ROLLS-ROYCE GROUP PLC: TRANSITION FROM UK GAAP TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)

Abstract

To date, Rolls-Royce — the world-leading power Systems Company for aerospace, marine and energy markets — has prepared its accounts in compliance with UK Generally Accepted Accounting Principles (UK GAAP). EU regulations require Rolls-Royce to adopt IFRS in its financial statements from 2005. A study was begun by the Group in 2002, in conjunction with our auditors KPMG Audit Plc, to review what changes would be required in order to move from UK GAAP to IFRS. Restatements of our 2004 results are un-audited, but the auditors have agreed to the principles that have now been adopted by the Group. This transition report shows reported earnings per share for 2004 up by 29%, as compared with the figure announced in February (and earnings per share or EPS up by 7%). There was no change to the Group's guidance on trading performance for 2005. Under IFRS, however, for 2005 are expected to be significantly ahead of current market expectations, which are based on UK Generally Accepted Accounting Principles. There is no effect on the Group's trading cash flows and no effect on the Group's management of its businesses. The underlying profits will be retained as a key measure of operating performance, with some redefinition.