Segmental analysis

The Group operates in four segments which reflect the internal organisation and management structure according to the nature of the products and services provided:

Civil aerospace
development, manufacture, marketing and sales of commercial aero engines and aftermarket services.
Defence aerospace
development, manufacture, marketing and sales of military aero engines and aftermarket services.
Marine
development, manufacture, marketing and sales of marine propulsion systems and aftermarket services.
Energy
development, manufacture, marketing and sales of power systems for the offshore oil and gas industry, electrical power generation and aftermarket services.
Details for these primary reporting segments are shown below:
  Civil
aerospace
£m		 Defence
aerospace
£m		 Marine
£m		 Energy
£m		 Central
items
£m		 Eliminations
£m		 Group
£m
Analysis by business segments for the year ended December 31, 2007              
Revenue from sale of original equipment 1,417 782 996 251 — — 3,446
Revenue from aftermarket services 2,301 854 546 288 — — 3,989
Total revenue 3,718 1,636 1,542 539 — — 7,435
Operating profit excluding share of profit of joint ventures 263 159 90 (15) (49) — 448
Share of profit of joint ventures 45 11 1 9 — — 66
Loss on sale or termination of businesses — — — (2) — — (2)
Profit/(loss) before financing and taxation 308 170 91 (8) (49) — 512
Financing income         718   718
Financing costs         (497)   (497)
Taxation         (133)   (133)
Profit for the year             600
Other information              
Segment assets 6,032 992 1,693 642 — (461) 8,898
Investments in joint ventures 214 34 5 31 — — 284
Cash and short-term investments         1,937   1,937
Fair value of swaps hedging fixed rate borrowings         42   42
Income tax assets         88   88
Post-retirement scheme surpluses         210   210
Total assets             11,459
Segment liabilities (3,778) (1,198) (1,135) (303) — 461 (5,953)
Borrowings         (1,064)   (1,064)
Fair value of swaps hedging fixed rate borrowings         (27)   (27)
Income tax liabilities         (533)   (533)
Post-retirement scheme deficits         (333)   (333)
Total liabilities             (7,910)
Expenditure on intangible assets and property, plant and equipment 479 73 33 15     600
Depreciation and amortisation 164 28 21 20     233
  Civil
aerospace
£m		 Defence
aerospace
£m		 Marine
£m		 Energy
£m		 Central
items
£m		 Eliminations
£m		 Group
£m
Analysis by business segments for the year ended December 31, 2006 1              
Revenue from sale of original equipment 1,543 733 812 267 — — 3,355
Revenue from aftermarket services 2,232 836 488 245 — — 3,801
Total revenue 3,775 1,569 1,300 512 — — 7,156
Operating profit excluding share of profit of joint ventures 442 181 102 (33) (47) — 645
Share of profit of joint ventures 36 5 1 5 — — 47
Profit on sale or termination of businesses 1 — — — — — 1
Profit/(loss) before financing and taxation 479 186 103 (28) (47) — 693
Financing income         1,196   1,196
Financing costs         (498)   (498)
Taxation         (397)   (397)
Profit for the year             994
               
Other information              
Segment assets 5,427 945 1,395 641 — (264) 8,144
Investments in joint ventures 184 24 4 28 — — 240
Cash and short-term investments         2,219   2,219
Fair value of swaps hedging fixed rate borrowings         27   27
Income tax assets         146   146
Post-retirement scheme surpluses         22   22
Total assets             10,798
Segment liabilities (3,446) (949) (780) (282) — 264 (5,193)
Borrowings         (1,390)   (1,390)
Fair value of swaps hedging fixed rate borrowings         (30)   (30)
Income tax liabilities         (443)   (443)
Post-retirement scheme deficits         (1,017)   (1,017)
Total liabilities             (8,073)
               
Expenditure on intangible assets and property, plant and equipment 437 52 24 15     528
Depreciation and amortisation 162 30 20 19     231
Impairments (10) — — —     (10)

1 Comparative information has been restated in line with the reclassifications made in the year (see notes 11, 15 and 18).
Geographical segments
The Group's revenue by destination is shown below:
  2007
£m		 2006
£m
United Kingdom 1,185 944
Rest of Europe 1,478 1,159
USA 2,232 2,458
Canada 274 207
Asia 1,785 1,902
Africa 108 78
Australasia 137 146
Other 236 262
  7,435 7,156
The following analysis shows the carrying amounts of the Group's assets, and additions to intangible assets and property, plant and equipment, by the geographical area in which the assets are located:
Segment assets Additions to intangible
assets and property,
plant and equipment
  2007
£m		 Restated*
2006
£m		 2007
£m		 2006
£m
United Kingdom 7,737 7,776 517 467
North America 1,465 1,284 39 22
Nordic countries 1,280 1,083 18 15
Germany 645 604 20 19
Other 394 331 6 5
Eliminations (62) (280) — —
  11,459 10,798 600 528
* Comparative information has been restated in line with the reclassifications made in the year (see notes 11, 15
and 18).

Underlying performance

As discussed in the Finance Director's review, the Group seeks to present a measure of underlying performance that excludes items considered to be non-underlying in nature.

Underlying sales exclude the release of the foreign exchange transition hedging reserve and reflect the achieved US dollar exchange rate arising on settled derivative contracts.

Underlying profit before financing includes amounts realised from settled derivative contracts (primarily relating to civil aerospace) and for 2007, excludes the £130m of past service post-retirement costs.

In addition, underlying profit before taxation excludes the unrealised amounts arising from revaluations required by IAS 32 Financial Instruments: Presentation and IAS 39 Financial Instruments: Recognition and Measurement and the net impact of financing costs related to post-retirement scheme benefits.

Underlying profit adjustments:
  2007   2006
  Profit before
financing
£m		 Profit before
tax
£m		 Profit before
financing
£m		 Profit before
tax
£m
Profit per consolidated income statement 512 733 693 1,391
         
Release of transition hedging reserve (149) (149) (289) (289)
Realised gains on settled derivative contracts 415 420 343 370
Net unrealised fair value changes to derivative contracts — (251) — (730)
Effect of currency on contract accounting (76) (76) 1 1
Revaluation of trading assets and liabilities — 10 — 4
Financial RRSPs – foreign exchange differences and changes in forecast payments — 13 — (39)
Net post-retirement scheme financing — (30) — (3)
Post-retirement schemes – past service costs 1 130 130 — —
Total underlying adjustments 320 67 55 (686)
         
Underlying profit 832 800 748 705
1 As part of its ongoing discussions with the Trustees of its UK pension schemes, the Group agreed to reflect changes in HM Revenue & Customs practice and increase the size of the lump sum payment retirees are able to receive by commuting part of the pension. Like many other employers, the Group has also increased the amount of the lump sum payment for the pension commuted. Updating the commutation arrangements to reflect these factors increases the post-retirement liability by £100m. The Group has also agreed a 2 per cent discretionary increase applicable to pensions that do not benefit from any guaranteed increase, which increases the liability by £30m.

The reconciliation of underlying earnings per ordinary share is provided in note 6.

Underlying profit reconciliation:
2007 2006
  £m Underlying
adjustments
£m		 Underlying
results
£m		 £m Underlying
adjustments
£m		 Underlying
results
£m
Profit before financing            
Civil aerospace 308 256 564 479 40 519
Defence aerospace 170 29 199 186 7 193
Marine 91 22 113 103 (2) 101
Energy (8) 13 5 (28) 10 (18)
Central items (49) — (49) (47) — (47)
  512 320 832 693 55 748
Net financing 221 (253) (32) 698 (741) (43)
Profit before taxation 733 67 800 1,391 (686) 705
Taxation (133) (60) (193) (397) 207 (190)
Profit after taxation 600 7 607 994 (479) 515

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