We
expect
low-to-mid-single digit revenue growth and we expect our
operating profit margin to be broadly unchanged as underlying
operational improvement is balanced with increased engineering
spend to develop sustainable growth opportunities. We expect to
generate modestly positive free cash flow in 2022, seasonally
weighted towards the second half of the year.
Results webcast and conference call
A webcast will be held at 08:30 (GMT) 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/gi4zqu9m
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: 0207 192 8338/ US dial-in: +1 646 741 3167
International dial-in for all participants: +44 207 192 8338
Participant passcode: 784 4816#
Downloadable materials
Please visit the Investor Relations section of the Rolls-Royce
website to download our Full Year Results materials:
https://www.rolls-royce.com/investors/results-and-events.aspx
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 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.
LSE: RR.; ADR: RYCEY; LEI: 213800EC7997ZBLZJH69
Group Statutory Results
Statutory Income Statement
GBP million Restated
2021 2020 Change
---------------------------------------------- ------ -------- ------
Revenue 11,218 11,491 (273)
---------------------------------------------- ------ -------- ------
Gross profit/(loss) 2,136 (187) 2,323
---------------------------------------------- ------ -------- ------
Operating profit/(loss) 513 (1,972) 2,485
---------------------------------------------- ------ -------- ------
Gain/(loss) on disposal/acquisition of
businesses 56 (14) 70
---------------------------------------------- ------ -------- ------
Net financing costs (863) (813) (50)
---------------------------------------------- ------ -------- ------
Loss before taxation (294) (2,799) 2,505
---------------------------------------------- ------ -------- ------
Taxation 418 (302) 720
---------------------------------------------- ------ -------- ------
Profit/(loss) for the year from continuing
operations 124 (3,101) 3,225
---------------------------------------------- ------ -------- ------
Earnings per share from continuing operations
(p) 1.48 (51.81) 53.29
---------------------------------------------- ------ -------- ------
Statutory revenue of GBP11.2bn was 2% lower compared with 2020
driven by a decline in Civil Aerospace revenue, due to lower OE
deliveries and shop visit volumes. Revenue included a GBP214m
positive LTSA catch-up in Civil Aerospace compared with a
GBP(1.1)bn negative revenue catch-up in the prior year. Defence
benefitted from increased spare parts and spare engine sales. Power
Systems revenues were driven by our more resilient end markets,
with increased demand for Services from our defence and industrial
customers.
Gross profit returned to profit of GBP2.1bn compared with a
prior year loss of GBP(187)m reflecting growth and cost discipline
as well as substantial cost savings and productivity gains
delivered by the restructuring programme. Gross profit also
included a GBP105m provision reversal in relation to the Trent 1000
engine programme (2020: GBP620m) and a GBP256m positive LTSA
catch-up in 2021. The prior year comparative included GBP(1.8)bn of
net charges relating to negative LTSA catch-ups, impairments and
write-offs.
Operating profit improved significantly to GBP513m from a prior
year GBP(2.0)bn loss. Research & Development costs were
GBP(778)m down 35% from 2020 as a consequence of one-off
impairments in the prior year. Commercial & Administrative
costs of GBP(890)m were 15% higher than the prior year
(2020:GBP(771)m), which benefitted from a one-off pension credit
partly offset by a restructuring provision.
Loss before taxation of GBP(294)m included GBP(538)m net fair
value losses on derivative contracts, GBP(245)m net interest
payable and a net GBP56m profit from disposals.
Profit from continuing operations of GBP124m included a tax
credit of GBP418m, (2020: tax charge GBP302m), which mostly related
to movements in deferred tax balances due to the impact of the UK
tax rate change from 19% to 25%, effective from April 2023. The tax
charge in 2020 was mostly driven by the derecognition of some of
the deferred tax asset on UK losses previously recognised, partly
offset by a credit relating to the change in the UK tax rate from
17% to 19%.
Earnings per share of 1.48p (2020: (51.81)p) reflected the
improvement in profit and an increase in weighted average number of
shares compared with the prior year to reflect the full year impact
of the bonus element of the rights issue completed in November
2020.
Statutory Balance Sheet
Held Change
Statutory Adjusted for sale Statutory excluding
GBP million 2021 2020 (5) 2020 HfS (5)
-------------------------------------- ---------- --------- ---------- ---------- -----------
Intangible assets 4,041 4,191 954 5,145 (150)
-------------------------------------- ---------- --------- ---------- ---------- -----------
Property, plant and equipment 3,917 4,103 412 4,515 (186)
-------------------------------------- ---------- --------- ---------- ---------- -----------
Right of use assets 1,203 1,390 15 1,405 (187)
-------------------------------------- ---------- --------- ---------- ---------- -----------
Joint ventures and associates 404 386 8 394 18
-------------------------------------- ---------- --------- ---------- ---------- -----------
Contract assets and liabilities (8,836) (8,945) 23 (8,922) 109
-------------------------------------- ---------- --------- ---------- ---------- -----------
Working capital (7) 1,458 464 106 570 994
-------------------------------------- ---------- --------- ---------- ---------- -----------
Provisions (1,582) (1,907) (38) (1,945) 325
-------------------------------------- ---------- --------- ---------- ---------- -----------
Net debt (8) (5,110) (3,556) (71) (3,627) (1,554)
-------------------------------------- ---------- --------- ---------- ---------- -----------
Net financial assets and liabilities
(8) (3,034) (3,077) (34) (3,111) 43
-------------------------------------- ---------- --------- ---------- ---------- -----------
Net post-retirement scheme
deficits (225) (673) - (673) 448
-------------------------------------- ---------- --------- ---------- ---------- -----------
Taxation 1,787 1,240 55 1,295 547
-------------------------------------- ---------- --------- ---------- ---------- -----------
Held for sale 1,305 1,490 (1,430) 60 (6) (185)
-------------------------------------- ---------- --------- ---------- ---------- -----------
Other net assets and liabilities 36 19 - 19 17
-------------------------------------- ---------- --------- ---------- ---------- -----------
Net liabilities (4,636) (4,875) - (4,875) 239
-------------------------------------- ---------- --------- ---------- ---------- -----------
Other items
-------------------------------------- ---------- --------- ---------- ---------- -----------
US$ hedge book (US$bn) 22 25
-------------------------------------- ---------- --------- ---------- ---------- -----------
Civil LTSA asset 915 726
-------------------------------------- ---------- --------- ---------- ---------- -----------
Civil LTSA liability (7,129) (6,841)
-------------------------------------- ---------- --------- ---------- ---------- -----------
Civil net LTSA liability (6,214) (6,115)
-------------------------------------- ---------- --------- ---------- ---------- -----------
Key drivers of balance sheet movements, adjusted for assets held
for sale, were:
Intangible assets: Net decrease of GBP(150)m included additions
of GBP223m 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(146)m and amortisation for the year
was GBP(281)m.
Property, plant and equipment: Net decrease of GBP(186)m
included additions of GBP299m, more than offset by GBP(439)m of
depreciation and a foreign exchange impact of GBP(63)m. Additions
were GBP254m lower than prior year as a result of focus on
prioritisation of business critical infrastructure projects and
focus on reducing capital intensity.
Right-of-use assets: Net reduction of GBP(187)m was driven by
GBP(272)m depreciation charged in the year partly offset by
additions of GBP82m.
Contract assets and liabilities: The GBP109m movement in net
liability balance was mainly driven by the utilisation of deposits,
foreign exchange movements and invoiced LTSA receipts in Civil
Aerospace exceeding revenue recognised in the year, partly offset
by GBP214m LTSA catch-ups.
Working capital : The GBP1,458m net current asset position was
GBP994m higher than prior year, due to a GBP0.7bn reduction in
payables driven mostly by Civil Aerospace, including a GBP0.5bn
reduction in concessions payable as payments significantly exceeded
new concessions accrued in the year, alongside a modest reduction
in trade payables due to the timing and volume of supplier
payments. We also made the final financial penalty payment of
GBP156m related to agreements reached in January 2017. Inventory
increased by GBP0.2bn, mostly in Power Systems and Defence, to
support 2022 sales.
Provisions: The GBP325m decrease primarily reflected the
utilisation and reversal of restructuring provisions of GBP212m as
the restructuring programme nears completion, utilisation of Trent
1000 provision of GBP199m, partly offset by GBP82m of contract loss
provision net of reversals.
Net debt: Increased from GBP(3.6)bn to GBP(5.1)bn primarily
driven by free cash outflow of GBP(1.5)bn.
Net post-retirement scheme deficits: GBP448m movement driven by
an increase in the UK scheme surplus reflecting company
contributions and actuarial gains and a decrease in the overseas
schemes deficit mainly attributable to actuarial gains and foreign
exchange.
Taxation: The net tax asset increased by GBP547m, most of which
(GBP344m) related to remeasurement of the opening UK deferred tax
balances due to the UK tax rate change from 19% to 25% effective
from April 2023. In addition, there was an increase in the deferred
tax asset on unrealised losses on derivatives (GBP96m) and certain
other UK deferred tax assets (GBP126m) reflecting tax relief that
will be taken in the future, based on profit forecasts.
Group Underlying(9) Results
Underlying Income Statement
Organic
Restated Change M&A
GBP million 2021 2020 Change (1) (10) FX
------------------------------------ ------- --------- -------- -------- ------ ------
Underlying revenue 10,947 11,430 (483) (214) 19 (288)
------------------------------------ ------- --------- -------- -------- ------ ------
Underlying OE revenue 4,911 5,626 (715) (598) 19 (136)
------------------------------------ ------- --------- -------- -------- ------ ------
Underlying services revenue 6,036 5,804 232 384 - (152)
------------------------------------ ------- --------- -------- -------- ------ ------
Underlying gross profit/(loss) 1,996 (613) 2,609 2,672 6 (69)
------------------------------------ ------- --------- -------- -------- ------ ------
Gross margin % 18.2% (5.4)% 23.6%pt 23.8%pt
------------------------------------ ------- --------- -------- -------- ------ ------
Commercial and administration
costs (899) (866) (33) (45) (8) 20
------------------------------------ ------- --------- -------- -------- ------ ------
Research and development
costs (774) (708) (66) (79) (1) 14
------------------------------------ ------- --------- -------- -------- ------ ------
Joint ventures and associates 91 179 (88) (82) (1) (5)
------------------------------------ ------- --------- -------- -------- ------ ------
Underlying operating profit/(loss) 414 (2,008) 2,422 2,466 (4) (40)
------------------------------------ ------- --------- -------- -------- ------ ------
Underlying operating margin
% 3.8% (17.6)% 21.4%pt 21.8%pt
------------------------------------ ------- --------- -------- -------- ------ ------
Financing costs (378) (1,985) 1,607 1,605 - 2
------------------------------------ ------- --------- -------- -------- ------ ------
Underlying profit/(loss)
before taxation 36 (3,993) 4,029 4,071 (4) (38)
------------------------------------ ------- --------- -------- -------- ------ ------
Taxation (26) (46) 20 15 - 5
------------------------------------ ------- --------- -------- -------- ------ ------
Profit/(loss) for the period 10 (4,039) 4,049 4,086 (4) (33)
------------------------------------ ------- --------- -------- -------- ------ ------
Underlying earnings per
share (p) 0.11 (67.48) 67.59 67.94
------------------------------------ ------- --------- -------- -------- ------ ------
Underlying revenue of GBP10.9bn reflected a more balanced
contribution from our business units. Services revenue increased 7%
while OE fell 11%. Services revenue included a GBP214m Civil
Aerospace LTSA revenue catch-ups compared with GBP(1.1)bn in the
prior year.
Underlying gross profit of GBP2.0bn reflected the benefit of
cost reductions and a GBP256m Civil Aerospace LTSA catch-up . The
prior year loss of GBP(613)m included GBP(1.3)bn of one-off
COVID-19 related charges, mainly relating to negative Civil
Aerospace LTSA catch-ups.
Underlying operating profit was GBP414m, with a return to profit
reflecting the higher gross profit in the year partly offset by
lower contribution from JVs and associates.
Underlying profit before taxation of GBP36m reflected net
financing costs of GBP(378)m with higher charges relating to
interest bearing debt compared with the prior year. In 2020, a
GBP(1.7)bn one-off underlying finance charge was taken to close out
over hedged positions on the USD hedge book.
Underlying profit for the year of GBP10m included a tax charge
of GBP(26)m (2020: GBP(46)m). The tax charge reflects the tax
arising on overseas profits and increases in other deferred tax
assets. Deferred tax has not been recognised on current year UK tax
losses. The tax charge in 2020 included the impact of derecognising
some of the deferred tax asset previously recognised on UK tax
losses.
Underlying earnings per share of 0.11p reflected the improvement
in profit and an increase in weighted average number of shares
compared with the prior year to reflect the full year impact of the
bonus element of the rights issue completed in November 2020.
Group Funds Flow Statement (11)
GBP million 2021 2020 Change
---------------------------------------------------------------------------------------- -------- -------- --------
Underlying operating profit/(loss) 414 (2,008) 2,422
---------------------------------------------------------------------------------------- -------- -------- --------
Operating loss from discontinued operations (43) (109) 66
---------------------------------------------------------------------------------------- -------- -------- --------
Depreciation, amortisation and impairment 971 1,048 (77)
---------------------------------------------------------------------------------------- -------- -------- --------
Lease payments (capital plus interest) (403) (379) (24)
---------------------------------------------------------------------------------------- -------- -------- --------
Expenditure on intangible assets (185) (316) 131
---------------------------------------------------------------------------------------- -------- -------- --------
Capital expenditure (PPE) (311) (579) 268
---------------------------------------------------------------------------------------- -------- -------- --------
Change in inventory (169) 588 (757)
---------------------------------------------------------------------------------------- -------- -------- --------
Movement in receivables/payables/contract balances (excluding Civil LTSA) (641) (2,115) 1,474
---------------------------------------------------------------------------------------- -------- -------- --------
Civil Aerospace net LTSA balance change 66 479 (413)
---------------------------------------------------------------------------------------- -------- -------- --------
Movement on provisions (136) (195) 59
---------------------------------------------------------------------------------------- -------- -------- --------
Cash flows on settlement of excess derivative contracts (452) (202) (250)
---------------------------------------------------------------------------------------- -------- -------- --------
Net interest and fees on undrawn facilities (259) (172) (87)
---------------------------------------------------------------------------------------- -------- -------- --------
Cash flow on financial instruments net of realised losses included in operating profit (85) (105) 20
---------------------------------------------------------------------------------------- -------- -------- --------
Other 68 (49) 117
---------------------------------------------------------------------------------------- -------- -------- --------
Trading cash flow (1,165) (4,114) 2,949
---------------------------------------------------------------------------------------- -------- -------- --------
...of which relates to continuing operations (1,211) (4,198) 2,987
---------------------------------------------------------------------------------------- -------- -------- --------
Contributions to defined benefit pensions (in excess of)/less than that of underlying
operating
profit charge (92) 160 (252)
---------------------------------------------------------------------------------------- -------- -------- --------
Taxation paid (185) (231) 46
---------------------------------------------------------------------------------------- -------- -------- --------
Group free cash flow (1,442) (4,185) 2,743
---------------------------------------------------------------------------------------- -------- -------- --------
...of which relates to continuing operations (1,485) (4,255) 2,770
---------------------------------------------------------------------------------------- -------- -------- --------
Shareholder payments (4) (92) 88
---------------------------------------------------------------------------------------- -------- -------- --------
Rights issue - 1,972 (1,972)
---------------------------------------------------------------------------------------- -------- -------- --------
Disposals and acquisitions 49 (119) 168
---------------------------------------------------------------------------------------- -------- -------- --------
Exceptional Group restructuring (231) (323) 92
---------------------------------------------------------------------------------------- -------- -------- --------
Payment of financial penalties (156) (135) (21)
---------------------------------------------------------------------------------------- -------- -------- --------
Other underlying adjustments (23) (33) 10
---------------------------------------------------------------------------------------- -------- -------- --------
Movement in net funds from cash flows (excluding lease liabilities) (1,807) (2,915) 1,108
---------------------------------------------------------------------------------------- -------- -------- --------
Capital element of lease repayments 374 284 90
---------------------------------------------------------------------------------------- -------- -------- --------
Movement in net funds from cash flows (1,433) (2,631) 1,198
---------------------------------------------------------------------------------------- -------- -------- --------
Movement in short-term investments (8) 6 (14)
---------------------------------------------------------------------------------------- -------- -------- --------
Net cash flow from changes in borrowings and lease liabilities 666 1,630 (964)
---------------------------------------------------------------------------------------- -------- -------- --------
Statutory cash flow (775) (995) 220
---------------------------------------------------------------------------------------- -------- -------- --------
Key changes in the funds flow items are described below:
Expenditure on intangible assets: Expenditure of GBP(185)m
included GBP(104)m capitalised Research & Development (2020:
GBP(232)m), which was lower than prior year reflecting the mix of
spend across Civil Aerospace engine programmes.
Capital expenditure: Investment of GBP(311)m was GBP268m lower
than prior year as a result of continued focus on prioritisation of
business critical infrastructure projects and focus on reducing
capital intensity in Civil Aerospace in line with the cost
reduction programme.
Increase in inventory: The GBP169m increase in the year was
primarily driven by planned inventory build in Defence and Power
Systems to meet expected sales volumes, and the impact of global
supply chain disruption on Power Systems.
Movement in receivables/payables/contract balances (excluding
Civil LTSA):
The movement of GBP(641)m was primarily driven by Civil
Aerospace and included a significant volume of concession payments
during the year as well as a reduction in trade payables driven by
timing and volume of supplier payments. In addition, deposits were
utilised in Civil and Defence as we continued to execute on
customer contracts.
Movement in underlying Civil Aerospace net LTSA creditor: In
2021, there was a GBP66m increase in the net LTSA balance as
invoiced flying hour receipts exceeded revenues recognised. This
reflected an improvement in invoiced flying hour receipts as air
traffic recovered during the year offset by higher revenues due to
materially improved LTSA catch-ups compared to the prior year.
Movement on provisions: The GBP(136)m movement primarily
reflected a decrease in the Trent 1000 provision driven by
provision utilisation, including customer disruption costs settled
and remediation shop visit costs.
Cash flows on settlement of excess derivative contracts: Relates
to the cash settlement costs in the year for the offsetting foreign
exchange contracts that were entered into to reduce the size of the
US Dollar hedge book in 2020. The cash settlement costs of GBP1.7bn
occur across 2020-2026, of which GBP1.0bn remains to be paid in
future years.
Fees and interest: The net payment of GBP(259)m in the year was
higher than the prior year, reflecting GBP(197)m of net interest
paid (2020: GBP(75)m).
Contributions to defined benefit pensions: In 2021, cash
contributions were GBP92m higher than the pensions charge in the
income statement (2020: GBP160m lower) reflecting payment deferrals
from 2020 into the first quarter of 2021 .
Taxation: Net cash tax payments in 2021 were GBP(185)m (2020:
GBP(231)m). The decrease is mainly due to timing, with additional
payments arising in 2020.
Disposals and acquisitions: The GBP49m inflow related to
proceeds associated with disposal activity partly offset by the
costs incurred on acquisition and disposal activity.
Exceptional restructuring: Payments of GBP(231)m related to the
restructuring programme and associated initiatives.
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(23)m includes
timing of cash flows on a prior period disposal where we retain the
responsibility for collecting cash before passing it on to the
acquirer, along with other smaller items.
Ne t cash flow from changes in borrowings and lease liabilities:
During the year, we drew down on a GBP2.0bn loan which is supported
by an 80% guarantee from UK Export Finance. GBP300m of commercial
paper under the Covid Corporate Financing Facility and EUR750m
(GBP639m) loan notes were repaid in line with repayment terms.
Civil Aerospace
GBP million 2021 Organic Change (1) FX 2020 (2, 3) Change Organic Change (1)
------------------------------------ ------- ------------------- ----- ------------ -------- -------------------
Underlying revenue 4,536 (491) (41) 5,068 (10)% (10)%
------------------------------------ ------- ------------------- ----- ------------ -------- -------------------
Underlying OE revenue 1,612 (654) (12) 2,278 (29)% (29)%
------------------------------------ ------- ------------------- ----- ------------ -------- -------------------
Underlying services revenue 2,924 163 (29) 2,790 5% 6%
------------------------------------ ------- ------------------- ----- ------------ -------- -------------------
Underlying gross profit/(loss) 474 2,477 (16) (1,987) - -
------------------------------------ ------- ------------------- ----- ------------ -------- -------------------
Gross margin % 10.4% (39.2)% 49.7%pt 49.9%pt
------------------------------------ ------- ------------------- ----- ------------ -------- -------------------
Commercial and administrative costs (297) 11 2 (310) (4)% (4)%
------------------------------------ ------- ------------------- ----- ------------ -------- -------------------
Research and development costs (434) (35) 8 (407) 7% 9%
------------------------------------ ------- ------------------- ----- ------------ -------- -------------------
Joint ventures and associates 85 (82) (2) 169 (50)% (49)%
------------------------------------ ------- ------------------- ----- ------------ -------- -------------------
Underlying operating loss (172) 2,371 (8) (2,535) (93)% (94)%
------------------------------------ ------- ------------------- ----- ------------ -------- -------------------
Underlying operating margin % (3.8)% (50.0)% 46.2%pt 46.4%pt
------------------------------------ ------- ------------------- ----- ------------ -------- -------------------
2020 (2,
2021 3) Change
------------------- -------- --------- -------
Trading cash flow (1,670) (4,510) 2,840
------------------- -------- --------- -------
Key operational metrics: 2021 2020 Change
------------------------------------------ ----- ----- -------
Large engine deliveries 195 264 (69)
------------------------------------------ ----- ----- -------
Business jet engine deliveries 114 184 (70)
------------------------------------------ ----- ----- -------
Total engine deliveries 309 448 (139)
------------------------------------------ ----- ----- -------
Large engine LTSA flying hours (million) 7.4 6.6 0.8
------------------------------------------ ----- ----- -------
Large engine LTSA major refurbs 208 272 (64)
------------------------------------------ ----- ----- -------
Large engine LTSA check & repairs 402 559 (157)
------------------------------------------ ----- ----- -------
Total large engine LTSA shop visits 610 831 (221)
------------------------------------------ ----- ----- -------
Civil Aerospace financial performance significantly improved due
to the successful restructuring programme, gradual market recovery
and non-repeat of largely COVID-19 related one-time charges in 2020
. Large engine LTSA flying hours were up 11% compared with 2020
with the second half EFH up 57% year on year as COVID-19
vaccination programmes enabled most key routes to reopen on reduced
volumes. Fewer large engines were required to fulfil customer build
schedules , but sales of spare engines increased. Business aviation
OE deliveries were down as we are transitioning to newer engines
programmes, which are growing well from a low base.
- Underlying revenue of GBP4.5bn, down 10% on the prior year. OE
revenue of GBP1.6bn was down 29% reflecting the reduction in engine
deliveries. Services revenue of GBP2.9bn was up 6% on the prior
year and included GBP214m positive LTSA catch-ups (2020:
GBP(1.1)bn), partly offset by lower shop visit volumes and reduced
contribution from the V2500 engine programme.
- Underlying gross profit of GBP474m improved from a GBP(2.0)bn
loss in 2020, driven by strong operating cost performance resulting
from restructuring savings as well as positive LTSA catch-ups of
GBP256m. The prior year loss included GBP(1.3)bn of one-off charges
and GBP(0.6)bn relating to USD purchases and under recovery of
fixed costs.
- Underlying operating loss of GBP(172)m was significantly
better than the prior year. This improvement reflected the increase
in gross profit partly offset by the higher R&D charge and
lower contribution from JVs and associates.
- Trading cash outflow was GBP(1.7)bn, a substantial improvement
on 2020 reflecting higher EFH receipts, lower operating costs,
capex and working capital as well as the non-repeat of GBP(1.0)bn
from invoice factoring cessation in 2020. Working capital cash flow
included large engine OE concession payments that reduced the
concession liability by GBP474m (2020: GBP219m increase).
Outlook
Industry forecasters expect a continuation of the gradual
improvement in international travel in 2022 with an acceleration in
flying hours as COVID-19 related border restrictions are lifted. We
will remain focused on actions within our control, keeping costs
low and maintaining the recent productivity gains as shop visits
increase. This, along with an expected increase in spare engine
sales, would support modest revenue growth and improved
profitability in 2022, as well as a substantial improvement in
trading cash flow.
Defence
Organic Organic
Change Change
GBP million 2021 (1) FX 2020 (3) Change (1)
------------------------------- ------ -------- ------ --------- --------- ---------
Underlying revenue 3,368 155 (142) 3,355 - 5%
------------------------------- ------ -------- ------ --------- --------- ---------
Underlying OE revenue 1,411 42 (59) 1,428 (1)% 3%
------------------------------- ------ -------- ------ --------- --------- ---------
Underlying services
revenue 1,957 113 (83) 1,927 2% 6%
------------------------------- ------ -------- ------ --------- --------- ---------
Underlying gross profit 721 63 (26) 684 5% 9%
------------------------------- ------ -------- ------ --------- --------- ---------
Gross margin % 21.4% 20.4% 1.0%pt 0.9%pt
------------------------------- ------ -------- ------ --------- --------- ---------
Commercial and administrative
costs (161) (19) 4 (146) 10% 13%
------------------------------- ------ -------- ------ --------- --------- ---------
Research and development
costs (105) (24) 5 (86) 22% 28%
------------------------------- ------ -------- ------ --------- --------- ---------
Joint ventures and associates 2 (7) - 9 - -
------------------------------- ------ -------- ------ --------- --------- ---------
Underlying operating
profit 457 13 (17) 461 (1)% 3%
------------------------------- ------ -------- ------ --------- --------- ---------
Underlying operating
margin % 13.6% 13.7% (0.1)%pt (0.2)%pt
------------------------------- ------ -------- ------ --------- --------- ---------
2021 2020 (3) Change
------------------- ----- --------- -------
Trading cash flow 377 298 79
------------------- ----- --------- -------
Our Defence business continued to perform well with strong
demand for OE and services driving growth in all our end markets:
combat, transport, submarines and naval. Disciplined investment is
pivotal to the long-term sustainable growth opportunities that will
shape our Defence business for decades into the future. Our
targeted investment in our facilities in North America as well as
product development has supported recent growth in order intake and
revenues. 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 accelerating interest in reducing their
carbon footprint.
- Order intake was GBP2.3bn with a book-to-bill of 0.7x. Our
order book is strong following several years' of high intake with a
five year average book-to-bill of 1.1x and 85% order cover for
2022. In 2021 we secured a key award with the US DoD for the
replacement engine programme for the B-52 aircraft, with an initial
value of $0.5bn and total OE programme value of $2.6bn.
- Underlying revenue increased by 5% to GBP3.4bn, with services
revenue up 6% and OE revenue up 3%. Sales benefitted from strong
sales of parts in our export markets in Asia and Middle East.
- Underlying gross profit of GBP721m was 9% higher than the
prior year and the gross margin expanded 0.9%pt to 21.4%. This was
driven by a positive mix towards higher margin spare parts and
spare engine sales.
- Underlying operating profit was GBP457m, an increase of 3%
compared with 2020. This profit growth occurred despite a 28%
increase in R&D spend to support the UK Future Combat programme
and targeted investment in growth opportunities in North America to
support continued long-term product development.
- Trading cash flow was GBP377m, representing a cash conversion
of over 80%. The prior year trading cash flow included adverse
impact from the timing of cash deposit receipts.
Outlook
We expect continued modest revenue growth in 2022 with a strong
order book cover securing near term activity in all our end
markets. Our increased investment will support growth in programmes
related to future projects and recent awards, as well as product
development to help the transition to net zero. We do expect a
return to more usual levels of spare engines and spare parts sales
in 2022.
Power Systems
Organic Organic
Change M&A 2020 Change
GBP million 2021 (1) (10) FX (3) Change (1)
------------------------------- ------ -------- ------ ----- ------ ------- --------
Underlying revenue 2,749 89 19 (94) 2,735 1% 3%
------------------------------- ------ -------- ------ ----- ------ ------- --------
Underlying OE revenue 1,744 (2) 19 (60) 1,787 (2)% -
------------------------------- ------ -------- ------ ----- ------ ------- --------
Underlying services
revenue 1,005 91 - (34) 948 6% 10%
------------------------------- ------ -------- ------ ----- ------ ------- --------
Underlying gross profit 778 120 6 (26) 678 15% 18%
------------------------------- ------ -------- ------ ----- ------ ------- --------
Gross margin % 28.3% 24.8% 3.5%pt 3.6%pt
------------------------------- ------ -------- ------ ----- ------ ------- --------
Commercial and administrative
costs (383) (57) (8) 13 (331) 16% 18%
------------------------------- ------ -------- ------ ----- ------ ------- --------
Research and development
costs (157) (1) (1) 5 (160) (2)% 1%
------------------------------- ------ -------- ------ ----- ------ ------- --------
Joint ventures and associates 4 5 (1) (1) 1 - -
------------------------------- ------ -------- ------ ----- ------ ------- --------
Underlying operating
profit 242 67 (4) (9) 188 29% 37%
------------------------------- ------ -------- ------ ----- ------ ------- --------
Underlying operating
margin % 8.8% 6.9% 1.9%pt 2.2%pt
------------------------------- ------ -------- ------ ----- ------ ------- --------
2020
2021 (3) Change
------------------- ----- ----- -------
Trading cash flow 219 162 57
------------------- ----- ----- -------
The effects of COVID-19 on our end markets lessened over the
course of 2021 and we recorded a strong increase in order intake in
the second half of 2021, especially in power generation with orders
for data centres and infrastructure projects. The transition to net
zero power is a significant opportunity with the mission critical
power for data centres, power for construction and infrastructure,
and marine solutions leading the demand for net zero carbon
solutions. Along with many manufacturing businesses, global supply
chain disruption impacted the availability of some parts and
components in the second half of 2021. Challenges are likely to
persist into 2022 until additional capacity has been created.
- Order intake of GBP3.3bn was 24% higher than the prior year,
with record order intake in the fourth quarter and a book-to-bill
ratio of 1.2x in the year. Order growth was strongest in marine,
defence and power generation end markets. The customer interest in
net zero carbon solutions is accelerating and our investment in
decarbonising our solutions is critical to our future growth.
- Underlying revenue of GBP2.7bn was up 3%. Aftermarket services
grew 10% as product utilisation increased in our end markets, and
OE was broadly flat. Sales were strongest in industrial and power
generation end markets, partly offset by lower activity in
China.
- Underlying gross profit grew by 18% to GBP778m and gross
margin increased by 3.6%pt. This included an increase in
higher-margin aftermarket spare parts as well as improved
utilisation in our manufacturing facilities and lower warranty
costs.
- Underlying operating profit was GBP242m, up 37%. Operating
margin of 8.8% was 2.2%pts higher than the prior year, reflecting
the positive mix of activity and increased volumes. The increase in
commercial and administrative costs reflected an increase in
employee costs, partly due to the non-repeat of government support
received in the prior year.
- Trading cash flow was GBP219m (2020:GBP162m), representing a
cash conversion of about 90%.
Outlook
Looking ahead to 2022, we see continued strong demand growth
from our customers supported by global economic growth and the
transition to lower carbon solutions. We expect good revenue growth
in 2022 helped by the strong order intake, partly offset by the
current global supply chain constraints. Higher activity levels
will drive improved profitability partly offset by increased
Research & Development investment as we pursue net zero growth
opportunities. Cash conversion is expected to be lower in 2022 as
we focus on inventory and supply chain management to mitigate the
impact of industry-wide disruption.
New Markets
Organic Organic
Change Change
GBP million 2021 (1) FX 2020 (3) Change (1)
------------------------------- ------ -------- ---- --------- -------- ---------
Underlying revenue 2 (2) (1) 5 (60)% (40)%
------------------------------- ------ -------- ---- --------- -------- ---------
Underlying OE revenue - (2) (1) 3 (100)% (67)%
------------------------------- ------ -------- ---- --------- -------- ---------
Underlying services revenue 2 - - 2 - -
------------------------------- ------ -------- ---- --------- -------- ---------
Underlying gross profit 1 (1) - 2 (50)% (50)%
------------------------------- ------ -------- ---- --------- -------- ---------
Gross margin % 50.0% 40.0% 10.0%pt (6.7)%pt
------------------------------- ------ -------- ---- --------- -------- ---------
Commercial and administrative
costs (3) (2) - (1) 200% 200%
------------------------------- ------ -------- ---- --------- -------- ---------
Research and development
costs (68) (24) 2 (46) 48% 52%
------------------------------- ------ -------- ---- --------- -------- ---------
Underlying operating
loss (70) (27) 2 (45) 56% 60%
------------------------------- ------ -------- ---- --------- -------- ---------
2021 2020 (3) Change
------------------- ----- --------- -------
Trading cash flow (56) (55) (1)
------------------- ----- --------- -------
New Markets is our new reporting segment for our early-stage
businesses, with high growth potential, focused on addressing the
opportunities being created by the transition to net zero and
solving the climate change challenge. There are two businesses
currently in this segment: Rolls-Royce SMR and Rolls-Royce
Electrical. These businesses leverage our existing, in-depth
engineering expertise and capabilities to develop new sustainable
products for future markets.
Rolls-Royce SMR secured GBP490m of funding in 2021 (including
approximately GBP50m from Rolls-Royce), with receipts phased over
the next few years to align with the future cash spend profile.
This investment will help support our SMR design through the
multi-year UK Generic Design Assessment (GDA) process. First orders
for SMRs are not dependent on the completion of the GDA and are
anticipated within the next few years.
In Rolls-Royce Electrical, we broke two world speed records for
all-electric flight in our Spirit of Innovation aircraft and our
eVTOL partners received multi-billion dollar pre-orders for their
eVTOL programmes.
Over the next five years, we expect cumulative R&D
investment in Rolls-Royce SMR and Rolls-Royce Electrical of over
GBP1.0bn to be funded by third-party grants and investments as well
as self-funded cash investment of over GBP0.5bn. New markets are
more challenging to forecast due to the pace of customer demand
growth and regulation, however the potential opportunities for
these businesses are significant and we believe they could generate
more than GBP5bn combined annual revenue by the early 2030s .
- Underlying revenue of GBP2m came from Rolls-Royce Electrical
sales relating to marine engineering services and propulsion
systems. Both Rolls-Royce Electrical and Rolls-Royce SMR are
early-stage businesses in their investment phase, with significant
future revenue generating potential in the 2030s.
- Underlying operating loss of GBP(70)m increased from the prior
year comparative as we increased the pace of investment in both
Rolls-Royce SMR and Rolls-Royce Electrical. The increased
investment is critical to the development of the products that will
drive our net zero growth in the future and is in line with our
plans. R&D costs of GBP(68)m included GBP(16)m on the design
development to ready our SMRs to enter the UK GDA process and
GBP(52)m on electrical propulsion technology.
- Trading cash flow of GBP(56)m was lower than operating losses
mainly due to the receipt of funding for the SMR programme.
Outlook
Our financial performance in 2022 will show a significant
increase in Research & Development costs as we invest to
develop our products and grow our businesses in these exciting new
markets. Cash outflow is expected to be approximately GBP100m
better than the underlying operating loss in 2022, mainly due to
the phased receipt of secured third party equity investment in
Rolls-Royce SMR.
Notes to financial tables and commentary on pages 1-13:
(1) Organic change at constant translational currency (constant
currency) applying full year 2020 average rates to 2021, excluding
M&A. All commentary is provided on an organic basis unless
otherwise stated.
(2) The underlying results for Civil Aerospace for 31 December
2020 have been restated to reflect the changes to activity during
2021 due to the transfer of the Hucknall site and associated
fabrications activities to ITP Aero.
(3) The underlying results of Civil Aerospace, Defence and Power
Systems for 31 December 2020 have been restated to reclassify the
results of the Group's small modular reactor (SMR) and new
electrical power solutions as New Markets and UK Civil Nuclear as
Other businesses.
(4) 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). The trading results of the UK
Civil Nuclear business have also been included in other
businesses.
(5) 2020 figures have been adjusted to reflect ITP Aero being
classified as a disposal group held for sale since 30 June 2021;
the Group's investment in Airtanker Holdings Limited being
classified as a non-current asset held for sale since 13 September
2021; and certain tangible assets related to the Group's site
rationalisation activities being classified as held for sale at 31
December 2021.
(6) 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. Both disposals
were completed in 2021.
(7) Net working capital includes inventory, trade receivables
and payables and similar assets and liabilities
(8) Net debt includes GBP37m (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. Net debt has been
adjusted to exclude net debt held for sale.
(9) Underlying performance excludes the impact of year-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 statutory income
statement are set out in note 2 in the Condensed Consolidated
Financial Statements on page 33.
(10) M&A includes 2020 Power Systems acquisitions comprising
of Kinolt Group S.A and Servowatch Systems Limited (SSL).
(11) The derivation of the summary funds flow statement from the
statutory cash flow statement is included on page 53.
A reconciliation of alternative performance measures to their
statutory equivalent is provided on pages 55 to 56.
Statutory results were referred to as "reported" results in the
2020 full year results statement.
Condensed consolidated financial statements
Condensed consolidated income statement
For the year ended 31 December 2021
Restated
2021 2020 (1)
Notes GBPm GBPm
-------------------------------------------------------------------------- --- ------ -------- ---------
Continuing operations
-------------------------------------------------------------------------- --- ------ -------- ---------
Revenue 2 11,218 11,491
-------------------------------------------------------------------------------- ------ -------- ---------
Cost of sales (2) (9,082) (11,678)
-------------------------------------------------------------------------------- ------ -------- ---------
Gross profit/(loss) 2 2,136 (187)
-------------------------------------------------------------------------------- ------ -------- ---------
Commercial and administrative costs 2 (890) (771)
-------------------------------------------------------------------------------- ------ -------- ---------
Research and development costs 2, 3 (778) (1,204)
-------------------------------------------------------------------------------- ------ -------- ---------
Share of results of joint ventures and associates 10 45 190
-------------------------------------------------------------------------------- ------ -------- ---------
Operating profit/(loss) 513 (1,972)
-------------------------------------------------------------------------------- ------ -------- ---------
Gain/(loss) arising on acquisition and disposal of businesses 22 56 (14)
-------------------------------------------------------------------------------- ------ -------- ---------
Profit/(loss) before financing and taxation 569 (1,986)
-------------------------------------------------------------------------------- ------ -------- ---------
Financing income 4 229 61
-------------------------------------------------------------------------------- ------ -------- ---------
Financing costs (3) 4 (1,092) (874)
-------------------------------------------------------------------------------- ------ -------- ---------
Net financing costs (863) (813)
-------------------------------------------------------------------------------- ------ -------- ---------
Loss before taxation (294) (2,799)
-------------------------------------------------------------------------------- ------ -------- ---------
Taxation 5 418 (302)
-------------------------------------------------------------------------------- ------ -------- ---------
Profit/(loss) for the year from continuing operations 124 (3,101)
-------------------------------------------------------------------------------- ------ -------- ---------
Discontinued operations
-------------------------------------------------------------------------- --- ------ -------- ---------
Profit/(loss) for the year from ordinary activities 36 (68)
-------------------------------------------------------------------------------- ------ -------- ---------
Costs of disposal of discontinued operations (39) -
-------------------------------------------------------------------------- --- ------ -------- ---------
Loss for the year from discontinued operations 22 (3) (68)
-------------------------------------------------------------------------------- ------ -------- ---------
Profit/(loss) for the year 121 (3,169)
-------------------------------------------------------------------------------- ------ -------- ---------
Attributable to:
-------------------------------------------------------------------------- --- ------ -------- ---------
Ordinary shareholders 120 (3,170)
-------------------------------------------------------------------------------- ------ -------- ---------
Non-controlling interests (NCI) 1 1
-------------------------------------------------------------------------------- ------ -------- ---------
Profit/(loss) for the year 121 (3,169)
-------------------------------------------------------------------------------- ------ -------- ---------
Other comprehensive income/(expense) 41 (265)
-------------------------------------------------------------------------------- ------ -------- ---------
Total comprehensive income/(expense) for the year 162 (3,434)
-------------------------------------------------------------------------------- ------ -------- ---------
Earnings/(loss) per ordinary share attributable to ordinary shareholders: 6
-------------------------------------------------------------------------------- ------ --------
From continuing operations:
-------------------------------------------------------------------------- --- ------ --------
Basic 1.48p (51.81)p
-------------------------------------------------------------------------------- ------ -------- ---------
Diluted 1.47p (51.81)p
-------------------------------------------------------------------------------- ------ -------- ---------
From continuing and discontinued operations:
-------------------------------------------------------------------------- --- ------ --------
Basic 1.44p (52.95)p
-------------------------------------------------------------------------------- ------ -------- ---------
Diluted 1.43p (52.95)p
-------------------------------------------------------------------------------- ------ -------- ---------
(1) The comparative figures have been restated to reflect ITP
Aero being classified as a discontinued operation. The respective
notes to the financial statements have also been restated on this
basis. Further detail can be found in note 22.
(2) Cost of sales includes a charge for expected credit losses
of GBP124m (2020: GBP119m). Further details can be found in note
12.
(3) Included within financing are fair value changes on
derivative contracts. Further details can be found in notes 2, 4
and 16.
Condensed consolidated statement of comprehensive income
For the year ended 31 December 2021
2021 2020
Notes GBPm GBPm
-------------------------------------------------------------------------------------------- ------ ------ --------
Profit/(loss) for the year 121 (3,169)
-------------------------------------------------------------------------------------------- ------ ------ --------
Other comprehensive income/(expense) (OCI)
-------------------------------------------------------------------------------------------- ------ ------ --------
Actuarial movements in post-retirement schemes 20 254 (590)
-------------------------------------------------------------------------------------------- ------ ------ --------
Revaluation to fair value of other investments 10 (2) -
-------------------------------------------------------------------------------------------- ------ ------ --------
Share of OCI of joint ventures and associates 10 1 (1)
-------------------------------------------------------------------------------------------- ------ ------ --------
Related tax movements (79) 195
-------------------------------------------------------------------------------------------- ------ ------ --------
Items that will not be reclassified to profit or loss 174 (396)
-------------------------------------------------------------------------------------------- ------ ------ --------
Foreign exchange translation differences on foreign operations (178) 121
-------------------------------------------------------------------------------------------- ------ ------ --------
Foreign exchange translation differences reclassified to income statement on disposal of
businesses 22 (1) 6
-------------------------------------------------------------------------------------------- ------ ------ --------
Movement on fair values debited to cash flow hedge reserve (32) (16)
-------------------------------------------------------------------------------------------- ------ ------ --------
Reclassified to income statement from cash flow hedge reserve 39 26
-------------------------------------------------------------------------------------------- ------ ------ --------
Share of OCI of joint ventures and associates 10 44 (4)
-------------------------------------------------------------------------------------------- ------ ------ --------
Related tax movements (5) (2)
-------------------------------------------------------------------------------------------- ------ ------ --------
Items that will be reclassified to profit or loss (133) 131
-------------------------------------------------------------------------------------------- ------ ------ --------
Total other comprehensive income/(expense) 41 (265)
-------------------------------------------------------------------------------------------- ------ ------ --------
Total comprehensive income/(expense) for the year 162 (3,434)
-------------------------------------------------------------------------------------------- ------ ------ --------
Attributable to:
-------------------------------------------------------------------------------------------- ------ ------ --------
Ordinary shareholders 161 (3,435)
-------------------------------------------------------------------------------------------- ------ ------ --------
Non-controlling interests (NCI) 1 1
-------------------------------------------------------------------------------------------- ------ ------ --------
Total comprehensive income/(expense) for the year 162 (3,434)
-------------------------------------------------------------------------------------------- ------ ------ --------
Total comprehensive income/(expense) for the year attributable to ordinary shareholders
arises
from:
-------------------------------------------------------------------------------------------- ------ ------ --------
Continuing operations 278 (3,457)
-------------------------------------------------------------------------------------------- ------ ------ --------
Discontinued operations (117) 22
-------------------------------------------------------------------------------------------- ------ ------ --------
Total comprehensive income/(expense) for the year attributable to ordinary shareholders 161 (3,435)
-------------------------------------------------------------------------------------------- ------ ------ --------
Condensed consolidated balance sheet
At 31 December 2021
2021 2020
Notes GBPm GBPm
------------------------------------------------- ------ --------- ---------
ASSETS
------------------------------------------------- ------ --------- ---------
Intangible assets 7 4,041 5,145
------------------------------------------------- ------ --------- ---------
Property, plant and equipment 8 3,917 4,515
------------------------------------------------- ------ --------- ---------
Right-of-use assets 9 1,203 1,405
------------------------------------------------- ------ --------- ---------
Investments - joint ventures and associates 10 404 394
------------------------------------------------- ------ --------- ---------
Investments - other 10 36 19
------------------------------------------------- ------ --------- ---------
Other financial assets 16 361 687
------------------------------------------------- ------ --------- ---------
Deferred tax assets 5 2,249 1,826
------------------------------------------------- ------ --------- ---------
Post-retirement scheme surpluses 20 1,148 907
------------------------------------------------- ------ --------- ---------
Non-current assets 13,359 14,898
------------------------------------------------- ------ --------- ---------
Inventories 11 3,666 3,690
------------------------------------------------- ------ --------- ---------
Trade receivables and other assets 12 5,383 5,455
------------------------------------------------- ------ --------- ---------
Contract assets 15 1,473 1,510
------------------------------------------------- ------ --------- ---------
Taxation recoverable 90 117
------------------------------------------------- ------ --------- ---------
Other financial assets 16 46 107
------------------------------------------------- ------ --------- ---------
Short-term investments 8 -
------------------------------------------------- ------ --------- ---------
Cash and cash equivalents 13 2,621 3,452
------------------------------------------------- ------ --------- ---------
Current assets 13,287 14,331
------------------------------------------------- ------ --------- ---------
Assets held for sale 22 2,028 288
------------------------------------------------- ------ --------- ---------
TOTAL ASSETS 28,674 29,517
------------------------------------------------- ------ --------- ---------
LIABILITIES
------------------------------------------------- ------ --------- ---------
Borrowings and lease liabilities 17 (279) (1,272)
------------------------------------------------- ------ --------- ---------
Other financial liabilities 16 (689) (608)
------------------------------------------------- ------ --------- ---------
Trade payables and other liabilities 14 (6,016) (6,653)
------------------------------------------------- ------ --------- ---------
Contract liabilities 15 (3,599) (4,187)
------------------------------------------------- ------ --------- ---------
Current tax liabilities (101) (154)
------------------------------------------------- ------ --------- ---------
Provisions for liabilities and charges 19 (475) (826)
------------------------------------------------- ------ --------- ---------
Current liabilities (11,159) (13,700)
------------------------------------------------- ------ --------- ---------
Borrowings and lease liabilities 17 (7,497) (6,058)
------------------------------------------------- ------ --------- ---------
Other financial liabilities 16 (2,715) (3,046)
------------------------------------------------- ------ --------- ---------
Trade payables and other liabilities 14 (1,575) (1,922)
------------------------------------------------- ------ --------- ---------
Contract liabilities 15 (6,710) (6,245)
------------------------------------------------- ------ --------- ---------
Deferred tax liabilities 5 (451) (494)
------------------------------------------------- ------ --------- ---------
Provisions for liabilities and charges 19 (1,107) (1,119)
------------------------------------------------- ------ --------- ---------
Post-retirement scheme deficits 20 (1,373) (1,580)
------------------------------------------------- ------ --------- ---------
Non -current liabilities (21,428) (20,464)
------------------------------------------------- ------ --------- ---------
Liabilities associated with assets held for sale 22 (723) (228)
------------------------------------------------- ------ --------- ---------
TOTAL LIABILITIES (33,310) (34,392)
------------------------------------------------- ------ --------- ---------
NET LIABILITIES (4,636) (4,875)
------------------------------------------------- ------ --------- ---------
EQUITY
------------------------------------------------- ------ --------- ---------
Called-up share capital 1,674 1,674
------------------------------------------------- ------ --------- ---------
Share premium 1,012 1,012
------------------------------------------------- ------ --------- ---------
Capital redemption reserve 165 162
------------------------------------------------- ------ --------- ---------
Cash flow hedging reserve (45) (94)
------------------------------------------------- ------ --------- ---------
Merger reserve 650 650
------------------------------------------------- ------ --------- ---------
Translation reserve 342 524
------------------------------------------------- ------ --------- ---------
Accumulated losses (8,460) (8,825)
------------------------------------------------- ------ --------- ---------
Equity attributable to ordinary shareholders (4,662) (4,897)
------------------------------------------------- ------ --------- ---------
Non-controlling interests 26 22
------------------------------------------------- ------ --------- ---------
TOTAL EQUITY (4,636) (4,875)
------------------------------------------------- ------ --------- ---------
Condensed consolidated cash flow statement
For the year ended 31 December 2021
2021 2020
Notes GBPm GBPm
-------------------------------------------------------------------------------------------- ------ ------ --------
Operating profit/(loss) from continuing operations 513 (1,972)
-------------------------------------------------------------------------------------------- ------ ------ --------
Operating loss from discontinued operations 22 (43) (109)
-------------------------------------------------------------------------------------------- ------ ------ --------
Operating profit/(loss) (1) 470 (2,081)
-------------------------------------------------------------------------------------------- ------ ------ --------
Loss on disposal of property, plant and equipment 9 37
-------------------------------------------------------------------------------------------- ------ ------ --------
Share of results of joint ventures and associates 10 (45) (191)
-------------------------------------------------------------------------------------------- ------ ------ --------
Dividends received from joint ventures and associates 10 27 60
-------------------------------------------------------------------------------------------- ------ ------ --------
Amortisation and impairment of intangible assets 7 290 902
-------------------------------------------------------------------------------------------- ------ ------ --------
Depreciation and impairment of property, plant and equipment 8 462 821
-------------------------------------------------------------------------------------------- ------ ------ --------
Depreciation and impairment of right-of-use assets 9 257 732
-------------------------------------------------------------------------------------------- ------ ------ --------
Adjustment of amounts payable under residual value guarantees within lease liabilities (2) (4) (102)
-------------------------------------------------------------------------------------------- ------ ------ --------
Impairment of and other movements on investments 10 7 24
-------------------------------------------------------------------------------------------- ------ ------ --------
Decrease in provisions (394) (801)
-------------------------------------------------------------------------------------------- ------ ------ --------
(Increase)/decrease in inventories (169) 588
-------------------------------------------------------------------------------------------- ------ ------ --------
Movement in trade receivables/payables and other assets/liabilities (507) (2,655)
-------------------------------------------------------------------------------------------- ------ ------ --------
Movement in contract assets/liabilities (134) 259
-------------------------------------------------------------------------------------------- ------ ------ --------
Financial penalties paid (3) (156) (135)
-------------------------------------------------------------------------------------------- ------ ------ --------
Cash flows on other financial assets and liabilities held for operating purposes (85) (126)
-------------------------------------------------------------------------------------------- ------ ------ --------
Interest received 9 13
-------------------------------------------------------------------------------------------- ------ ------ --------
Net defined benefit post-retirement cost/(credit) recognised in profit/(loss) before
financing 20 23 (68)
-------------------------------------------------------------------------------------------- ------ ------ --------
Cash funding of defined benefit post-retirement schemes 20 (162) (80)
-------------------------------------------------------------------------------------------- ------ ------ --------
Share-based payments 28 25
-------------------------------------------------------------------------------------------- ------ ------ --------
Net cash outflow from operating activities before taxation (74) (2,778)
-------------------------------------------------------------------------------------------- ------ ------ --------
Taxation paid (185) (231)
-------------------------------------------------------------------------------------------- ------ ------ --------
Net cash outflow from operating activities (259) (3,009)
-------------------------------------------------------------------------------------------- ------ ------ --------
Cash flows from investing activities
-------------------------------------------------------------------------------------------- ------ ------ --------
Movement in other investments 10 (26) (5)
-------------------------------------------------------------------------------------------- ------ ------ --------
Additions of intangible assets 7 (231) (365)
-------------------------------------------------------------------------------------------- ------ ------ --------
Disposals of intangible assets 7 5 18
-------------------------------------------------------------------------------------------- ------ ------ --------
Purchases of property, plant and equipment (328) (585)
-------------------------------------------------------------------------------------------- ------ ------ --------
Disposals of property, plant and equipment 61 23
-------------------------------------------------------------------------------------------- ------ ------ --------
Acquisition of businesses - (106)
-------------------------------------------------------------------------------------------- ------ ------ --------
Disposal of businesses 22 99 23
-------------------------------------------------------------------------------------------- ------ ------ --------
Movement in investments in joint ventures and associates and other movements on investments 10 - (19)
-------------------------------------------------------------------------------------------- ------ ------ --------
Movement in short-term investments (8) 6
-------------------------------------------------------------------------------------------- ------ ------ --------
Net cash outflow from investing activities (428) (1,010)
-------------------------------------------------------------------------------------------- ------ ------ --------
Cash flows from financing activities
-------------------------------------------------------------------------------------------- ------ ------ --------
Repayment of loans (4) (965) (2,884)
-------------------------------------------------------------------------------------------- ------ ------ --------
Proceeds from increase in loans (4) 2,005 4,774
-------------------------------------------------------------------------------------------- ------ ------ --------
Capital element of lease payments (374) (284)
-------------------------------------------------------------------------------------------- ------ ------ --------
Net cash flow from increase in borrowings and leases 666 1,606
-------------------------------------------------------------------------------------------- ------ ------ --------
Interest paid (206) (88)
-------------------------------------------------------------------------------------------- ------ ------ --------
Interest element of lease payments (63) (74)
-------------------------------------------------------------------------------------------- ------ ------ --------
Fees paid on undrawn facilities (62) (97)
-------------------------------------------------------------------------------------------- ------ ------ --------
Cash flows on settlement of excess derivative contracts (5) 4 (452) (202)
-------------------------------------------------------------------------------------------- ------ ------ --------
Issue of ordinary shares - rights issue (net of expenses and rights taken by share trust) - 1,972
-------------------------------------------------------------------------------------------- ------ ------ --------
Purchase of ordinary shares - (1)
-------------------------------------------------------------------------------------------- ------ ------ --------
Transactions with NCI (6) 30 -
-------------------------------------------------------------------------------------------- ------ ------ --------
NCI on formation of subsidiary 3 -
-------------------------------------------------------------------------------------------- ------ ------ --------
Dividends to NCI (1) (1)
-------------------------------------------------------------------------------------------- ------ ------ --------
Redemption of C Shares (3) (91)
-------------------------------------------------------------------------------------------- ------ ------ --------
Net cash (outflow)/inflow from financing activities (88) 3,024
-------------------------------------------------------------------------------------------- ------ ------ --------
Change in cash and cash equivalents (775) (995)
-------------------------------------------------------------------------------------------- ------ ------ --------
Cash and cash equivalents at 1 January 3,496 4,435
-------------------------------------------------------------------------------------------- ------ ------ --------
Exchange (losses)/gains on cash and cash equivalents (82) 56
-------------------------------------------------------------------------------------------- ------ ------ --------
Cash and cash equivalents at 31 December (7) 2,639 3,496
-------------------------------------------------------------------------------------------- ------ ------ --------
Condensed consolidated cash flow statement continued
For the year ended 31 December 2021
(1) During the year, the Group received GBP11m (2020: GBP47m)
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. To the extent that 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 drawdown of a GBP2,000m loan
(supported by an 80% guarantee from UK Export Finance). Further
details are provided in note 17.
(5) During the year, the Group incurred a cash outflow of
GBP452m as a result of settling foreign exchange contracts that
were originally in place to sell $3,184m receipts. Further detail
is provided in note 4.
(6) Relates to NCI investment received in the year, in respect
of Rolls-Royce SMR Limited. Following the formation of Rolls-Royce
SMR Limited during the year, and in line with the shareholder
agreements, GBP30m investment was received by Rolls-Royce SMR
Limited.
(7) 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 year includes the sale of
goods and services to joint ventures and associates.
2021 2020
GBPm GBPm
----------------------------------------------------------------------------------- -------- --------
Reconciliation of movements in cash and cash equivalents to movements in net debt
----------------------------------------------------------------------------------- -------- --------
Change in cash and cash equivalents (775) (995)
----------------------------------------------------------------------------------- -------- --------
Cash flow from increase in borrowings and leases (666) (1,606)
----------------------------------------------------------------------------------- -------- --------
Less: settlement of related derivatives included in fair value of swaps below 6 50
----------------------------------------------------------------------------------- -------- --------
Cash flow from increase/(decrease) in short-term investments 8 (6)
----------------------------------------------------------------------------------- -------- --------
Change in net debt resulting from cash flows (1,427) (2,557)
----------------------------------------------------------------------------------- -------- --------
New leases and other non-cash adjustments to lease liabilities and borrowings (86) (38)
----------------------------------------------------------------------------------- -------- --------
Exchange (losses)/gains on net debt (51) 143
----------------------------------------------------------------------------------- -------- --------
Fair value adjustments 170 (126)
----------------------------------------------------------------------------------- -------- --------
Debt disposed of on disposal of business/(debt assumed on acquisition of business) 8 (24)
----------------------------------------------------------------------------------- -------- --------
Reclassifications 19 11
----------------------------------------------------------------------------------- -------- --------
Movement in net debt excluding the fair value of swaps (1,367) (2,591)
----------------------------------------------------------------------------------- -------- --------
Net debt at 1 January excluding the fair value of swaps (3,827) (1,236)
----------------------------------------------------------------------------------- -------- --------
Net debt at 31 December excluding the fair value of swaps (5,194) (3,827)
----------------------------------------------------------------------------------- -------- --------
Fair value of swaps hedging fixed rate borrowings 37 251
----------------------------------------------------------------------------------- -------- --------
Net debt at 31 December (5,157) (3,576)
----------------------------------------------------------------------------------- -------- --------
Condensed consolidated cash flow statement continued
For the year ended 31 December 2021
The movement in net debt (defined by the Group as including the
items shown below) is as follows:
Net funds on
At 1 Funds acquisition/ Exchange Fair value Reclassifi-cations Other At 31
January flow disposal differences adjustments (1) movements December
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------- -------- -------- ------------- ------------ ------------ ------------------- ---------- ---------
2021
-------------------- -------- -------- ------------- ------------ ------------ ------------------- ---------- ---------
Cash at bank and in
hand 940 (87) - (20) - (38) - 795
-------------------- -------- -------- ------------- ------------ ------------ ------------------- ---------- ---------
Money market funds 669 (620) - - - - - 49
-------------------- -------- -------- ------------- ------------ ------------ ------------------- ---------- ---------
Short-term deposits 1,843 - - (66) - - - 1,777
-------------------- -------- -------- ------------- ------------ ------------ ------------------- ---------- ---------
Cash and cash
equivalents (per
balance sheet) 3,452 (707) - (86) - (38) - 2,621
-------------------- -------- -------- ------------- ------------ ------------ ------------------- ---------- ---------
Cash and cash
equivalents
included within
assets held for
sale 51 (68) - 4 - 38 - 25
-------------------- -------- -------- ------------- ------------ ------------ ------------------- ---------- ---------
Overdrafts (7) - - - - - - (7)
-------------------- -------- -------- ------------- ------------ ------------ ------------------- ---------- ---------
Cash and cash
equivalents
(per cash flow
statement) 3,496 (775) - (82) - - - 2,639
-------------------- -------- -------- ------------- ------------ ------------ ------------------- ---------- ---------
Short-term
investments - 8 - - - - - 8
-------------------- -------- -------- ------------- ------------ ------------ ------------------- ---------- ---------
Other current
borrowings (1,006) 950 - 1 35 18 - (2)
-------------------- -------- -------- ------------- ------------ ------------ ------------------- ---------- ---------
Non-current
borrowings (4,274) (2,002) - 38 136 88 (9) (6,023)
-------------------- -------- -------- ------------- ------------ ------------ ------------------- ---------- ---------
Borrowings included
within liabilities
held for sale - 18 - 1 (1) (77) - (59)
-------------------- -------- -------- ------------- ------------ ------------ ------------------- ---------- ---------
Lease liabilities (2,043) 370 - (9) - 15 (77) (1,744)
-------------------- -------- -------- ------------- ------------ ------------ ------------------- ---------- ---------
Lease liabilities
included within
liabilities held
for sale - 4 8 - - (25) - (13)
-------------------- -------- -------- ------------- ------------ ------------ ------------------- ---------- ---------
Financial
liabilities (7,323) (660) 8 31 170 19 (86) (7,841)
-------------------- -------- -------- ------------- ------------ ------------ ------------------- ---------- ---------
Net debt excluding
fair value of swaps (3,827) (1,427) 8 (51) 170 19 (86) (5,194)
-------------------- -------- -------- ------------- ------------ ------------ ------------------- ---------- ---------
Fair value of swaps
hedging fixed rate
borrowings (2) 251 (6) - (35) (173) - - 37
-------------------- -------- -------- ------------- ------------ ------------ ------------------- ---------- ---------
Net debt (3) (3,576) (1,433) 8 (86) (3) 19 (86) (5,157)
-------------------- -------- -------- ------------- ------------ ------------ ------------------- ---------- ---------
2020
-------------------- -------- -------- ------------- ------------ ------------ ------------------- ---------- ---------
Cash at bank and in
hand 825 163 - 3 - (51) - 940
-------------------- -------- -------- ------------- ------------ ------------ ------------------- ---------- ---------
Money market funds 1,095 (426) - - - - - 669
-------------------- -------- -------- ------------- ------------ ------------ ------------------- ---------- ---------
Short-term deposits 2,523 (733) - 53 - - - 1,843
-------------------- -------- -------- ------------- ------------ ------------ ------------------- ---------- ---------
Cash and cash
equivalents (per
balance sheet) 4,443 (996) - 56 - (51) - 3,452
-------------------- -------- -------- ------------- ------------ ------------ ------------------- ---------- ---------
Cash and cash
equivalents
included within
assets held for
sale - - - - - 51 - 51
-------------------- -------- -------- ------------- ------------ ------------ ------------------- ---------- ---------
Overdrafts (8) 1 - - - - - (7)
-------------------- -------- -------- ------------- ------------ ------------ ------------------- ---------- ---------
Cash and cash
equivalents
(per cash flow
statement) 4,435 (995) - 56 - - - 3,496
-------------------- -------- -------- ------------- ------------ ------------ ------------------- ---------- ---------
Short-term
investments 6 (6) - - - - - -
-------------------- -------- -------- ------------- ------------ ------------ ------------------- ---------- ---------
Other current
borrowings (427) 134 (24) (1) - (686) (2) (1,006)
-------------------- -------- -------- ------------- ------------ ------------ ------------------- ---------- ---------
Non-current
borrowings (2,896) (1,974) - 38 (126) 686 (2) (4,274)
-------------------- -------- -------- ------------- ------------ ------------ ------------------- ---------- ---------
Lease liabilities (2,354) 284 - 50 - 11 (34) (2,043)
-------------------- -------- -------- ------------- ------------ ------------ ------------------- ---------- ---------
Financial
liabilities (5,677) (1,556) (24) 87 (126) 11 (38) (7,323)
-------------------- -------- -------- ------------- ------------ ------------ ------------------- ---------- ---------
Net debt excluding
fair value of swaps (1,236) (2,557) (24) 143 (126) 11 (38) (3,827)
-------------------- -------- -------- ------------- ------------ ------------ ------------------- ---------- ---------
Fair value of swaps
hedging fixed rate
borrowings (2) 243 (50) - (42) 114 (14) - 251
-------------------- -------- -------- ------------- ------------ ------------ ------------------- ---------- ---------
Net debt (3) (993) (2,607) (24) 101 (12) (3) (38) (3,576)
-------------------- -------- -------- ------------- ------------ ------------ ------------------- ---------- ---------
(1) 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 drawdown
of the facility during the current period.
(2) 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 (2021: GBP114m, 2020: GBP293m) and
the element of fair value relating to exchange differences on the
underlying principal of derivatives in cash flow hedges (2021:
GBP(77)m, 2020: GBP(42)m).
(3) As at 31 December 2021, net debt excluding lease liabilities
was GBP(3,400)m (2020: GBP(1,533)m).
Condensed consolidated statement of changes in equity
For the year ended 31 December 2021
Attributable to ordinary shareholders
Notes 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
year - - - - - - 120 120 1 121
---------------- ------ -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
Foreign exchange
translation
differences on
foreign
operations - - - - - (178) - (178) - (178)
---------------- ------ -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
Reclassified to
income
statement on
disposal of
businesses 22 - - - - - (1) - (1) - (1)
---------------- ------ -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
Movement on post
retirement
schemes 20 - - - - - - 254 254 - 254
---------------- ------ -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
Fair value
movement on
cash flow
hedges - - - (32) - - - (32) - (32)
---------------- ------ -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
Reclassified to
income
statement from
cash flow hedge
reserve - - - 39 - - - 39 - 39
---------------- ------ -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
Revaluation to
fair value of
other
investments - - - - - - (2) (2) - (2)
---------------- ------ -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
OCI of joint
ventures and
associates 10 - - - 44 - - 1 45 - 45
---------------- ------ -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
Related tax
movements 5 - - - (2) - (3) (79) (84) - (84)
---------------- ------ -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
Total
comprehensive
income for the
year - - - 49 - (182) 294 161 1 162
---------------- ------ -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
Redemption of C
Shares - - 3 - - - (3) - - -
---------------- ------ -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
Share-based
payments -
direct to
equity (2) - - - - - - 28 28 - 28
---------------- ------ -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
Dividends to NCI - - - - - - - - (1) (1)
---------------- ------ -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
Transactions
with NCI (3) - - - - - - 29 29 1 30
---------------- ------ -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
NCI on formation
of subsidiary - - - - - - - - 3 3
---------------- ------ -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
Related tax
movements 5 - - - - - - 17 17 - 17
---------------- ------ -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
Other changes in
equity in the
year - - 3 - - - 71 74 3 77
---------------- ------ -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
At 31 December
2021 1,674 1,012 165 (45) 650 342 (8,460) (4,662) 26 (4,636)
---------------- ------ -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
At 1 January
2020 386 319 159 (96) 650 397 (5,191) (3,376) 22 (3,354)
---------------- ------ -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
Loss for the
year - - - - - - (3,170) (3,170) 1 (3,169)
---------------- ------ -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
Foreign exchange
translation
differences on
foreign
operations - - - - - 121 - 121 - 121
---------------- ------ -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
Reclassified to
the income
statement on
disposal of
businesses - - - - - 6 - 6 - 6
---------------- ------ -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
Movement on
post-retirement
schemes 20 - - - - - - (590) (590) - (590)
---------------- ------ -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
Fair value
movement on
cash flow
hedges - - - (16) - - - (16) - (16)
---------------- ------ -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
Reclassified to
income
statement from
cash flow hedge
reserve - - - 26 - - - 26 - 26
---------------- ------ -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
OCI of joint
ventures and
associates 10 - - - (4) - - (1) (5) - (5)
---------------- ------ -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
Related tax
movements 5 - - - (4) - - 197 193 - 193
---------------- ------ -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
Total
comprehensive
expense for the
year - - - 2 - 127 (3,564) (3,435) 1 (3,434)
---------------- ------ -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
Issues of
ordinary shares
- Rights issue
(4) 1,288 693 - - - - (10) 1,971 - 1,971
---------------- ------ -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
Issue of C
Shares - - (89) - - - 1 (88) - (88)
---------------- ------ -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
Redemption of C
Shares - - 92 - - - (92) - - -
---------------- ------ -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
Ordinary shares
purchased - - - - - - (1) (1) - (1)
---------------- ------ -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
Share-based
payments -
direct to
equity (2) - - - - - - 27 27 - 27
---------------- ------ -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
Transactions
with NCI - - - - - - - - (1) (1)
---------------- ------ -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
Related tax
movements 5 - - - - - - 5 5 - 5
---------------- ------ -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
Other changes in
equity in the
year 1,288 693 3 - - - (70) 1,914 (1) 1,913
---------------- ------ -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
At 31 December
2020 1,674 1,012 162 (94) 650 524 (8,825) (4,897) 22 (4,875)
---------------- ------ -------- -------- ----------- -------- -------- ------------ ------------ ------- ---------------- -------
(1) At 31 December 2021, 29,405,191 ordinary shares with a net
book value of GBP65m (2020: 39,866,717 ordinary shares with a net
book value of GBP89m) were held for the purpose of share-based
payment plans and included in accumulated losses. During the
year:
- 10,667,095 ordinary shares with a net book value of GBP24m
(2020: 3,458,865 ordinary shares with a net book value of GBP29m)
vested in share-based payment plans; and
- the Company acquired none (2020: 85,724) of its ordinary
shares via reinvestment of dividends received on its own shares and
purchased none (2020: 30,763,282) of its ordinary shares through
purchases on the London Stock Exchange.
(2) Share-based payments - direct to equity is the share-based
payment charge for the year less the actual cost of vesting
excluding those vesting from own shares and cash received on
share-based schemes vesting.
(3) Relates to NCI investment received in the year in respect of
Rolls-Royce SMR Limited. Further detail can be found on page
19.
(4) In 2020, the Company issued 6,436,601,676 new ordinary
shares with a net book value of GBP1,288m and the Employee Share
Trust subscribed for new shares at a value of GBP10m relating to
the November 2020 rights issue. The amount credited to share
premium is net of GBP79m in relation to transaction costs
associated with the rights issue.
Notes to the year-end financial statements
1 Basis of preparation and accounting policies
Reporting entity
Rolls-Royce Holdings plc (the 'Company') is a public company
limited by shares incorporated under the Companies Act 2006 and
domiciled in the UK. These condensed consolidated financial
statements of the Company as at and for the year ended 31 December
2021 consist of the consolidation of the financial statements of
the Company 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 2021 (Annual Report 2021) are available
upon request from the Company Secretary, Rolls-Royce Holdings plc,
Kings Place, 90 York Way, London, N1 9FX.
Statement of compliance
These condensed consolidated financial statements have been
prepared in accordance with UK adopted International Accounting
Standards (IAS) and interpretations issued by the IFRS
Interpretations Committee applicable to companies reporting under
UK adopted IFRS. They do not include all the information required
for full annual statements and should be read in conjunction with
the 2021 Annual Report.
The Board of directors approved the condensed consolidated
financial statements on 24 February 2022. They are not statutory
accounts within the meaning of section 435 of the Companies Act
2006.
The Group's financial statements for the year ended 31 December
2021 were approved by the Board on 24 February 2022. They have been
reported on by the Group's auditors and will be delivered to the
registrar of companies in due course. 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 comparative figures for the financial year 31 December 2020
have been extracted from the Group's statutory accounts for that
financial year. 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.
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, an IBOR reform transition project to assess and
implement changes to systems, processes, risk and valuation models,
as well as managing related tax and accounting implications was
carried out within the Group. 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 has made amendments to the
contractual terms of IBOR-referenced floating-rate debt, swaps and
foreign exchange contracts, and updated the relevant hedge
designations.
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, hence the change in relation to these
contracts has not impacted the 2021 financial statements. 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.
At 31 December 2021, the ITP Aero business has been classified
as held for sale following activities undertaken in the period to
30 June 2021 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. Consequently ITP
Aero has been classified as a discontinued operation at 31 December
2021. See notes 2 and 22 for more detail.
Post balance sheet events
The Group has taken the latest legal position in relation to any
ongoing legal proceedings and reflected these in the 2021 results
as appropriate. In addition, the Group completed the sale of its
23.1% shareholding in AirTanker Holdings Limited to Equitix
Investment Management Limited on 9 February 2022. Further details
are included in note 22.
1 Basis of preparation and accounting policies continued
Going concern
The Group operates an annual planning process. The Group's
plans, and risks to their achievement are reviewed by the Board
and, once approved are used as the basis for monitoring the Group's
performance, incentivising employees, and providing external
guidance to shareholders
The processes for identifying and managing risk are described on
pages 52 to 57 of the 2021 Annual Report. As described on these
pages, the risk management process, and the going concern and
viability statements, are designed to provide reasonable but not
absolute assurance.
In accordance with the requirements of the UK Corporate
Governance Code 2018, the Directors have undertaken a comprehensive
going concern review over an 18-month period to August 2023,
considering the forecast cash flows and the available liquidity of
the Group over that 18-month period, taking into account the
Group's principal risks and uncertainties.
Impact of COVID-19
The COVID-19 pandemic continues to have an impact on the Group,
primarily within Civil Aerospace, due to continued travel
restrictions and varied quarantine requirements imposed by
governments across the globe. The speed of vaccination programmes,
efficacy of vaccines and differing governmental testing and
quarantine requirements 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 consolidated financial statements. Recognising the
challenges of reliably estimating and forecasting the timing of
recovery of demand, the Group has modelled two forecasts in its
assessment of going concern which have been considered by the
Directors, along with a likelihood assessment
of these forecasts, being:
- base case, which reflects the Directors current expectations
of future trading; and
- 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. The Group raised
GBP7.3bn of additional funding during 2020 through a combination of
equity and debt. In March 2021, the Group secured a further GBP1bn
term-loan facility, 80% of which is guaranteed by UK Export Finance
(UKEF), repayable in March 2026, and in August 2021 extended its
GBP1bn undrawn bank loan facility from a maturity date of 15
October 2022 to a maturity date of 15 January 2024.
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 31 December 2021, over 9,000 roles
had been removed from continuing operations and annualised savings
exceeded the GBP1.3bn target 12 months ahead of schedule.
Impact of climate change
The Directors believe there are significant business growth
opportunities to come from the Group playing a leading role in the
transition to net zero, whilst at the same time climate change
poses potentially significant risks to the Group. Whilst it is
unlikely that physical and transition risks will arise during the
18-month period being assessed for going concern, both physical and
transition risks have been considered as part of the Group's risk
assessment. The investment required to achieve net zero scope 1 + 2
GHG emissions, together with that required to ensure our new
products will be compatible with net zero operation by 2030, has
been included in the Group's forecasts, including those periods
used in the assessment of going concern. Over the next 18 months,
64% of the Group's R&D investment will be directed to the
delivery of our decarbonisation strategy.
Liquidity and borrowings
At 31 December 2021, the Group had liquidity of GBP7.1bn
including cash and cash equivalents of GBP2.6bn and undrawn
facilities of GBP4.5bn.
The Group's committed borrowing facilities at 31 December 2021
and 31 August 2023 are set out below. None of the facilities are
subject to any financial covenants or rating triggers which could
accelerate repayment.
(GBPm) 31 December 2021 31 August 2023
----------------------------------------------------------------- ----------------- ---------------
Issued Bond Notes (1) 3,995 3,995
----------------------------------------------------------------- ----------------- ---------------
Other loans 63 -
----------------------------------------------------------------- ----------------- ---------------
UKEF GBP2bn loan (drawn) (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 10,558 10,495
----------------------------------------------------------------- ----------------- ---------------
(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 matures 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 31 August 2023.
1 Basis of preparation and accounting policies continued
Forecasts
The Group has modelled a base case, reflecting a best estimate
of future trading. The base case forecast assumes the continuation
of a steady recovery in customer confidence in the aftermath of the
COVID-19 pandemic. Vaccination programmes continue to be rolled out
but the efficacy of vaccines over different variants and differing
governmental testing and quarantine requirements means that the
recovery of demand is hindered in the short term, in particular in
relation to the civil aviation industry.
In August 2020, the Group announced it would deliver proceeds of
around GBP2bn from planned disposals. Some of these disposals were
completed by 24 February 2022. For the remaining planned disposals,
as these are due to complete within the 18-month period being
considered, the proceeds have been included in the base case
forecast, together with a corresponding decrease in debt
facilities.
The downside forecast assumes Civil widebody EFHs remain at
average Q4 2021 levels over the 18-month period to August 2023,
with recovery subdued due to ongoing infection rates and a
continuation of new variants of the virus, resulting in ongoing
caution in opening borders to international travel and no upward
trend in EFH until September 2023, resulting in a much slower
recovery in demand compared with the base case. The downside
forecast also reflects risks in relation to load reduction through
our factories, and possible supply chain challenges.
Conclusion
After reviewing the current liquidity position, the cash flow
forecasts modelled under both the base case and downside, the
Directors consider that the Group has sufficient liquidity to
continue in operational existence for a period of at least 18
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.
Climate change
In preparing the Condensed Consolidated Financial Statements the
Directors have considered the potential impact of climate change.
Based on the Taskforce for Climate-related Financial Disclosures
(TCFD) recommendations, the Group assesses the potential impact of
climate-related risks which cover both transition risks and
physical risks. The transition risks may include extensive policy,
legal, technological, and market changes and physical risks could
include direct damage to assets and supply chain disruption.
The Group has set decarbonisation commitments and identified
longer-term considerations in response to the climate challenge and
is engaging proactively with external stakeholders to advocate for
the conditions that society needs to achieve its net zero target.
The Group's main short and longer-term priorities include the
following:
- achieving net zero greenhouse gas (GHG) emissions by 2030 from
all energy purchased and consumed in the operation of the
buildings, facilities and manufacturing processes (with the
exception of product testing and development). This will be met
through continued investment in onsite renewable energy
installations; the procurement of renewable energy; and continued
investment in energy efficiency improvements to reduce the Group's
overall energy demands and operating costs. The investment required
to meet these scope 1 and 2 emission improvements is included in
the forecasts that support these Financial Statements. The Group
expects the Bristol, UK, manufacturing site to be its first site to
achieve net zero carbon operations during 2022.
- pioneering breakthrough new technologies, including investment
in 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. New products will be
compatible with net zero operation by 2030 and all products will be
compatible with net zero operation by 2050. In the year, R&D
costs of GBP(68)m within New Markets included design development to
ready the SMRs to enter the UK GDA process and investment in
electrical propulsion technology. Future investment required to
deliver these technologies is included in the forecasts that
support the financial statements.
Climate change scenarios have been prepared to assess the
viability of our business strategy, decarbonisation plans and
approach to managing climate-related risk. There is inherent
uncertainty over the assumptions used within these and how they
will impact the Group's business operations, cash flows and profit
projections. The Directors assess the assumptions on a regular
basis to ensure that they are consistent with the risk management
activities and the commitments made to investors and other
stakeholders.
Assumptions used within the Financial Statements in relation to
areas such as revenue recognition for long-term contracts,
impairment reviews of non-current assets and the carrying amount of
deferred tax assets consider the findings from the climate
scenarios prepared. Key variables include carbon prices based on
the IEA Net Zero scenario, which assumes an increase from $47 per
tonne of carbon in 2022 to $250 per tonne in 2050, commodity price
trends derived from the climate scenarios set out by the
Intergovernmental Panel on Climate Change (IPCC RCP1.9),
temperature rises from the (IPCC SSP1-19) scenario, and GDP
information from the Oxford Economics Net Zero model.
1 Basis of preparation and accounting policies continued
As details of what specific future intervention measures will be
taken by governments are not yet available, carbon pricing has been
used to quantify the potential impact of future policy changes on
the Group. To ensure revenue recognition or the carrying value of
assets is not overstated it has cautiously been assumed that the
impact of carbon pricing predominantly falls on the cost base of
the domestic facilities and external supply chain, rather than
directly on customers or consumers. The Group will be able to
mitigate an element of the financial impact as it reduces the scope
1 and 2 emissions from its buildings, facilities and manufacturing
processes and this is expected to decline. However, no account has
been made of expected mitigations from decarbonisation in the
external supply chain (who the Group is working with, whilst
acknowledging in its financial modelling that this is complex and
will therefore take some time). The financial modelling performed
recognises the extent to which the Group's current supplier
contracts offer protection from cost increases in the short to
medium term where pricing is fixed or subject to capped escalation
clauses. The Group has made a cautious assessment of whether higher
costs would be passed on to customers in the short and medium term
that considers the markets operated in and the pricing mechanisms
in place. For example, in Civil Aerospace it is recognised that
escalation caps within a number of its LTSA contracts would be
triggered, meaning additional costs could remain within the
business under current commercial arrangements until the end of
existing contract periods.
When determining the amount of cumulative revenue recognised on
long-term contracts, and the obligation in relation on onerous
contracts, the assumptions above have been used to reflect the
climate uncertainties. This has resulted in a revenue catch-up of
GBP(17)m and an increase in contract loss provisions of GBP(20)m in
the year from increased costs over the term of the current
contracts of around 1%. A sensitivity is presented within the key
sources of estimation uncertainty to disclose the impact of a
further 1% cost increase that might arise from further unmitigated
increases in carbon and/or commodity pricing.
Impairment testing of non-current assets including goodwill,
programme assets and deferred tax assets has considered the above
risks as well as assessing how the Groups 1.5(o) C scenario may
change the demand for products over the medium and longer term. To
assess the carrying value of assets where there is more potential
for impairment, the Directors have modelled downside risks specific
to those products. This included consideration of lower OE volumes
or a shorter in-service life that generates lower aftermarket
volumes, together with higher costs in Civil Aerospace. Power
Systems is a shorter-cycle business with scope to re-assess
contractual terms to reflect the cost of carbon. Whilst the Defence
programmes cover a longer period, the nature of the largest
customers and the typical contractual arrangements mean that the
Group expect future contracts to reflect the cost of carbon.
Further information is provided in notes 5 and 7.
Deferred tax assets are recognised to the extent it is probable
that future taxable profits will be available, against which the
unused tax losses and deductible temporary difference can be
utilised. In addition to the weighted downside forecast (see note
7), the climate-related estimates and assumptions above have also
been considered when assessing the recoverability of the deferred
tax assets. Recognising the longer term over which these assets
will be recovered, the Group has also considered the impact on OE
and aftermarket sales if new, more efficient, civil aircraft or new
engine options enter the market earlier than assumed in its most
likely estimates. Under this scenario some older products would see
a reduction in profits but additional opportunities exist for newer
products such as the Trent XWB. Whilst carbon pricing illustrates
pressure on costs, decarbonisation and new supplier and customer
contracts offer the opportunity to receive value for more efficient
and sustainable products. Further details are included in note 5
together with sensitivity analysis in the key sources of estimation
uncertainty section below.
The climate-related estimates and assumptions that have been
considered to be key areas of judgement or sources of estimation
uncertainty for the year ended 31 December 2021 are those relating
to the recoverable amount of non-current assets including goodwill,
capitalised development costs, recovery of deferred tax assets,
recognition and measurement of provisions and recognition of
revenue on long-term contracts.
Further detail is set out in note 1 to the Financial Statements
in the 2021 Annual Report.
1 Basis of preparation and accounting policies continued
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 2021, 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 2021 Annual Report and are summarised below.
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 including within Civil Aerospace
liabilities should the impact of climate as at 31 December 2021,
be combined. change. the following changes
How performance Uncertainty remains in estimate would result
on long-term in the short-term in catch-up adjustments
aftermarket over the timing of being recognised in
contracts recovery of demand, the period in which
should be in particular in the estimates change
measured. relation to the civil (at underlying rates):
Whether any aviation industry, * A change in forecast EFHs of 1% over the remaining
costs in the aftermath term of the contracts would impact LTSA income and to
should be of the COVID-19 pandemic. a lesser extent costs, resulting in an in-year impact
treated Estimates of future of around GBP6m to GBP9m. This would be expected to
as wastage. revenue within Civil be seen as a catch-up change in revenue or, to the
Whether sales Aerospace are based extent it impacts onerous contracts, within cost of
of spare upon future EFH forecasts, sales.
engines influenced by assumptions
to joint over the time period
ventures and profile over * A 1% increase or decrease in our pricing to customers
are at fair which the civil aviation over the life of the contracts would lead to a
value. industry will recover. revenue catch-up adjustment in the next 12 months of
When revenue around GBP100m.
should be
recognised
in relation to * A 1% increase or decrease in shop visit costs over
spare engine the life of the contracts would reduce the stage of
sales to completion and lead to a revenue catch-up adjustment
related in the next 12 months of around GBP25m.
entities.
---------------- ---------------- ----------------------------- ------------------------------------------------------------
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 or shop visits would
it is probable that result in an increase/decrease
sufficient suitable in the deferred tax
taxable profits will asset by around GBP150m.
arise in the UK to If only 90% of assumed
utilise the deferred future cost increases
tax assets. This are passed on to customers
is largely driven it would result in a
by the Civil Aerospace decrease in the deferred
business and the tax asset by around
estimates described GBP40m, if carbon prices
above. were to double, this
would be GBP110m.
Further detail is included
in note 5.
---------------- ---------------- ----------------------------- ------------------------------------------------------------
Discontinued Whether the ITP
operations Aero business
and assets and associated
held for sale consolidation
adjustments
meets
the 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 31 December 2021
term. to meet residual included GBP412m relating
value guarantees to 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 GBP76m is payable
of the engines, overhaul in the next 12 months,
activity prior to GBP75m is due over the
the end of the contract, 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 The Group has considered
of non-current of of intangible assets whether a 10% reduction
assets cash-generating (including programme-related in OE quantities or
units for intangible assets) a 5% deterioration in
assessing is dependent on the EFHs (and hence future
impairment of estimates of future cash flows) on the business
goodwill. cash flows which aviation programme assets
are influenced by that have previously
assumptions over been subject to impairment
the recovery of the would lead to an additional
industries in which impairment and concluded
the Group operate. that it would not.
For programmes that
have not previously
been impaired, but where
there is existing headroom
that could be significantly
reduced over the next
12 months, the Group
has considered whether
an increase in costs
of up to 10% would lead
to an additional impairment
and considered that
it would not.
---------------- ---------------- ----------------------------- ------------------------------------------------------------
Provisions Whether any Estimates of the A 12-month delay in
costs time to resolve the the availability of
relating to technical issues the modified HPT blade
contracts on the Trent 1000, could lead to a GBP60-100m
with customers including the development increase in the Trent
should be of the modified high 1000 exceptional costs
treated pressure turbine provision.
as wastage. (HPT) blade and estimates An increase in Civil
to Trent 1000 long-term Aerospace widebody estimates
contracts assessed of LTSA costs of 1%
as onerous. over the remaining term
Estimates of the of the contracts could
future revenues and lead to a GBP100-120m
costs to fulfil onerous increase in the provision
contracts. for contract losses
across all programmes.
---------------- ---------------- ----------------------------- ------------------------------------------------------------
Post-retirement The valuation of A reduction in the discount
benefits the Group's defined rate from 1.90% to 1.65%
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 GBP460m. 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 21.8 years (male aged
to transfer their 65) and from 23.2 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
GBP365m.
Where applicable, it
is assumed that 50%
and 40% (31 December
2020: 40%) of employed
deferred and deferred
members respectively
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 acts 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
Defence
* development, manufacture, marketing and sales of
military aero engines, naval engines, submarine
nuclear power plants and aftermarket services
Power Systems
* development, manufacture, marketing and sales of
integrated solutions for onsite power and propulsion
New Markets
* development, manufacture and sales of small modular
reactor (SMR) and new electrical power solutions
For the year ended 31 December 2020, Civil Aerospace, Power
Systems, Defence and ITP Aero 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 the Group's four divisions
and Other businesses.
Other businesses include the trading results of the Bergen
Engines AS business until the date of disposal on 31 December 2021,
the results of the Civil Nuclear Instrumentation & Control
business until the date of disposal on 5 November 2021, 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 trading results of the UK Civil Nuclear business have
also been included in Other businesses. The segmental analysis for
2020 has been restated to reflect the 2021 definition of Other
businesses.
During the year to 31 December 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. To ensure
comparability, the segmental analysis for 2020 has been restated to
reflect this transfer. ITP has been classified as a disposal group
held for sale and discontinued operations since 30 June 2021 and as
such, the operating segment is no longer regularly reviewed by the
Board as a basis for making decisions about the allocation of
resources to the business or to assess its performance. In line
with IFRS 8, ITP Aero is no longer considered to meet the
definition of an operating segment and the segmental analysis for
2020 has been restated to reflect the 2021 assessment of operating
segments.
During the year to 31 December 2021, the Group assessed whether
its New Markets activities met the criteria of an operating segment
in accordance with IFRS 8. As the Group increases its investment in
these important new technologies, the results of these activities
have been combined and presented as an additional segment,
reflecting the differing characteristics and risk profile of these
businesses, in line with how performance is reviewed by the Board.
These results were previously included within Civil Aerospace,
Defence, Power Systems and Corporate and Inter-segment. The
segmental analysis for 2020 has been restated to reflect the 2021
assessment of operating segments.
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/(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 first half of the year, the Group was a net purchaser of
USD, with the consequence that the achieved exchange rate GBP:USD
of 1.39 on settled contracts was similar to the average spot rate
in the period. In the second half of 2021, the Group was a net
seller of USD, at an 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 year to 31 December 2021, the Group took the
opportunity to further reduce the size of the USD hedge book by an
additional $2bn by settling the mark-to market at GBP1m cost. The
derivatives relating to this underlying charge have been
subsequently excluded from the 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 year to 31 December 2021, cash settlement costs of
GBP452m were incurred (2020: GBP202m).
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
- certain 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
year 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 useful in providing
an understanding of the Group's financial performance. Exceptional
items are identified by virtue of their size, nature or
incidence.
In determining whether an event or transaction is exceptional,
the Directors 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 deferred tax or advance corporation
tax recognised are also excluded.
See page 33 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.
Civil Corporate and
Aerospace Power Systems New Markets Other Inter-segment Total
(1,2) Defence (2) (2) (2) businesses (2) underlying
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------- ------------- ----------- ------------- ------------- ------------- ------------- -------------
For the year
ended 31
December 2021
--------------- ------------- ----------- ------------- ------------- ------------- ------------- -------------
Underlying
revenue from
sale of
original
equipment 1,612 1,411 1,744 - 155 (11) 4,911
--------------- ------------- ----------- ------------- ------------- ------------- ------------- -------------
Underlying
revenue from
aftermarket
services 2,924 1,957 1,005 2 148 - 6,036
--------------- ------------- ----------- ------------- ------------- ------------- ------------- -------------
Total
underlying
revenue 4,536 3,368 2,749 2 303 (11) 10,947
--------------- ------------- ----------- ------------- ------------- ------------- ------------- -------------
Gross
profit/(loss) 474 721 778 1 32 (10) 1,996
--------------- ------------- ----------- ------------- ------------- ------------- ------------- -------------
Commercial and
administrative
costs (297) (161) (383) (3) (20) (35) (899)
--------------- ------------- ----------- ------------- ------------- ------------- ------------- -------------
Research and
development
costs (434) (105) (157) (68) (10) - (774)
--------------- ------------- ----------- ------------- ------------- ------------- ------------- -------------
Share of
results of
joint ventures
and associates 85 2 4 - - - 91
--------------- ------------- ----------- ------------- ------------- ------------- ------------- -------------
Underlying
operating
(loss)/profit (172) 457 242 (70) 2 (45) 414
--------------- ------------- ----------- ------------- ------------- ------------- ------------- -------------
For the year
ended 31
December 2020
--------------- ------------- ----------- ------------- ------------- ------------- ------------- -------------
Underlying
revenue from
sale of
original
equipment 2,278 1,428 1,787 3 136 (6) 5,626
--------------- ------------- ----------- ------------- ------------- ------------- ------------- -------------
Underlying
revenue from
aftermarket
services 2,790 1,927 948 2 137 - 5,804
--------------- ------------- ----------- ------------- ------------- ------------- ------------- -------------
Total
underlying
revenue 5,068 3,355 2,735 5 273 (6) 11,430
--------------- ------------- ----------- ------------- ------------- ------------- ------------- -------------
Gross
(loss)/profit (1,987) 684 678 2 15 (5) (613)
--------------- ------------- ----------- ------------- ------------- ------------- ------------- -------------
Commercial and
administrative
costs (310) (146) (331) (1) (26) (52) (866)
--------------- ------------- ----------- ------------- ------------- ------------- ------------- -------------
Research and
development
costs (407) (86) (160) (46) (9) - (708)
--------------- ------------- ----------- ------------- ------------- ------------- ------------- -------------
Share of
results of
joint ventures
and associates 169 9 1 - - - 179
--------------- ------------- ----------- ------------- ------------- ------------- ------------- -------------
Underlying
operating
(loss)/profit (2,535) 461 188 (45) (20) (57) (2,008)
--------------- ------------- ----------- ------------- ------------- ------------- ------------- -------------
(1) The underlying results for Civil Aerospace for 31 December
2020 have been restated to reflect the changes to activity during
2021 due to the transfer of the Hucknall site and associated
fabrications activities to ITP Aero.
(2) The underlying results of Civil Aerospace, Defence, Power
Systems and Corporate and Inter-segment activities for 31 December
2020 have been restated to reclassify the results of the Group's
SMR and electrical activities as New Markets.
2 Analysis by business segment continued
Reconciliation to statutory results
Underlying adjustments and
Total underlying adjustments to foreign exchange Group statutory results
GBPm GBPm GBPm
------------------------------------ ---------------- ----------------------------------- -----------------------
For the year ended 31 December 2021
------------------------------------ ---------------- ----------------------------------- -----------------------
Continuing operations
------------------------------------ ---------------- ----------------------------------- -----------------------
Revenue from sale of original
equipment 4,911 152 5,063
------------------------------------ ---------------- ----------------------------------- -----------------------
Revenue from aftermarket services 6,036 119 6,155
------------------------------------ ---------------- ----------------------------------- -----------------------
Total revenue 10,947 271 11,218
------------------------------------ ---------------- ----------------------------------- -----------------------
Gross profit 1,996 140 2,136
------------------------------------ ---------------- ----------------------------------- -----------------------
Commercial and administrative
costs (899) 9 (890)
------------------------------------ ---------------- ----------------------------------- -----------------------
Research and development costs (774) (4) (778)
------------------------------------ ---------------- ----------------------------------- -----------------------
Share of results of joint ventures
and associates 91 (46) 45
------------------------------------ ---------------- ----------------------------------- -----------------------
Operating profit 414 99 513
------------------------------------ ---------------- ----------------------------------- -----------------------
Gain arising on the acquisition
and disposal of businesses - 56 56
------------------------------------ ---------------- ----------------------------------- -----------------------
Profit before financing and
taxation 414 155 569
------------------------------------ ---------------- ----------------------------------- -----------------------
Net financing (378) (485) (863)
------------------------------------ ---------------- ----------------------------------- -----------------------
Profit/(loss) before taxation 36 (330) (294)
------------------------------------ ---------------- ----------------------------------- -----------------------
Taxation (26) 444 418
------------------------------------ ---------------- ----------------------------------- -----------------------
Profit after taxation from
continuing operations 10 114 124
------------------------------------ ---------------- ----------------------------------- -----------------------
Discontinued operations (1) 51 (54) (3)
------------------------------------ ---------------- ----------------------------------- -----------------------
Profit for the year 61 60 121
------------------------------------ ---------------- ----------------------------------- -----------------------
Attributable to:
------------------------------------ ---------------- ----------------------------------- -----------------------
Ordinary shareholders 60 60 120
------------------------------------ ---------------- ----------------------------------- -----------------------
Non-controlling interests 1 - 1
------------------------------------ ---------------- ----------------------------------- -----------------------
For the year ended 31 December 2020
------------------------------------ ---------------- ----------------------------------- -----------------------
Continuing operations
------------------------------------ ---------------- ----------------------------------- -----------------------
Revenue from sale of original
equipment 5,626 (68) 5,558
------------------------------------ ---------------- ----------------------------------- -----------------------
Revenue from aftermarket services 5,804 129 5,933
------------------------------------ ---------------- ----------------------------------- -----------------------
Total revenue 11,430 61 11,491
------------------------------------ ---------------- ----------------------------------- -----------------------
Gross (loss)/profit (613) 426 (187)
------------------------------------ ---------------- ----------------------------------- -----------------------
Commercial and administrative
costs (866) 95 (771)
------------------------------------ ---------------- ----------------------------------- -----------------------
Research and development costs (708) (496) (1,204)
------------------------------------ ---------------- ----------------------------------- -----------------------
Share of results of joint ventures
and associates 179 11 190
------------------------------------ ---------------- ----------------------------------- -----------------------
Operating (loss)/profit (2,008) 36 (1,972)
------------------------------------ ---------------- ----------------------------------- -----------------------
Loss arising on the disposal of
businesses - (14) (14)
------------------------------------ ---------------- ----------------------------------- -----------------------
(Loss)/profit before financing and
taxation (2,008) 22 (1,986)
------------------------------------ ---------------- ----------------------------------- -----------------------
Net financing (1,985) 1,172 (813)
------------------------------------ ---------------- ----------------------------------- -----------------------
(Loss)/profit before taxation (3,993) 1,194 (2,799)
------------------------------------ ---------------- ----------------------------------- -----------------------
Taxation (46) (256) (302)
------------------------------------ ---------------- ----------------------------------- -----------------------
Loss/profit after taxation from
continuing operations (4,039) 938 (3,101)
------------------------------------ ---------------- ----------------------------------- -----------------------
Discontinued operations (1) 42 (110) (68)
------------------------------------ ---------------- ----------------------------------- -----------------------
Loss for the year (3,997) 828 (3,169)
------------------------------------ ---------------- ----------------------------------- -----------------------
Attributable to:
------------------------------------ ---------------- ----------------------------------- -----------------------
Ordinary shareholders (3,998) 828 (3,170)
------------------------------------ ---------------- ----------------------------------- -----------------------
Non-controlling interests 1 - 1
------------------------------------ ---------------- ----------------------------------- -----------------------
(1) Discontinued operations relate to the results of ITP Aero
and are presented net of intercompany trading eliminations and
related consolidation adjustments.
2 Analysis by business segment continued
Disaggregation of revenue from contracts with customers
Analysis by
type and Civil Corporate and
basis of Aerospace Power New Markets Other Inter-segment Total
recognition (1,2) Defence (2) Systems (2) (2) businesses (2) underlying
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------- ------------ ----------- ------------ ------------- ------------- ------------- -------------
For the year
ended 31
December 2021
------------- ------------ ----------- ------------ ------------- ------------- ------------- -------------
Original
equipment
recognised
at a point
in time 1,612 604 1,720 - 142 (11) 4,067
------------- ------------ ----------- ------------ ------------- ------------- ------------- -------------
Original
equipment
recognised
over time - 807 24 - 13 - 844
------------- ------------ ----------- ------------ ------------- ------------- ------------- -------------
Aftermarket
services
recognised
at a point
in time 629 825 871 2 148 - 2,475
------------- ------------ ----------- ------------ ------------- ------------- ------------- -------------
Aftermarket
services
recognised
over time 2,223 1,132 134 - - - 3,489
------------- ------------ ----------- ------------ ------------- ------------- ------------- -------------
Total
underlying
customer
contract
revenue (3) 4,464 3,368 2,749 2 303 (11) 10,875
------------- ------------ ----------- ------------ ------------- ------------- ------------- -------------
Other
underlying
revenue 72 - - - - - 72
------------- ------------ ----------- ------------ ------------- ------------- ------------- -------------
Total
underlying
revenue 4,536 3,368 2,749 2 303 (11) 10,947
------------- ------------ ----------- ------------ ------------- ------------- ------------- -------------
For the year
ended 31
December 2020
------------- ------------ ----------- ------------ ------------- ------------- ------------- -------------
Original
equipment
recognised
at a point
in time 2,278 522 1,769 3 120 (6) 4,686
------------- ------------ ----------- ------------ ------------- ------------- ------------- -------------
Original
equipment
recognised
over time - 905 17 - 16 - 938
------------- ------------ ----------- ------------ ------------- ------------- ------------- -------------
Aftermarket
services
recognised
at a point
in time 1,168 794 824 2 136 - 2,924
------------- ------------ ----------- ------------ ------------- ------------- ------------- -------------
Aftermarket
services
recognised
over time 1,398 1,132 124 - 1 - 2,655
------------- ------------ ----------- ------------ ------------- ------------- ------------- -------------
Total
underlying
customer
contract
revenue (3) 4,844 3,353 2,734 5 273 (6) 11,203
------------- ------------ ----------- ------------ ------------- ------------- ------------- -------------
Other
underlying
revenue 224 2 1 - - - 227
------------- ------------ ----------- ------------ ------------- ------------- ------------- -------------
Total
underlying
revenue 5,068 3,355 2,735 5 273 (6) 11,430
------------- ------------ ----------- ------------ ------------- ------------- ------------- -------------
(1) The underlying results for Civil Aerospace for 31 December
2020 have been restated to reflect the changes to activity during
2021 due to the transfer of the Hucknall site and associated
fabrications activities to ITP Aero.
(2) The underlying results of Civil Aerospace, Defence, Power
Systems and Corporate and Inter-segment activities for 31 December
2020 have been restated to reclassify the results of the Group's
SMR and electrical activities as New Markets.
(3) Includes GBP159m (2020: GBP(1,048)m) of revenue recognised
in the year relating to performance obligations satisfied in
previous years.
Underlying adjustments and
Total underlying adjustments to foreign exchange Group statutory results
GBPm GBPm GBPm
------------------------------------ ---------------- ----------------------------------- -----------------------
For the year ended 31 December 2021
------------------------------------ ---------------- ----------------------------------- -----------------------
Original equipment recognised at a
point in time 4,067 152 4,219
------------------------------------ ---------------- ----------------------------------- -----------------------
Original equipment recognised over
time 844 - 844
------------------------------------ ---------------- ----------------------------------- -----------------------
Aftermarket services recognised at a
point in time 2,475 38 2,513
------------------------------------ ---------------- ----------------------------------- -----------------------
Aftermarket services recognised over
time 3,489 75 3,564
------------------------------------ ---------------- ----------------------------------- -----------------------
Total customer contract revenue 10,875 265 11,140
------------------------------------ ---------------- ----------------------------------- -----------------------
Other revenue 72 6 78
------------------------------------ ---------------- ----------------------------------- -----------------------
Total revenue 10,947 271 11,218
------------------------------------ ---------------- ----------------------------------- -----------------------
For the year ended 31 December 2020
------------------------------------ ---------------- ----------------------------------- -----------------------
Original equipment recognised at a
point in time 4,686 (63) 4,623
------------------------------------ ---------------- ----------------------------------- -----------------------
Original equipment recognised over
time 938 (6) 932
------------------------------------ ---------------- ----------------------------------- -----------------------
Aftermarket services recognised at a
point in time 2,924 53 2,977
------------------------------------ ---------------- ----------------------------------- -----------------------
Aftermarket services recognised over
time 2,655 110 2,765
------------------------------------ ---------------- ----------------------------------- -----------------------
Total customer contract revenue 11,203 94 11,297
------------------------------------ ---------------- ----------------------------------- -----------------------
Other revenue 227 (33) 194
------------------------------------ ---------------- ----------------------------------- -----------------------
Total revenue (1) 11,430 61 11,491
------------------------------------ ---------------- ----------------------------------- -----------------------
(1) During the year to 31 December 2021, revenue recognised
within Civil Aerospace, Defence and Power Systems of GBP1,634m
(2020: 1,701m) was received from a single customer.
2 Analysis by business segment continued
Restated
Underlying profit adjustments 2021 2020
----------------------------------------- -----------------------------------------
Profit Loss
before Net Taxation before Net Taxation
Revenue financing financing (11) Revenue financing financing (11)
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------- --- ------- --------- --------- ---------- ------- --------- --------- ----------
Total underlying performance 10,947 414 (378) (26) 11,430 (2,008) (1,985) (46)
------------------------------------- ------- --------- --------- ---------- ------- --------- --------- ----------
Impact of settled derivative
contracts on trading
transactions (1) A 271 (34) 62 33 61 995 (324) (39)
-------------------------------- --- ------- --------- --------- ---------- ------- --------- --------- ----------
Unrealised fair value changes on
derivative contracts held for
trading (2) A - (6) (618) 110 - 8 (85) (182)
-------------------------------- --- ------- --------- --------- ---------- ------- --------- --------- ----------
Unrealised net (gain)/losses on
closing future
over-hedged position (3) A - - (8) - - - 1,503 (106)
-------------------------------- --- ------- --------- --------- ---------- ------- --------- --------- ----------
Realised net (gain)/losses on
closing future over-hedged
position (3) A - - (6) - - - 202 (38)
-------------------------------- --- ------- --------- --------- ---------- ------- --------- --------- ----------
Unrealised fair value change to
derivative contracts held for
financing (4) A - - 79 (20) - - (86) -
-------------------------------- --- ------- --------- --------- ---------- ------- --------- --------- ----------
Exceptional programme
credits/(charges) (5) B - 105 - (1) - 620 (36) -
-------------------------------- --- ------- --------- --------- ---------- ------- --------- --------- ----------
Exceptional restructuring
credit/(charge) (6) B - 45 - 1 - (470) - 32
-------------------------------- --- ------- --------- --------- ---------- ------- --------- --------- ----------
Impairments (7) C - 9 - - - (1,244) - 258
-------------------------------- --- ------- --------- --------- ---------- ------- --------- --------- ----------
Other write-offs C - - - - - (92) - 25
-------------------------------- --- ------- --------- --------- ---------- ------- --------- --------- ----------
Effect of acquisition accounting
(8) C - (50) - 12 - (85) - 23
-------------------------------- --- ------- --------- --------- ---------- ------- --------- --------- ----------
Pension past-service credit (9) B - 47 - (13) - 308 - (108)
-------------------------------- --- ------- --------- --------- ---------- ------- --------- --------- ----------
Other D - (17) 6 (37) - (4) (2) (7)
-------------------------------- --- ------- --------- --------- ---------- ------- --------- --------- ----------
Included in operating profit 271 99 (485) 85 61 36 1,172 (142)
------------------------------------- ------- --------- --------- ---------- ------- --------- --------- ----------
Gains/(losses) arising on the
acquisitions
and disposals of businesses
(10) C - 56 - 2 - (14) - 3
-------------------------------- --- ------- --------- --------- ---------- ------- --------- --------- ----------
Impact of tax rate change - - - 327 - - - 159
------------------------------------- ------- --------- --------- ---------- ------- --------- --------- ----------
Re-recognition/(de-recognition) of UK
losses - - - 30 - - - (276)
------------------------------------- ------- --------- --------- ---------- ------- --------- --------- ----------
Total underlying adjustments 271 155 (485) 444 61 22 1,172 (256)
------------------------------------- ------- --------- --------- ---------- ------- --------- --------- ----------
Statutory performance per condensed
consolidated income statement 11,218 569 (863) 418 11,491 (1,986) (813) (302)
------------------------------------- ------- --------- --------- ---------- ------- --------- --------- ----------
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 increased
reported revenues by GBP271m (2020: increased by GBP61m) and
reduced profit before financing and taxation by GBP34m (2020
restated: reduced loss by GBP995m). 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. In 2021, this estimate was
updated to reflect the actual cash cost and resulted in a GBP15m
gain to underlying finance costs in the year to 31 December 2021.
In the year to 31 December 2021, the Group took the opportunity to
further reduce the size of the USD hedge book by an additional $2bn
resulting in a GBP1m charge to underlying finance costs. Further
detail is provided in note 4.
(4) Includes the losses on hedge ineffectiveness in the year of
GBP1m (2020: losses of GBP11m) and net fair value gains of GBP80m
(2020: losses of GBP75m) on any interest rate swaps not designated
into hedging relationships for accounting purposes.
(5) During the year to 31 December 2021, the estimated Trent
1000 abnormal wastage costs reduced by GBP105m following a
reassessment of the number of engines impacted by these issues,
with an associated reduction in expected contract losses.
(6) During the year to 31 December 2021, the Group recorded an
exceptional restructuring credit of GBP45m (2020 restated: charge
of GBP470m) which included a GBP138m provision release offset by
GBP93m (2020: GBP116m) associated with initiatives to enable the
restructuring which have been charged directly to the income
statement. Further details are provided in note 19.
(7) The Group has assessed the carrying value of its assets.
Further details are provided in notes 7, 8 and 9.
(8) The effect of acquisition accounting includes the
amortisation of intangible assets arising on previous
acquisitions.
(9) The past service credit GBP47m comprises of; GBP7m has been
recorded following the final details on the additional transitional
protections agreed during the period; GBP4m as a result of
transferring employment of 236 employees in anticipation of a
business disposal; GBP4m from the updated scope of the fundamental
restructuring programmes following a higher than expected rate of
natural attrition; and GBP32m from remeasurement of the US defined
benefit liability to remove spousal benefits not included in the
plan benefits.
(10) Gains/(losses) arising on the acquisitions and disposals of
businesses are set out in note 22.
(11) Appropriate rates of tax have been applied to adjustments
made to profit/(loss) before tax in the table above. Adjustments
which impact the UK tax loss have an effective tax rate of zero.
See note 5 for more details. The total underlying adjustments in
2021 are a credit of GBP444m (2020: tax charge of GBP256m). The
overall tax credit in 2021 includes GBP327m which arises on the
re-measurement of UK deferred tax balances following the change in
the UK tax rate from 19% to 25% and GBP30m re-recognition of
deferred tax assets previously not recognised. The GBP159m tax
credit in 2020 relates to the re-measurement of the UK deferred tax
balances from 17% to 19%. In 2020 there is a tax charge of GBP276m
relating to the derecognition of some of the deferred tax asset on
UK losses previously recognised.
2 Analysis by business segment continued
Balance sheet analysis
Power
Civil Aerospace Defence Systems New Markets Total reportable
(1, 2) (2) (2) (2) segments
----------------------------- ---------------- --------- --------- ------------ -----------------
At 31 December 2021
----------------------------- ---------------- --------- --------- ------------ -----------------
Segment assets 15,846 2,766 3,531 90 22,233
------------------------------- ---------------- --------- --------- ------------ -----------------
Interests in joint ventures
and associates 378 9 16 - 403
------------------------------- ---------------- --------- --------- ------------ -----------------
Segment liabilities (20,745) (2,635) (1,503) (33) (24,916)
------------------------------- ---------------- --------- --------- ------------ -----------------
Net (liabilities)/assets (4,521) 140 2,044 57 (2,280)
------------------------------- ---------------- --------- --------- ------------ -----------------
At 31 December 2020
----------------------------- ---------------- --------- --------- ------------ -----------------
Segment assets 16,622 3,083 3,471 65 23,241
------------------------------- ---------------- --------- --------- ------------ -----------------
Interests in joint ventures
and associates 363 19 11 - 393
------------------------------- ---------------- --------- --------- ------------ -----------------
Segment liabilities (22,331) (3,079) (1,352) (17) (26,779)
------------------------------- ---------------- --------- --------- ------------ -----------------
Net (liabilities)/assets (5,346) 23 2,130 48 (3,145)
------------------------------- ---------------- --------- --------- ------------ -----------------
(1) The financial position for Civil Aerospace for 31 December
2020 has been restated to reflect the transfer of activity during
2021 as described on page 28.
(2) The financial positions of Civil Aerospace, Defence, Power
Systems and Corporate and Inter-segment activities at 31 December
2020 have been restated to reclassify the results of the Group's
SMR and electrical activities as New Markets.
Reconciliation to the balance sheet
2021 2020
GBPm GBPm
------------------------------------------------------------- ---------- ----------
Total reportable segment assets excluding held for sale 22,233 23,241
----------------------------------------------------------------- ---------- ----------
Other businesses 14 21
----------------------------------------------------------------- ---------- ----------
Corporate and inter-segment (2,255) (3,112)
----------------------------------------------------------------- ---------- ----------
Interests in joint ventures and associates 403 393
----------------------------------------------------------------- ---------- ----------
ITP Aero prior to classification as held for sale - 2,091
----------------------------------------------------------------- ---------- ----------
Assets held for sale (1) 2,028 288
----------------------------------------------------------------- ---------- ----------
Cash and cash equivalents and short-term investments 2,629 3,452
----------------------------------------------------------------- ---------- ----------
Fair value of swaps hedging fixed rate borrowings 135 293
----------------------------------------------------------------- ---------- ----------
Deferred and income tax assets 2,339 1,943
----------------------------------------------------------------- ---------- ----------
Post-retirement scheme surpluses 1,148 907
----------------------------------------------------------------- ---------- ----------
Total assets 28,674 29,517
----------------------------------------------------------------- ---------- ----------
Total reportable segment liabilities excluding held for sale (24,916) (26,779)
----------------------------------------------------------------- ---------- ----------
Other businesses (11) (10)
----------------------------------------------------------------- ---------- ----------
Corporate and inter-segment 2,139 3,261
----------------------------------------------------------------- ---------- ----------
ITP Aero prior to classification as held for sale - (1,036)
----------------------------------------------------------------- ---------- ----------
Liabilities associated with assets held for sale (1) (723) (228)
----------------------------------------------------------------- ---------- ----------
Borrowings and lease liabilities (7,776) (7,330)
----------------------------------------------------------------- ---------- ----------
Fair value of swaps hedging fixed rate borrowings (98) (42)
----------------------------------------------------------------- ---------- ----------
Deferred and income tax liabilities (552) (648)
----------------------------------------------------------------- ---------- ----------
Post-retirement scheme deficits (1,373) (1,580)
----------------------------------------------------------------- ---------- ----------
Total liabilities (33,310) (34,392)
----------------------------------------------------------------- ---------- ----------
Net liabilities (4,636) (4,875)
----------------------------------------------------------------- ---------- ----------
(1) As at 31 December 2021, assets and liabilities relating to
ITP Aero, the investment in Airtanker Holdings and other
non-current assets related to the Group's site rationalisation
activities are classified as held for sale. At 31 December 2020,
Bergen Engines AS and Civil Nuclear Instrumentation and Control
were classified as held for sale. For further details see note
22.
3 Research and development
2021 Restated 2020
GBPm GBPm
------------------------------------------------------------------------------------------- --------- --------------
Gross research and development costs (1,179) (1,225)
------------------------------------------------------------------------------------------- --------- --------------
Contributions and fees (1) 366 353
------------------------------------------------------------------------------------------- --------- --------------
Expenditure in the year (813) (872)
------------------------------------------------------------------------------------------- --------- --------------
Capitalised as intangible assets 105 228
------------------------------------------------------------------------------------------- --------- --------------
Amortisation and impairment of capitalised costs (2) (70) (560)
------------------------------------------------------------------------------------------- --------- --------------
Net cost recognised in the income statement (778) (1,204)
------------------------------------------------------------------------------------------- --------- --------------
Underlying adjustments relating to the effects of acquisition accounting, impairment and
foreign
exchange (3) 4 496
------------------------------------------------------------------------------------------- --------- --------------
Net underlying cost recognised in the income statement (774) (708)
------------------------------------------------------------------------------------------- --------- --------------
(1) Includes government funding.
(2) See note 7 for analysis of amortisation and impairment.
During the year, amortisation of GBP5m has been incurred within the
disposal group recognised as a discontinued operation.
(3) During the year, no impairment of research and development
was recorded. In the comparative period to 31 December 2020
(restated), impairment charges of GBP464m were recorded, relating
to the financial and operational impact of COVID-19.
4 Net financing
Restated
2021 2020
----------------------------------------------
Per consolidated Underlying financing Per consolidated Underlying financing
income statement (1) income statement (1)
GBPm GBPm GBPm GBPm
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Interest receivable 7 7 21 21
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Net fair value gains
on non-hedge accounted
interest rate swaps
(2) 80 - - -
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Financial RRSAs -
foreign exchange
differences and
changes in forecast
payments - - 12 -
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Net fair value gains
on commodity contracts 63 - - -
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Financing on
post-retirement
scheme surpluses 17 - 28 -
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Net foreign exchange
gains 62 - - -
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Realised net gains on
closing over-hedged
position (3) - 6 - -
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Unrealised net gains
on closing over-hedged
position (3) - 8 - -
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Financing income 229 21 61 21
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Interest payable (252) (262) (178) (175)
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Net fair value losses
on foreign currency
contracts (681) - (23) -
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Net fair value losses
on non-hedge accounted
interest rate swaps
(2) - - (75) -
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Unrealised net losses
on closing future
over-hedged position - - - (1,503)
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Realised net losses on
closing over-hedged
position - - - (202)
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Financial RRSAs -
foreign exchange
differences and
changes in forecast
payments (7) - (20) -
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Financial charge
relating to financial
RRSAs - - (3) (8)
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Net fair value losses
on commodity contracts - - (62) -
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Financing on
post-retirement
scheme deficits (20) - (29) -
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Net foreign exchange
losses - - (324) -
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Fees on undrawn
facilities (62) (62) (97) (97)
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Other financing
charges (70) (75) (63) (21)
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Financing costs (1,092) (399) (874) (2,006)
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Net financing costs (863) (378) (813) (1,985)
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Analysed as:
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Net interest payable (245) (255) (157) (154)
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Net fair value
(losses)/gains on
derivative contracts (538) 14 (160) (1,705)
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Net post-retirement
scheme financing (3) - (1) -
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Net foreign exchange
gains/(losses) 62 - (324) -
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Net other financing (139) (137) (171) (126)
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Net financing costs (863) (378) (813) (1,985)
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
(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 fair value movements on these interest
rates swaps to interest payable.
(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 GBP1,689m at 31 December 2020. In 2021, this estimate was
updated to reflect the actual cash settlement cost of GBP1,674m and
resulted in a GBP15m gain to underlying finance costs in the year
to 31 December 2021. In the year to 31 December 2021, the Group
took the opportunity to further reduce the size of the USD hedge
book by an additional $2bn resulting in a GBP1m charge to
underlying finance costs. The cash settlement costs of GBP1,674m
covers the period 2020-2026, GBP186m was incurred in 2020 and
GBP452m was incurred in the year to 31 December 2021. The Group
estimates that future cash outflows of GBP326m will be incurred in
2022 and GBP710m spread over 2023 to 2026.
5 Taxation
UK Overseas Total
--------------- --------
Restated Restated Restated
2021 2020 2021 2020 2021 2020
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------------------------ ----- -------- -------- -------- ----- --------
Current tax charge for the year 17 12 151 162 168 174
------------------------------------------------------ ----- -------- -------- -------- ----- --------
Adjustments in respect of prior years 2 - 12 (27) 14 (27)
------------------------------------------------------ ----- -------- -------- -------- ----- --------
Current tax 19 12 163 135 182 147
------------------------------------------------------ ----- -------- -------- -------- ----- --------
Deferred tax (credit)/charge for the year (173) 178 (59) (327) (232) (149)
------------------------------------------------------ ----- -------- -------- -------- ----- --------
Adjustments in respect of prior years (15) (12) (26) 42 (41) 30
------------------------------------------------------ ----- -------- -------- -------- ----- --------
Derecognition of deferred tax - 433 - - - 433
------------------------------------------------------ ----- -------- -------- -------- ----- --------
Deferred tax credit resulting from increase in UK tax
rate (327) (159) - - (327) (159)
------------------------------------------------------ ----- -------- -------- -------- ----- --------
Deferred tax (515) 440 (85) (285) (600) 155
------------------------------------------------------ ----- -------- -------- -------- ----- --------
(Credited)/charged in the income statement (496) 452 78 (150) (418) 302
------------------------------------------------------ ----- -------- -------- -------- ----- --------
Deferred taxation assets and liabilities
2021 2020
GBPm GBPm
---------------------------------------------------------- ------ ------
At 1 January 1,332 1,269
---------------------------------------------------------- ------ ------
Amount credited/(charged) to income statement 636 (107)
---------------------------------------------------------- ------ ------
Amount (charged)/credited to other comprehensive income (82) 197
---------------------------------------------------------- ------ ------
Amount charged to cash flow hedge reserve (2) (4)
---------------------------------------------------------- ------ ------
Amount credited to equity 17 5
---------------------------------------------------------- ------ ------
On disposal/acquisition of businesses (1) (4) (20)
---------------------------------------------------------- ------ ------
Transferred to assets held for sale (2) (85) (4)
---------------------------------------------------------- ------ ------
Exchange differences (14) (4)
---------------------------------------------------------- ------ ------
At 31 December 1,798 1,332
---------------------------------------------------------- ------ ------
Deferred tax assets 2,249 1,826
---------------------------------------------------------- ------ ------
Deferred tax liabilities (451) (494)
---------------------------------------------------------- ------ ------
1,798 1,332
---------------------------------------------------------- ------ ------
(1) The 2021 deferred tax relates to disposal of Bergen Engines
AS and the Civil Nuclear Instrumentation & Control business.
The 2020 deferred tax relates to the acquisitions of Qinous GmBH
and Kinolt Group S.A.
(2) The 2021 deferred tax transferred to assets held for sale
relates to ITP Aero. The 2020 deferred tax transferred to assets
held for sale relates to Bergen Engines AS and the Civil Nuclear
Instrumentation and Control business.
Deferred tax assets of GBP2,249m include GBP1,054m (2020:
GBP801m) relating to UK tax losses and GBP162m (2020: GBP163m)
relating to advance corporation tax (ACT), both arising in
Rolls-Royce plc. These assets have been recognised based on the
expectation that the business will generate taxable profits and tax
liabilities in the future against which the losses and ACT can be
utilised.
Most of the tax losses relate to the Civil Aerospace widebody
business which makes initial losses through the investment period
of a programme and then makes a profit through its contracts for
services. The programme lifecycles are typically in excess of 30
years. In the past few years there have been four new engines that
have entered into service (Trent 1000-TEN, Trent 7000, Trent XWB-84
and Trent XWB-97).
Deferred tax assets are recognised only to the extent that it is
probable that future taxable profits will be available against
which the assets can be utilised. A recoverability assessment has
been undertaken, taking account of deferred tax liabilities against
which the reversal can be offset and using latest UK forecasts,
which are mainly driven by the Civil Aerospace widebody business,
to assess the level of future taxable profits.
The recoverability of deferred tax assets relating to tax losses
and ACT has been assessed in 2021 on the following basis:
- using the most recent UK profit forecasts which are consistent
with past experience and external sources on market conditions.
These forecasts cover the next five years;
- the long-term forecast profit profile of certain of the major
widebody engine programmes which is typically in excess of 30 years
from initial investment to retirement of the fleet, including the
aftermarket revenues earned from airline customers;
- taking into account forecast reductions in the usage of older
aircraft, and including new business in certain areas;
- taking into account a 25% probability of the severe but
plausible downside forecast materialising in relation to the civil
aviation industry; and
- the long-term forecast profit and cost profile of the other
parts of the business.
The assessment takes into account UK tax laws that, in broad
terms, restrict the offset of the carried forward tax losses to 50%
of current year profits. In addition, management's assumptions
relating to the amounts and timing of future taxable profits take
into account the impact of COVID-19 and climate change on existing
widebody engine programmes. Based on this assessment, the Group has
recognised a deferred tax asset of GBP1,054m relating to losses and
GBP162m relating to ACT. This reflects the conclusions that:
- It is probable that the business will generate taxable income
and tax liabilities in the future against which these losses and
the ACT can be utilised.
- Based on current forecasts and using various scenarios these
losses and the ACT will be used in full within the expected
widebody engine programme lifecycles.
- The Group has not recognised any deferred tax assets in
respect of 2021 UK tax losses.
5 Taxation continued
An explanation of the potential impact of climate change on
forecast profits and sensitivity analysis can be found in note
1.
The Group has also reassessed the recovery of other deferred tax
assets in Rolls-Royce plc, including those arising on unrealised
losses on derivative contracts, resulting in a net increase of
GBP154m of which GBP58m relates to the increase in the UK
corporation tax rate (see below). Any future changes in tax law or
the structure of the Group could have a significant effect on the
use of losses, ACT and other deferred tax assets, including the
period over which they can be used. In view of this and the
significant judgement involved the Board continuously reassesses
this area.
The other significant deferred tax assets in respect of tax
losses and other deductible temporary differences continue to arise
in Rolls-Royce Deutschland Ltd & Co KG, where the main business
is business aviation. The total net deferred tax asset is GBP254m
(2020: GBP252m), which has been recognised in full as it is
considered probable that the business will generate taxable income
in the future against which these assets can be utilised.
The Spring Budget 2021 announced that the UK corporation tax
rate will increase from 19% to 25% from 1 April 2023. The new law
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 31 December 2021, the UK
deferred tax assets and liabilities have been re-measured at
25%.
The resulting credits and 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,
GBP327m has been credited to the income statement and GBP17m has
been credited directly to equity.
The temporary differences associated with investments in
subsidiaries, joint ventures and associates, for which a deferred
tax liability has not been recognised, aggregate to GBP957m (2020:
GBP907m). No deferred tax liability has been recognised on the
potential withholding tax due on the remittance of undistributed
profits as the Group is able to control the timing of such
remittances and it is probable that consent will not be given in
the foreseeable future.
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 year,
excluding ordinary shares held under trust, which have been treated
as if they had been cancelled.
In the current year, the potentially dilutive share options
element has been assessed as 20 million shares. Where a loss for
the year is recognised, the effect of potentially dilutive ordinary
shares is anti-dilutive.
Restated
2021 2020
------------------------ ------------------------------------------- ---------------------------------------------
Potentially dilutive Potentially dilutive
Basic share options Diluted Basic share options Diluted
------------------------ -------- ----------------------- -------- --------- ----------------------- ---------
Profit/(loss)
attributable to ordinary
shareholders (GBPm):
------------------------ -------- ----------------------- -------- --------- ----------------------- ---------
Continuing operations 123 123 (3,102) (3,102)
------------------------ -------- ----------------------- -------- --------- ----------------------- ---------
Discontinued
operations (3) (3) (68) (68)
------------------------ -------- ----------------------- -------- --------- ----------------------- ---------
120 120 (3,170) (3,170)
------------------------ -------- ----------------------- -------- --------- ----------------------- ---------
Weighted average number
of ordinary shares
(millions) 8,332 20 8,352 5,987 - 5,987
------------------------ -------- ----------------------- -------- --------- ----------------------- ---------
EPS (pence):
------------------------ -------- ----------------------- -------- --------- ----------------------- ---------
Continuing operations 1.48p (0.01p) 1.47p (51.81p) - (51.81p)
------------------------ -------- ----------------------- -------- --------- ----------------------- ---------
Discontinued
operations (0.04p) - (0.04p) (1.14p) - (1.14p)
------------------------ -------- ----------------------- -------- --------- ----------------------- ---------
1.44p (0.01p) 1.43p (52.95p) - (52.95p)
------------------------ -------- ----------------------- -------- --------- ----------------------- ---------
The reconciliation between underlying EPS and basic EPS is as
follows:
Restated
2021 2020
--------------- ------------------
Pence GBPm Pence GBPm
------------------------------------------------------------------------------- ------- ------ -------- --------
Underlying EPS / Underlying profit/(loss) from continuing operations
attributable to ordinary
shareholders 0.11 9 (67.48) (4,040)
------------------------------------------------------------------------------- ------- ------ -------- --------
Total underlying adjustments to profit/(loss) before tax (note 2) (3.96) (330) 19.94 1,194
------------------------------------------------------------------------------- ------- ------ -------- --------
Related tax effects 5.33 444 (4.27) (256)
------------------------------------------------------------------------------- ------- ------ -------- --------
EPS / profit/(loss) from continuing operations attributable to ordinary
shareholders 1.48 123 (51.81) (3,102)
------------------------------------------------------------------------------- ------- ------ -------- --------
Diluted underlying EPS from continuing operations attributable to ordinary
shareholders 0.11 (67.48)
------------------------------------------------------------------------------- ------- ------ -------- --------
7 Intangible assets
Certification Development Customer
Goodwill costs expenditure relationships Software (4) 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 - 1 104 - 83 35 223
------------------ -------- ------------------ ------------------ ------------------ ------------ ----- -------
Transferred to
assets held for
sale (1) - (6) (179) (868) (15) (59) (1,127)
------------------ -------- ------------------ ------------------ ------------------ ------------ ----- -------
Disposals (4) (22) - - (51) (2) (79)
------------------ -------- ------------------ ------------------ ------------------ ------------ ----- -------
Reclassifications
(2) - - - - (2) 8 6
------------------ -------- ------------------ ------------------ ------------------ ------------ ----- -------
Exchange
differences (48) (3) (96) (60) (5) (42) (254)
------------------ -------- ------------------ ------------------ ------------------ ------------ ----- -------
At 31 December
2021 1,060 933 3,393 475 978 833 7,672
------------------ -------- ------------------ ------------------ ------------------ ------------ ----- -------
Accumulated amortisation and
impairment:
---------------------------- ------------------ ------------------ ------------------ ------------ ----- -------
At 1 January 2021 38 429 1,803 478 607 403 3,758
------------------ -------- ------------------ ------------------ ------------------ ------------ ----- -------
Charge for the
period (3) - 21 75 59 97 29 281
------------------ -------- ------------------ ------------------ ------------------ ------------ ----- -------
Impairment - - - - 1 8 9
------------------ -------- ------------------ ------------------ ------------------ ------------ ----- -------
Transferred to
assets held for
sale (1) - (4) (51) (176) (10) - (241)
------------------ -------- ------------------ ------------------ ------------------ ------------ ----- -------
Disposals (4) (21) - - (48) (1) (74)
------------------ -------- ------------------ ------------------ ------------------ ------------ ----- -------
Reclassifications
(2) - - (1) - 6 1 6
------------------ -------- ------------------ ------------------ ------------------ ------------ ----- -------
Exchange
differences - - (66) (19) (3) (20) (108)
------------------ -------- ------------------ ------------------ ------------------ ------------ ----- -------
At 31 December
2021 34 425 1,760 342 650 420 3,631
------------------ -------- ------------------ ------------------ ------------------ ------------ ----- -------
Net book value:
------------------ -------- ------------------ ------------------ ------------------ ------------ ----- -------
31 December 2021 1,026 508 1,633 133 328 413 4,041
------------------ -------- ------------------ ------------------ ------------------ ------------ ----- -------
1 January 2021 1,074 534 1,761 925 361 490 5,145
------------------ -------- ------------------ ------------------ ------------------ ------------ ----- -------
(1) ITP Aero has been classified as a disposal group held for
sale since 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 22.
(2) Includes reclassifications within intangible assets or from
property, plant and equipment when available for use.
(3) Charged to cost of sales and commercial and administrative
costs except development costs, which are charged to research and
development costs.
(4) Includes GBP115m (2020: GBP110m) of software under course of
construction which is not amortised.
Goodwill has been tested for impairment during 2021 on the
following basis:
- The carrying values of goodwill have been assessed by
reference to value in use. These have been estimated using cash
flows from the most recent forecasts prepared by the Directors,
which are consistent with past experience and external sources of
information on market conditions. These forecasts generally cover
the next five years. Growth rates for the period not covered by the
forecasts are based on growth rates of 2% which reflect the
products, industries and countries in which the relevant CGU or
group of CGUs operate.
- The key forecast assumptions for the impairment tests are the
discount rate and the cash flow projections, in particular the
programme assumptions (such as sales volumes and product costs),
the impact of foreign exchange rates on the relationship between
selling prices and costs, and growth rates. Impairment tests are
performed using prevailing exchange rates.
- The Group believes there are significant business growth
opportunities to come from Rolls-Royce playing a leading role in
the transition to net zero, whilst at the same time climate change
poses potentially significant risks. The assumptions used by the
Directors are based on past experience and external sources of
information. The main areas that have been considered are demand
for engines and their in-service lives, utilisation of the products
whilst in service, and the impact of market and regulatory change.
The investment required to ensure our new products will be
compatible with net zero operation by 2030, and to achieve net zero
scope 1 and 2 GHG emissions is reflected in the forecasts used.
A 1.5(o) C Paris-aligned sensitivity, based on IEA and Oxford
Economics forecasts, has been considered which assumes that
Governments adopt strict product and behavioural standards, high
carbon pricing and strategic investments in low carbon
alternatives, with markets willing to pay for low carbon solutions.
The sensitivity has considered the likelihood of demand changes for
our products based on their relative fuel efficiency in the
marketplace and the probability of alternatives being introduced
earlier than currently expected. The sensitivity also reflects a
broad range of potential costs imposed by policy or regulatory
interventions (through carbon pricing). This sensitivity does not
indicate the need for an impairment charge. Further detail can be
found in note 1.
The principal value in use assumptions for goodwill balances
considered to be individually significant are:
Rolls-Royce Power Systems AG
- Trading assumptions (e.g. volume of equipment deliveries,
pricing achieved and cost escalation) that are based on current and
known future programmes, estimates of market share and long-term
economic forecasts;
- Plausible downside scenario in relation to COVID-19 recovery
included with a 20% weighting;
- Cash flows beyond the five-year forecasts are assumed to grow
at 2.0% (2020: 2.0%); and
- Pre-tax discount rate 10.7% (2020: 11.7%).
The Directors do not consider that any reasonably possible
changes in the key assumptions (including taking consideration of
the climate risks above) would cause the value in use of the
goodwill to fall below its carrying value.
7 Intangible assets continued
Rolls-Royce Deutschland Ltd & Co KG
- Trading assumptions (e.g. volume of engine deliveries, flying
hours of installed fleet, including assumptions on the recovery of
the civil aviation industry, and cost escalation) that are based on
current and known future programmes, estimates of market share and
long-term economic forecasts;
- Plausible downside scenario in relation to COVID-19 recovery
included with a 25% weighting;
- Cash flows beyond the five-year forecasts are assumed to grow
at 2.0% (2020: 2.0%).
- Pre-tax discount rate 11.9% (2020: 11.9%).
The Directors do not consider that any reasonably possible
changes in the key assumptions (including taking consideration of
the climate risks above) would cause the value in use of the
goodwill to fall below its carrying value.
Other cash generating units
Goodwill balances across the Group that are not considered to be
individually significant were also tested for impairment, resulting
in no impairment charge (2020: GBP8m) being recognised in 2021.
The carrying amount and the residual life of the material
intangible assets (excluding goodwill) for the Group are as
follows:
Residual life 2021 2020
GBPm GBPm
------------------------------------------------------------ ----------------------- ------ ------
Trent programme intangible assets (1) 7-15 years 1,787 1,770
------------------------------------------------------------ ----------------------- ------ ------
Business aviation programme intangible assets (2) 15 years 237 256
------------------------------------------------------------ ----------------------- ------ ------
Customer relationship assets on acquisition of ITP Aero (3) typically 13-35 years - 651
------------------------------------------------------------ ----------------------- ------ ------
Intangible assets from the acquisition of Power Systems (4) 491 531
------------------------------------------------------------------------------------- ------ ------
2,515 3,208
------------------------------------------------------------------------------------ ------ ------
(1) Included within the Trent programmes are the Trent 1000,
Trent 7000 and Trent XWB.
(2) Included within business aviation are the Pearl 700 and
Pearl 15.
(3) ITP Aero has been classified as a disposal group held for sale since 30 June 2021.
(4) Includes GBP108m (2020: GBP115m) in respect of a brand
intangible asset which is not amortised. Remaining assets are
amortised over a range of 2-10 years.
The carrying amount of goodwill or intangible assets allocated
across multiple CGUs is not significant in comparison with the
Group's total carrying amount of goodwill or intangible assets with
indefinite useful lives.
Other intangible assets (including programme 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 (as set out in the goodwill section above), 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 the Directors, 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 product performance related estimates, future
market share and pricing and cost for uncontracted business.
Climate risks are considered when making these estimates consistent
with the assumptions above. 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 during the year.
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 19 120 6 154 299
-----------------------
Transferred to assets
held for sale (1) (200) (305) (22) (8) (535)
-----------------------
Disposals/write-offs (59) (264) (11) (23) (357)
-----------------------
Reclassifications (2) 144 75 53 (271) 1
-----------------------
Exchange differences (33) (82) (5) (3) (123)
At 31 December 2021 1,865 4,986 1,046 300 8,197
-----------------------
Accumulated
depreciation and
impairment:
-----------------------
At 1 January 2021 679 3,336 374 8 4,397
-----------------------
Charge for the period
(3) 70 312 57 - 439
-----------------------
Impairment (4) 1 18 - - 19
-----------------------
Transferred to assets
held for sale (1) (74) (127) (5) - (206)
-----------------------
Disposals/write-offs (48) (254) (1) - (303)
-----------------------
Reclassifications (2) (7) 11 (10) - (6)
-----------------------
Exchange differences (7) (52) (1) - (60)
At 31 December 2021 614 3,244 414 8 4,280
-----------------------
Net book value at:
31 December 2021 1,251 1,742 632 292 3,917
1 January 2021 1,315 2,106 651 443 4,515
(1) ITP Aero has been classified as a disposal group held for
sale since 30 June 2021. In addition, certain items of property,
plant and equipment related to the Group's site rationalisation
activities have been classified as held for sale at 31 December
2021. Bergen Engines AS and the Civil Nuclear Instrumentation &
Control business were classified as held for sale at 31 December
2020 - see note 22.
(2) Includes reclassifications of assets under construction to
the relevant classification in property, plant and equipment,
right-of-use assets 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 property, plant and equipment have
been assessed during the period in line with IAS 36. Material items
of plant and equipment and aircraft and engines are assessed for
impairment together with other assets used in individual programmes
- see assumptions in note 7. Land and buildings are generally used
across multiple programmes and are considered based on future
expectations of the use of the site, which includes any
implications from climate-related risks as explained in note 7. As
a result of this assessment, there are no individually material
impairment charges or reversals in the year.
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 37 15 30 82
Transferred to assets held for sale (1) (16) (2) - (18)
Disposals (8) (16) (66) (90)
Reclassifications - - (8) (8)
Exchange differences (4) (4) (4) (12)
At 31 December 2021 456 143 1,785 2,384
Accumulated depreciation and impairment:
At 1 January 2021 159 60 806 1,025
Charge for the period 43 30 199 272
Impairment (2) (2) (6) (7) (15)
Transferred to assets held for sale (1) (4) (1) - (5)
Disposals (8) (16) (66) (90)
Reclassifications - - (1) (1)
Exchange differences (2) (1) (2) (5)
At 31 December 2021 186 66 929 1,181
Net book value at:
31 December 2021 270 77 856 1,203
1 January 2021 288 90 1,027 1,405
(1) ITP Aero has been classified as a disposal group held for
sale since 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 22.
(2) The carrying values of right-of-use assets have been
assessed during the period in line with IAS 36. Material items of
plant and equipment and aircraft and engines are assessed for
impairment together with other assets used in individual programmes
- see assumptions in note 7. Land and buildings are generally used
across multiple programmes and are considered based on future
expectations of the use of the site (which includes any
implications from climate-related risks as explained in note 7). As
a result of this assessment, an impairment reversal of GBP8m 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 Investments
Equity accounted and other investments
Equity accounted Other (1)
Joint ventures Associates Total
GBPm GBPm GBPm GBPm
At 1 January 2021 393 1 394 19
Additions (2) 2 1 3 27
Disposals - - - (1)
Impairment (3) (2) - (2) (5)
Share of retained profit (4) 19 (1) 18 -
Reclassification of deferred profit to deferred income (5) (24) - (24) -
Transferred to assets held for sale (6) (35) - (35) -
Repayment of loans (3) - (3) -
Revaluation of other investments accounted for at FVOCI - - - (2)
Exchange differences 8 - 8 (2)
Share of OCI (7) 45 - 45 -
At 31 December 2021 403 1 404 36
(1) Other investments includes unlisted investments of GBP29m
and listed investments of GBP7m.
(2) During the year, additions to other investments of GBP27m
include the following significant transactions. On 17 December
2021, the Group acquired a 1% investment in Vertical Aerospace for
consideration of GBP9m. The Group has elected to value this
investment at fair value through other comprehensive income. On 18
May 2020, the Group increased its shareholding in Reaction Engines
Limited from 2% to 10.1% for GBP20m (GBP4m of which was paid during
2020) which was payable (and the associated shares acquired) in
instalments. During the year, the Group paid the remaining
instalments of GBP16m for the Reaction Engines acquisition.
(3) During the year, the Group recognised an impairment of GBP7m
(2020: nil) through underlying and nil (2020: GBP24m) charged to
the income statement through non-underlying.
(4) See table below.
(5) The Group's share of unrealised profit on sales to joint
ventures is eliminated against the carrying value of the investment
in the entity. Any excess amount, once the carrying value is
reduced to nil, is recorded as deferred income.
(6) The Group's investment in Airtanker Holdings Limited has
been classified as a non-current asset held for sale since 13
September 2021. Further detail can be found in note 22.
(7) Up to 13 September 2021 when Airtanker Holdings Limited was
transferred to held for sale, the Group recognised share of OCI
relating to cash flow hedges of GBP43m.
Reconciliation of share of retained profit to the income
statement and cash flow statement:
Restated
2021 2020
GBPm GBPm
----------------------------------------------------------------------------------- ----- ---------
Share of results of joint ventures and associates 22 132
Adjustments for intercompany trading (1) 23 58
Share of results of joint venture and associates to the Group (income statement) 45 190
Dividends paid by joint ventures and associates to the Group (cash flow statement) (27) (60)
Share of retained profit attributable to continuing operations 18 130
Share of retained profit attributable to discontinued operations - 1
Share of retained profit above 18 131
(1) During the year, the Group sold spare engines to Rolls-Royce
& Partners Finance, a joint venture company. The Group's share
of the profit on these sales is deferred and released to match the
depreciation of the engines in the joint venture's financial
statements. In 2021 and 2020, profit deferred on the sale of
engines was lower than the release of that deferred in prior
years.
11 Inventories
2021 2020
GBPm GBPm
Raw materials 376 417
Work in progress 1,135 1,139
Finished goods 2,146 2,111
Payments on account 9 23
3,666 3,690
12 Trade receivables and other assets
Current Non-current Total
-----
2021 2020 2021 2020 2021 2020
GBPm GBPm GBPm GBPm GBPm GBPm
Trade receivables (1) 2,141 2,479 52 - 2,193 2,479
Receivables due on risk and revenue sharing arrangements (RRSAs) 702 603 67 82 769 685
Amounts owed by joint ventures and associates 598 486 1 16 599 502
Costs to obtain contracts with customers (2) 13 12 41 50 54 62
Other taxation and social security receivable 197 225 8 6 205 231
Other receivables (3) 593 639 20 20 613 659
Prepayments 572 412 378 425 950 837
4,816 4,856 567 599 5,383 5,455
(1) Non-current trade receivables relate to amounts not expected
to be received in the next 12 months from customers on payment
plans.
(2) These are amortised over the term of the related contract,
resulting in amortisation of GBP9m (2020: GBP10m) in the year.
There were no impairment losses.
(3) Other receivables include unbilled recoveries relating to overhaul activity.
During the year to 31 December 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 customers.
The expected credit losses for trade receivables and other
assets have increased by GBP7m to GBP259m (2020: GBP252m). This
movement is mainly driven by the Civil Aerospace business of GBP7m,
of which GBP10m relates to specific customers and GBP(3)m relates
to updates to the recoverability of other receivables.
The Group has adopted the simplified approach to provide for
expected credit losses, measuring the loss allowance at a
probability weighted amount incorporated by using credit ratings
which are publicly available, or through internal risk assessments
derived using the customer's latest available financial
information.
The movements of the Group's expected credit losses provision
are as follows:
2021 2020
GBPm GBPm
At 1 January (252) (138)
Increases in loss allowance recognised in the income statement during the year (124) (119)
Loss allowance utilised 46 5
Releases of loss allowance previously provided 46 13
Transferred to held for sale 2 -
Exchange differences 23 (13)
At 31 December (259) (252)
13 Cash and cash equivalents
2021 2020
GBPm GBPm
Cash at bank and in hand 795 940
Money-market funds 49 669
Short-term deposits 1,777 1,843
Cash and cash equivalents per the balance sheet 2,621 3,452
Cash and cash equivalents within assets held for sale 25 51
Overdrafts (note 17) (7) (7)
Cash and cash equivalents per cash flow statement (page 18) 2,639 3,496
Cash and cash equivalents at 31 December 2021 includes GBP89m
(2020: GBP143m) that is not available for general use by the Group.
This balance includes GBP40m which is held in an account that is
exclusively for the general use of Rolls-Royce Submarines Limited.
This cash is not available for use by other entities within the
Group. The remaining balance relates to cash held in non-wholly
owned subsidiaries and joint arrangements.
Balances are presented on a net basis when the Group has both a
legal right of offset and the intention to either settle on a net
basis or realise the asset and settle the liability
simultaneously.
14 Trade payables and other liabilities
Current Non-current Total
2021 2020 2021 2020 2021 2020
GBPm GBPm GBPm GBPm GBPm GBPm
Trade payables 1,272 1,418 - - 1,272 1,418
Payables due on RRSAs 739 697 - - 739 697
Amounts owed to joint ventures and associates 486 583 - - 486 583
Customer concession credits 1,106 1,536 399 514 1,505 2,050
Warranty credits 201 173 161 196 362 369
Accruals 1,361 1,322 192 117 1,553 1,439
Deferred receipts from RRSA workshare partners 23 17 484 507 507 524
Government grants (1) 28 16 39 66 67 82
Other taxation and social security 40 127 - 7 40 134
Other payables (2) 760 764 300 515 1,060 1,279
6,016 6,653 1,575 1,922 7,591 8,575
(1) During the year, GBP13m, including GBP1m in discontinued
operations, (2020: GBP10m) of government grants were released to
the income statement.
(2) Other payables includes parts purchase obligations, payroll
liabilities, HM UK Government levies and payables associated with
business disposals.
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 to
120 days. The Group offers reduced payment terms for smaller
suppliers, so that they are paid in 30 days. In line with civil
aviation 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 31 December 2021, suppliers had drawn GBP540m under
the SCF scheme (31 December 2020: GBP582m).
15 Contract assets and liabilities
Current Non-current (1) Total
2021 2020 2021 2020 2021 2020
GBPm GBPm GBPm GBPm GBPm GBPm
Contract assets
Contract assets with customers 586 416 641 660 1,227 1,076
Participation fee contract assets 27 48 219 386 246 434
613 464 860 1,046 1,473 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.
(2) Contract assets are classified as non-financial instruments.
Contract assets with customers includes GBP915m (2020: GBP726m)
of Civil Aerospace LTSA assets, with most of the remaining balance
relating to Defence. The main driver of the increase in the Group
balance is revenue recognised in Civil Aerospace in the year as
performance obligations have been completed exceeding amounts
received, partly reduced by GBP10m relating to performance
obligations satisfied in previous years, together with foreign
exchange movements. No impairment losses in relation to these
contract assets (2020: none) have arisen during the year to 31
December 2021.
Participation fee contract assets have reduced by GBP188m (2020:
reduced by GBP165m) due to ITP Aero being reclassified as a
disposal group held for sale which had an impact of GBP147m,
amortisation exceeding additions by GBP23m and foreign exchange on
consolidation of overseas entities of GBP18m.
The absolute value of expected credit losses for contract assets
has increased by GBP1m to GBP15m (2020: GBP14m).
15 Contract assets and liabilities continued
Current Non-current Total
2021 2020 2021 2020 2021 2020
GBPm GBPm GBPm GBPm GBPm GBPm
Contract liabilities 3,599 4,187 6,710 6,245 10,309 10,432
During the year GBP2,713m (2020: GBP2,792m) of the opening
contract liability was recognised as revenue.
Contract liabilities have decreased by GBP123m. The main driver
of the change in the Group balance is as a result of ITP Aero
contract liabilities (2020: GBP173m) being reclassified as held for
sale. The remaining movement includes an increase in Civil
Aerospace of GBP165m offset by a GBP99m decrease in Defence.
The Civil Aerospace movement consists of an increase in relation
to LTSA liabilities of GBP288m to GBP7,129m (2020: GBP6,841m). LTSA
revenue billed has been ahead of revenue recognised in the year and
together with foreign exchange movements resulted in an increase in
the LTSA liabilities by GBP512m, offset by GBP224m of revenue
recognised relating to performance obligations satisfied in
previous years, which were principally driven by price escalation
in business aviation and the impact of specific customer
negotiations. This is partially offset by the utilisation of
deposits reflecting utilisation of amounts received in previous
years as engines and aftermarket services were delivered in
2021.
The movement in Defence is from utilisation of prior year
deposits and recognition of deferred income as revenue as
performance obligations have been satisfied.
16 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 31 December
2021
Non-current
assets 159 11 176 346 - 15 - 361
Current assets 12 21 - 33 - 13 - 46
Assets 171 32 176 379 - 28 - 407
Current
liabilities (629) - - (629) (7) (28) (25) (689)
Non-current
liabilities (2,581) - (82) (2,663) (5) (47) - (2,715)
Liabilities (3,210) - (82) (3,292) (12) (75) (25) (3,404)
(3,039) 32 94 (2,913) (12) (47) (25) (2,997)
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.
Derivative financial instruments
Movements in fair value of derivative financial assets and
liabilities were as follows:
Interest rate Interest rate
instruments - instruments -
Foreign exchange Commodity hedge accounted non-hedge
instruments instruments (2) accounted Total
2021 2020 2021 2020 2021 2020 2021 2020 2021 2020
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 January (2,871) (3,104) (11) 12 233 229 (57) 14 (2,706) (2,849)
Movements in fair
value hedges - - - - (143) 139 - - (143) 139
Movements in cash
flow hedges (13) 18 4 6 (2) (60) - - (11) (36)
Movements in
other derivative
contracts (1) (681) (23) 63 (62) - - 80 (75) (538) (160)
Contracts settled 538 238 (9) 33 (31) (75) 14 4 512 200
Reclassification
to held for sale (12) - (15) - - - - - (27) -
At 31 December (3,039) (2,871) 32 (11) 57 233 37 (57) (2,913) (2,706)
(1) Included in net financing.
(2) Includes the foreign exchange impact of cross-currency interest rate swaps.
16 Financial assets and liabilities continued
Financial risk and revenue sharing arrangements (RRSAs) and
other financial assets and liabilities
Financial RRSAs Other liabilities Other assets
2021 2020 2021 2020 2021 2020
GBPm GBPm GBPm GBPm GBPm GBPm
At 1 January (81) (110) (73) (72) 15 16
---------------------------------------
Exchange adjustments included in OCI 4 (6) 4 (2) - -
---------------------------------------
Additions - - (9) (17) - -
---------------------------------------
Financing charge (1) - (3) (1) (13) - -
---------------------------------------
Excluded from underlying profit:
---------------------------------------
Changes in forecast payments (1) (7) (3) - - - -
---------------------------------------
Cash paid 3 39 3 18 - (1)
---------------------------------------
Other - - 1 13 - -
---------------------------------------
Reclassification to held for sale 69 2 - - - -
---------------------------------------
At 31 December (12) (81) (75) (73) 15 15
---------------------------------------
(1) Included in net financing.
Fair values of financial instruments equate to book values with
the following exceptions:
2021 2020
Book value Fair value Book value Fair value
GBPm GBPm GBPm GBPm
Borrowings - Level 1 (4,038) (4,106) (4,886) (4,814)
Borrowings - Level 2 (1,994) (2,122) (401) (403)
Financial RRSAs - Level 3 (12) (13) (81) (89)
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. There have been no transfers during the year from
or to Level 3 valuation.
- Non-current investments - primarily comprise unconsolidated
companies where fair value approximates to the book 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 (2021: GBP17m; 2020:
GBP938m) are estimated by discounting expected future contractual
cash flows using prevailing interest rate curves. 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).
- 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 31 December 2021, Level 3 assets
totalled GBP15m (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).
17 Borrowings and lease liabilities
Current Non-current Total
2021 2020 2021 2020 2021 2020
GBPm GBPm GBPm GBPm GBPm GBPm
Unsecured
Overdrafts 7 7 - - 7 7
Bank loans (1) 2 9 1,975 10 1,977 19
Commercial paper (2) - 300 - - - 300
2.125% Notes 2021 EUR750m (3) - 680 - - - 680
0.875% Notes 2024 EUR550m (4) - - 471 511 471 511
3.625% Notes 2025 $1,000m (4) - - 781 800 781 800
3.375% Notes 2026 GBP375m (5) - - 394 420 394 420
4.625% Notes 2026 EUR750m (6) - - 624 667 624 667
5.75% Notes 2027 $1,000m (6) - - 735 724 735 724
5.75% Notes 2027 GBP545m - - 540 539 540 539
1.625% Notes 2028 EUR550m (4) - - 493 545 493 545
Other loans (7) - 17 10 58 10 75
Total unsecured 9 1,013 6,023 4,274 6,032 5,287
Lease liabilities 270 259 1,474 1,784 1,744 2,043
Total borrowings and lease liabilities 279 1,272 7,497 6,058 7,776 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 17 March 2021, the Group repaid commercial paper of
GBP300m issued as part of the COVID Corporate Financing Facility
(CCFF), a fund operated by the Bank of England on behalf of HM
Treasury.
(3) These notes were the subject of cross-currency interest rate
swap agreements under which the Group had undertaken to pay oating
rates of GBP interest, which form a fair value hedge. On the 18
June 2021, the Group repaid EUR750m (GBP639m) loan notes in line
with repayment terms.
(4) These notes are the subject of cross-currency interest rate
swap agreements under which the Group has undertaken to pay oating
rates of GBP interest, which form a fair value hedge. They are also
subject to interest rate swap agreements under which the Group has
undertaken to pay fixed rates of interest, which are classified as
fair value through profit and loss.
(5) These notes are the subject of interest rate swap agreements
under which the Group has undertaken to pay oating rates of
interest, which form a fair value hedge. They are also subject to
interest rate swap agreements under which the Group has undertaken
to pay fixed rates of interest, which are classified as fair value
through profit and loss.
(6) These notes are the subject of cross-currency interest rate
swap agreements under which the Group has undertaken to pay fixed
rates of GBP interest, which form a cash flow hedge.
(7) During the year, the Group reclassified borrowings and lease
liabilities relating to ITP Aero as liabilities associated with
assets held for sale.
During the year, the Group entered into a new GBP1,000m facility
maturing in 2026 (supported by an 80% guarantee from UK Export
Finance and available to draw until March 2025). This facility was
undrawn at 31 December 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 earlier.
18 Leases
Leases as lessee
The net book value of right-of-use assets at 31 December 2021
was GBP1,203m (2020: GBP1,405m), with a lease liability of
GBP1,744m (2020: GBP2,043m). Leases that have not yet commenced to
which the Group is committed have a future liability of GBP55m and
consist of mainly engines, plant and equipment, properties and
cars. The condensed consolidated income statement shows the
following amounts relating to leases:
2021 2020
GBPm GBPm
Land and buildings depreciation and impairment (1) (41) (122)
Plant and equipment depreciation (2) (24) (44)
Aircraft and engines depreciation and impairment (3) (192) (566)
Total depreciation and impairment charge for right-of-use assets (257) (732)
Adjustment of amounts payable under residual value guarantees within lease liabilities (3,
4) 4 102
Expense relating to short-term leases of 12 months or less recognised as an expense on a straight-line
basis (2) (16) (18)
Expense relating to variable lease payments not included in lease liabilities (3,5) (2) (1)
Total operating costs (271) (649)
Interest expense (6) (63) (74)
Total lease expense (334) (723)
Income from sub-leasing right-of-use assets 35 97
Total amount recognised in income statement (299) (626)
(1) Included in cost of sales and commercial and administration
costs depending on the nature and use of the right-of-use
asset.
(2) Included in cost of sales, commercial and administration
costs, or research and development depending on the nature and use
of the right-of-use asset.
(3) Included in cost of sales.
(4) 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. To the extent that 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.
(5) Variable lease payments primarily arise on a small number of
contracts where engine lease payments are solely dependent upon
utilisation rather than a periodic charge.
(6) Included in financing costs.
The total cash outflow for leases in 2021 was GBP448m (2020:
GBP377m). Of this GBP430m related to leases reflected in the lease
liability, GBP16m to short-term leases where lease payments are
expensed on a straight-line basis and GBP2m for variable lease
payments where obligations are only due when the assets are used.
The timing difference between income statement charge and cash flow
relates to costs incurred at the end of leases for residual value
guarantees and restoration costs that are recognised within
depreciation over the term of the lease, the most significant
amounts relate to engine leases.
19 Provisions
Charged to
At income Transfers to Exchange At 31 December
1 January 2021 statement (1) Reversed Utilised held for sale differences 2021
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Trent 1000
exceptional
costs 321 80 (45) (199) - - 157
Contract losses 808 272 (190) (27) (13) (5) 845
Restructuring 236 5 (138) (74) (5) (3) 21
Warranty and
guarantees 327 84 (5) (75) (11) (15) 305
Customer
financing 17 - - - - - 17
Insurance 60 22 (20) (10) - - 52
Tax related
interest and
penalties 33 5 (13) (11) - - 14
Employer
liability
claims 50 3 (3) (2) (1) - 47
Other 93 61 (11) (17) - (2) 124
1,945 532 (425) (415) (30) (25) 1,582
Current
liabilities 826 475
Non-current
liabilities 1,119 1,107
(1) The charge to the income statement includes GBP32m (2020:
GBP48m) 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. During the year, the Group has utilised GBP199m of the
Trent 1000 exceptional costs provision. This represents customer
disruption costs settled in cash and credit notes, and remediation
shop visit costs. The value of remaining provision reflects the
single most likely outcome and is expected to be utilised over the
period 2022 to 2024.
19 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 year, additional contract losses for the
Group of GBP272m have been recognised as a result of changes in
future cost estimates, primarily in relation to LTSA shop visits;
GBP20m was a result of revised estimates in relation to climate
change. Contract losses of GBP190m previously recognised have been
reversed following a reassessment of the number of engines impacted
by the Trent 1000 technical issues and the cost of meeting
contractual obligations. The Group continues to monitor the
contract loss provision for changes in the market and revises the
provision as required. The value of the remaining contract loss
provisions reflect in each case the single most likely outcome. The
provisions are expected to be utilised over the term of the
customer contracts, typically within 8-16 years. From 1 January
2022, provisions for contract losses will be measured on a fully
costed basis. See note 1 for further detail.
Warranties and guarantees
Provisions for warranties and guarantees primarily relate to
products sold and are calculated based on an assessment of the
remediation costs related to future claims based on past
experience. The provision generally covers a period of up to three
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 at least 9,000 roles
across the Group. During the year, GBP74m of the provision was
utilised as part of these plans and GBP138m of the provision
released following reassessment of the anticipated cost per role
and a higher than expected rate of natural attrition. The remaining
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
they 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
$1.7bn (2020: $1.9bn) (on a discounted basis) to provide facilities
to enable customers to purchase aircraft (of which approximately
$952m could be called during 2022). 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 US dollars. 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.
2021 2020
GBPm $m GBPm $m
Gross commitments 32 43 38 52
Value of security (10) (13) (14) (19)
Guarantees (2) (3) (5) (6)
Net commitments 20 27 19 27
Net commitments with security reduced by 20% (1) 22 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.
Insurance
The Group's captive insurance company retains a portion of the
exposures it insures on behalf of the remainder of the Group which
include policies for aviation claims, employer liabilities and
healthcare claims. Significant delays can occur in the notification
and settlement of claims and judgement is involved in assessing
outstanding liabilities, the ultimate cost and timing of which
cannot be known with certainty at the balance sheet date. The
insurance provisions are based on information currently available,
however it is inherent in the nature of the business that ultimate
liabilities may vary if the frequency or severity of claims differs
from estimated. Provisions for outstanding claims are established
to cover the outstanding expected liability as well as claims
incurred but not yet reported.
Tax related interest and penalties
Provisions for tax related interest and penalties relate to
uncertain tax positions in some of the jurisdictions in which the
Group operates. Utilisation of the provisions will depend on the
timing of resolution of the issues with the relevant tax
authorities.
19 Provisions continued
Employer liability claims
The provision relating to employer healthcare liability claims
is as a result of an historical insolvency of the previous provider
and is expected to be utilised over the next 30 years.
Other
During the year, GBP61m of other provisions have been charged to
the income statement. The largest item is GBP29m for costs related
to the termination of a contract under which the Group now has an
obligation to enter an onerous lease. On commencement of that
lease, expected to be in 2022, this balance will be recognised as a
lease liability. The additional items that make up the remaining
charge in the year are individually immaterial and predominantly
relate to claims. At 31 December 2021, other provisions includes
those items as well as others (predominantly supplier claims),
where the related legal proceedings are ongoing and utilisation
will depend upon their resolution. The value of the provision
reflects the single most likely outcome in each case.
20 Pensions and other post-retirement and long-term employee benefits
Amounts recognised in the income statement
2021 2020
Overseas schemes Total Overseas schemes Total
UK schemes GBPm GBPm GBPm UK schemes GBPm GBPm GBPm
Defined benefit schemes:
Current service cost and
administrative expenses 10 61 71 153 67 220
Other past service
(credit)/cost (1) (15) (33) (48) (308) 20 (288)
(5) 28 23 (155) 87 (68)
Defined contribution schemes 146 81 227 80 84 164
Operating cost/(credit) 141 109 250 (75) 171 96
Net financing (credit)/charge in
respect of defined benefit
schemes (16) 19 3 (26) 27 1
Total income statement
charge/(credit) 125 128 253 (101) 198 97
(1) The past service credit recognised during the year comprises
the changes in the UK schemes below and GBP32m from the
remeasurement of the US defined benefit liability to remove spousal
benefits not included in the plan benefits. During the year to 31
December 2020, a UK past-service credit of GBP308m was recognised
which comprised GBP213m arising from the restructuring programme
and the introduction of the bridging pension option (BPO), GBP67m
as a result of the closure of the scheme to future accrual, GBP35m
as a result of changes to management benefits and a GBP7m
past-service cost recognised as a result of the 20 November High
Court judgement that previous statutory transfer values including
guaranteed minimum pensions built up between May 1990 and April
1997 must be equalised between men and women.
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 - 61 61
Current service cost and administrative expenses (10) (61) (71)
Past service credit 15 33 48
Financing recognised in the income statement 16 (19) (3)
Contributions by employer 99 63 162
Actuarial gains recognised in OCI 227 169 396
Returns on plan assets excluding financing recognised in OCI (112) (30) (142)
Transfers and disposal of businesses - 10 10
At 31 December 2021 1,118 (1,343) (225)
Post-retirement scheme surpluses - included in non-current assets (1) 1,118 30 1,148
Post-retirement scheme deficits - included in non-current liabilities - (1,373) (1,373)
1,118 (1,343) (225)
(1) 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 20 May 2020, the Group announced its intention to reshape and
resize the Group due to the financial and operational impact of
COVID-19. As part of this restructuring programme, a voluntary
severance programme was offered to certain UK employees and pension
liabilities were remeasured in 2020 to reflect the number of
members who were expected to leave the scheme. During the year, a
GBP4m past service credit has arisen from the updated scope of the
fundamental restructuring programmes following a higher than
expected rate of natural attrition.
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 31 December 2021, GBP7m had been recognised as
a non-underlying past service credit which relates to the
differences between the final protections agreed and the obligation
estimated at 31 December 2020.
20 Pensions and other post-retirement and long-term employee benefits continued
During the year to 31 December 2021, 236 employed deferred
members transferred employment in anticipation of a business
disposal. As a consequence of this, a GBP4m non-underlying past
service credit was recognised.
Sensitivities
A reduction in the discount rate from 1.90% to 1.65% could lead
to an increase in the defined benefit obligations of the RR UK
Pension Fund of approximately GBP460m. 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 21.8 years (male
aged 65) and from 23.2 years (male aged 45) would increase the
defined benefit obligations of the RR UK Pension Fund by
approximately GBP365m.
Where applicable, it is assumed that 50% and 40% (2020: 40%) of
employed deferred and deferred members respectively 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.
Contributions
The Group expects to contribute approximately GBP66m to its
defined benefit schemes in 2022 (2021: GBP160m): UK: nil, Overseas:
GBP66m (2020: UK: GBP100m, Overseas: GBP60m).
In the UK, cash funding is based on a statutory triennial
funding valuation process. This process includes a negotiation
between the Group and the Trustee on the actuarial assumptions used
to value the liabilities (Technical Provisions); assumptions which
may differ from those used for accounting. The assumptions used to
value Technical Provisions must be prudent rather than a best
estimate of the liability. Most notably, the Technical Provision
discount rate is currently based upon UK Government yields plus a
margin (0.5% at the 31 March 2020 valuation) rather than being
based on yields of AA corporate bonds. Following the triennial
valuation process, a Schedule of Contributions (SoC) must be agreed
which sets out the agreed rate of cash contributions and any
contributions from the employer to eliminate a deficit. The most
recent valuation, as at 31 March 2020, agreed by the Trustee in
June 2021, showed that the UK scheme was estimated to be 105%
funded on the Technical Provisions basis. This funding level
reflected the short-term market impact of the COVID-19 pandemic.
Funding has now returned to pre-pandemic levels and was estimated
to be 112% at 31 December 2021. Following the closure of the scheme
to future accrual on 31 December 2020, no contributions will be
made in respect of future accrual and no deficit reduction
contributions are required. The 2021 contributions included above
are in respect of 2020 accrual, the payment of some of which were
deferred in agreement with the Trustee as a result of the COVID-19
pandemic. All cash due has been paid in full. The current SoC
includes an arrangement for potential contributions during 2024 to
2027 (capped at GBP145m in total) if the Technical Provisions
funding position is below 107% at 31 March 2023.
21 Contingent liabilities
Contingent liabilities in respect of customer financing
commitments are described in note 19.
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. The terms of both DPAs have now
expired; the DPA with the DoJ was dismissed by the US District
Court on 19 May 2020 and the SFO filed notice of discontinuance of
proceedings with the UK Court on 18 January 2022. 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.
The Group's share of equity accounted entities' contingent
liabilities is nil (2020: nil).
22 Disposals, businesses held for sale and discontinued operations
Disposals
Bergen Engines Civil Nuclear Total subsidiaries
GBPm GBPm GBPm
Proceeds
Cash consideration 77 85 162
Cash and cash equivalents disposed (29) (14) (43)
Net cash consideration per cash flow statement 48 71 119
Less: Net assets disposed (34) - (34)
Profit on disposal before disposal costs and continuing obligations 14 71 85
Cumulative currency translation (loss)/gain (1) 2 1
Disposal costs (20) (3) (23)
Non- underlying (loss)/profit before tax (7) 70 63
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 Engines AS
formed part of the Power Systems business and from 31 December 2020
it has been classified as a disposal group held for sale. During
the year to 31 December 2021, an impairment charge of GBP9m was
recognised against the disposal group as a result of a change in
the anticipated proceeds. On 31 December 2021, the Group completed
the sale of Bergen Engines AS to Langley Holdings plc for a value
of EUR91m. In accordance with IAS 21 The Effects of Changes in
Foreign Exchange Rates, the Group has recycled the cumulative
currency translation reserve through the income statement in
2021.
On 7 December 2020, the Group signed an agreement for the sale
of Civil Nuclear Instrumentation & Control business to
Framatome and consequently, in accordance with IFRS 5 Non-current
Assets Held for Sale and Discontinued Operations, the business was
classified as a disposal group held for sale at 31 December 2020.
During the year to 31 December 2021, no impairment charge was
recognised. On 5 November 2021, the Group completed the sale to
Framatome for a value of GBP85m. In accordance with IAS 21, the
Group has recycled the cumulative currency translation reserve
through the income statement in 2021.
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. A liability of EUR28m is recognised for
amounts that are now expected to be payable in relation to the
years 2022 and 2023 (2020: EUR29m liability in relation to the
years 2021 to 2023). Cash of EUR9m has been paid during the year
with an increase in the liability of EUR8m (GBP7m) reflected as an
adjustment to sales proceeds. The maximum adjustment to sales
proceeds has now been provided for in all future years to 2023.
Reconciliation of loss on acquisition & disposal of
businesses per the income statement: Total
GBPm
Profit on disposal of
businesses 63
Adjustment to L'Orange
sales proceeds (7)
Profit on acquisition & disposal of businesses per
income statement 56
Reconciliation of cash flow on disposal of businesses
to the cash flow statement: Total
GBPm
Net consideration on disposal
of businesses 107
Cash outflow on disposals completed
in prior periods (8)
Cash flow on disposal of businesses per cash flow
statement 99
Businesses held for sale
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, were transferred to ITP
Aero (see note 2 for more detail) and other preparatory work had
been performed such that as at 30 June 2021 the business was
classified as a disposal group held for sale. On 27 September 2021,
the Group signed an agreement for the sale of ITP Aero to Bain
Capital for GBP1.3bn and consequently, in accordance with IFRS 5,
the business continues to be classified as a disposal group held
for sale at 31 December 2021. The assets of ITP Aero have been
assessed for impairment in line with the requirements of IFRS 5 and
no impairment is required at 31 December 2021. ITP Aero had an
additional GBP153m of cash which was held by another Group company
at 31 December 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. In addition, the Group records
significant adjustments to eliminate the impact of ITP Aero margin
within onerous contract provisions within Civil Aerospace. Certain
consolidation adjustments are not included in the balances held for
sale but will be derecognised upon the sale of ITP Aero and the
related income statement charge will be recognised as part of the
profit on disposal.
22 Disposals, businesses held for sale and discontinued operations continued
.
On 13 September 2021, the Group signed an agreement with Equitix
Investment Management Limited to dispose its 23.1% shareholding in
AirTanker Holdings Limited for a cash consideration of GBP189m. The
sale completed on 9 February 2022. In accordance with IFRS 5, the
Group has classified GBP47m of the AirTanker assets as held for
sale at 31 December 2021.
At 31 December 2021, the Group recognised property, plant and
equipment and the deferred income of a related grant as held for
sale in line with IFRS 5. These assets relate to the Group's site
rationalisation activities.
The table below summarises the categories of assets and
liabilities classified as held for sale at 31 December 2021 and
2020.
2021 2020
Other Bergen Civil
ITP Aero (1) Total Engines Nuclear Total
GBPm GBPm GBPm GBPm GBPm GBPm
Intangible assets 872 - 872 - 16 16
Property, plant and equipment 313 26 339 3 4 7
Right-of-use assets 12 - 12 2 7 9
Investment in associates
and joint ventures 1 34 35 - - -
Deferred tax assets 167 - 167 2 4 6
Inventory 222 - 222 97 14 111
Trade receivables and other
assets 342 14 356 50 38 88
Cash and cash equivalents 25 - 25 25 26 51
-------- ----- --------
Assets held for sale 1,954 74 2,028 179 109 288
Trade payables and other
liabilities (540) (7) (547) (100) (84) (184)
Provisions for liabilities
and charges (22) - (22) (11) (7) (18)
Borrowings and lease liabilities (72) - (72) (4) (7) (11)
Deferred tax liabilities (82) - (82) (2) - (2)
Post-retirement scheme deficits - - - - (13) (13)
-------- ----- --------
Liabilities associated with
assets held for sale (716) (7) (723) (117) (111) (228)
-------- ----- --------
Net assets/(liabilities)
held for sale 1,238 67 1,305 62 (2) 60
-------- ----- --------
(1) Other assets and liabilities held for sale comprise:
investment in joint venture and accrued interest with Airtanker
Holdings Limited; and assets and associated government grant,
related to the Group's site rationalisation activities.
Discontinued operations
ITP Aero represents a separate major line of business and is
classified as a disposal group held for sale. Therefore, 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 year that have been classified as
discontinued operations.
2021 2020
GBPm GBPm
Revenue 365 333
Operating loss (1) (4) (109)
Profit/(loss) before taxation (1) 2 (111)
Income tax credit (1) 34 43
Profit/(loss) for the year from discontinued
operations on ordinary activities 36 (68)
Costs on disposal of discontinued operations (39) -
Loss for the year from discontinued operations (3) (68)
Net cash inflow from operating activities
(2) 12 40
Net cash outflow from investing activities (32) (39)
Net cash outflow from financing activities (25) (22)
Exchange gains/(losses) 4 (4)
Net change in cash and cash equivalents (41) (25)
(1) Profit/(loss) from discontinued operations on ordinary
activities is presented net of intercompany trading eliminations,
related consolidation adjustments and amortisation of intangible
assets arising on previous acquisition (prior to classification to
held for sale).
(2) Cash flows from operating activities include GBP39m costs of
disposal paid during the year to 31 December 2021 that are not a
movement in the cash balance of the disposal group as they were
borne centrally.
23 Derivation of summary funds flow statement from statutory cash flow statement
2021 2020
GBPm GBPm GBPm GBPm Source
Underlying operating profit/(loss) from
continuing operations 414 (2,008) Note 2
Operating loss from discontinued
operations (43) (109) Note 2
Amortisation and impairment of intangible
assets 290 902 Cash flow statement (CFS)
Depreciation and impairment of PPE 462 821 CFS
Depreciation and impairment of
right-of-use assets 257 732 CFS
Adjustment to residual value guarantees in
lease liabilities (4) (102) CFS
Impairment of joint ventures, associates
and other investments 7 24 Note 10
Reversal of non-underlying impairments of Reversal of underlying adjustment (note
non-current assets 9 (1,244) 2)
Reversal of underlying adjustment (note
Acquisition accounting (50) (85) 2)
Depreciation, amortisation and impairment 971 1,048
CFS less exceptional restructuring (see
Additions of intangible assets (185) (316) below)
CFS less exceptional restructuring (see
Purchases of PPE (311) (579) below)
CFS (capital and interest payments
Lease payments (capital plus interest) (403) (379) adjusted for foreign exchange (FX))
(Increase)/decrease in inventories (169) 588 CFS
CFS adjusted for the impact of
exceptional programme charges and
exceptional restructuring
shown on the basis of the FX rate
Movement in receivables/payables (469) (2,297) achieved on settled derivative contracts
CFS adjusted for the impact of
exceptional programme charges and FX and
Movement in contract balances (excluding excluding Civil LTSAs
Civil LTSA) (289) (263) (shown separately below)
Movement in Civil LTSA balances within
movement of contract balances in CFS
Underlying movement in Civil Aerospace less impact of
LTSA contract balances 66 479 FX
Adjustment to reflect the impact of the
Revaluation of trading assets (excluding FX contracts held on
exceptional items) 32 219 receivables/payables
Realised cash flows on FX contracts not
included in underlying operating profit
less cash
flows on settlement of excess derivative
Realised derivatives in financing 85 226 contracts
Movement on receivables/payables/contract
balances (575) (1,636)
CFS adjusted for the impact of
exceptional programme charges and
anticipated recoveries, exceptional
Movement on provisions (136) (195) restructuring and FX contracts held
Net interest received and paid (197) (75) CFS
Fees paid on undrawn facilities (62) (97) CFS
Cash flows on settlement of excess
derivative contracts (452) (202) CFS
Cash flows on other financial
instruments (CFS) not allocated to lease
Cash flows on financial instruments net of payments or exceptional
realised losses included in operating programme expenditure adjusted for the
profit (85) (105) impact of FX not held for trading
Principally disposals of non-current
assets, joint venture trading and the
effect of share-based
Other 68 (49) payments
Trading cash flow (1,165) (4,114)
Trading cash flow from
continuing operations (1,211) (4,198)
Contributions to defined benefit schemes
(in excess of)/less than underlying
operating profit
charge (92) 160 CFS
Tax (185) (231) CFS
Free cash flow (1,442) (4,185)
Free cash flow from continuing operations (1,485) (4,255)
Net cash flow from changes in borrowings CFS excluding repayment of debt
and lease liabilities 666 1,630 acquired.
(Decrease)/increase in short-term
investments (8) 6 CFS
Movement in net debt from cash flows 658 1,636
Exclude: capital element of lease
repayments 374 284 CFS
Movement in net debt from cash flows
(excluding lease liabilities) 1,032 1,920
Shareholder payments (4) (92) CFS (includes dividends to NCI)
Proceeds of rights issue (net of expenses
and rights taken by employee share trust) - 1,972 CFS
Acquisition of business - (130) CFS
Disposal of business 99 23 CFS
GBP50m related to costs incurred on
Other acquisitions and disposals (50) (12) central M&A activity.
Changes in Group structure 49 (119)
GBP168m related to severance costs and
GBP63m capital expenditure (2020:
GBP268m and GBP55m
Exceptional restructuring costs (231) (323) respectively)
Financial penalties paid (156) (135) CFS
Cash outflow on M&A spend and timing of
Other (23) (33) cash flows on a prior period disposal.
Change in cash and cash equivalents (775) (995)
23 Derivation of summary funds flow statement from statutory cash flow statement continued
The comparative information for the period ended 31 December
2020 has been re-presented to be on a comparable basis with the
presentation adopted at the year ended 31 December 2021. There is
no change to trading or group 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 activity related to business acquisitions or disposals,
financial penalties paid, exceptional restructuring costs and
foreign exchange changes on net funds. The Board considers that
free cash flow reflects cash generated from the Group's underlying
trading.
Trading cash flow is defined as free cash flow (as defined
above) before the deduction of recurring tax and post-employment
benefit expenses.
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 18.
Reconciliation of Alternative Performance Measures (APMS) to
their statutory equivalent
Alternative Performance Measures (APMS)
Business performance is reviewed and managed on an underlying
basis. These alternative performance measures reflect the economic
substance of trading in the year, including the impact of the
Group's foreign exchange activities. In addition, a number of other
APMs are utilised to measure and monitor the Group's
performance.
Definitions and reconciliations to the relevant statutory
measure are included below.
Underlying results from continuing operations
Underlying results including underlying revenue and underlying
operating profit. 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. Underlying results also
exclude: the effect of acquisition accounting and business
disposals, impairment of goodwill and other non-current assets
where the reasons for the impairment are outside of normal
operating activities, exceptional items and certain other items
which are market driven and outside of managements control.
Statutory results have been adjusted for discontinued operations
and underlying results from continuing operations have been
presented on the same basis. Further detail can be found in note 2
and note 22.
2021 2020
Notes GBPm GBPm
Revenue from continuing operations
Statutory revenue 11,218 11,491
Derivative & FX
adjustments 2 (271) (61)
Underlying revenue 10,947 11,430
Operating profit/(loss) from
continuing operations
Statutory operating
profit/(loss) 513 (1,972)
Derivative & FX
adjustments 2 40 (1,003)
Programme exceptional
charges 2 (105) (620)
Restructuring exceptional
charges 2 (45) 470
Acquisition accounting
& M&A 2 50 85
Impairments & asset
write-offs 2 (9) 1,336
Pension past service
credit 2 (47) (308)
Other underlying
adjustments 2 17 4
Underlying operating
profit/(loss) 414 (2,008)
2021 2020
Notes pence pence
Basic EPS from continuing operations
Statutory basic
EPS 6 1.48 (51.81)
Effect of underlying
adjustments to
profit/(loss) before
tax 6 3.96 (19.94)
Related tax effects (5.33) 4.27
Basic underlying
EPS 0.11 (67.48)
Underlying results from discontinued operations
2021 2020
Notes GBPm GBPm
Results from discontinued operations
Profit/(loss) for
the year from discontinued
operations on ordinary
activities 22 36 (68)
Costs of disposal
on discontinued
operations 22 (39) --
Statutory loss from
discontinued operations (3) (68)
Acquisition accounting
& M&A 64 48
Derivative & FX
adjustments 5 (3)
Restructuring exceptional
charges -- 82
Impairments & asset
write-offs (1) 19
Related tax effects (14) (36)
Underlying profit
from discontinued
operations 51 42
Trading cash flow
Trading cash flow is defined as free cash flow (as defined on
page 56) before the deduction of recurring tax and post-employment
benefit expenses. Trading cash flow per segment is used as a
measure of business performance for the relevant segments. For a
reconciliation of group trading cash flow to free cash flow and
reported cash flow, see note 23.
2021 2020
GBPm GBPm
Civil Aerospace (1,670) (4,510)
Defence 377 298
Power Systems 219 162
New Markets (56) (55)
Total reportable
segments trading
cash flow (1,130) (4,105)
Other businesses (43) (30)
Central and Inter-segment (38) (63)
Trading cash flow
from continuing operations (1,211) (4,198)
Discontinued business 46 84
Trading cash flow (1,165) (4,114)
Underlying operating
profit charge (exceeded
by)/in excess of
contributions to
defined benefit schemes (92) 160
Tax (1) (185) (231)
Free cash flow (1,442) (4,185)
(1) See page 18 for tax paid on statutory cash flow.
Reconciliation of Alternative Performance Measures (APMS) to
their statutory equivalent continued
Free cash flow
Free cash flow is a measure of financial performance of the
businesses' cash flow to see what is available for distribution
among those stakeholders funding the business (including debt
holders and shareholders). Free cash flow is the change in cash and
cash equivalents excluding: amounts spent or received on activity
related to business acquisitions or disposals; financial penalties
paid; exceptional restructuring payments; proceeds from increase in
loans; and repayment of loans. Free cash flow from continuing
operations has been presented to remove free cash flow from
discontinued operations as defined in note 22. For further detail,
see note 23.
2021 2020
GBPm GBPm
Statutory change
in cash and cash
equivalents (775) (995)
Net cash flow from
changes in short-term
investments, borrowings
and lease liabilities (658) (1,636)
Movement in net debt
from cash flows (1,433) (2,631)
Exclude: capital
element of lease
payments (374) (284)
Rights issue - (1,972)
Payment to shareholders 4 92
Business acquisitions
& disposals (49) 119
Penalties paid on
agreements with investigating
bodies 156 135
Restructuring exceptional
cash flow 231 323
Other underlying
adjustments 23 33
Free cash flow (1,442) (4,185)
Discontinued operations
free cash flow (1) (43) (70)
Free cash flow from
continuing operations (1,485) (4,255)
(1) Discontinued operations free cash excludes: transactions
with parent company of GBP(15)m (2020: GBP103m), movements in
borrowings of GBP22m (2020: GBP7m), exceptional restructuring costs
of GBP8m (2020: GBP2m), M&A costs of GBP44m (2020: nil) and
other of GBP29m (2020: GBP(21)m).
Free cash flow from cash flows from operating activities
In addition to the above, a reconciliation of free cash flow to
the statutory cash flow from operating activities has been provided
below:
2021 2020
GBPm GBPm
Statutory cash flows
from operating activities (259) (3,009)
Capital expenditure
(including investment
from NCI and movement
in joint ventures,
associates and other
investments) (489) (933)
Capital element of
lease payments (374) (284)
Interest paid (331) (259)
Settlement of excess
derivatives (452) (202)
Exceptional restructuring
costs 231 323
M&A costs 50 12
Financial penalties
paid 156 135
Other 26 32
Free cash flow (1,442) (4,185)
Discontinued operations
free cash flow (43) (70)
Free cash flow from
continuing operations (1,485) (4,255)
Group R&D expenditure
R&D expenditure during the year excluding the impact of
contributions and fees, including government funding, amortisation
and impairment of capitalised costs and amounts capitalised during
the year.
2021 2020
Notes GBPm GBPm
Statutory research
and development
costs (778) (1,204)
Amortisation and
impairment of capitalised
cost 3 70 560
Capitalised as
intangible assets (105) (228)
Contributions and
fees (366) (353)
Gross R&D expenditure (1,179) (1,225)
Key performance indicators
The following measures are key performance indicators and are
calculated using alternative performance measures or statutory
results. See below for calculation of these amounts.
Order backlog
Order backlog, also known as unrecognised revenue, is the amount
of revenue on current contracts that is expected to be recognised
in future periods. Civil Aerospace OE orders where the customer has
retained the right to cancel (for deliveries in the next 7-12
months) are excluded.
Self-funded R&D as a proportion of underlying revenue
Self-funded cash expenditure on R&D before any
capitalisation or amortisation relative to underlying revenue.
Self-funded R&D and underlying revenue are presented for
continuing operations in line with presentation in the statutory
income statement. We expect to spend approximately 5% of underlying
revenue on R&D although this proportion will fluctuate
depending on the stage of development of current programmes. We
expect this proportion will reduce modestly over the
medium-term.
2021 2020
Notes GBPm GBPm
Gross R&D expenditure 3 (1,179) (1,225)
Contributions
and fees 3 366 353
Self funded R&D 3 (813) (872)
Underlying revenue 10,947 11,430
%%
Self funded R&D
as a % of underlying
revenue 7.4 7.6
Capital expenditure as a proportion of underlying revenue
Cash purchases of PPE in the year relative to underlying revenue
presented for continuing operations. All proposed investments are
subject to rigorous review to ensure that they are consistent with
forecast activity and will provide value for money. We measure
annual capital expenditure as the cash purchases of PPE acquired
during the period; over the medium-term we expect a proportion of
around 3-4%.
2021 2020
GBPm GBPm
Purchases of PPE
(cash flow statement) 328 585
Exclude: capital
expenditure from
discontinued operations (24) (33)
Net capital expenditure 304 552
Underlying revenue 10,947 11,430
%%
Capital expenditure
as a % of underlying
revenue 2.8 4.8
Principal risks and uncertainties
Our risk management system is described on pages 52 to 57 of our
2021 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.
Safety Compliance
Failure to: i) meet the expectations Non-compliance by the Group with
of our customers to provide safe legislation or other regulatory
products; or ii) create a place requirements in the heavily regulated
to work which minimises the risk environment in which we operate
of harm to our people, those who (for example, export controls; data
work with us, and the environment, privacy; use of controlled chemicals
would adversely affect our reputation and substances; antibribery and
and long-term sustainability. corruption; and tax and customs
Strategic transformation legislation). This could affect
We see significant opportunities our ability to conduct business
in leading the transition to net in certain jurisdictions and would
zero by pioneering the power that potentially expose the Group to:
matters. Our strategy is to focus reputational damage; financial penalties;
on delivering on our plans for debarment from government contracts
existing and nascent businesses for a period of time; and suspension
and to focus on exploiting opportunities of export privileges (including
to grow into new net zero areas, export credit financing), each of
both organically and inorganically. which could have a material adverse
Failure to execute this plan will effect.
prevent us from achieving our longer-term Cyber threat
ambitions. An attempt to cause harm to the
Business continuity Group, its customers, suppliers
The major disruption of the Group's and partners through the unauthorised
operations, which results in our access, manipulation, corruption,
failure to meet agreed customer or destruction of data, systems
commitments and damages our prospects or products through cyberspace.
of winning future orders. Disruption Financial shock
could be caused by a range of events, The Group is exposed to a number
for example: extreme weather or of financial risks, some of which
natural hazards (for example earthquakes, are of a macroeconomic nature (for
floods) which could increase in example, foreign currency, oil price,
severity or frequency given the interest rates) and some of which
impact of climate change; political are more specific to the Group (for
events; financial insolvency of example, liquidity and credit risks).
a critical supplier; scarcity of Significant extraneous market events
materials; loss of data; fire; could also materially damage the
or infectious disease. The consequences Group's competitiveness and/or creditworthiness
of these events could have an adverse and our ability to access funding.
impact on our people, our internal This would affect operational results
facilities or our external supply or the outcomes of financial transactions.
chain. Market shock
Climate change The Group is exposed to a number
We recognise the urgency of the of market risks, some of which are
climate challenge and have committed of a macroeconomic nature (e.g.
to net zero carbon by 2050. The economic growth rates) and some
principal risk to meeting these of which are more specific to the
commitments is the need to transition Group (for example, reduction in
our products and services to a air travel or defence spending,
lower carbon economy. Failure to or disruption to other customer
transition from carbon intensive operations). A large proportion
products and services at pace could of our business is reliant on the
impact our ability to win future civil aviation industry, which is
business; achieve operating results; cyclical in nature.
attract and retain talent; secure Demand for our products and services
access to funding; realise future could be adversely affected by factors
growth opportunities; or force such as: recession, current and
government intervention to limit predicted air travel, fuel prices
emissions. and age and replacement rates of
Competitive environment our in-service products.
Existing competitors: the presence Political risk
of competitors in the majority Geopolitical factors that lead to
of our markets means that the Group an unfavourable business climate
is susceptible to significant price and significant tensions between
pressure for original equipment major trading parties or blocs which
or services. Our main competitors could impact the Group's operations.
have access to significant government Examples include: changes in key
funding programmes as well as the political relationships; explicit
ability to invest heavily in technology trade protectionism, differing tax
and industrial capability. or regulatory regimes, potential
Existing products: failure to achieve for conflict or broader political
cost reduction, contracted technical issues; and heightened political
specification, product (or component) tensions.
life or falling significantly short Talent and capability
of customer expectations, would Inability to identify, attract,
have potentially significant adverse retain and apply the critical capabilities
financial and reputational consequences, and skills needed in appropriate
including the risk of impairment numbers to effectively organise,
of the carrying value of the Group's deploy and incentivise our people
intangible assets and the impact would threaten the delivery of our
of potential litigation. strategies.
New programmes: failure to deliver
an NPI project on time, within
budget, to technical specification
or falling significantly short
of customer expectations would
have potentially significant adverse
financial and reputational consequences.
Disruptive technologies (or new
entrants with alternative business
models): could reduce our ability
to sustainably win future business,
achieve operating results and realise
future growth opportunities.
Payments to shareholders
As previously reported, some of our loan facilities place
restrictions and conditions on payments to shareholders. In 2021,
as a result of these restrictions, the Board was not able to
recommend shareholder payments. However, the Board may recommend
shareholder payments from 2023, subject to satisfaction of the
conditions and our consideration of progress made to strengthen the
balance sheet. We aim to be able to recommend shareholder payments
in the medium term. 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 June 2022 (CREST holders must submit their election in
CREST by 2.55pm). The payment of C Share redemption monies will be
made on 5 July 2022 and the CRIP purchase will begin as soon as
practicable after 5 July 2022.
Statement of Directors' responsibilities
The statements below have been prepared in connection with the
Company's full Annual Report and Accounts for the year ended 31
December 2021. Certain parts are not included in this
announcement.
The Directors consider that the Annual Report and Accounts,
taken as a whole, is fair, balanced and understandable and provides
the information necessary for shareholders to assess the Group's
and Company position and performance, business model and
strategy.
Each of the Directors, whose names and functions are listed in
the Directors' Report, confirm that to the best of their
knowledge:
- the Group Financial Statements, which have been prepared in
accordance with UK-adopted international accounting standards, give
a true and fair view of the assets, liabilities, financial position
and profit of the Group;
- the Company Financial Statements, which have been prepared in
accordance with United Kingdom Accounting Standards, comprising FRS
101, give a true and fair view of the assets, liabilities,
financial position and result of the Company;
- the Strategic Report includes a fair review of the development
and performance of the business and the position of the Group and
Company, together with a description of the principal risks and
uncertainties that it faces; and
In the case of each Director in office at the date the
Directors' Report is approved:
- so far as the Director is aware, there is no relevant audit
information of which the Group's and Company's auditors are
unaware; and
- they have taken all steps that they ought to have taken as a
Director in order to make themselves aware of any relevant audit
information and to establish that the Group's or Company's auditor
are aware of that information.
By order of the Board
Warren East Panos Kakoullis
Chief Executive Chief Financial Officer
24 February 2022 24 February 2022
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
RNS may use your IP address to confirm compliance with the terms
and conditions, to analyse how you engage with the information
contained in this communication, and to share such analysis on an
anonymised basis with others as part of our commercial services.
For further information about how RNS and the London Stock Exchange
use the personal data you provide us, please see our Privacy
Policy.
END
FR BKNBPBBKBNBB
(END) Dow Jones Newswires
February 24, 2022 02:01 ET (07:01 GMT)
Rolls-royce (LSE:RR.)
Historical Stock Chart
From Mar 2024 to Apr 2024
Rolls-royce (LSE:RR.)
Historical Stock Chart
From Apr 2023 to Apr 2024
